<PAGE> 1
As filed with the Securities and Exchange Commission on May 15, 1996
Registration No. 333-953
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS
(Exact name of Registrant as specified in its charter)
Ohio 34-6513657
(State of organization) (I.R.S. Employer Identification Number)
55 PUBLIC SQUARE
SUITE 1900
CLEVELAND, OHIO 44113-1937
(216) 781-4030
(Address, including zip code, and
telephone number, including area code,
of Registrant's principal executive
offices)
PAUL F. LEVIN
55 PUBLIC SQUARE
SUITE 1900
CLEVELAND, OHIO 44113-1937
(216) 781-4030
(Name, address, including zip
code, and telephone number,
including area code, of agent
for service)
COPY TO:
Edward J. Schneidman
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box:[x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.[ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of a prospectus is expected to be made pursuant to Rule 434,
please check the following box:[ ]
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<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
maximum maximum
Amount to offering aggregate Amount of
Title of each class of be price per offering registration
securities to be registered registered(1) unit(3) price(3) fee(5)
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<S> <C> <C> <C> <C>
Debt Securities, Shares of Beneficial $200,000,000(2) 100% $200,000,000(4) $68,966
Interest, $1 par value per share, (6)
Preferred Shares of Beneficial
Interest, Debt Securities Warrants,
Preferred Shares Warrants and Shares
Warrants
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<FN>
(1) Includes such indeterminate number of Shares of Beneficial Interest as may be issued upon exercise of Securities Warrants and
such indeterminate amount of Shares of Beneficial Interest as may be issued in exchange for, or upon conversion of, Debt
Securities or Preferred Shares of Beneficial Interest.
(2) Or the equivalent thereof in one or more foreign currencies or composite currencies, including European Currency Units, or if
any Debt Securities or Debt Securities Warrants are issued at an original issue discount, such greater amount as shall
result.
(3) Estimated solely for purposes of calculating the registration fee.
(4) No separate consideration will be received for Shares of Beneficial Interest that are issued in exchange for, or upon
conversion of, Debt Securities or Preferred Shares of Beneficial Interest.
(5) Calculated on the basis of 1/29th of 1% of the proposed maximum aggregate offering price.
(6) Includes rights to purchase Shares of Beneficial Interest, $1 par value
per share. Prior to the occurrence of certain events, these rights will
not be evidenced separately from the Shares of Beneficial Interest, $1
par value per share.
</TABLE>
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 15, 1996
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
$200,000,000
DEBT SECURITIES, PREFERRED SHARES,
SHARES, SECURITIES WARRANTS AND RIGHTS
First Union Real Estate Equity and Mortgage Investments ("First
Union") may from time to time offer and sell in one or more series (i) its
unsecured senior debt securities (the "Debt Securities"); (ii) Preferred Shares
of Beneficial Interest (the "Preferred Shares"); (iii) Shares of Beneficial
Interest, par value $1.00 per share (the "Shares"); or (iv) warrants to
purchase Debt Securities (the "Debt Securities Warrants"), warrants to purchase
Preferred Shares (the "Preferred Shares Warrants") and warrants to purchase
Shares (the "Shares Warrants"), with an aggregate public offering price of up
to $200,000,000, on terms to be determined by market conditions at the time of
offering. In addition, First Union may issue in the form of a dividend,
shareholder purchase rights entitling owners of Shares to subscribe for and
purchase Shares (the "Rights"). The Debt Securities Warrants, the Preferred
Shares Warrants and the Shares Warrants shall be referred to herein
collectively as the "Securities Warrants." The Debt Securities, Preferred
Shares, Shares, Securities Warrants and Rights (collectively, the "Offered
Securities") may be offered separately or together, in separate series, in
amounts and at prices and terms to be set forth in an accompanying supplement
to this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of First Union or
repayment at the option of the Holder, any sinking fund provisions and any
conversion provisions, and any initial public offering price, along with any
other relevant specific terms; (ii) in the case of Preferred Shares, the
specific title and stated value, any dividend, liquidation, redemption,
conversion, voting and other rights, and any initial public offering price,
along with any other relevant specific terms; (iii) in the case of Shares, any
initial public offering price, along with any other relevant specific terms;
(iv) in the case of Securities Warrants, the duration, offering price,
exercise price and detachability, if applicable, along with any other relevant
specific terms; and (v) in the case of the Rights, the kind and number of
Shares which will be offered purusant to the Rights, and the period during
which and price at which the Rights will be exercisable, along with any other
relevant specific terms. In addition, such specific terms may include
limitations on direct or indirect beneficial ownership and restrictions on
transfer of the Offered Securities, in each case as may be appropriate to
preserve the status of First Union as a real estate investment trust ("REIT")
for federal income tax purposes.
The applicable Prospectus Supplement will also contain information,
where applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered
Securities covered by such Prospectus Supplement.
The Offered Securities may be offered directly by First Union, or
through agents designated from time to time by First Union, or to or through
underwriters or dealers, which may include affiliates of the First Union, or
through a combination of the foregoing. If any agents, dealers or underwriters
are involved in the sale of any of the Offered Securities, their names, and any
applicable purchase price, fee, commission or discount arrangement between or
among them, will be set forth, or will be calculable from the information set
forth, in the applicable Prospectus Supplement. See "Plan of Distribution."
No Offered Securities may be sold without delivery of the applicable Prospectus
Supplement describing the method and terms of the offering of such series of
Offered Securities.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
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The date of this Prospectus is May , 1996
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AVAILABLE INFORMATION
First Union is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy material and other
information concerning First Union can be inspected and copied at the offices
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 or at its
regional offices, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661 and Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. First
Union's outstanding Shares are listed on the New York Stock Exchange (the
"NYSE") under the symbol "FUR", and all such reports, proxy material and other
information filed by First Union with the NYSE may be inspected at the offices
of the NYSE at 20 Broad Street, New York, New York 10005.
First Union has filed with the Commission a registration statement on
Form S-3 (together with all amendments and exhibits, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities offered hereby. This prospectus
("Prospectus"), which constitutes a part of the Registration Statement, does
not contain all the information set forth in the Registration Statement,
certain items of which are contained in exhibits to the Registration Statement
as permitted by the rules and regulations of the Commission. Statements made
in this Prospectus as to the content of any contract, agreement or other
document referred to are not necessarily complete. With respect to each such
contract, agreement or other document filed or incorporated by reference as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference.
INCORPORATION BY REFERENCE
The following documents filed by First Union with the Commission
(File No. 1-6249) pursuant to the Exchange Act are incorporated by reference
in this Prospectus:
(1) First Union's Annual Report on Form 10-K and Form 10-K/A for
the fiscal year ended December 31, 1995;
(2) First Union's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996; and
(3) Description of First Union's Share Purchase Rights included in
the Registration Statement on Form 8-A dated March 30, 1990.
All documents filed by First Union pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent that
a statement contained herein, or in any other subsequently filed document which
is or is deemed to be incorporated by reference herein, modifies or supersedes
any such statement. Any such statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
First Union will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the request of such
person, a copy of any of the foregoing documents incorporated herein by
reference (other than the exhibits to such documents unless such exhibits are
specifically incorporated by reference into such documents). Requests should
be directed to First Union Real Estate Equity and Mortgage Investments, 55
Public Square, Suite 1900, Cleveland, Ohio 44113-1937, Attention: Treasurer,
telephone (216) 781-4030.
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FIRST UNION
First Union is a real estate investment trust ("REIT") whose primary
business is acquiring, owning and managing retail and apartment properties.
First Union intends to divest itself in the near term of its ownership of
office buildings except for its headquarters building in Cleveland. First Union
has, for the past 34 years, qualified as a REIT for federal income tax purposes
and, as such, is not subject to federal corporate income tax so long as certain
requirements are met, primarily the distribution to shareholders of at least
95% of its taxable income.
First Union's portfolio is diversified by geographical locations,
tenant mix and rental markets. As of March 31, 1996, First Union's portfolio
included 15 retail properties, eight apartment communities, five office
buildings, an investment in land under the Huntington Building in Cleveland,
and three parking facilities.
First Union leases space to approximately 1,100 commercial tenants
including well-known shopping mall retailers such as JC Penney, Kmart, Sears,
Montgomery Ward, Wal-Mart and The Limited. First Union is also landlord to
apartment dwellers for nearly 2,300 units.
First Union is a self-administered REIT which employs a full-time
salaried staff. First Union presently net leases 34 of its properties to First
Union Management, Inc. (the "Management Company"), which operates these
properties for its own account as a separate taxable entity. The Management
Company is 100% beneficially owned by First Union's shareholders. For
financial reporting purposes, the financial statements of the Management
Company are combined with those of First Union.
First Union was formed as an Ohio business trust in 1961. First
Union's executive offices are located at 55 Public Square, Suite 1900,
Cleveland, Ohio 44113-1937 and its telephone number is (216) 781-4030.
USE OF PROCEEDS
Unless otherwise described in the Prospectus Supplement which
accompanies this Prospectus, First Union intends to use the net proceeds from
the sale of the Offered Securities for general corporate purposes, which may
include acquisition and development of shopping malls and apartment
communities, investment in co-investment ventures, improvement of the
properties in the portfolio and repayment of secured or unsecured indebtedness.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and
provisions of the Debt Securities to which this Prospectus and any applicable
Prospectus Supplement may relate. The Debt Securities will be issued under one
or more indentures (each an "Indenture") between First Union and a trustee (the
"Indenture Trustee"), each to be dated as of a date prior to the issuance of
the Debt Securities to which it relates. A form of the Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part, is incorporated herein by reference and is available as described above
under "Available Information." The Indenture is subject to, and governed by,
the Trust Indenture Act of 1939, as amended (the "TIA"). The statements made
hereunder relating to the Indenture and the Debt Securities to be issued
thereunder are summaries of certain provisions thereof, do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture and such Debt Securities. All section
references appearing herein are to sections of the Indenture, and capitalized
terms used but not defined herein shall have the respective meanings set forth
in the Indenture.
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GENERAL
The Debt Securities will be direct, unsecured and unsubordinated
obligations of First Union and will rank equally with all other unsecured and
unsubordinated indebtedness of First Union. The Indenture provides that the
Debt Securities may be issued without limit as to aggregate principal amount,
in one or more series, in each case as established from time to time in or
pursuant to authority granted by a resolution of the Board of Trustees of First
Union (the "Board of Trustees") or as established in one or more indentures
supplemental to the Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series (Section
301).
<TABLE>
<CAPTION>
Reference is made to the Prospectus Supplement relating to the Debt Securities offered thereby for the specific terms of
such Debt Securities, including:
<S> <C>
1. the title of such Debt Securities;
2. the aggregate principal amount of such Debt Securities and any limit on such aggregate principal amount;
3. the date or dates, or the method for determining such date or dates, on which the principal of such Debt
Securities will be payable and the amount of principal payable thereon;
4. the rate or rates (which may be fixed or variable), or the method by which such rate or rates shall be determined,
at which such Debt Securities will bear interest, if any;
5. the date or dates, or the method for determining such date or dates, from which any such interest will accrue, the
Interest Payment Dates on which any such interest will be payable, the Regular Record Dates for such Interest
Payment Dates, or the method by which such dates shall be determined, the Person to whom, and the manner in which,
such interest shall be payable, and the basis upon which interest shall be calculated if other than that of a
360-day year comprised of twelve 30-day months;
6. the place or places where the principal of (and premium or Make-Whole Amount (as defined), if any) and interest
and Additional Amounts, if any, on such Debt Securities will be payable, where such Debt Securities may be
surrendered for registration of transfer or exchange and where notices or demands to or upon First Union in respect
of such Debt Securities and the Indenture may be served;
7. the period or periods within which, the price or prices (including the premium or Make-Whole Amount, if any) at
which, the currency or currencies, currency unit or units or composite currency or currencies in which and the
other terms and conditions upon which such Debt Securities may be redeemed, as a whole or in part, at the option of
First Union, if First Union is to have such an option;
8. the obligation, if any, of First Union to redeem, repay or purchase such Debt Securities pursuant to any sinking
fund or analogous provision or at the option of a Holder thereof, and the period or periods within which, the date
or dates upon which, the price or prices at which, the currency or currencies, currency unit or units or composite
currency or currencies in which, and the other terms and conditions upon which such Debt Securities shall be
redeemed, repaid or purchased, as a whole or in part, pursuant to such obligation;
</TABLE>
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<TABLE>
<S> <C>
9. the percentage of the principal amount at which such Debt Securities will be issued and, if other than the full principal
amount thereof, the portion of the principal amount thereof payable upon declaration of acceleration of the maturity
thereof, or (if applicable) the portion of the principal amount of such Debt Securities which is convertible into Shares,
Preferred Shares or Debt Securities of another series, or the method by which any such portion shall be determined;
10. if other than U.S. dollars, the currency or currencies in which such Debt Securities are denominated and payable, which
may be a foreign currency or units of two or more foreign currencies or a composite currency or currencies, and the terms
and conditions relating thereto;
11. whether the amount of payments of principal of (and premium or Make-Whole Amount, if any) or interest, if any, on such Debt
Securities may be determined with reference to an index, formula or other method (which index, formula or method may, but
need not be, based on a currency, currencies, currency unit or units or composite currency or currencies) and the manner in
which such amounts shall be determined;
12. whether the principal of (and premium or Make-Whole Amount, if any) or interest or Additional Amounts, if any, on such Debt
Securities are to be payable, at the election of First Union or a Holder, in a currency or currencies, currency unit or
units or composite currency or currencies, other than that in which such Debt Securities are denominated or stated to be
payable, the period or periods within which, and the terms and conditions upon which, such election may be made, and the
time and manner of, and identity of the exchange rate agent with responsibility for, determining the exchange rate between
the currency or currencies in which such Debt Securities are denominated or stated to be payable and the currency or
currencies in which such Debt Securities are to be so payable;
13. any additions to, modifications of or deletions from the terms of such Debt Securities with respect to the Events of Default
or covenants set forth in the Indenture;
14. whether such Debt Securities will be issued in certificated or book-entry form;
15. whether such Debt Securities will be in registered or bearer form and, if in registered form, the denominations thereof if
other than $1,000 and any integral multiple thereof and, if in bearer form, the denominations thereof if other than $5,000
and terms and conditions relating thereto;
16. the applicability, if any, of the defeasance and covenant defeasance provisions of Article Fourteen of the Indenture to such
Debt Securities and any provisions in modification thereof, in addition thereto or in lieu thereof;
17. if such Debt Securities are to be issued upon the exercise of Debt Securities Warrants, the time, manner and place for such
Debt Securities to be authenticated and delivered;
18. the terms, if any, upon which Debt Securities may be convertible into Shares, Preferred Shares or Debt Securities of another
series of First Union and the terms and conditions upon which such conversion will be effected, including, without
limitation, the initial conversion price or rate and the conversion period;
19. if convertible, in connection with the preservation of First Union's status as a REIT, any applicable limitations on the
ownership or transferability of the Shares, Preferred Shares or other shares of beneficial interest of First Union into
which such Debt Securities are convertible;
</TABLE>
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<TABLE>
<S> <C>
20. whether and under what circumstances First Union will pay Additional
Amounts as contemplated in the Indenture on such Debt Securities in
respect of any tax, assessment or governmental charge and, if so,
whether First Union will have the option to redeem such Debt
Securities rather than pay such Additional Amounts; and
21. any other terms of such Debt Securities not inconsistent with the
provisions of the Indenture (Section 301).
</TABLE>
The Debt Securities may provide for less than the entire principal
amount thereof to be payable upon declaration of acceleration of the maturity
thereof or bear no interest or bear interest at a rate which at the time of
issuance is below market rates ("Original Issue Discount Securities"). All
material U.S. federal income tax, accounting and other considerations
applicable to Original Issue Discount Securities will be described in the
applicable Prospectus Supplement.
Under the Indenture, First Union will have the ability, in addition to
the ability to issue Debt Securities with terms different from those of Debt
Securities previously issued, without the consent of the Holders, to reopen a
previous issue of a series of Debt Securities and issue additional Debt
Securities of such series.
Except as set forth in the Indenture or in one or more indentures
supplemental thereto, the Indenture will not contain any other provisions that
would limit the ability of First Union to incur indebtedness or that would
afford Holders of Debt Securities protection in the event of a highly leveraged
or similar transaction involving First Union or in the event of a change of
control. However, First Union's By- Laws (the "By-Laws") contain restrictions
on ownership and transfers of the Shares which are designed to preserve First
Union's status as a REIT and, therefore, may act to prevent or hinder a change
of control. See "Description of Shares of Beneficial Interest -- Restriction
on Size of Holdings." Reference is made to the applicable Prospectus Supplement
for information with respect to any deletions from, modifications of or
additions to the Events of Default or covenants of First Union that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
DENOMINATIONS
Unless otherwise described in the applicable Prospectus Supplement,
the Debt Securities of any series, other than Debt Securities issued in global
form (which may be in any denomination), will be issuable in denominations of
$1,000 and integral multiples thereof (Section 302).
PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Prospectus Supplement,
the principal of (and premium or Make-Whole Amount, if any) and interest on any
series of Debt Securities will be payable at the corporate trust office of the
Indenture Trustee, provided that, at the option of First Union, payment of
interest may be made by check mailed to the address of the Person entitled
thereto as it appears in the Security Register or by wire transfer of funds to
such Person at an account maintained within the United States (Sections 301,
305, 306, 307 and 1002).
If any date for the payment of principal or interest falls on a day
that is not a Business Day, the required payment shall be made on the next
Business Day as if it were made on the date such payment was due and no
interest shall accrue on the amount so payable for the period from and after
such date for the payment of principal or interest, as the case may be, through
and including such next Business Day (Section 113). "Business Day" means any
day, other than a Saturday or Sunday, that is neither a legal holiday nor a day
on which banks in the applicable place of payment are required or authorized by
law, regulation or executive order to close. Any interest not punctually paid
or duly provided for on any Interest Payment Date with respect to a Debt
Security ("Defaulted Interest") will forthwith cease to be payable to the
Holder on the applicable Regular Record Date and either may be paid to the
person in whose name such Debt Security is registered at the close of business
on a special record
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date (the "Special Record Date") for the payment of such Defaulted Interest to
be fixed by the Indenture Trustee, notice of which shall be given to the Holder
of such Debt Security not less than 10 days prior to such Special Record Date,
or may be paid at any time in any other lawful manner, all as more completely
described in the Indenture (Section 307).
REGISTRATION AND TRANSFER
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the Indenture Trustee. In
addition, subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer thereof at the corporate trust office of
the Indenture Trustee. Every Debt Security surrendered for conversion or
registration of transfer or exchange shall be duly endorsed or accompanied by a
written instrument of transfer. No service charge will be made for any
registration of transfer or exchange of any Debt Securities, but First Union
may require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith (Section 305). First Union may designate
a transfer agent or transfer agents (in addition to the Indenture Trustee) with
respect to any series of Debt Securities. If First Union has designated such a
transfer agent or transfer agents, First Union may at any time rescind the
designation of any such transfer agent or approve a change in the location
through which any such transfer agent acts, except that First Union will be
required to maintain a transfer agent in each Place of Payments for such
series. First Union may at any time designate additional transfer agents with
respect to any series of Debt Securities (Section 1002).
Neither First Union nor the Indenture Trustee shall be required to (i)
issue, register the transfer of or exchange Debt Securities of any series
during a period beginning at the opening of the business 15 days before any
selection of Debt Securities of that series to be redeemed and ending at the
close of business on the day of mailing of the relevant notice of redemption;
(ii) register the transfer of or exchange any Debt Security, or portion
thereof, called for redemption, except the unredeemed portion of any Debt
Security being redeemed in part; or (iii) issue, register the transfer of or
exchange any Debt Security which has been surrendered for repayment at the
option of the Holder, except the portion, if any, of such Debt Security not to
be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
First Union, without the consent of the Holders of any of the Debt
Securities, may consolidate with, or sell, lease or convey all or substantially
all of its assets to, or merge with or into, any other entity, provided that
(a) either First Union shall be the continuing entity or, the successor entity
(if other than First Union) formed by or resulting from any such consolidation
or merger or which shall have received the transfer of such assets is a Person
organized and existing under the laws of the United States or any state thereof
and shall expressly assume payment of the principal of (and premium or
Make-Whole Amount, if any) and interest (including Additional Amounts, if any)
on all of the Debt Securities and the due and punctual performance and
observance of all of the covenants and conditions contained in the Indenture;
(b) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of First Union or any Subsidiary as a
result thereof as having been incurred by First Union or such Subsidiary at the
time of such transaction, no Event of Default under the Indenture, and no event
which, after notice or the lapse of time, or both, would become such an Event
of Default, shall have occurred and be continuing; and (c) an officer's
certificate and legal opinion covering such conditions shall be delivered to
the Indenture Trustee (Sections 801 and 803).
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CERTAIN COVENANTS
Existence. Except as permitted under "Merger, Consolidation or Sale,"
First Union will do or cause to be done all things necessary to preserve and
keep in full force and effect the existence, rights (charter and statutory) and
franchises of First Union and its Subsidiaries; provided, however, that First
Union shall not be required to preserve any right or franchise if the Board of
Trustees determines that the preservation thereof is no longer desirable in the
conduct of the business of First Union and its Subsidiaries as a whole and that
the loss thereof is not disadvantageous in any material respect to the Holders
of the Debt Securities (Section 1005).
Maintenance of Properties. First Union will cause all of its
properties used or useful in the conduct of its business or the business of any
Subsidiary to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of First Union may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that First Union and its
Subsidiaries shall not be prevented from selling or otherwise disposing for
value its properties in the ordinary course of business (Section 1006).
Insurance. First Union will, and will cause each of its Subsidiaries
to, keep all of its insurable properties insured against loss or damage at
least equal to their full insurable value with financially sound and reputable
insurance companies (Section 1007).
Payment of Taxes and Other Claims. First Union will pay or discharge
or cause to be paid or discharged, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges levied or imposed upon it or
any Subsidiary or upon the income, profits or property of First Union or any
Subsidiary; and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of First Union or any
Subsidiary; provided, however, that First Union shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings (Section 1008).
Provision of Financial Information. Whether or not First Union is
subject to Section 13 or 15(d) of the Exchange Act, First Union will, to the
extent permitted under the Exchange Act, file with the Commission the annual
reports, quarterly reports and other documents which First Union would have
been required to file with the Commission pursuant to such Section 13 or 15(d)
(the "Financial Statements") if First Union were so subject, such documents to
be filed with the Commission on or prior to the respective dates (the "Required
Filing Dates") by which First Union would have been required so to file such
documents if First Union were so subject. First Union will also in any event
(x) within 15 days of each Required Filing Date (i) transmit by mail to all
holders of Debt Securities, as their names and addresses appear in the Security
Register, without cost to such holders, copies of the annual reports and
quarterly reports which First Union would have been required to file with the
Commission pursuant to Section 13 or 15(d) if First Union were subject to such
sections, and (ii) file with the Indenture Trustee copies of the annual
reports, quarterly reports and other documents which First Union would have
been required to file with the Commission pursuant to Section 13 or 15(d) of
the Exchange Act if First Union were subject to such Sections; and (y) if
filing such documents by First Union with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder (Section 1009).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of First Union and/or modifications to the
covenants described above with respect to any Debt Securities or series
thereof, including any covenants relating to limitations on incurrence of
indebtedness or other financial covenants, will be set forth in the applicable
Indenture or in an indenture supplement thereto and described in the Prospectus
Supplement relating thereto.
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EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (a)
default which continues for 30 days in the payment of any installment of
interest or Additional Amounts payable on any Debt Security of such series; (b)
default in the payment of the principal of (or premium or Make-Whole Amount, if
any, on) any Debt Security of such series at its Maturity; (c) default in
making any sinking fund payment as required for any Debt Security of such
series; (d) default in the performance of any other covenant of First Union
contained in the Indenture (other than a covenant added to the Indenture solely
for the benefit of a series of Debt Securities issued thereunder other than
such series), continued for 60 days after written notice as provided in the
Indenture; (e) default in the payment of an aggregate principal amount
exceeding $10,000,000 of any evidence of indebtedness of First Union or any
mortgage, indenture or other instrument under which such indebtedness is issued
or by which such indebtedness is secured, such default having occurred after
the expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such
indebtedness is not discharged or such acceleration is not rescinded or
annulled; (f) the entry by a court of competent jurisdiction of one or more
judgments, orders or decrees against First Union or any of its Subsidiaries in
an aggregate amount (excluding amounts fully covered by insurance) in excess of
$10,000,000 and such judgments, orders or decrees remain undischarged, unstayed
or unsatisfied in an aggregate amount (excluding amounts fully covered by
insurance) in excess of $10,000,000) for a period of 30 consecutive days; (g)
certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of First Union or any
Significant Subsidiary or for all or substantially all of the property of First
Union or any Significant Subsidiary; and (h) any other Event of Default
provided with respect to a particular series of Debt Securities (Section 501).
If an Event of Default under the Indenture with respect to Debt
Securities of any series at the time Outstanding occurs and is continuing, then
in every such case, unless the principal of all of the Outstanding Debt
Securities of such series shall already have become due and payable, the
Indenture Trustee or the Holders of not less than 25% in principal amount of
the Outstanding Debt Securities of that series may declare the principal (or,
if the Debt Securities of that series are Original Issue Discount Securities or
Indexed Securities, such portion of the principal as may be specified in the
terms thereof) of, and the Make-Whole Amount, if any, on, all of the Debt
Securities of that series to be due and payable immediately by written notice
thereof to First Union (and to the Indenture Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series has been made, but before a judgment or decree
for payment of the money due has been obtained by the Indenture Trustee, the
Holders of not less than a majority in principal amount of the Outstanding Debt
Securities of such series may rescind and annual such declaration and its
consequences if (a) First Union shall have deposited with the Indenture Trustee
all required payments of the principal of (and premium or Make-Whole Amount, if
any) and interest, and any Additional Amounts, on the Debt Securities of such
series plus certain fees, expenses, disbursements and advances of the Indenture
Trustee and (b) all Events of Default, other than the non-payment of
accelerated principal of (or premium or the Make-Whole Amount, if any) or
interest, with respect to Debt Securities of such series have been cured or
waived as provided in the Indenture (Section 502). The Indenture also provides
that the Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may waive any past default with
respect to such series and its consequences, except a default (x) in the
payment of the principal of (or premium or Make-Whole Amount, if any) or
interest or Additional Amounts payable on any Debt Security of such series or
(y) in respect to a covenant or provision contained in the Indenture that
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security affected thereby (Section 513).
The Indenture Trustee is required to give notice to the Holders of
Debt Securities within 90 days of a default under the Indenture; provided,
however, that the Indenture Trustee may withhold notice to the Holders of any
series of Debt Securities of any default with respect to such series (except a
default in the payment of the principal of (or premium or Make-Whole Amount, if
any) or interest or Additional Amounts payable on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such
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<PAGE> 11
series) if the Responsible Officers of the Indenture Trustee consider such
withholding to be in the interest of such Holders (Section 601).
The Indenture provides that no Holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
the Indenture or for any remedy thereunder; except in the case of failure of
the Indenture Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of reasonable indemnity (Section
507). This provision will not prevent, however, any Holder of Debt Securities
from instituting suit for the enforcement of payment of the principal of (and
premium or Make-Whole Amount, if any), interest on and Additional Amounts
payable with respect to, such Debt Securities at the respective due dates
thereof (Section 508).
Subject to provisions in the Indenture relating to its duties in case
of default, the Indenture Trustee is under no obligation to exercise any of its
rights or powers under the Indenture at the request or direction of any Holders
of any series of Debt Securities then outstanding under the Indenture, unless
such Holders shall have offered to the Indenture Trustee reasonable security or
indemnity (Section 602). The Holders of not less than a majority in principal
amount of the Outstanding Debt Securities of any series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee, or of exercising any trust or power
conferred upon the Indenture Trustee. However, the Indenture Trustee may
refuse to follow any direction which is in conflict with any law or the
Indenture, which may involve the Indenture Trustee in personal liability or
which may be unduly prejudicial to the Holders of Debt Securities of such
series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, First Union must
deliver to the Indenture Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the Indenture and, if so, specifying each such default and the
nature and status thereof (Section 1010).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities which are affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the Holder of each such Debt Security affected thereby,
(a) change the Stated Maturity of the principal of (or premium or Make-Whole
Amount, if any), or any installment of principal of or interest or Additional
Amounts payable on, any such Debt Security; (b) reduce the principal amount of,
or the rate or amount of interest on, or any premium or Make-Whole Amount
payable on redemption of, or any Additional Amounts payable with respect to,
any such Debt Security, or reduce the amount of principal of an Original Issue
Discount Security or Make-Whole Amount, if any, that would be due and payable
upon declaration of acceleration of the maturity thereof or would be provable
in bankruptcy, or adversely affect any right of repayment of the Holder of any
such Debt Security; (c) change the Place of Payment, or the currency or
currencies, for payment of principal of (and premium or Make-Whole Amount, if
any), or interest on, or any Additional Amounts payable with respect to, any
such Debt Security; (d) impair the right to institute suit for the enforcement
of any payment on or with respect to any such Debt Security; (e) reduce the
above-stated percentage of Outstanding Debt Securities of any series necessary
to modify or amend the Indenture, to waive compliance with certain provisions
thereof or certain defaults and consequences thereunder or to reduce the quorum
or voting requirements set forth in the Indenture; or (f) modify any of the
foregoing provisions or any of the provisions relating to the waiver of certain
past defaults or certain covenants, except to increase the required percentage
to effect such action or to provide that certain other provisions may not be
modified or waived without the consent of the Holder of such Debt Security
(Section 902).
The Holders of not less than a majority in principal amount of each
series of Outstanding Debt Securities have the right to waive compliance by
First Union with certain covenants in the Indenture (Section 1012).
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Modifications and amendments of the Indenture may be made by First
Union and the Indenture Trustee without the consent of any Holder of Debt
Securities for any of the following purposes: (i) to evidence the succession
of another Person to First Union as obligor under the Indenture; (ii) to add to
the covenants of First Union for the benefit of the Holders of all or any
series of Debt Securities or to surrender any right or power conferred upon
First Union in the Indenture; (iii) to add Events of Default for the benefit of
the Holders of all or any series of Securities; (iv) to add or change any
provisions of the Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or facilitate
the issuance of Debt Securities in uncertificated form, provided that such
action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate
any provisions of the Indenture, provided that any such change or elimination
shall become effective only when there are no Debt Securities Outstanding of
any series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series and related coupons, including the
provisions and procedures, if applicable, for the conversion of such Debt
Securities into Shares, Preferred Shares or Debt Securities of another series
of First Union; (viii) to provide for the acceptance of appointment by a
successor Indenture Trustee or facilitate the administration of the trusts
under the Indenture by more than one Indenture Trustee; (ix) to cure any
ambiguity in the Indenture, correct or supplement any provision in the
Indenture which may be defective or inconsistent or make any other changes with
respect to matters or questions arising under the Indenture, provided that such
action shall not adversely affect the interests of Holders of Debt Securities
of any series in any material respect; (x) to close the Indenture with respect
to the authentication and delivery of additional series of Debt Securities or
to qualify, or maintain qualification of, the Indenture under the TIA; or (xi)
to supplement any of the provisions of the Indenture to the extent necessary to
permit or facilitate defeasance and discharge of any series of such Debt
Securities, provided that such action shall not adversely affect the interests
of the Holders of the Debt Securities of any series in any material respect
(Section 901).
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security
that shall be deemed to be outstanding shall be the amount of the principal
thereof that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof; (ii) the principal amount
of a Debt Security denominated in a Foreign Currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above); (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the principal face amount of such Indexed Security at original issuance,
unless otherwise provided with respect to such Indexed Security pursuant to
Section 301 of the Indenture; and (iv) Debt Securities owned by First Union or
any other obligor upon the Debt Securities or any Affiliate of First Union or
of such other obligor shall be disregarded (Section 101).
The Indenture contains provisions for convening meetings of the
Holders of Debt Securities of a series (Section 1501). A meeting may be called
at any time by the Indenture Trustee, and also, upon request, by First Union or
the Holders of at least 10% in principal amount of the Outstanding Debt
Securities of such series, in any such case upon notice given as provided in
the Indenture (Section 1502). Except for any consent that must be given by the
Holder of each Debt Security affected by certain modifications and amendments
of the Indenture, any resolution presented at a meeting or adjourned meeting
duly reconvened at which a quorum is present may be adopted by the affirmative
vote of the Holders of a majority in principal amount of the Outstanding Debt
Securities of that series; provided, however, that, except as referred to
above, any resolution with respect to any request, demand, authorization,
direction, notice, consent, waiver or other action that may be made, given or
taken by the Holders of a specified percentage, which is less than a majority,
in principal amount of the Outstanding Debt Securities of a series may be
adopted at a meeting or adjourned meeting duly reconvened at which a quorum is
present by the affirmative vote of the Holders of such specified percentage in
principal amount of the Outstanding Debt Securities of that series. Any
resolution passed or decision taken at any meeting of Holders of Debt
Securities
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of any series duly held in accordance with the Indenture will be binding on all
Holders of Debt Securities of that series. The quorum at any meeting called to
adopt a resolution, and at any reconvened meeting, will be Persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders
of not less than a specified percentage in principal amount of the Outstanding
Debt Securities of a series, the Persons holding or representing such specified
percentage in principal amount of the Outstanding Debt Securities of such
series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken
at a meeting of Holders of Debt Securities of any series with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that the Indenture expressly provides may be made, given or taken by the
Holders of a specified percentage in principal amount of all Outstanding Debt
Securities affected thereby, or of the Holders of such series and one or more
additional series: (i) there shall be no minimum quorum requirement for such
meeting; and (ii) the principal amount of the Outstanding Debt Securities of
such series that vote in favor of such request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken into account
in determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under the
Indenture (Section 1504).
Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by the Indenture to be given or taken by a specified
percentage in principal amount of the Holders of any or all series of Debt
Securities may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such specified percentage of Holders in
person or by agent duly appointed in writing; and, except as otherwise
expressly provided in the Indenture, such action shall become effective when
such instrument or instruments are delivered to the Indenture Trustee. Proof
of execution of any instrument or of a writing appointing any such agent shall
be sufficient for any purpose of the Indenture and (subject to Article Six of
the Indenture) conclusive in favor of the Indenture Trustee and First Union, if
made in the manner specified above (Section 1507).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
First Union may discharge certain obligations to Holders of any series
of Debt Securities that have not already been delivered to the Indenture
Trustee for cancellation and that either have become due and payable or will
become due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Indenture Trustee, in trust, funds in
such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal
(and premium or Make-Whole Amount, if any) and interest and Additional Amounts
payable to the date of such deposit (if such Debt Securities have become due
and payable) or to the Stated Maturity or Redemption Date, as the case may be
(Section 1401, 1402, 1403 and 1404).
The Indenture provides that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of the Indenture, First Union may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or
mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or
agency in respect of such Debt Securities and to hold moneys for payment in
trust) ("defeasance") (Section 1402) or (b) to be released from its obligations
with respect to such Debt Securities under Section 1004 to 1009, inclusive, of
the Indenture (being the restrictions described under "--Certain Covenants")
and, if provided pursuant to Section 301 of the Indenture, its obligations with
respect to any other covenant, and any omission to comply with such obligations
shall not constitute a default or an Event of Default with respect to such Debt
Securities ("covenant defeasance") (Section 1403), in either case upon the
irrevocable deposit by First Union with the Indenture Trustee, in trust, of an
amount, in such currency or currencies, currency unit or units or composite
currency or currencies
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in which such Debt Securities are payable at Stated Maturity, or Governmental
Obligations (as defined below), or both, applicable to such Debt Securities
which through the scheduled payment of principal and interest in accordance
with their terms will provide money in an amount sufficient to pay the
principal of (and premium or Make-Whole Amount, if any) and interest on such
Debt Securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor. (Section 1404)
Such a trust may only be established if, among other things, First
Union has delivered to the Indenture Trustee an Opinion of Counsel (as
specified in the Indenture) to the effect that the Holders of such Debt
Securities will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable United States federal income tax law
occurring after the date of the Indenture (Section 1404).
"Government Obligations" means securities which are (i) direct
obligations of the United States of America or the government which issued the
Foreign Currency in which the Debt Securities of a particular series are
payable, for the payment of which its full faith and credit is pledged, or (ii)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the Foreign Currency in which the Debt Securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the holder of a depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the
Government Obligation evidenced by such depository receipt (Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if
after First Union has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to Section 301 of the Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (b) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security shall be deemed to
have been, and will be, fully discharged and satisfied through the payment of
the principal of (and premium or Make-Whole Amount, if any) and interest on
such Debt Security as they become due out of the proceeds yielded by converting
the amount so deposited in respect of such Debt Security into the currency,
currency unit or composite currency in which such Debt Security becomes payable
as a result of such election or such cessation of usage based on the applicable
market exchange rate (Section 1405). "Conversion Event" means the cessation of
use of (i) a currency (other than the ECU or other currency unit) both by the
government of the country which issued such currency and for the settlement of
transactions by a central bank or other public institutions of or within the
international banking community, (ii) the ECU both within the European Monetary
System and for the settlement of transactions by public institutions of or
within the European Communities or (iii) any currency unit or composite
currency other than the ECU for the purposes for which it was established.
In the event First Union effects covenant defeasance with respect to
any Debt Securities and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default other than the Event of
Default described in clause (d) under "--Events of Default, Notice and Waiver"
with respect to Sections 1004 to 1010, inclusive, of the Indenture (which
Sections would no longer be applicable to such Debt Securities) or
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described in clause (f) under "--Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
Indenture Trustee, will be sufficient to pay amounts due on such Debt
Securities at the time of their Stated Maturity but may not be sufficient to
pay amounts due on such Debt Securities at the time of the acceleration
resulting from such Event of Default. However, First Union would remain liable
to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the
provisions, if any, permitting such defeasance or covenant defeasance,
including any modifications to the provisions described above, with respect to
the Debt Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Shares, Preferred Shares or Debt Securities of another series
will be set forth in the applicable Prospectus Supplement relating thereto.
Such terms will include whether such Debt Securities are convertible into
Shares, Preferred Shares or Debt Securities of another series, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the Holders or First Union, the
events requiring an adjustment of the conversion price and provisions affecting
conversion in the event of the redemption of such Debt Securities. To protect
First Union's status as a REIT, a Holder may not convert any Debt Security, and
such Debt Security shall not be convertible by any Holder, if as a result of
such conversion any person would then be deemed to own, directly or indirectly,
more than 9.8% of the Shares.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in
the form of one or more global securities ("Global Securities") that will be
deposited with, or on behalf of, a depository (the "Depository") identified in
the applicable Prospectus Supplement relating to such series. Global
Securities, if any, are expected to be deposited with The Depository Trust
Company, as Depository. Global Securities may be issued in fully registered
form and may be issued in either temporary or permanent form. Unless and until
it is exchanged in whole or in part for the individual Debt Securities
represented thereby, a Global Security may not be transferred except as a whole
by the Depository for such Global Security to a nominee of such Depository or
by a nominee of such Depository to such Depository or another nominee of such
Depository or by the Depository or any nominee of such Depository to a
successor Depository or any nominee of such successor.
The specific terms of the depository arrangement with respect to a
series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series. Unless otherwise indicated in the
applicable Prospectus Supplement, First Union anticipates that the following
provisions will apply to depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Debt Securities
represented by such Global Security to the accounts of persons that have
accounts with such Depository ("Participants"). Such accounts shall be
designated by the underwriters, dealers or agents with respect to such Debt
Securities or by First Union if such Debt Securities are offered and sold
directly by First Union. Ownership of beneficial interests in a Global Security
will be limited to Participants or persons that may hold interests through
Participants. Ownership of beneficial interests in such Global Security will be
shown on, and the transfer of that ownership will be effected only through,
records maintained by the applicable Depository or its nominee (with respect to
beneficial interests of Participants) and records of Participants (with respect
to beneficial interests of persons who hold through Participants). The laws of
some states require that certain purchasers of securities take
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<PAGE> 16
physical delivery of such securities in definitive form. Such limits and laws
may impair the ability to own, pledge or transfer beneficial interest in a
Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Debt
Securities represented by such Global Security for all purposes under the
Indenture. Except as provided below or in the applicable Prospectus Supplement,
owners of beneficial interest in a Global Security will not be entitled to have
any of the individual Debt Securities of the series represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of any such Debt Securities of such series in definitive form
and will not be considered the owners or holders thereof under the Indenture.
Payments of principal of, any premium or Make-Whole Amount and any
interest on, or any Additional Amounts payable with respect to, individual Debt
Securities represented by a Global Security registered in the name of a
Depository or its nominee will be made to the Depository or its nominee, as the
case may be, as the registered owner of the Global Security representing such
Debt Securities. None of First Union, the Indenture Trustee, any Paying Agent
or the Security Registrar for such Debt Securities will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Security for such Debt
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
First Union expects that the Depository for a series of Debt
Securities or its nominee, upon receipt of any payment of principal, premium,
Make-Whole Amount or interest in respect of a permanent Global Security
representing any of such Debt Securities, immediately will credit Participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Security for such Debt
Securities as shown on the records of such Depository or its nominee. First
Union also expects that payments by Participants to owners of beneficial
interests in such Global Security held through such Participants will be
governed by standing instructions and customary practices, as is the case with
securities held for the account of customers in bearer form or registered in
"street name." Such payments will be the responsibility of such Participants.
If a Depository for a series of Debt Securities is at any time
unwilling, unable or ineligible to continue as depository and a successor
depository is not appointed by First Union within 90 days, First Union will
issue individual Debt Securities of such series in exchange for the Global
Security representing such series of Debt Securities. In addition, First Union
may, at any time and in its sole discretion, subject to any limitations
described in the applicable Prospectus Supplement relating to such Debt
Securities, determine not to have any Debt Securities of such series
represented by one or more Global Securities and, in such event, will issue
individual Debt Securities of such series in exchange for the Global Security
or Securities representing such series of Debt Securities. Individual Debt
Securities of such series so issued will be issued in denominations, unless
otherwise specified by First Union, of $1,000 and integral multiples thereof.
NO PERSONAL LIABILITY
No past, present or future Trustee, officer, employee or shareholder,
as such, of First Union or any successor thereof shall have any liability for
any obligations of First Union under the Debt Securities or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of Debt Securities by accepting such Debt
Securities waives and releases all such liability. The waiver and release are
part of the consideration for the issue of Debt Securities (Section 111).
INDENTURE TRUSTEE
The Indenture provides that there may be more than one Indenture
Trustee thereunder, each with respect to one or more series of Debt Securities.
Any Indenture Trustee under the Indenture may resign or be removed
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<PAGE> 17
with respect to one or more series of Debt Securities, and a successor
Indenture Trustee may be appointed to act with respect to such series. In the
event that two or more Persons are acting as Indenture Trustee with respect to
different series of Debt Securities, each such Indenture Trustee shall be a
Indenture Trustee of a trust under the Indenture separate and apart from the
trust administered by any other Indenture Trustee (Section 610), and, except as
otherwise indicated herein, any action described herein to be taken by the
Indenture Trustee may be taken by each such Indenture Trustee with respect to,
and only with respect to, the one or more series of Debt Securities for which
it is Indenture Trustee under the Indenture. (Section 609)
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
GENERAL
The following description sets forth certain general terms and
provisions of the Shares to which any Prospectus Supplement may relate,
including a Prospectus Supplement which provides for Shares issuable pursuant
to subscription offerings or rights offerings, upon conversion or exchange of
Preferred Shares or Debt Securities or upon the exercise of Shares Warrants.
The statements below describing the Shares are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of First
Union's Declaration of Trust (the "Declaration of Trust") and By-Laws.
The number of Shares which First Union is authorized to issue is
unlimited. All Shares are entitled to participate equally in any distributions
thereon declared by First Union. Subject to the provisions of the By-Laws
regarding Excess Shares (as defined below), each outstanding Share entitles the
Holder thereof to one vote on all matters voted on by shareholders (as
described below), including the election of Trustees. Shareholders have no
pre-emptive rights. The outstanding Shares are fully paid and non-assessable
and have equal liquidation rights. The Shares are fully transferable except
that their issuance and transfer may be regulated or restricted by First Union
in order to assure qualification by First Union for taxation as a REIT. See
"Restriction on Size of Holdings." The Shares are not redeemable at the option
of First Union or of any shareholder. The Board of Trustees are authorized
without shareholder approval to borrow money and issue obligations and equity
securities which may or may not be convertible into Shares and warrants, rights
or options to purchase Shares; and to issue other securities of any class or
classes which may or may not have preferences or restrictions not applicable to
the Shares. The issuance of additional Shares or such conversion rights,
warrants or options may have the effect of diluting the interest of
shareholders. Annual meetings of the shareholders are held on the second
Tuesday of the fourth month following the close of each fiscal year at such
place as the Trustees may from time to time determine. Special meetings may be
called at any time and place when ordered by a majority of the Trustees, or
upon written request of the holders of not less than one-quarter of the
outstanding Shares.
SHAREHOLDER LIABILITY
The Declaration of Trust provides that no shareholder shall be
personally liable in connection with the property or the affairs of First
Union, and that all persons shall look solely to property of First Union for
satisfaction of claims of any nature arising in connection with affairs of
First Union.
Under present Ohio law, no personal liability will attach to
shareholders of First Union, but with respect to tort claims, contract claims
where liability of shareholders is not expressly negated, claims for taxes and
certain statutory liabilities, the shareholders may in some jurisdictions other
than Ohio be held personally liable to the extent that such claims are not
satisfied by First Union, in which event the shareholders would, in the absence
of negligence or misconduct on their part, be entitled to reimbursement from
the general assets of First Union. First Union carries insurance which the
Trustees consider adequate to cover any probable tort claims. To the extent
the assets and insurance of First Union should be insufficient to reimburse a
shareholder who has been required to pay a claim against First Union, the
shareholder would suffer a loss. The statements in this paragraph and the next
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<PAGE> 18
preceding paragraph also apply to holders of the Preferred Shares, although any
possible liability of such holders would be further reduced by the greater
limitations on their voting power.
REIT QUALIFICATION
Under regulations of the Internal Revenue Service, the Trustees must
have continuing exclusive authority over the management of First Union and the
conduct of its affairs, free from any control by the shareholders, other than
the right to elect or remove Trustees, to terminate the Declaration of Trust,
to ratify amendments to the Declaration of Trust, and certain other permitted
rights, if First Union is to continue to qualify as a REIT under the applicable
sections of the Internal Revenue Code of 1986, as amended (the "Code"). If
First Union is to have limited liability for its shareholders under Ohio law,
it is also required that the Trustees have absolute control over the management
of First Union free from any control by the shareholders, other than the right
to elect Trustees or to approve certain actions of the Trustees. Consequently,
the only voting power presently granted to the shareholders is the right by a
majority vote (i) to elect Trustees, (ii) when approved by a majority of the
Trustees, to approve or disapprove the transfer of the assets of First Union to
a corporation, and to approve or disapprove amendments to the Declaration of
Trust or termination of the Declaration of Trust, and (iii) when removal is
proposed by all other Trustees, to approve or disapprove removal of any
Trustee. First Union has no fixed duration and will continue indefinitely,
unless terminated as provided in the Declaration of Trust.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Shares is National City Bank.
The Shares are listed on the NYSE under the symbol "FUR."
RESTRICTION ON SIZE OF HOLDINGS
The By-Laws restrict beneficial ownership of First Union's outstanding
capital stock by a single person, or persons acting as a group, to 9.8% (the
"Share Ownership Limit") of the Shares, which limitation assumes that all
securities convertible into Shares owned by such person or group of persons have
been converted. The purposes of these provisions are to assist in protecting and
preserving First Union's REIT status and to protect the interest of
shareholders in takeover transactions by preventing the acquisition of a
substantial block of shares unless the acquiror makes a cash tender offer for
all outstanding shares. For First Union to qualify as a REIT under the Code,
not more than 50% in value of its outstanding capital stock may be owned by
five or fewer individuals at any time during the last half of First Union's
taxable year. The provision permits five persons each to acquire up to a
maximum of 9.8% of the Shares, or an aggregate of 49% of the outstanding, and
thus, assists the Trustees in protecting and preserving REIT status for tax
purposes.
Shares owned by a person or group of persons in excess of 9.8% of
First Union's outstanding Shares ("Excess Shares") shall not be entitled to any
voting rights; shall not be considered outstanding for quorums or voting
purposes; and shall not be entitled to dividends, interest or any other
distribution with respect to the securities.
TRUSTEE LIABILITY
The Declaration of Trust provides that Trustees shall not be
individually liable for any obligation or liability incurred by or on behalf of
First Union or by Trustees for the benefit and on behalf of First Union. Under
the Declaration of Trust and Ohio law respecting REITs, Trustees are not liable
to First Union or the shareholders for any act or omission except for acts or
omissions which constitute bad faith, willful misfeasance, gross negligence or
reckless disregard of duties to First Union and its shareholders.
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<PAGE> 19
BENEFICIAL OWNERSHIP OF THE MANAGEMENT COMPANY
All of the shares of the Management Company are owned in trust for the
benefit of First Union's shareholders pursuant to a declaration of trust dated
June 5, 1980 (the "Management Company Declaration of Trust"). The
Management Company Declaration of Trust provides that the net income of the
trust estate shall be paid from time to time to the First Union shareholders in
proportion to the number of shares of First Union held by them. Upon
termination of the trust, each shareholder of First Union is entitled to a
proportionate share of the net proceeds received upon the sale of the assets of
the trust estate. The trustees of the trust may require, as a condition to the
receipt of any payment of the net income or of the net proceeds upon
termination, that a shareholder demonstrate that the shares of First Union
owned by him, together with any shares the ownership of which is attributed to
him by the Code, does not exceed 5% of the then outstanding shares of First
Union. The Management Company Declaration of Trust provides that the trust
shall terminate upon the termination of First Union. The trustees of the trust
are selected by the Trustees of First Union. See "Federal Income Tax
Considerations - Taxation of First Union - Stapled Stock."
SHAREHOLDER RIGHTS PLAN
In March 1990, the Board of Trustees declared a dividend with respect
to each Share consisting of one right to purchase one Share at an exercise
price of $50 per right. If a person or group, excluding certain affiliated
entities of First Union, acquires 15% or more of the outstanding Shares (except
in a tender offer or exchange offer approved by the Board of Trustees), is
declared to be an "adverse person" by the Board of Trustees or engages in
certain self-dealing transactions with the First Union ("flip-in events"), each
right, other than rights owned by a 15% owner or an "adverse person", entitle
the holder to purchase one Share for its par value (currently $1 per share).
If First Union is acquired in a merger or other business combination
("flip-over events"), each right entitles the holder to purchase, for $1,
shares of the acquiring company having a market value equal to the market value
of one Share.
The rights may be redeemed by First Union at a price of $0.01 per
right at any time prior to the earlier of a "flip-in" or "flip-over" event or
the expiration of the rights on March 30, 2000.
DESCRIPTION OF PREFERRED SHARES OF BENEFICIAL INTEREST
GENERAL
Subject to limitations prescribed by Ohio law and the Declaration of
Trust, the Board of Trustees is authorized to issue, without the approval of
the shareholders, Preferred Shares in series and to establish from time to time
the number of Preferred Shares to be included in such series and to fix the
designation and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of the shares of each series. All Preferred Shares
issued will be duly authorized and fully paid. The Prospectus Supplement
relating to the Preferred Shares will set forth whether or not the holders of
the Preferred Shares will be entitled to the benefit of the Management Company
Declaration of Trust. See "Description of Shares of Beneficial Interest -
Beneficial Ownership of the Management Company."
<TABLE>
<CAPTION>
Reference is made to the Prospectus Supplement relating to the Preferred Shares offered thereby for the specific terms of
such Preferred Shares, including:
<S> <C>
(1) The title and stated value of such Preferred Shares;
(2) The number of shares of such Preferred Shares offered, the liquidation preference per share and the offering price
of such Preferred Shares;
</TABLE>
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<PAGE> 20
<TABLE>
<S> <C>
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof applicable to such
Preferred Shares;
(4) The date from which dividends on such Preferred Shares shall cumulate, if applicable;
(5) The provision for a sinking fund, if any, for such Preferred Shares;
(6) The provision for redemption, if applicable, of such Preferred Shares;
(7) Any listing of such Preferred Shares on any securities exchange;
(8) The terms and conditions, if applicable, upon which such Preferred Shares will be convertible into Shares,
including the conversion price (or manner of calculation thereof);
(9) Whether interests in such Preferred Shares will be represented by Global Securities;
(10) Any other specific terms, preferences, rights, limitations or restrictions of such Preferred Shares;
(11) A discussion of federal income tax considerations applicable to such Preferred Shares;
(12) The relative ranking and preferences of such Preferred Shares as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of First Union;
(13) Any limitations on issuance of any series of Preferred Shares ranking senior to or on a parity with such series of
Preferred Shares as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of
First Union; and
(14) Any limitations on direct or beneficial ownership and restrictions on transfer of Preferred Shares, in each case
as may be appropriate to preserve the status of First Union as a REIT.
</TABLE>
To protect First Union's status as a REIT, separate restrictions on
ownership of Preferred Shares similar to the restrictions on ownership of
Shares may be imposed. See "Description of Shares of Beneficial Interest --
Restriction on Size of Holdings".
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of First Union, rank (i) senior to all classes or
series of Shares and to all equity securities ranking junior to such Preferred
Shares; (ii) on a parity with all equity securities issued by First Union the
terms of which specifically provide that such equity securities rank on a
parity with the Preferred Shares; and (iii) junior to all equity securities
issued by First Union the terms of which specifically provide that such equity
securities rank senior to the Preferred Shares. The rights of the holders of
each series of the Preferred Shares will be subordinate to those of First
Union's general creditors.
DIVIDENDS
Holders of each series of Preferred Shares shall be entitled to
receive, when, as and if declared by the Board of Trustees, out of assets of
First Union legally available for payment, cash dividends at such rates and on
such dates as will be set forth in the applicable Prospectus Supplement. Such
rate may be fixed or variable or both.
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<PAGE> 21
Each such dividend shall be payable to holders of record as they appear on the
share transfer books of First Union on such record dates as shall be fixed by
the Board of Trustees.
Dividends on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement.
Dividends, if cumulative, will be cumulative from and after the date set forth
in the applicable Prospectus Supplement. If the Board of Trustees fails to
declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are noncumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and First
Union will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series are outstanding, no full dividends
shall be declared or paid or set apart for payment on the Preferred Shares of
any other series ranking, as to dividends, on a parity with or junior to the
Preferred Shares of such series for any period unless (i) if such series of
Preferred Shares has a cumulative dividend, full cumulative dividends have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Shares of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for such payment on the Preferred Shares of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the Preferred Shares of any series and the
shares of any other series of Preferred Shares ranking on a parity as to
dividends with the Preferred Shares of such series, all dividends declared upon
Preferred Shares of such series and any other series of Preferred Shares
ranking on a parity as to dividends with such Preferred Shares shall be
declared pro rata so that the amount of dividends declared per share on the
Preferred Shares of such series and such other series of Preferred Shares shall
in all cases bear to each other the same ratio that accrued dividends per share
on the Preferred Shares of such series (which shall not include any cumulation
in respect of unpaid dividends for prior dividend periods if such series of
Preferred Shares does not have a cumulative dividend) and such other series of
Preferred Shares bear to each other. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on
Preferred Shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i)
if such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient of the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, no dividends (other than in Shares or other shares of
beneficial interest ranking junior to the Preferred Shares of such series as to
dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution shall be declared or made upon the Shares or any
other shares of beneficial interest of First Union ranking junior to or on a
parity with the Preferred Shares of such series as to dividends or upon
liquidation, nor shall any Shares or any other shares of beneficial interest of
First Union ranking junior to or on a parity with the Preferred Shares of such
series as to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for
a sinking fund for the redemption of any such shares) by First Union (except by
conversion into or exchange for other shares of beneficial interest of First
Union ranking junior to the Preferred Shares of such series as to dividends and
upon liquidation).
Any dividend payment made on a series of Preferred Shares shall first
be credited against the earliest accrued but unpaid dividend due with respect
to shares of such series which remains payable.
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<PAGE> 22
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
First Union, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares
that is subject to mandatory redemption will specify the number of such
Preferred Shares that shall be redeemed by First Union in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Shares do not have a cumulative dividend,
include any cumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable Prospectus Supplement.
If the redemption price for Preferred Shares of any series is payable only from
the net proceeds of the issuance of shares of beneficial interest of First
Union, the terms of such Preferred Shares may provide that, if no such shares
of beneficial interest shall have been issued or to the extent the net proceeds
from any issuance are insufficient to pay in full the aggregate redemption
price then due, such Preferred Shares shall automatically and mandatorily be
converted into shares of the applicable shares of beneficial interest of First
Union pursuant to conversion provisions specified in the applicable Prospectus
Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all Preferred
Shares of any series have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
all past dividend periods and the then current dividend period and (ii) if such
series of Preferred Shares does not have a cumulative dividend, full dividends
on all Preferred Shares of any series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Shares of
any series shall be redeemed unless all outstanding Preferred Shares of such
series are simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Shares of such series
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Preferred Shares of such series, and, unless (i) if such series
of Preferred Shares has a cumulative dividend, full cumulative dividends on all
Preferred Shares of any series have been or contemporaneously are declared and
paid or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend period and
(ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends on all Preferred Shares of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend period,
First Union shall not purchase or otherwise acquire directly or indirectly any
shares of Preferred Shares of such series (except by conversion into or
exchange for shares of beneficial interest of First Union ranking junior to the
Preferred Shares of such series as to dividends and upon liquidation).
If fewer than all of the outstanding Preferred Shares of any series
are to be redeemed, the number of shares to be redeemed will be determined by
First Union and such shares may be redeemed pro rata from the holders of record
of Preferred Shares of such series in proportion to the number of Preferred
Shares of such series held by such holders (with adjustments to avoid
redemption of fractional shares), by lot in a manner determined by First Union
or by any other method as may be determined by First Union in its sole
discretion to be equitable.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Preferred Shares
of any series to be redeemed at the address shown on the share transfer books
of First Union. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Shares are to be surrendered for payment of the redemption price; (v)
that dividends on the Preferred Shares to be redeemed will cease to accrue on
such redemption date; and (vi) the date upon which the holder's conversion
rights, if any, as to such Preferred Shares shall terminate. If fewer than all
the Preferred Shares of any
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<PAGE> 23
series are to be redeemed, the notice mailed to each such holder thereof shall
also specify the number of Preferred Shares to be redeemed from each such
holder. If notice of redemption of any Preferred Shares has been given and if
the funds necessary for such redemption have been set aside by First Union in
trust for the benefit of the holders of any Preferred Shares so called for
redemption, then from and after the redemption date dividends will cease to
accrue on such Preferred Shares, and all rights of the holders of such shares
will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of First Union, then, before any distribution or payment
shall be made to the holders of any Shares or any other class or series of
shares of beneficial interest of First Union ranking junior to the Preferred
Shares in the distribution of assets upon any liquidation, dissolution or
winding up of First Union, the holders of each series of Preferred Shares shall
be entitled to receive out of assets of First Union legally available for
distribution to shareholders, liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable Prospectus
Supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any cumulation in respect of unpaid dividends for
prior dividend periods if such Preferred Shares do not have a cumulative
dividend). After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Preferred Shares will have no right
or claim to any of the remaining assets of First Union. In the event that,
upon any such voluntary or involuntary liquidation, dissolution or winding up,
the available assets of First Union are insufficient to pay the amount of the
liquidating distributions on all outstanding Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of
shares of beneficial interest of First Union ranking on a parity with the
Preferred Shares in the distribution of assets, then the holders of the
Preferred Shares and all other such classes or series of shares of beneficial
interest shall share ratably in any such distribution of assets in proportion
to the full liquidating distributions to which they would otherwise be
respectively entitled.
If liquidating distributions shall have been made in full to all
holders of the Preferred Shares, the remaining assets of First Union shall be
distributed among the holders of any other classes or series of shares of
beneficial interest ranking junior to the Preferred Shares upon liquidation,
dissolution or winding up of First Union, according to their respective rights
and preferences and in each case according to their respective number of
shares. For such purposes, the consolidation or merger of First Union with or
into any other entity, or the sale, lease or conveyance of all or substantially
all of the property or business of First Union, shall not be deemed to
constitute a liquidation, dissolution or winding up of First Union.
VOTING RIGHTS
Holders of the Preferred Shares of a particular series will not have
any voting rights, except as set forth below or in the applicable Prospectus
Supplement or as otherwise required by applicable law. The following is a
summary of the voting rights that, unless provided otherwise in the applicable
Prospectus Supplement, will apply to each series of Preferred Shares.
If six quarterly dividends (whether or not consecutive) payable on the
Preferred Shares of such series, or any other series of Preferred Shares
ranking on a parity with such series of Preferred Shares with respect in each
case to the payment of dividends, amounts upon liquidation, dissolution and
winding up ("Parity Shares"), are in arrears, whether or not earned or
declared, the number of Trustees then constituting the Board of Trustees will
be increased by two, and the holders of Preferred Shares of such series, voting
together as a class with the holders of Parity Shares of any other series (any
such other series, the "Voting Preferred Shares"), will have the right to elect
two additional Trustees to serve on the Board of Trustees at any annual meeting
of shareholders or a properly called special meeting of the holders of
Preferred Shares of such series and such Voting Preferred Shares and at each
subsequent annual meeting of shareholders until all such dividends and
dividends for the current quarterly period on the Preferred Shares of such
series and such other Voting Preferred Shares have been paid or declared and
set
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<PAGE> 24
aside for payment. Such voting rights will terminate when all such accrued and
unpaid dividends have been declared and paid or set aside for payment. The
term of office of all Trustees so elected will terminate with the termination
of such voting rights.
The approval of two-thirds of the outstanding Preferred Shares of such
series and all other series of Voting Preferred Shares similarly affected,
voting as a single class, is required in order to (i) amend the Declaration of
Trust to affect materially and adversely the rights, preferences or voting
power of the holders of the Preferred Shares of such series or the Voting
Preferred Shares, (ii) enter into a share exchange that affects the Preferred
Shares of such series, consolidate with or merge into another entity, or permit
another entity to consolidate with or merge into First Union, unless in each
such case each Preferred Share of such series remains outstanding without a
material and adverse change to its terms and rights or is converted into or
exchanged for convertible preferred shares of the surviving entity having
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms or conditions of
redemption thereof identical to that of a Preferred Share of such series
(except for changes that do not materially and adversely affect the holders of
the Preferred Shares of such series) of (iii) authorize, reclassify, create, or
increase the authorized amount of any class of shares having rights senior to
the Preferred Shares of such series with respect to the payment of dividends or
amounts upon liquidation, dissolution or winding up. However, First Union may
create additional classes of Parity Shares and Preferred Shares of any other
series ranking junior to such series of Preferred Shares with respect in each
case to the payment of dividends, amounts upon liquidation, dissolution and
winding up ("Junior Shares") and issue additional series of Parity Shares and
Junior Shares without the consent of any holder of Preferred Shares of such
series.
Except as provided above and as required by law, the holders of
Preferred Shares of each series will not be entitled to vote on any merger or
consolidation involving First Union or a sale of all or substantially all of
the assets of First Union.
With respect to any matter as to which the Preferred Shares of any
series is entitled to vote, holders of the Preferred Shares of such series and
any Voting Preferred Shares will be entitled to cast the number of votes set
forth in the respective Prospectus Supplement with respect to that series of
Preferred Shares and Voting Preferred Shares. As a result of the provisions
requiring the holders of shares of a series of the Preferred Shares to vote
together as a class with the holders of shares of one or more series of Parity
Shares, it is possible that the holders of such Parity Shares could approve
action that would adversely affect such series of Preferred Shares, including
the creation of a class of shares of beneficial interest ranking prior to such
series of Preferred Shares as to dividends, voting or distributions of assets.
CONVERSION RIGHTS
The terms and conditions, if any, upon which Preferred Shares of any
series are convertible into Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
Shares into which the Preferred Shares are convertible, the conversion price
(or manner of calculation thereof), the conversion period, provisions as to
whether conversion will be at the option of the holders of the Preferred Shares
or First Union, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such
Preferred Shares.
TRANSFER AGENT AND REGISTRAR
The name and address of the transfer agent and registrar for any
series of Preferred Shares will be set forth in the applicable Prospectus
Supplement.
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DESCRIPTION OF SECURITIES WARRANTS
First Union may issue Securities Warrants for the purchase of Debt
Securities, Preferred Shares or Shares. Securities Warrants may be issued
independently or together with any other Offered Securities offered by any
Prospectus Supplement and may be attached to or separate from such Offered
Securities. Each series of Securities Warrants will be issued under a separate
warrant agreement (each, a "Warrant Agreement") to be entered into between
First Union and a warrant agent specified in the applicable Prospectus
Supplement (the "Warrant Agent"). The Warrant Agent will act solely as an
agent of First Union in connection with the Securities Warrants of such series
and will not assume any obligation or relationship of agency or trust for or
with any holders or beneficial owners of Securities Warrants. The following
summaries of certain provisions of the Securities Warrant Agreement and the
Securities Warrants do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Securities Warrant Agreement and the Securities Warrant certificates relating
to each series of Securities Warrants which will be filed with the Commission
at or prior to the time of the issuance of such series of Securities Warrants.
If Securities Warrants are offered, the applicable Prospectus
Supplement will describe the terms of such Securities Warrants, including, in
the case of Securities Warrants for the purchase of Debt Securities, the
following where applicable: (i) the offering price; (ii) the denominations and
terms of the series of Debt Securities purchasable upon exercise of such
Securities Warrants; (iii) the designation and terms of any series of Debt
Securities with which such Securities Warrants are being offered and the number
of such Securities Warrants being offered with such Debt Securities; (iv) the
date, if any, on and after which such Securities Warrants and the related
series of Debt Securities will be transferable separately; (v) the principal
amount of the series of Debt Securities purchasable upon exercise of each such
Securities Warrant and the price at which such principal amount of Debt
Securities of such series may be purchased upon such exercise; (vi) the date on
which the right to exercise such Securities Warrants shall commence and the
date on which such right shall expire (the "Expiration Date"); (vii) whether
the Securities Warrants will be issued in registered or bearer form; (viii) any
special United States federal income tax consequences; (ix) the terms, if any,
on which First Union may accelerate the date by which the Securities Warrants
must be exercised; and (x) any other material terms of such Securities
Warrants.
In the case of Securities Warrants for the purchase of Preferred
Shares or Shares, the applicable Prospectus Supplement will describe the terms
of such Securities Warrants, including the following where applicable: (i) the
offering price; (ii) the aggregate number of shares purchasable upon exercise
of such Securities Warrants, the exercise price, and in the case of Securities
Warrants for Preferred Shares, the designation, aggregate number and terms of
the series of Preferred Shares purchasable upon exercise of such Securities
Warrants; (iii) the designation and terms of any series of Preferred Shares
with which such Securities Warrants are being offered and the number of such
Securities Warrants being offered with such Preferred Shares; (iv) the date, if
any, on and after which such Securities Warrants and the related series of
Preferred Shares or Shares will be transferable separately; (v) the date on
which the right to exercise such Securities Warrants shall commence and the
Expiration Date; (vi) any special United States federal income tax
consequences; and (vii) any other material terms of such Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities
Warrant certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant Agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrant to purchase Debt Securities, holders of such Securities Warrants will
not have any of the rights of holders of the Debt Securities purchasable upon
such exercise, including the right to receive payments of principal, premium,
if any, or interest, if any, on such Debt Securities or to enforce covenants in
the applicable indenture. Prior to the exercise of any Securities Warrants to
purchase Preferred Shares or Shares, holders of such Securities Warrants will
not have any rights of holders of such Preferred Shares or Shares, including
the right to receive payments of dividends, if any, on such Preferred Shares or
Shares, or to exercise any applicable right to vote.
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To protect First Union's status as a REIT, separate restrictions on
ownership of Securities Warrants similar to the restrictions on ownership of
Shares may be imposed. See "Description of Shares of Beneficial Interest --
Restriction on Size of Holdings."
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase
such principal amount of Debt Securities or number of shares of Preferred
Shares or Shares, as the case may be, at such exercise price as shall in each
case be set forth in, or calculable from, the Prospectus Supplement relating to
the offered Securities Warrants. After the close of business on the Expiration
Date (or such later date to which such Expiration Date may be extended by First
Union), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Securities
Warrant Agent payment as provided in the applicable Prospectus Supplement of
the amount required to purchase the Debt Securities, Preferred Shares or
Shares, as the case may be, purchasable upon such exercise together with
certain information set forth on the reverse side of the Securities Warrant
certificate. Securities Warrants will be deemed to have been exercised upon
receipt of payment of the exercise price, subject to the receipt within five
(5) business days, of the Securities Warrant certificate evidencing such
Securities Warrants. Upon receipt of such payment and the Securities Warrant
certificate properly completed and duly executed at the corporate trust office
of the Securities Warrant Agent or any other office indicated in the applicable
Prospectus Supplement, First Union will, as soon as practicable, issue and
deliver the Debt Securities, Preferred Shares or Shares, as the case may be,
purchasable upon such exercise. If fewer than all of the Securities Warrants
represented by such Securities Warrant certificate are exercised, a new
Securities Warrant certificate will be issued for the remaining amount of
Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the
consent of the holders of the Securities Warrants issued thereunder to effect
changes that are not inconsistent with the provisions of the Securities
Warrants and that do not adversely affect the interests of the holders of the
Securities Warrants.
ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement,
the exercise price of, and the number of Shares covered by, a Shares Warrant is
subject to adjustment in certain events, including (i) payment of a dividend on
the Shares payable in shares of beneficial interest and share splits,
combinations or reclassification of the Shares; (ii) issuance to all holders of
Shares of rights or warrants to subscribe for or purchase shares of Shares at
less than their current market price (as defined in the Warrant Agreement for
such series of Shares Warrants); and (iii) certain distributions of evidences
of indebtedness or assets (including securities but excluding cash dividends or
distributions paid out of consolidated earnings or retained earnings or
dividends payable in Shares) or of subscription rights and warrants (excluding
those referred to above).
No adjustment in the exercise price of, and the number of Shares
covered by, a Shares Warrant will be made for regular quarterly or other
periodic or recurring cash dividends or distributions or for cash dividends or
distributions to the extent paid from consolidated earnings or retained
earnings. No adjustment will be required unless such adjustment would require
a change of at least 1% in the exercise price then in effect. Except as stated
above, the exercise price of, and the number of Shares covered by, a Shares
Warrant will not be adjusted for the issuance of Shares or any securities
convertible into or exchangeable for Shares, or carrying the right or option to
purchase or otherwise acquire the foregoing, in exchange for cash, other
property or services.
In the event of any (i) consolidation or merger of First Union with or
into any entity (other than a consolidation or a merger that does not result in
any reclassification, conversion, exchange or cancellation of
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outstanding Shares); (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of First Union; or (iii) reclassification,
capital reorganization or change of the Shares (other than solely a change in
par value or from par value to no par value), then any holder of a Shares
Warrant will be entitled, on or after the occurrence of any such event, to
receive on exercise of such Shares Warrant the kind and amount of shares of
beneficial interest or other securities, cash or other property (or any
combination thereof) that the holder would have received had such holder
exercised such holder's Shares Warrant immediately prior to the occurrence of
such event. If the consideration to be received upon exercise of the Shares
Warrant following any such event consists of common shares of the surviving
entity, then from and after the occurrence of such event, the exercise price of
such Shares Warrant will be subject to the same anti-dilution and other
adjustments described in the second preceding paragraph, applied as if such
common shares were Shares.
DESCRIPTION OF RIGHTS
As set forth under "Plan of Distribution" below, First Union may sell
the Shares to investors directly through Rights. If Shares are to be sold
through Rights, such Rights will be distributed as a dividend to owners of the
Shares for which such shareholders will pay no separate consideration. The
Prospectus Supplement with respect to the offer of Shares pursuant to Rights
will set forth the relevant terms of the Rights, including (i) the kind and
number of Shares which will be offered pursuant to the Rights, (ii) the period
during which and the price at which the Rights will be exercisable, (iii) the
number of Rights then outstanding, (iv) any provisions for changes to or
adjustments in the exercise price of the Rights and (v) any other material
terms of the Rights. See "Plan of Distribution."
FEDERAL INCOME TAX CONSIDERATIONS
The following is a description of the material Federal income tax
consequences to First Union and its shareholders of the treatment of First
Union as a REIT. The discussion is general in nature and not exhaustive of all
possible tax considerations, nor does the discussion give a detailed
description of any state, local, or foreign tax considerations. The discussion
does not discuss all aspects of Federal income tax law that may be relevant to
a prospective shareholder in light of his particular circumstances or to
certain types of shareholders (including insurance companies, financial
institutions, broker-dealers, tax exempt organizations, foreign corporations
and persons who are not citizens or residents of the United States) subject to
special treatment under the federal income tax law nor does the discussion
address special considerations, if any, which may relate to the purchase of
Debt Securities, Preferred Shares or Securities Warrants.
Based upon certain representations of First Union and as described
further below, in the opinion of Mayer, Brown & Platt, counsel to First Union,
First Union's existing legal organization and its method of operation, as
described in this Prospectus and as represented by it, will enable it to
satisfy the requirements for qualification as a REIT. This opinion is based on
certain assumptions relating to the organization and operation of the
Management Company and of any partnerships in which First Union will hold an
interest, and is conditioned upon certain representations made by First Union
as to certain factual matters relating to First Union's and the Management
Company's organization and manner of operation. It is also based on the
assumption that for all of its taxable years (or portion thereof) prior to the
date of this Prospectus, First Union satisfied all of the requirements
necessary for qualifications as a REIT under the Code, and the assumption that
all organizational documents for First Union and the Management Company are
complied with. In addition, this opinion is based on the law existing and in
effect on the date hereof. First Union's qualification and taxation as a REIT
in the future will depend upon First Union's ability to meet on a continuing
basis, through actual operating results, asset composition, distribution levels
and diversity of stock ownership, the various qualification tests imposed under
the Code discussed below. Mayer, Brown & Platt will not review compliance with
these tests on a continuing basis. No assurance can be given that First Union
will satisfy such tests on a continuing basis.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING, AND EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT WITH ITS TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE PURCHASE,
OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND SALE,
AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
If certain detailed conditions imposed by the REIT provisions of the
Code are met, entities, such as First Union, that invest primarily in real
estate and that otherwise would be treated for Federal income tax purposes as
corporations, are generally not taxed at the corporate level on their "REIT
taxable income" that is currently distributed to shareholders. This treatment
substantially eliminates the "double taxation" (i.e., at both the corporate and
shareholder levels) that generally results from the use of corporations.
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If First Union fails to qualify as a REIT in any year, however, it
will be subject to Federal income taxation as if it were a domestic
corporation, and its shareholders will be taxed in the same manner as
shareholders of ordinary corporations. In this event, First Union could be
subject to potentially significant tax liabilities, and therefore the amount of
cash available for distribution to its shareholders would be reduced or
eliminated.
First Union has properly elected and continued to elect REIT status for
all taxable years since its filing of a REIT election, and the Board of
Trustees believes that First Union has operated and expects that First Union
will continue to operate in a manner that will permit First Union to elect REIT
status in each taxable year thereafter. There can be no assurance, however,
that this belief or expectation will be fulfilled, since qualification as a
REIT depends on First Union continuing to satisfy numerous asset, income and
distribution tests described below, which in turn will be dependent in part on
First Union's operating results.
TAXATION OF FIRST UNION
General. In any year in which First Union qualifies as a REIT, it
will not, in general, be subject to Federal income tax on that portion of its
REIT taxable income or capital gain which is distributed to shareholders. First
Union may, however, be subject to tax at normal corporate rates upon any
taxable income or capital gain not distributed.
Notwithstanding its qualification as a REIT, First Union may also be
subject to taxation in certain other circumstances. If First Union should fail
to satisfy either the 75% or the 95% gross income test (as discussed below),
and nonetheless maintains its qualification as a REIT because certain other
requirements are met, it will be subject to a 100% tax on the greater of the
amount by which First Union fails either the 75% or the 95% test, multiplied by
a fraction intended to reflect First Union's profitability. First Union will
also be subject to a tax of 100% on net income from any "prohibited
transaction" as described below, and if First Union has (i) income from the
sale or other disposition of "foreclosure property" which is held primarily for
sale to customers in the ordinary course of business or (ii) other
non-qualifying income from foreclosure property, it will be subject to tax on
such income from foreclosure property at the highest corporate rate. In
addition, if First Union should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of
its REIT capital gain net income for such year, and (iii) any undistributed
taxable income from prior years, First Union would be subject to a 4% excise
tax on the excess of such required distribution over the amounts actually
distributed. First Union may also be subject to the corporate alternative
minimum tax, as well as tax in certain situations not presently contemplated.
The Management Company will be taxed on its income at regular corporate rates.
First Union uses the calendar year both for Federal income tax purposes and for
financial reporting purposes.
Stapled Stock. First Union and the Management Company are "stapled
entities" as defined in Section 269B of the Code. Section 269B of the Code
defines the term "stapled entities" to mean any group of two or more entities
if more than 50% in value of the beneficial ownership in each of such entities
consists of interests which, by reason of form of ownership, restrictions on
transfers, or other terms or conditions, the transfer of one of such interests
requires the transfer of the other of such interests. Section 269B of the Code
provides that if the shares of a group of entities that include a REIT are
stapled, then such entities shall be treated as one entity for purposes of
applying the REIT provisions of the Code. If Section 269B of the Code were to
apply to First Union and the Management Company, then First Union might not be
able to satisfy the "Gross Income Tests" as described below that are necessary
to qualify as a REIT.
Prior to the enactment of Section 269B of the Code, First Union
received two rulings from the Internal Revenue Service sanctioning the stapling
of First Union and the Management Company. These rulings provided that (i)
even though First Union and the Management Company were "stapled," such
stapling would not preclude First Union from qualifying as a REIT, and (ii)
amounts otherwise qualifying as rents from real property under the REIT rules
would not fail to meet that definition by reason of the fact that First Union
and the Management Company were stapled. The effective date provision for
Section 269B provides that Section 269B of the Code does
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not apply if a group of stapled entities that included a REIT on June 30, 1983
were stapled on that date. First Union believes that because First Union and
the Management Company were stapled on June 30, 1983, Section 269B should not
apply to First Union and the Management Company.
Under the Code, rents from real property do not include amounts
received or accrued, directly or indirectly, from any person if the REIT owns,
directly or indirectly, in the case of a corporation, stock of such corporation
possessing 10% or more of the total combined voting power of all classes of
stock entitled to vote, or 10% or more of the total number of shares of all
classes of stock of such corporation. Under this provision, even though
Section 269B of the Code does not apply to First Union and the Management
Company, if any person were to acquire, directly or indirectly, 10% or more of
the total combined voting power of First Union or 10% or more of the total
number of shares of First Union, then rents received from the Management
Company would not qualify as rents from real property under the REIT rules. In
such a case, First Union would likely not satisfy the "Gross Income Tests"
described below, and accordingly, would not qualify as a REIT.
First Union's By-Laws restrict beneficial ownership of First Union's
outstanding shares by a single person, or persons acting as a group, to 9.8% of
First Union's Shares of Beneficial Interest. Assuming this restriction
precludes any person from owning 10% or more of First Union's Shares of
Beneficial Interest, First Union believes that amounts otherwise qualifying as
rents from real property received from the Management Company will continue to
qualify as rents from real property for REIT purposes.
In order to qualify as a REIT, First Union must meet, among others,
the following requirements:
Share Ownership Tests. First Union's shares of beneficial interest
must be held by a minimum of 100 persons for at least 335 days in each taxable
year (or a proportional number of days in any short taxable year). In
addition, at all times during the second half of each taxable year, no more
than 50% in value of the outstanding shares of beneficial interest of First
Union may be owned, directly or indirectly and by applying certain constructive
ownership rules, by five or fewer individuals, which for this purpose includes
certain tax-exempt entities. However, for purposes of this test, any shares of
beneficial interest held by a qualified domestic pension or other retirement
trust will be treated as held directly by its beneficiaries in proportion to
their actuarial interest in such trust rather than by such trust.
In order to attempt to provide for compliance with the foregoing share
ownership tests, First Union has placed certain restrictions on the transfer of
its shares of beneficial interest to prevent additional concentration of share
ownership. Moreover, to evidence compliance with these requirements, under
Treasury regulations First Union must maintain records which disclose the
actual ownership of its outstanding shares of beneficial interest. In
fulfilling its obligations to maintain records, First Union must and will
demand written statements each year from the record holders of designated
percentages of its shares of beneficial interest disclosing the actual owners
of such shares of beneficial interest (as prescribed by Treasury regulations).
A list of those persons failing or refusing to comply with such demand must be
maintained as a part of First Union's records. A shareholder failing or
refusing to comply with First Union's written demand must submit with his tax
return a similar statement disclosing the actual ownership of his shares and
certain other information. In addition, the By-Laws provide restrictions
regarding the transfer of its shares that are intended to assure continued
satisfaction of the share ownership requirements. See "Description of Shares
of Beneficial Interest -- Restriction on Size of Holdings."
Asset Tests. At the close of each quarter of First Union's taxable
year, First Union must satisfy two tests relating to the nature of its assets
(with "assets" being determined in accordance with generally accepted
accounting principles). First, at least 75% of the value of First Union's
total assets must be represented by interests in real property, interests in
mortgages on real property, shares in other REITs, cash, cash items, government
securities and qualified temporary investments. Second, although the remaining
25% of First Union's assets generally may be invested without restriction,
securities in this class may not exceed (i) in the case of securities of any
one
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non-government issuer, 5% of the value of First Union's total assets or (ii)
10% of the outstanding voting securities of any one such issuer.
Gross Income Tests. There are three separate percentage tests
relating to the sources of First Union's gross income which must be satisfied
for each taxable year. For purposes of these tests, where First Union invests
in a partnership, First Union will be treated as receiving its share of the
income and loss of the partnership, and the gross income of the partnership
will retain the same character in the hands of First Union as it has in the
hands of the partnership. The three tests are as follows:
The 75% Test. At least 75% of First Union's gross income for the
taxable year must be "qualifying income." Qualifying income generally includes
(i) rents from real property (except as modified below); (ii) interest on
obligations secured by mortgages on, or interests in, real property; (iii)
gains from the sale or other disposition of interests in real property and real
estate mortgages, other than gain from property held primarily for sale to
customers in the ordinary course of First Union's trade or business ("dealer
property"); (iv) dividends or other distributions on shares in other REITs, as
well as gain from the sale of such shares; (v) abatements and refunds of real
property taxes; (vi) income from the operation, and gain from the sale, of
property acquired at or in lieu of a foreclosure of the mortgage secured by
such property ("foreclosure property"); (vii) commitment fees received for
agreeing to make loans secured by mortgages on real property or to purchase or
lease real property; and (viii) certain qualified temporary investment income
attributable to the investment of new capital received by First Union in
exchange for its shares or specified debt securities during the one-year period
following the receipt of such capital.
Rents received from a tenant will not, however, qualify as rents from
real property in satisfying the 75% test (or the 95% gross income test
described below) if First Union, or an owner of 10% or more of First Union,
directly or constructively owns 10% or more of such tenant. In addition, if
rent attributable to personal property leased in connection with a lease of
real property is greater than 15% of the total rent received under the lease,
then the portion of rent attributable to such personal property will not
qualify as rents from real property. Moreover, an amount received or accrued
will not qualify as rents from real property (or as interest income) for
purposes of the 75% and 95% gross income tests if it is based in whole or in
part on the income or profits of any person, although an amount received or
accrued generally will not be excluded from "rents from real property" solely
by reason of being based on a fixed percentage or percentages of receipts or
sales. Finally, for rents received to qualify as rents from real property for
purposes of the 75% and 95% gross income tests, First Union generally must not
operate or manage the property or furnish or render services to tenants, other
than through an "independent contractor" from whom First Union derives no
income, except that the "independent contractor" requirement does not apply to
the extent that the services provided by First Union are "usually or
customarily rendered" in connection with the rental of space for occupancy
only, or are not otherwise considered "rendered to the occupant for his
convenience."
The 95% Test. In addition to deriving 75% of its gross income from
the sources listed above, at least 95% of First Union's gross income for the
taxable year must be derived from the above-described qualifying income, or
from dividends, interest, or gains from the sale or other disposition of stock
or other securities that are not dealer property. Dividends and interest on
any obligations not collateralized by an interest in real property are included
for purposes of the 95% test, but not for purposes of the 75% test.
For purposes of determining whether First Union complies with the 75%
and the 95% gross income tests, gross income does not include income from
prohibited transactions. A "prohibited transaction" is a sale of dealer
property (excluding foreclosure property); however, it does not include a sale
of property if such property is held by First Union for at least four years and
certain other requirements (relating to the number of properties sold in a
year, their tax bases, and the cost of improvements made thereto) are
satisfied. See "--Taxation of First Union--General."
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First Union believes that, for purposes of both the 75% and the 95%
gross income tests, its investment in the real properties will in major part
give rise to qualifying income in the form of rents, and that gains on sales of
the real properties generally will also constitute qualifying income.
Even if First Union fails to satisfy one or both of the 75% or 95%
gross income tests for any taxable year, it may still qualify as a REIT for
such year if it is entitled to relief under certain provisions of the Code.
These relief provisions will generally be available if: (i) First Union's
failure to comply was due to reasonable cause and not to willful neglect; (ii)
First Union reports the nature and amount of each item of its income included
in the tests on a schedule attached to its tax return; and (iii) any incorrect
information on this schedule is not due to fraud with intent to evade tax. If
these relief provisions apply, however, First Union will nonetheless be subject
to a 100% tax on the greater of the amount by which it fails either the 75% or
95% gross income test, multiplied by a fraction intended to reflect First
Union's profitability.
The 30% Test. First Union must derive less than 30% of its gross
income for each taxable year from the sale or other disposition of (i) real
property held for less than four years (other than foreclosure property and
involuntary conversions); (ii) stock or securities (including an interest rate
swap or cap agreement) held for less than one year; and (iii) property in a
prohibited transaction. First Union does not anticipate that it will have
difficulty in complying with this test. However, if extraordinary
circumstances were to occur that give rise to dispositions of real estate
properties held for less than four years (for example, on account of the
inability to obtain refinancing), the 30% test could become an issue.
Annual Distribution Requirements. In order to qualify as a REIT,
First Union is required to distribute dividends (other than capital gain
dividends) to its shareholders each year in an amount at least equal to (A) the
sum of (i) 95% of First Union's REIT taxable income (computed without regard to
the dividends paid deduction and First Union's net capital gain) and (ii) 95%
of the net income (after tax), if any, from foreclosure property, minus (B) the
sum of certain items of non-cash income. Such distributions must be paid in
the taxable year to which they relate, or in the following taxable year if
declared before First Union timely files its tax return for such year and if
paid on or before the first regular dividend payment after such declaration.
To the extent that First Union does not distribute all of its net capital gain
or distributes at least 95%, but less than 100%, of its REIT taxable income, as
adjusted, it will be subject to tax on the undistributed amount at regular
capital gains or ordinary corporate tax rates, as the case may be.
First Union intends to make timely distributions sufficient to satisfy
the annual distribution requirements described in the first sentence of the
preceding paragraph. It is possible that First Union may not have sufficient
cash or other liquid assets to meet the 95% distribution requirement, due to
timing differences between the actual receipt of income and actual payment of
expenses on the one hand, and the inclusion of such income and deduction of
such expenses in computing First Union's REIT taxable income on the other hand,
or for other reasons. To avoid a problem with the 95% distribution
requirement, First Union will closely monitor the relationship between its REIT
taxable income and cash flow and, if necessary, intends to borrow funds in
order to satisfy the distribution requirement. However, there can be no
assurance that such borrowing would be available at such time.
If First Union fails to meet the 95% distribution requirement as a
result of an adjustment to First Union's tax return by the Internal Revenue
Service, First Union may retroactively cure the failure by paying a "deficiency
dividend" (plus applicable penalties and interest) within a specified period.
Failure to Qualify. If First Union fails to qualify for taxation as a
REIT in any taxable year and the relief provisions do not apply, First Union
will be subject to tax (including any applicable alternative minimum tax) on
its taxable income at regular corporate rates. Distributions to shareholders
in any year in which First Union fails to qualify as a REIT will not be
deductible by First Union, nor generally will they be required to be made under
the Code. In such event, to the extent of current and accumulated earnings and
profits, all distributions to shareholders will be taxable as ordinary income,
and, subject to certain limitations in the Code, corporate
-30-
<PAGE> 32
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, First Union also will
be disqualified from re-electing taxation as a REIT for the four taxable years
following the year during which qualification was lost.
TAXATION OF SHAREHOLDERS
Taxation of Taxable Domestic Shareholders. As long as First Union
qualifies as a REIT, distributions made to First Union's taxable domestic
shareholders out of current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taken into account by them as
ordinary income and will not be eligible for the dividends received deduction
for corporations. Distributions that are designated as capital gain dividends
will be taxed as long-term capital gains (to the extent they do not exceed
First Union's actual net capital gain for the taxable year) without regard to
the period for which the shareholder has held its shares of beneficial interest
of First Union. However, corporate shareholders may be required to treat up to
20% of certain capital gain dividends as ordinary income. To the extent that
First Union makes distributions in excess of current and accumulated earnings
and profits, these distributions are treated first as a tax-free return of
capital to the shareholder, reducing the tax basis of a shareholder's shares by
the amount of such excess distribution (but not below zero), with distributions
in excess of the shareholder's tax basis being taxed as capital gains (if the
shares are held as a capital asset). In addition, any dividend declared by
First Union in October, November or December of any year and payable to a
shareholder of record on a specific date in any such month shall be treated as
both paid by First Union and received by the shareholder on December 31 of such
year, provided that the dividend is actually paid by First Union during January
of the following calendar year. Shareholders may not include in their
individual income tax returns any net operating losses or capital losses of
First Union. Federal income tax rules may also require that certain minimum
tax adjustments and preferences be apportioned to First Union shareholders.
In general, any loss upon a sale or exchange of Shares by a
shareholder who has held such Shares for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions from First Union required to be treated by such
shareholder as long-term capital gains.
Backup Withholding. First Union will report to its domestic
shareholders and to the Internal Revenue Service the amount of dividends paid
for each calendar year, and the amount of tax withheld, if any, with respect
thereto. Under the backup withholding rules, a shareholder may be subject to
backup withholding at the rate of 31% with respect to dividends paid unless
such shareholder (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. A shareholder that does not provide First Union with
its correct taxpayer identification number may also be subject to penalties
imposed by the Internal Revenue Service. Any amount paid as backup withholding
is available as a credit against the shareholder's income tax liability. In
addition, First Union may be required to withhold a portion of capital gain
distributions made to any shareholders who fail to certify their non-foreign
status to First Union. See "Certain United States Tax Considerations for
Non-U.S. Shareholders -- Distributions from First Union-Capital Gain Dividends"
below.
Taxation of Tax-Exempt Shareholders. The Internal Revenue Service has
issued a revenue ruling in which it held that amounts distributed by a REIT to
a tax-exempt employees' pension trust do not constitute unrelated business
taxable income ("UBTI"). Subject to the discussion below regarding a
"pension-held REIT," based upon such ruling and the statutory framework of the
Code, distributions by First Union to a shareholder that is a tax-exempt entity
should not constitute UBTI, provided that the tax-exempt entity has not
financed the acquisition of its shares with "acquisition indebtedness" within
the meaning of the Code, that the shares are not otherwise used in an unrelated
trade or business of the tax-exempt entity, and that First Union, consistent
with its present intent, does not hold a residual interest in a REMIC.
-31-
<PAGE> 33
However, if any pension or other retirement trust that qualifies under
Section 401(a) of the Code ("qualified pension trust") holds more than 10% by
value of the interests in a "pension-held REIT" at any time during a taxable
year, a portion of the dividends paid to the qualified pension trust by such
REIT may constitute UBTI. For these purposes, a "pension-held REIT" is defined
as a REIT if (i) such REIT would not have qualified as a REIT but for the
provisions of the Code which look through such a qualified pension trust in
determining ownership of shares of the REIT and (ii) at least one qualified
pension trust holds more than 25% by value of the interests of such REIT or one
or more qualified pension trusts (each owning more than a 10% interest by value
in the REIT) hold in the aggregate more than 50% by value of the interests in
such REIT.
OTHER TAX CONSIDERATIONS
Possible Legislative or Other Actions Affecting Tax Consequences.
Prospective shareholders should recognize that the present Federal income tax
treatment of investment in First Union may be modified by legislative, judicial
or administrative action at any time and that any such action may affect
investments and commitments previously made. The rules dealing with Federal
income taxation are constantly under review by persons involved in the
legislative process and by the Internal Revenue Service and the Treasury
Department, resulting in revisions of regulations and revised interpretations
of established concepts as well as statutory changes. No assurance can be
given as to the form or content (including with respect to effective dates) of
any tax legislation which may be enacted. Revisions in Federal tax laws and
interpretations thereof could adversely affect the tax consequences of
investment in First Union.
State and Local Taxes. First Union and its shareholders may be
subject to state or local taxation, and First Union may be subject to state or
local tax withholding requirements, in various jurisdictions, including those
in which it or they transact business or resides. The state and local tax
treatment of First Union and its shareholders may not conform to the Federal
income tax consequences discussed above. Consequently, prospective
shareholders should consult their own tax advisors regarding the effect of
state and local tax laws on an investment in shares.
CERTAIN UNITED STATES TAX CONSIDERATIONS
FOR NON-U.S. SHAREHOLDERS
The following is a discussion of certain anticipated U.S. Federal
income and U.S. Federal estate tax consequences of the ownership and
disposition of shares of beneficial interest applicable to Non-U.S.
Shareholders of such shares. A "Non-U.S. Shareholder" is (i) any individual
who is neither a citizen nor resident of the United States, (ii) any
corporation or partnership other than a corporation or partnership created or
organized in the United States or under the laws of the United States or any
state thereof or under the laws of the District of Columbia or (iii) any estate
or trust that is not "resident" in the United States. The discussion is based
on current law and is for general information only. The discussion does not
address other aspects of U.S. Federal taxation other than income and estate
taxation or all aspects of U.S. Federal income and estate taxation. The
discussion does not consider any specific facts or circumstances that may apply
to a particular Non-U.S. Shareholder.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME, ESTATE AND OTHER
TAX CONSEQUENCES OF HOLDING AND DISPOSING OF SHARES OF BENEFICIAL INTEREST.
DISTRIBUTIONS FROM FIRST UNION
Ordinary Dividends. The portion of dividends received by Non-U.S.
Shareholders payable out of First Union's earnings and profits that are not
attributable to capital gains of First Union and that are not effectively
connected with a U.S. trade or business of the Non-U.S. Shareholder will be
subject to U.S. withholding tax at the rate of 30% (unless reduced by treaty or
the Non-U.S. Shareholder files an Internal Revenue Service Form 4224
-32-
<PAGE> 34
with First Union certifying that the investment to which the distribution
relates is effectively connected to a United States trade or business of such
Non-U.S. Shareholder). Under certain limited circumstances, the amount of tax
withheld may be refundable, in whole or in part, because of the tax status of
certain partners or beneficiaries of Non-U.S. Shareholders that are either
foreign partnerships or foreign estates or trusts. In general, Non-U.S.
Shareholders will not be considered engaged in a U.S. trade or business solely
as a result of their ownership of shares of beneficial interest. In cases
where the dividend income from a Non-U.S. Shareholder's investment in shares of
beneficial interest is (or is treated as) effectively connected with the
Non-U.S. Shareholder's conduct of a U.S. trade or business, the Non-U.S.
Shareholder generally will be subject to U.S. tax at graduated rates, in the
same manner as U.S. shareholders are taxed with respect to such dividends (and
may also be subject to the 30% branch profits tax (unless reduced by treaty) in
the case of a Non-U.S. Shareholder that is a foreign corporation).
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding
discussed above and, under the current interpretation of the Treasury
Regulations, for purposes of determining the applicability of a tax treaty
rate. However, under Treasury Regulations proposed to be effective for
dividends paid after 1997 (the "Proposed Regulations"), a non-U.S. Shareholder
who wishes to claim the benefit of an applicable treaty rate would be required
to satisfy applicable certification requirements on Internal Revenue Service
Form W-8. The Proposed Regulations would also permit a reduced rate of
withholding on payments of dividends to foreign partnerships whose partners are
entitled to a reduced rate of withholding if the partners and the foreign
partnership supply the appropriate Internal Revenue Service certifications or
if the foreign partnership elects to be treated as a "qualified intermediary"
for withholding tax purposes. Under the Proposed Regulations, U.S. Shareholders
who claim that the dividends are effectively connected with the conduct of a
U.S. trade or business would have to supply Form W-8 in lieu of Form 4224.
Capital Gain Dividends. Under the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA"), any distribution made by First Union to a Non-U.S.
Shareholder, to the extent attributable to gains from dispositions of United
States Real Property Interests ("USRPIs") by First Union ("USRPI Capital
Gains"), will be considered effectively connected with a U.S. trade or business
of the Non-U.S. Shareholder and subject to U.S. income tax at the rates
applicable to U.S. individuals or corporations, without regard to whether such
distribution is designated as a capital gain dividend. In addition, First
Union will be required to withhold tax equal to 35% of the amount of such
distribution to the extent it constitutes USRPI Capital Gains. Such
distribution may also be subject to the 30% branch profits tax (unless reduced
by treaty) in the case of a Non-U.S. Shareholder that is a foreign corporation.
Non-Dividend Distributions. Any distributions by First Union that
exceed both current and accumulated earnings and profits of First Union will
not be taxed as either ordinary dividends or capital gain dividends. However,
under current law, if it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current and accumulated
earnings and profits, the distribution will be subject to withholding. Should
this occur, the Non-U.S. Shareholder may seek a refund of over withholding from
the Internal Revenue Service once it is subsequently determined that such
distribution was, in fact, in excess of current and accumulated earnings and
profits of First Union. Under the Proposed Regulations, First Union would be
entitled to make a reasonable estimate of the portion of the distribution that
is not a dividend.
DISPOSITIONS OF SHARES OF BENEFICIAL INTEREST
Unless the shares of beneficial interest constitute USRPIs, a sale or
exchange of shares of beneficial interest by a Non-U.S. Shareholder generally
will not be subject to U.S. taxation under FIRPTA. The shares of beneficial
interest will not constitute USRPIs if First Union is a "domestically
controlled REIT." A domestically controlled REIT is a REIT in which, at all
times during a specified testing period, less than 50% in value of its shares
is held directly or indirectly by Non-U.S. Shareholders. It is currently
anticipated that First Union will be a domestically controlled REIT and,
therefore, that the sale of shares of beneficial interest will not be subject
to taxation under FIRPTA. No assurance can be given that First Union will
continue to be a domestically controlled REIT.
If First Union does not constitute a domestically controlled REIT, a
Non-U.S. Shareholder's sale or exchange of shares of beneficial interest
generally will still not be subject to tax under FIRPTA as a sale of USRPIs
provided that (i) First Union's shares of beneficial interest are "regularly
traded" (as defined by applicable Treasury
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<PAGE> 35
regulations) on an established securities market (e.g., the NYSE, on which the
Shares are listed) and (ii) the selling Non-U.S. Shareholder held 5% or less of
First Union's outstanding shares of beneficial interest at all times during a
specified testing period.
If gain on the sale or exchange of shares of beneficial interest were
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
U.S. income tax at the rates applicable to U.S. individuals or corporations,
and the purchaser of shares of beneficial interest could be required to
withhold 10% of the purchase price and remit such amount to the Internal
Revenue Service. The branch profits tax would not apply to such sales or
exchanges.
Capital gains not subject to FIRPTA will nonetheless be taxable in the
United States to a Non-U.S. Shareholder in two cases: (i) if the Non-U.S.
Shareholder's investment in shares of beneficial interest is effectively
connected with a U.S. trade or business conducted by such Non-U.S. Shareholder,
the Non-U.S. Shareholder will be subject to the same treatment as U.S.
shareholders with respect to such gain or (ii) if the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States or an
office or other fixed place of business in the United States to which such gain
is attributable, the nonresident alien individual will be subject to 30% tax on
the individual's capital gain (unless reduced or eliminated by treaty).
FEDERAL ESTATE TAX
Shares of beneficial interest owned or treated as owned by an
individual who is not a citizen or "resident" (as specifically defined for U.S.
Federal estate tax purposes) of the United States at the time of death will be
includable in the individual's gross estate for U.S. Federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise. Such
individual's estate may be subject to U.S. Federal estate tax on the property
includable in the estate for U.S. Federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
First Union must report annually to the Internal Revenue Service and
to each Non-U.S. Shareholder the amount of dividends (including any capital
gain dividends) paid to, and the tax withheld with respect to, each Non-U.S.
Shareholder. These reporting requirements apply regardless of whether
withholding was reduced or eliminated by an applicable tax treaty. Copies of
these returns may also be made available under the provisions of a specific
treaty or agreement with the tax authorities in the country in which the
Non-U.S. Shareholder resides.
U.S. backup withholding (which generally is imposed at the rate of 31%
on certain payments to persons that fail to furnish the information required
under the U.S. information reporting requirements) and information reporting
will generally not apply to dividends (including any capital gain dividends)
paid on shares of beneficial interest to a Non-U.S. Shareholder at an address
outside the United States. However, under the Proposed Regulations,a Non-U.S.
Shareholder may be required to provide a certification on Form W-8 to be exempt
from backup withholding.
The payment of the proceeds from the disposition of shares of
beneficial interest to or through a U.S. office of a broker will be subject to
information reporting and backup withholding unless the owner, under penalties
of perjury, certifies, among other things, its status as a Non-U.S.
Shareholder, or otherwise establishes an exemption. The payment of the proceeds
from the disposition of shares of beneficial interest to or through a non-U.S.
office of a non-U.S. broker generally will not be subject to backup withholding
and information reporting, except as noted below. In the case of a payment of
proceeds from the disposition of shares of beneficial interest to or through a
non-U.S. office of a broker which is (i) a U.S. person, (ii) a "controlled
foreign corporation" for U.S. Federal income tax purposes or (iii) a foreign
person 50% or more of whose gross income for certain periods is derived from a
U.S. trade or business, information reporting (but not backup withholding) will
apply unless the broker has documentary evidence in its files that the holder
is a Non-U.S. Shareholder (and the broker has no actual knowledge to the
contrary) and certain other conditions are met, or the holder otherwise
establishes an exemption. Under proposed Treasury regulations (not the
Proposed Regulations), a payment of the proceeds from the disposition
of shares of beneficial interest to
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<PAGE> 36
or through such broker will be subject to backup withholding if such broker has
actual knowledge that the holder is a U.S. person.
Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules will be refunded or credited against the
Non-U.S. Shareholder's U.S. Federal income tax liability, provided that
required information is furnished to the Internal Revenue Service.
These backup withholding and information reporting rules are currently
under review by the Treasury Department, and their application to shares of
beneficial interest is subject to change.
PLAN OF DISTRIBUTION
First Union may offer and sell the Offered Securities in any of four
ways: (i) through agents, (ii) to or through underwriters or dealers, which
may include affiliates of First Union, (iii) directly to one or more
purchasers or (iv) through any combination of the foregoing. Direct sales to
investors may be accomplished through subscription offerings or through Rights
distributed to holders of Shares. In connection with subscription offerings or
the distribution of Rights to shareholders, if all of the underlying Offered
Securities are not subscribed for, First Union may sell such unsubscribed
Offered Securities to third parties directly or through underwriters or agents
and, in addition, whether or not all of the underlying Offered Securities are
subscribed for, First Union may concurrently offer additional Offered
Securities to third parties directly or through underwriters or agents. Any
such underwriter or agent involved in the offer and sale of the Offered
Securities will be named in the applicable Prospectus Supplement.
The distribution of the Offered Securities may be effected from time
to time in one or more transactions at a fixed price or prices, which may be
changed, or at prices related to the prevailing market prices at the time of
sale or at negotiated prices (any of which may represent a discount from the
prevailing market prices). First Union also may, from time to time, authorize
underwriters acting as First Union's agents to offer and sell the Offered
Securities upon the terms and conditions as are set forth in the applicable
Prospectus Supplement. In connection with the sale of Offered Securities,
underwriters may be deemed to have received compensation from First Union in
the form of underwriting discounts or commissions and may also receive
commissions from purchasers of Offered Securities for whom they may act as
agent. Underwriters may sell Offered Securities to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent.
Any underwriting compensation paid by First Union to underwriters or
agents in connection with the offering of Offered Securities, and any
discounts, concessions or commissions allowed by underwriters to participating
dealers, will be set forth in the applicable Prospectus Supplement.
Underwriters, dealers and agents participating in the distribution of the
Offered Securities may be deemed to be underwriters, and any discounts and
commissions received by them and any profit realized by them on resale of the
Offered Securities may be deemed to be underwriting discounts and commissions,
under the Securities Act. Underwriters, dealers and agents may be entitled,
under agreements entered into with First Union, to indemnification against and
contribution toward certain civil liabilities, including liabilities under the
Securities Act.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for First Union and its
subsidiaries in the ordinary course of business.
All Offered Securities (except the Shares) will be new issues of
securities with no established trading market. Any underwriters to whom
Offered Securities are sold by First Union for public offering and sale may
make a market in such Offered Securities, but such underwriters will not be
obligated to do so and may discontinue
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<PAGE> 37
any market making at any time without notice. No assurance can be given
concerning the liquidity of the trading market for any Offered Securities.
EXPERTS
The combined financial statements and schedules as of December 31,
1995 and 1994, and for each of the three years in the period ended December 31,
1995, incorporated by reference in the Registration Statement of which this
Prospectus is a part, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
incorporated by reference in reliance upon the authority of said firm as
experts in giving said reports.
LEGAL MATTERS
Certain legal matters relating to the validity of the Offered
Securities offered pursuant to this Prospectus will be passed upon for First
Union by Mayer, Brown & Platt. As to all matters of Ohio law, Mayer, Brown &
Platt will rely on the opinion of Paul F. Levin, Senior Vice President-General
Counsel and Secretary of First Union.
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<PAGE> 38
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
-------------------------------------------
<TABLE>
<CAPTION>
The following table sets forth the estimated expenses in connection with the issuance and distribution of the securities
registered hereby, all of which will be paid by the Registrant:
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,966
Printing and duplicating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Blue Sky fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Accounting fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Rating Agency Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Trustee Fees (including counsel fees) . . . . . . . . . . . . . . . . . . . . . . . 20,000
Miscellaneous expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
--------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $398,966
========
</TABLE>
ITEM 15. INDEMNIFICATION OF TRUSTEES AND OFFICERS.
----------------------------------------
Pursuant to Article III, Section 3.3 of the Amended Declaration of
Trust, each Trustee, officer, employee and agent of the Registrant is entitled
to indemnification for any loss, cost, liability or obligation in connection
with the Registrant's property or the affairs of the Registrant except for such
of his own acts as constitute bad faith, willful misfeasance or willful
disregard of his duties.
The Registrant has acquired insurance indemnifying Trustees and
officers in certain cases and with certain deductible limitations.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
------------------------------------------
See Exhibit Index included herewith which is incorporated herein by
reference.
ITEM 17. UNDERTAKINGS.
------------
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any Prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of the Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed
II-1
<PAGE> 39
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement;
PROVIDED, HOWEVER, that paragraphs (a)(i) and (a)(ii)
do not apply if the information required to be
included in a post-effective amendment by those
paragraphs is contained in periodic reports filed
with or furnished to the Commission by the Registrant
pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to supplement the
applicable prospectus supplement, after the expiration of the subscription
period, to set forth the results of the subscription offer, the transactions by
the underwriters during the subscription period, the amount of unsubscribed
securities to be purchased by the underwriters, and the terms of any subsequent
reoffering thereof. If any public offering by the underwriters is to be made
on terms differing from those set forth on the cover page of the applicable
prospectus supplement, a post-effective amendment will be filed to set forth
the terms of such offering.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and controlling
persons of the Registrant pursuant to the provisions set forth or described in
Item 15 of this Registration Statement, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such Trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the Indenture Trustee to act
under subsection (a) of Section 310 of the Trust Indenture Act in accordance
with the rules and regulations prescribed by the Commission under Section
305(b)(2) of the Act.
II-2
<PAGE> 40
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Cleveland, and State of Ohio, on the
15th day of May, 1996.
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
By:/s/ James C. Mastandrea
--------------------------------
James C. Mastandrea
Chairman, President,
Chief Executive Officer
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the date indicated on the 15th day of May,
1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ James C. Mastandrea Chairman, President, Chief Executive Officer and Chief Financial
----------------------------------- Officer (Principal Executive Officer and Principal Financial Officer)
James C. Mastandrea
/s/ John J. Dee Senior Vice President--Chief Accounting Officer
----------------------------------- (Principal Accounting Officer)
John J. Dee
* Kenneth K. Chalmers Trustee
---------------------------
Kenneth K. Chalmers
* Allen H. Ford Trustee
------------------------------
Allen H. Ford
* Russell R. Gifford Trustee
------------------------------
Russell R. Gifford
* E. Bradley Jones Trustee
------------------------------
E. Bradley Jones
/s/ James C. Mastandrea Trustee
-----------------------------------
James C. Mastandrea
*By:/s/ Paul F. Levin
-------------------------------
Paul F. Levin, Attorney-in-Fact
</TABLE>
II-3
<PAGE> 41
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
<S> <C> <C>
4 (a) -- Declaration of Trust of Registrant dated August 1, 1961, as amended through July 25, 1986 (incorporated by
reference to Registrant's Registration Statement on Form S-3 (No. 33-4493)).
4 (b) -- By-laws of the Registrant, as amended (incorporated by reference to Registrant's Registration Statement on
Form S-3 (No. 33-4493)).
4 (c) -- Rights Agreement between the Registrant and National City Bank dated March 7, 1990 (incorporated by reference
to Registrant's Form 8-A dated March 30, 1990 (No. 0-18411)).
4 (d) -- Form of certificate for Shares of Beneficial Interest (incorporated by reference to Registrant's
Registration Statement on Form S-3 (No. 33-2818)).
4 (e) - Declaration of Trust of First Union Management, Inc. dated June 5, 1980.*
4 (f) -- Form of Indenture governing the Debt Securities.*
5 -- Opinion of Paul F. Levin, Esq. as to legality of the Offered Securities.*
8 -- Opinion of Mayer, Brown and Platt as to certain tax matters.*
12 -- Statement of Ratios of Combined Income From Operations and Combined Net Income to Fixed Charges.
23 (a) -- Consent of Arthur Andersen LLP.
23 (b) -- Consent of Paul F. Levin, Esq. included as part of Exhibit 5.*
23 (c) -- Consent of Mayer, Brown and Platt included as part of Exhibit 8.*
24 (a) -- Powers of Attorney.*
</TABLE>
*Previously Filed
<PAGE> 1
EXHIBIT 12
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS AND
FIRST UNION MANAGEMENT, INC.
STATEMENTS OF RATIOS OF COMBINED INCOME FROM OPERATIONS
AND COMBINED NET INCOME TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
3 Months ended
March 31, Years Ended December 31,
----------------- -------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before capital gain or
loss, extraordinary loss and
cumulative effect of accounting
change $ (877) $ 567 $ 3,256 $ 6,485 $10,276 $12,657 $13,330
Add fixed charges, exclusive of
construction interest capitalized 5,869 5,592 22,987 21,865 19,103 19,469 21,513
------ -------- ------- ------- ------- ------- -------
Income from operations, as defined 4,992 6,159 26,243 28,350 29,379 32,126 34,843
Capital gains --- 29,870 29,870 --- 4,948 5,775 4,906
------- -------- ------- ------ ------- ------- -------
Reduction for unrealized loss on
carrying value of assets identified
for disposition --- --- 14,000 --- --- --- ---
------- -------- ------- ------- ------ ------- -------
Net income, as defined $ 4,992 $ 36,029 $42,113 $28,350 $34,327 $37,901 $39,749
======= ======== ======= ======= ======= ======= =======
Fixed charges:
Interest
- Mortgage loans $ 1,825 $ 1,989 $ 7,670 $ 7,335 $ 5,777 $ 6,182 $ 6,493
- Senior notes 2,326 2,326 9,305 9,305 5,779 4,199 4,199
- 10.25% debentures --- --- --- --- 3,214 3,858 3,858
- Bank loans and other 1,568 1,129 5,422 4,640 3,747 4,694 6,221
- Capitalized interest 81 --- 169 --- --- --- ---
Amortization of debt issue costs 49 44 184 168 162 122 95
Rents (1) 101 104 406 417 424 414 647
-------- -------- ------- ------- ------- ------- -------
Fixed charges, as defined $ 5,950 $ 5,592 $23,156 $21,865 $19,103 $19,469 $21,513
======== ======== ======= ======= ======= ======= =======
Ratio of income from operations, as
defined, to fixed charges .84 1.10 1.13 1.30 1.54 1.65 1.62
======== ======== ======= ====== ======= ======= =======
Ratio of net income, as defined,
to fixed charges .84 6.44 1.82 1.30 1.80 1.95 1.85
======== ======== ======= ====== ======= ======= =======
- ----------------------
<FN>
(1) The interest portion of rentals is assumed to be one-third of all ground rental and
net lease payments.
</TABLE>
<PAGE> 1
Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our reports dated
February 5, 1996 included and incorporated by reference in the First Union Real
Estate Equity and Mortgage Investments Form 10-K and Form 10-K/A for the year
ended December 31, 1995 and to all references to our Firm included in this
registration statement.
Arthur Andersen LLP
Cleveland, Ohio,
May 15, 1996.
