AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 15, 1999
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REGISTRATION NO. 333-63547
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
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)
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COPIES TO:
STEVEN G. SCHEINFELD F. RONALD O'KEEFE
FRIED, FRANK, HARRIS, SHRIVER & HAHN LOESER & PARKS LLP
JACOBSON 3300 BP TOWER
ONE NEW YORK PLAZA 200 PUBLIC SQUARE
NEW YORK, NEW YORK 10004-1980 CLEVELAND, OHIO 44114-2301
(212) 859-8000 (216) 621-0150
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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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CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING REGISTRATION FEE
PRICE(1)
- -------------------------------------------------------------------------------
Rights to purchase Shares of Beneficial
Interest, $1.00 par value per share.... -(2)
- -------------------------------------------------------------------------------
Shares of Beneficial Interest, $1.00 $157,155,000 $46,361
par value per share(3).................
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Total.................................. $157,155,000 $46,361(4)
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(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457.
(2) Pursuant to Rule 457(g), no registration fee is payable with respect to
the Rights because the Rights are being registered in the same
registration statement as the securities being offered pursuant thereto.
(3) Includes rights to purchase Shares of Beneficial Interest, $1.00 par
value per share, under the Company's existing shareholder rights plan.
Prior to the occurrence of certain events, these rights will not be
evidenced separately from the Shares of Beneficial Interest, $1.00 par
value per share.
(4) Previously paid.
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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 OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 15, 1999
PROSPECTUS SUPPLEMENT DATED [ ], 1999
(TO PROSPECTUS DATED [ ], 1999)
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
9,425,840 RIGHTS TO PURCHASE
9,425,840 SHARES OF BENEFICIAL INTEREST
We are distributing to each record holder of our shares of beneficial
interest ("Common Shares") as of the close of business on [ ], 1999 (the
"Record Date"), one non-transferable right (each, a "Right") for every 3.333
Common Shares held. Each Right permits its holder to purchase one Common
Share (the "Basic Subscription") at a subscription price of $5.00 per
Common Share. To help maintain our status as a real estate investment
trust, our by-laws restrict beneficial and constructive ownership of Common
Shares by any person or group of persons acting collectively to 9.8% of our
outstanding Common Shares (the "Share Ownership Limit"). Therefore, the
number of Rights a holder may exercise may be limited.
All Rights will expire at 5:00 p.m., Eastern Standard Time, on [ ],
1999, unless we select a later time and date (the "Expiration Time"). A
Rights holder who exercises in full its Basic Subscription without going
over the Share Ownership Limit may also oversubscribe (the
"Oversubscription Privilege") at the same subscription price for additional
Common Shares not otherwise purchased by others through the exercise of
Rights, up to the Share Ownership Limit. A holder may only exercise its
Oversubscription Privilege concurrently with its Basic Subscription. An
election to exercise Rights or the Oversubscription Privilege is
irrevocable. Holders who do not exercise their Rights will lose any value
inherent in their Rights.
Gotham Partners, L.P., Gotham Partners III, L.P., Gotham Partners
International, Ltd. (collectively, "Gotham") and Elliott Associates, L.P.,
who are shareholders (together, the "Standby Purchasers"), have agreed, in
principle, to purchase, at the subscription price, any Common Shares not
purchased through the exercise of Rights or the Oversubscription Privilege
(the "Standby Commitment"), up to a total of 9,000,000 Common Shares having
a total subscription price of up to $45,000,000. If shareholders subscribe
for fewer than 9,000,000 Common Shares, the Standby Purchasers will
subscribe for the difference. Gotham has agreed to buy 7/9ths and Elliott
Associates has agreed to buy 2/9ths of all Common Shares under the Standby
Commitment (the "Standby Commitment Shares"). The Standby Purchasers'
obligations to purchase the Standby Commitment Shares will expire on April
15, 1999 if this Rights offering has not been completed by that date. Our
Board of Trustees has agreed to waive the Share Ownership Limit for Gotham.
At January 14, 1999, Gotham beneficially owned 9.70% and Elliott Associates
beneficially owned 1.35% of our outstanding Common Shares.
We have applied to list on the New York Stock Exchange ("NYSE") the
Common Shares we intend to issue through this Rights offering. Our Common
Shares are listed on the NYSE under the symbol "FUR," and their last
reported sale price on January 14, 1999 was $5.50.
CONSIDER CAREFULLY THE MATERIAL RISKS BEGINNING ON PAGE S-8 OF THIS
PROSPECTUS SUPPLEMENT AND PAGE 4 OF THE ACCOMPANYING PROSPECTUS BEFORE
DECIDING TO EXERCISE RIGHTS.
PER COMMON TOTAL
SHARE
Price to Investors $5.00 $47,129,200
Proceeds to First Union (1) $5.00 $47,129,200
- --------------------
(1) Before deducting expenses estimated at approximately $[ ] payable
by First Union.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities, or
determined if this prospectus supplement or the accompanying prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
SHAREHOLDERS WHO DO NOT EXERCISE THEIR RIGHTS MAY BE SIGNIFICANTLY
DILUTED IN THEIR RELATIVE PERCENTAGE OWNERSHIP IN FIRST UNION. GOTHAM'S
PURCHASE OF COMMON SHARES MAY ENABLE IT TO CONTROL THE OUTCOME OF ALL
MATTERS SUBMITTED TO SHAREHOLDERS FOR A VOTE, INCLUDING THE ELECTION OF
TRUSTEES AND, CONSEQUENTLY, FIRST UNION'S MANAGEMENT, POLICIES AND
OPERATIONS.
[RED HERRING]
THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS
IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL
THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
IS EFFECTIVE. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS ARE
NOT AN OFFER TO SELL THESE SECURITIES AND THEY ARE NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
Prospectus Supplement Summary..................................... S-3
Risk Factors...................................................... S-8
Use of Proceeds................................................... S-9
Capitalization.................................................... S-10
Selected Financial Data........................................... S-11
The Offering...................................................... S-14
Federal Income Tax Consequences Regarding The Offering............ S-20
Plan of Distribution.............................................. S-21
The Financial Advisor............................................. S-21
Legal Matters..................................................... S-21
Glossary.......................................................... G-1
PROSPECTUS
PAGE
Available Information............................................. 2
Incorporation of Certain Documents By Reference................... 2
Risk Factors...................................................... 4
The Company....................................................... 12
Use of Proceeds................................................... 15
Price Range of Common Shares and Distributions.................... 15
Management........................................................ 17
Description of Capital Stock...................................... 21
Selling Shareholders.............................................. 26
Federal Income Tax Consequences................................... 28
Plan of Distribution.............................................. 37
Experts........................................................... 38
Legal Matters..................................................... 39
Glossary.......................................................... G-1
You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We
have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not making an offer to sell
these securities in any jurisdiction where the offer or sale is not
permitted.
You should assume that the information appearing in this prospectus
supplement and the accompanying prospectus is accurate as of the date on
the front cover of this prospectus supplement only. Our business, financial
condition, results of operations and prospects may have changed since that
date.
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
This summary may not contain all the information that may be important
to you. You should read this entire prospectus supplement and the
accompanying prospectus, including the financial data and the related
notes, before deciding to exercise your Rights. As used in this prospectus
supplement and the accompanying prospectus, the terms (i) "First Union,"
the "Company" or "we" refer to First Union Real Estate Equity and Mortgage
Investments and its subsidiaries, (ii) "FUMI" refers to First Union
Management, Inc. and its subsidiaries, and (iii) "Impark" refers to
Imperial Parking Limited and its subsidiaries and Impark Services Limited
and its subsidiaries, except where it is clear that such terms mean only
the parent company in each instance. See also "Glossary" beginning on page
G-1 for the definitions of certain other capitalized terms used in this
prospectus supplement.
FIRST UNION
We are a REIT and we acquire, reposition and own retail, apartment,
office and parking properties throughout the United States and Canada.
FUMI, one of our affiliates, manages or leases certain of our assets and
owns a controlling interest in Impark. We and FUMI (the "First Union
Companies") have an organizational structure commonly referred to as
"stapled," whereby our Common Shares are "stapled to" a proportionately
equal interest in the shares of common stock of FUMI (the "FUMI Shares"),
with certain exceptions. Our Common Shares may not be issued or transferred
without their "stapled" counterparts in FUMI. FUMI Shares are held in trust
for the benefit of the holders of our Common Shares.
We own regional enclosed shopping malls, apartment complexes, office
buildings and parking facilities. Our portfolio is diversified by type of
property, geographical location, tenant mix and rental market. As of
December 31, 1998, we owned (in fee or under long-term ground leases where
we are the lessee) 21 shopping malls, eight apartment complexes, five
office properties and eight parking facilities in the United States, and
ten parking lots in Canada, as well as land leased to a third party. We
also own 50% of another mall in a joint venture with an unrelated party.
Background of the Offering
In August 1998, we purchased approximately 88% or $88 million of our
then outstanding 8-7/8% Senior Notes due 2003 through a tender offer for
those notes. We also amended the indenture governing the terms of the
Senior Notes through a consent solicitation that we conducted
simultaneously with the tender offer. The purpose of the tender offer and
consent solicitation was (i) to avoid the possibility that we would be
required to purchase the Senior Notes at 101% of their principal amount, an
obligation which we did not have the financial resources to satisfy, and
(ii) to provide us with additional financial and operating flexibility. We
paid the purchase price for the Senior Notes ($970 per $1,000 principal
amount, plus accrued and unpaid interest) and the consent payments for the
indenture amendments ($30 per $1,000 principal amount) with the proceeds of
a $90 million loan (the "Bridge Loan") from Bankers Trust Company, as
agent, and BankBoston, N.A., Blackacre Bridge Capital, Elliott Associates,
Gotham and Wellsford Capital, each as lenders. The Bridge Loan is due
August 11, 1999, bears interest at 12%, and is subject to mandatory
prepayments of principal so that the outstanding principal balance under
the Bridge Loan must be less than $70 million by March 31, 1999 and less
than $50 million by May 31, 1999. We intend to pay down the Bridge Loan
with the net proceeds of certain asset sales and this offering. See "Use of
Proceeds."
The terms of the Bridge Loan required us to obtain standby purchase
commitments for this offering to ensure that the net proceeds of the
offering, together with other sources of funding, would be sufficient to
repay all amounts due and payable under the Bridge Loan, including
principal, interest and fees. To satisfy this requirement, we obtained the
Standby Commitment from the Standby Purchasers. When the Bridge Loan was
funded, we agreed to make to the Standby Purchasers a payment equal to 2%
of the original principal amount of the Bridge Loan (or $1,800,000) (the
"2% Payment") whether or not the offering was completed. Each of the
Standby Purchasers is entitled to its pro rata portion of the 2% Payment
based on its share of the Standby Commitment. The 2% Payment is payable on
the earlier of March 31, 1999 and the date this offering is completed.
THE OFFERING
Rights...................... We are distributing, at no cost, to each
record holder of our Common Shares as of the
close of business on the Record Date, one
non-transferable Right for every 3.333
Common Shares held. We will issue a total of
approximately 9,425,840 Rights. All Common
Shares issued in the offering will be
stapled to a proportionately equal interest
in FUMI Shares, with certain exceptions. See
"Description of Capital Stock -- Common
Shares -- Beneficial Ownership of FUMI" in
the accompanying prospectus. Holders who own
Common Shares through our dividend
reinvestment plan as of the Record Date will
receive Rights for those shares only if they
follow the procedures described in "The
Offering-- Holders of Common Shares in
Dividend Reinvestment Plan."
Record Date................. [ ], 1999.
Subscription Price.......... $5.00 per Common Share.
Closing Price of the Common
Shares on the NYSE on
[ ], 1999........ $[ ] per Common Share.
Basic Subscription.......... Each Right permits its holder to purchase one
Common Share at the Subscription Price. The
number of Rights a holder may exercise may be
limited by the Share Ownership Limit.
Oversubscription Privilege.. A Rights holder who exercises in full its Basic
Subscription without going over the Share
Ownership Limit may also oversubscribe at the
Subscription Price for additional Common Shares
not otherwise purchased by others through the
exercise of Rights, up to the Share Ownership
Limit. If there are not enough unsubscribed
Common Shares available to satisfy fully all
elections to exercise the Oversubscription
Privilege, the available unsubscribed Common
Shares will be allocated pro rata among holders
who exercise the Oversubscription Privilege
based on the respective numbers of Rights
exercised by those holders through the Basic
Subscription. A holder may only exercise its
Oversubscription Privilege concurrently with
its Basic Subscription. See "The Offering--
Oversubscription Privilege."
Standby Commitment.......... The Standby Purchasers have agreed, in
principle, to purchase (subject to certain
customary rights to terminate), at the
Subscription Price, any Common Shares not
purchased through the exercise of Rights or
the Oversubscription Privilege, up to a
total of 9,000,000 Common Shares having a
total subscription price of up to
$45,000,000. If holders subscribe for fewer
than 9,000,000 Common Shares through their
Basic Subscription and Oversubscription
Privilege, the Standby Purchasers will
subscribe for the difference. Gotham has
agreed to buy 7/9ths and Elliott Associates
has agreed to buy 2/9ths of all Standby
Commitment Shares. The Standby Purchasers'
obligations to purchase the Standby
Commitment Shares will expire on April 15,
1999 if the offering has not been completed
by that date.
Our Board of Trustees has agreed to waive the
Share Ownership Limit to enable Gotham to
exercise Rights and the Oversubscription
Privilege and to satisfy its obligations under
the Standby Commitment. An independent
committee of the Board of Trustees has approved
the terms and conditions of the Standby
Commitment. See "The Offering -- Standby
Commitment." As of January 14, 1999, Gotham
and Elliott Associates beneficially owned 9.70%
and 1.35%, respectively, of our outstanding
Common Shares.
Share Ownership Limit;
Limitations on
Subscription................ To help maintain our status as a REIT, our
by-laws restrict beneficial and constructive
ownership of Common Shares by any person or
group of persons acting collectively to 9.8% of
our outstanding Common Shares. See "The
Offering-- Basic Subscription; Limitations on
Subscription" in this prospectus supplement and
"Federal Income Tax Consequences" and
"Description of Capital Stock-- Common Shares--
Restriction on Size of Holdings" in the
accompanying prospectus.
A holder may exercise only up to the number of
Rights that would allow that holder to reach
but not go over the Share Ownership Limit. A
holder's percentage beneficial ownership
interest in Common Shares ("Beneficial
Ownership Interest") will be calculated
promptly after the Expiration Time by dividing
(i) the sum of (a) the total number of Common
Shares beneficially owned by that holder
immediately before the Expiration Time, (b) the
total number of Common Shares for which that
holder has exercised Rights and (c) the total
number of Common Shares into which all Series A
Cumulative Redeemable Preferred Shares of
Beneficial Interest, $1.00 par value per share
(the "Series A Preferred Shares") beneficially
owned by that holder immediately before the
Expiration Time are convertible, by (ii) the
sum of (a) the total number of Common Shares
outstanding immediately after completion of
this offering and (b) the total number of
Common Shares into which all Series A Preferred
Shares beneficially owned by that holder
immediately after completion of this offering
are convertible. See "The Offering -- Basic
Subscription; Limitations on Subscription."
The anticipated size of a holder's
Beneficial Ownership Interest after
completion of this offering cannot be
determined at the time that holder exercises
its Rights because the size of that interest
will depend in large part on the number of
Common Shares subscribed for by other
holders. However, in light of the Standby
Commitment, a holder, in calculating its
Beneficial Ownership Interest, may assume
that at least 9,000,000 Common Shares
offered for sale in this offering will be
issued. See "The Offering -- Standby
Commitment." Any Rights exercised by a
holder and any Common Shares subscribed for
by a holder through the exercise of its
Oversubscription Privilege that would cause
it to go over the Share Ownership Limit will
not be considered exercised or subscribed
for by that holder. The total Subscription
Price paid by a holder for Rights that are
not considered exercised will be returned to
that holder, without interest, as soon as
practicable after completion of this
offering. See "The Offering -- Escrow
Arrangements; Return of Funds."
If a holder subscribes for and, inadvertently
or otherwise, is issued a number of Common
Shares that causes that holder to go over the
Share Ownership Limit, the number of Common
Shares in excess of the Share Ownership Limit
will constitute "Excess Shares" under our
by-laws and therefore will not have dividend,
voting and other rights or be considered
outstanding for quorum, voting and other
purposes. See "Description of Capital Stock --
Common Shares -- Restriction on Size of
Holdings" in the accompanying prospectus.
Transferability of Rights... Rights may not be transferred, except by
operation of law.
Subscription Agent.......... National City Bank.
Procedure for Exercise...... A holder may exercise its Basic Subscription
and Oversubscription Privilege by properly
completing and executing the certificate
evidencing its Rights (a "Rights Certificate")
and forwarding that Rights Certificate,
together with payment of the Subscription Price
for each Common Share subscribed for, to the
Subscription Agent on or before the Expiration
Time. If a holder chooses to forward a Rights
Certificate by mail, we recommend using
insured, registered mail. Alternatively, a
holder may use the Guaranteed Delivery
Procedures as described in "The Offering-- Late
Delivery of Payments and Rights Certificates."
A Rights holder may not revoke any exercise of
its Basic Subscription or Oversubscription
Privilege.
No Fractional Common Shares. We will not issue any fractional Common Shares
for the exercise of any Rights or the
Oversubscription Privilege or through the
Standby Commitment.
Persons Holding Through
Others...................... Persons holding Common Shares and receiving
Rights through a broker, dealer, commercial
bank, trust company or other nominee, as well
as persons holding stock certificates who would
prefer to have such institutions exercise
Rights and subscribe for Common Shares on their
behalf, should contact the appropriate nominee
or institution and request it to effect such
transactions for them. See "The Offering --
Method of Exercising Rights and
Oversubscription Privilege."
Issuance of Certificates.... Certificates representing Common Shares
purchased in this offering will be delivered to
subscribers as soon as practicable following
the Expiration Time. See "The Offering --
Delivery of Common Shares."
Common Shares Outstanding
Before this Offering (1).... 31,416,326.
Series A Preferred Shares
Outstanding Before this
Offering (2)................ 1,349,000.
Common Shares Outstanding
After this Offering (3)..... 40,842,166.
Use of Proceeds............. We intend to use the net proceeds of this
offering to repay borrowings under the Bridge
Loan. See "Use of Proceeds."
Expiration Time............. [ ], 1999 at 5:00 p.m., Eastern
Standard Time, unless we select a later date
and time in our sole discretion. After that
time, Rights will become void and have no value.
- ------------------
(1) As of December 31, 1998.
(2) As of December 31, 1998. As of such date, each outstanding Series A
Preferred Share was convertible into 3.31 Common Shares. See
"Description of Capital Stock -- Preferred Shares -- Conversion Rights" in
the accompanying prospectus.
(3) Does not include Common Shares issuable upon conversion of Series A
Preferred Shares. Assumes all Rights are exercised.
RISK FACTORS
You should carefully consider the matters discussed under "Risk
Factors" in this prospectus supplement and the accompanying prospectus
before deciding to exercise your Rights.
<PAGE>
RISK FACTORS
You should carefully consider the following matters and the matters
discussed under "Risk Factors" in the accompanying prospectus as well as
the information contained elsewhere or incorporated by reference in this
prospectus supplement and the accompanying prospectus.
DILUTION IN THE OFFERING
Holders who do not exercise their Rights and subscribe for Common
Shares will experience dilution of their equity ownership interest in First
Union. This dilution may be significant. In addition, because Rights are
not transferable, holders not exercising their Rights will relinquish any
value inherent in those Rights. Purchasers of Common Shares in the offering
will experience immediate and significant dilution in the net tangible book
value per share of such Common Shares.
UNCERTAIN AVAILABILITY OF ADDITIONAL FINANCING
Although we believe that, after this offering, our cash reserves, cash
flows from operations, anticipated cash flows from asset sales and
available funding under our credit facilities will be adequate to fund our
operations through the end of 1999, we can give no assurance that these
sources will be sufficient or that we will not need additional funding
either during or after this period. If we require additional financing, we
can provide no assurance that such financing will be available or, if
available, that it will be available to us on commercially reasonable
terms. If adequate funds are not available to satisfy either our short- or
long-term capital requirements, we may be required to limit our operations
significantly.
CONTROL BY GOTHAM
If no Rights are exercised and the Standby Purchasers purchase all the
Standby Commitment Shares they are required to purchase under the Standby
Commitment, Gotham will own approximately [ ]% of our issued and
outstanding Common Shares after completion of this offering. The purchase
of Common Shares by Gotham through the Oversubscription Privilege and the
Standby Commitment may enable it to control the outcome of all matters
submitted to shareholders for a vote, including the election of Trustees
and, consequently, our management, policies and operations.
LIMITATIONS ON SUBSCRIPTIONS
Whether a holder may exercise all of its Rights through the Basic
Subscription and the Oversubscription Privilege will depend on that
holder's total equity interest in us following such exercise. A holder may
exercise only up to the number of Rights that would allow it to reach but
not go over the Share Ownership Limit. Any Rights exercised and any Common
Shares subscribed for through the exercise of the Oversubscription
Privilege that would cause a holder to go over the Share Ownership Limit
will not be considered exercised or subscribed for by that holder. Given
the way the Share Ownership Limit is determined, holders may be forced to
exercise fewer Rights and thereby acquire fewer Common Shares than they
desire. If a holder subscribes for and, inadvertently or otherwise, is
issued a number of Common Shares that makes that holder go over the Share
Ownership Limit, the number of Common Shares in excess of the Share
Ownership Limit would constitute "Excess Shares" under our by-laws and
therefore would not, in the hands of that holder, have dividend, voting and
other rights or be considered outstanding for quorum, voting and other
purposes. See "Description of Capital Stock -- Common Shares -- Restriction
on Size of Holdings" in the accompanying prospectus.
FAILURE TO PURCHASE STANDBY COMMITMENT SHARES
The Standby Purchasers have agreed, in principle, to purchase the
Standby Commitment Shares. However, the Standby Purchasers' obligations
under the Standby Commitment are not secured by any collateral and there
can be no assurance that the Standby Purchasers will purchase such Standby
Commitment Shares. In addition, the Standby Purchasers' obligations under
the Standby Commitment are subject to certain customary rights to
terminate. If any Standby Purchaser does not purchase its pro rata portion
of Standby Commitment Shares (whether through the failure to perform its
obligations, through the exercise of any termination rights or through the
failure of this offering to be completed on or before April 15, 1999), we
may not receive proceeds sufficient to enable us to make certain mandatory
principal payments under the Bridge Loan. A failure by any Standby
Purchaser to purchase its pro rata portion of the Standby Commitment Shares
would also result in an event of default under the Bridge Loan. Our failure
to make mandatory principal payments or the Standby Purchasers' failure to
purchase the Standby Commitment Shares would enable the lenders to
accelerate all amounts due under the Bridge Loan and trigger cross-defaults
under our other debt obligations.
RESALE PRICE OF COMMON SHARES MAY NOT EQUAL OR EXCEED THE SUBSCRIPTION PRICE
There can be no assurance that, after we issue Rights and the Common
Shares upon exercise of Rights, a subscribing holder will be able to sell
Common Shares purchased in this offering at a price equal to or greater than
the Subscription Price.
USE OF PROCEEDS
We anticipate receiving approximately $45.3 million in net proceeds
from the sale of the Common Shares in this offering (after deducting the 2%
Payment but prior to deducting our other estimated offering expenses). We
will use the net proceeds to repay borrowings under the Bridge Loan. As of
January 14, 1999, $90 million in principal amount was outstanding under the
Bridge Loan. Borrowings under the Bridge Loan accrue interest at a rate of
12% per annum. We are obligated to make mandatory principal repayments
under the Bridge Loan to reduce its outstanding principal balance to less
than $70 million by March 31, 1999 and less than $50 million by May 31,
1999. The Bridge Loan terminates on August 11, 1999. For a more detailed
description of the Bridge Loan, see "The Company -- Recent Developments" in
the accompanying prospectus.
<PAGE>
CAPITALIZATION
The following table shows the capitalization of the First Union
Companies on a consolidated basis (i) at September 30, 1998 and (ii) as
adjusted to give effect to this offering (assuming all Rights are exercised)
and the application of the net proceeds therefrom:
SEPTEMBER 30, 1998
--------------------------------------
AS ADJUSTED
FOR THE
HISTORICAL OFFERING(1)
--------------------------------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
` ---------------------------------------
SENIOR DEBT:
Bank loans............................... $101,995 $101,995
Bridge Loan.............................. 90,000 44,671
Mortgage debt, ranging from 6.869% to
12.25% and due 1998 to 2018.............. 346,065 346,065
Senior Notes(2).......................... 12,538 12,538
Notes Payable............................ 4,998 4,998
-------- --------
Total debt............................ 555,596 510,267
-------- --------
SHAREHOLDERS' EQUITY:
Series A Preferred Shares (liquidation
preference $25 per
share); 2,300,000 shares authorized and 31,737 31,737
1,349,000 shares outstanding............
Common Shares; unlimited authorization and
31,416,326 Common Shares outstanding;
40,842,166 Common Shares, as adjusted... 31,416 40,842
Additional paid-in capital............... 190,245 226,148
Deficit from operations.................. (25,186) (25,186)
Undistributed capital gains.............. 14,948 14,948
Foreign currency translation adjustment.. (1,449) (1,449)
-------- --------
Total shareholders' equity............ 241,711 287,040
-------- --------
Total capitalization.................. $797,307 $797,307
======== ========
- ------------------
(1) See "Use of Proceeds."
(2) First Union repaid $87.5 million of the original $100 million principal
amount of the Senior Notes in August 1998 with the proceeds of the
Bridge Loan.
<PAGE>
SELECTED FINANCIAL DATA
Set forth below is selected consolidated financial data of the First
Union Companies for the nine months ended September 30, 1998 and 1997 and
for the years ended December 31, 1997, 1996, 1995, 1994 and 1993. The
selected financial data has been derived from, and should be read in
conjunction with, the unaudited combined financial statements and
accompanying notes included in First Union's Quarterly Report on Form 10-Q
for the nine months ended September 30, 1998 and 1997 (the "Quarterly
Report") and the audited combined financial statements and accompanying
notes included in First Union's Annual Reports on Form 10-K for the years
ended December 31, 1997, 1996, 1994 and 1993 and Form 10-K/A for the year
ended December 31, 1995 (collectively, the "Annual Reports"). The unaudited
financial statements include all adjustments, consisting of normal
recurring accruals, which First Union considered necessary for a fair
presentation of the First Union Companies' financial position and the
results of operations for those periods. Operating results for the nine
months ended September 30, 1998 are not necessarily indicative of the
results that may be expected for the entire year ending December 31, 1998.
The selected financial data below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the First Union Companies' financial statements and notes
thereto contained in the Quarterly Report and the Annual Reports.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
-------------- ----------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Revenues (1)...............$240,871 $154,203 $235,544 $81,867 $79,205 $76,339 $74,339
Property net operating
income (1)(2)............ 61,267 42,181 64,428 47,349 44,086 41,759 41,414
Interest expense (1)....... 37,567 18,483 29,864 23,426 22,397 21,280 18,517
Depreciation and
amortization (1)(3)...... 20,365 12,724 19,451 13,149 11,901 10,555 9,763
Income (loss) before
capital gain or loss,
extraordinary loss,
cumulative effect
of accounting change
and minority
interest (1)(4).......... (30,255) 6,057 6,931 4,422 3,256 6,485 10,276
Unrealized loss on
carrying value of
assets identified for
disposition.............. -- -- -- -- (14,000) -- --
Capital gains, net......... 8,648 -- 225 -- 29,870 -- 4,948
Extraordinary loss from
early extinguishment
of debt (5).............. (1,633) -- (226) (286) (910) -- (1,240)
Cumulative effect of
change in accounting
for internal lease
costs (3)................ -- -- -- -- (4,325) -- --
Allocation of minority
interest................. -- -- 944 -- -- -- --
Net income (loss) before
preferred
dividend (4)............. (23,240) 6,057 7,874 4,136 13,891 6,485 13,984
Preferred dividend......... (2,291) (3,622) (4,831) (845) -- -- --
Net income (loss)
applicable to shares of
beneficial interest (4).. (25,531) 2,435 3,043 3,291 13,891 6,485 13,984
Net income (loss)
applicable to shares of
beneficial interest per
share; basic and
diluted (4).............. $ (0.84) $ 0.10 $ 0.12 $ 0.19 $ 0.77 $ 0.36 $ 0.77
Supplementary net income
(loss) per share (6)..... $ (0.61) $ 0.13 $ 0.16 -- -- -- --
Basic weighted average
shares................... 30,561 23,522 24,537 17,172 18,059 18,105 18,096
Stock options, treasury
method................... -- 444 571 367 -- -- --
Restricted shares,
treasury method.......... 2 225 307 167 58 15 --
Diluted weighted average
shares................... 30,563 24,191 25,415 17,706 18,117 18,120 18,096
OTHER DATA:
Net cash provided by
(used for)
Operations............... $4,332 $20,829 $15,740 $11,085 $12,989 $19,053 $19,649
Investing................ (48,871) (111,701) (112,233) (47,002) (28,345) (26,507) (6,911)
Financing................ 50,875 109,233 110,406 35,466 15,783 (28,094) 24,793
EBIDA (7).................. 27,677 37,264 51,415 40,152 37,554 38,320 38,556
Funds from operations
after preferred
dividends (3)(8)......... (14,166) 14,965 21,150 16,010 14,291 16,472 19,701
Preferred dividend accrued. 2,291 3,622 4,831 845 -- -- --
Dividends declared......... 3,478 8,550 11,651 7,684 7,542 7,273 13,031
Dividends declared per
share.................... $ 0.11 $ 0.33 $ 0.44 $ 0.44 $ 0.41 $ 0.40 $ 0.72
Dividends payout as a
percent of funds from
operations (3)(4)(8)..... --(9) 57% 55% 48% 53% 44% 66%
FINANCIAL POSITION AT END
OF PERIOD (1)
Gross investment in
real estate assets.......$841,765 $769,436 $757,879 $459,563 $449,560 $436,394 $409,060
Total Assets............... 849,581 816,079 820,021 440,530 400,999 376,189 393,621
Total Debt.. .............. 555,596 488,058 483,459 254,868 258,454 238,296 257,355
Shareholders' equity....... 241,711 250,820 265,105 152,553 102,355 102,940 103,766
(1) In September 1997, First Union acquired the interests of its joint
venture partners in eight shopping malls and 50% of another mall and
First Union acquired voting control of Impark in April 1997.
(2) Property net operating income is property revenue, equity in income of
the joint venture, joint venture management fees and mortgage
investment income less property operating expenses and real estate
taxes, before debt service and depreciation and amortization.
(3) In December 1995, First Union changed its method to directly expense
internal leasing costs and recorded a $4.3 million noncash charge for
the cumulative effect of the accounting change as of the beginning of
1995. Funds from operations and depreciation and amortization for
previous years have been restated for the change in accounting method
on a basis comparable to 1995.
(4) During the nine months ended September 30, 1998, First Union recognized
$16.9 million of one-time expenses primarily in connection with the
proxy contest waged by Gotham in the first half of 1998 and the
resulting change in the composition of First Union's Board of
Trustees. These one-time expenses included proxy expenses and related
legal fees of $4.8 million, including $3.1 million of Gotham's proxy
and litigation expenses, $3.4 million for expenses relating to First
Union's terminated Chairman of the Board, Chief Executive Officer and
President, $5.1 million for expenses relating to the vesting of
restricted stock granted to other employees of the First Union
Companies and $3.6 million for expenses related to anticipated employee
terminations. First Union also recognized the potential loss of a $2.3
million deposit to purchase a parking facility. Additionally, in the
third quarter of 1998, because of the adoption of the Financial
Accounting Standards Board's Emerging Issues Task Force Bulletin 98-9
(EITF 98-9), "Accounting for Contingent Rents in Interim Financial
Reports," no percentage rent from tenants was recorded in the third
quarter of 1998, which resulted in a decrease of $1.5 million in
revenues in the quarter. The one-time expenses and the deferral of
percentage rent income also negatively affected net income and funds
from operations. In 1995, First Union recognized $1.6 million of
litigation and proxy expenses related to a minority-shareholder lawsuit
and proxy contest.
(5) In August 1998, $87.5 million of the Senior Notes were repaid,
resulting in $1.6 million of issuance costs and solicitation fees being
expensed. In 1997 and 1996, First Union renegotiated its bank credit
agreements, resulting in a $226,000 and $286,000 charge, respectively,
related to the write-off of unamortized costs. In November 1995, First
Union paid approximately $36 million of mortgage debt resulting in a
$910,000 charge for the write-off of unamortized costs and prepayment
premiums. In November 1993, First Union repaid prior to their maturity
dates $45 million of senior notes and $37.6 million on convertible
debentures resulting in a $1.2 million charge for the write-off of
unamortized issue costs and payment of a redemption premium.
(6) Supplementary net income (loss) per share is a pro forma calculation
which assumes the repayment of debt in 1997 and 1998 from the proceeds
of First Union's equity offerings in January 1997, June 1997 and
[ ] 1999. The net proceeds from First Union's January 1997
offering are assumed to repay $25.8 million in bank loans and $11.2
million of mortgage debt outstanding at the beginning of the year.
From the [ ] 1999 offering, $45.3 million in principal amount of
the Bridge Loan is assumed to be repaid. The shares from the offerings
in January 1997, June 1997 and [ ] 1999 are assumed outstanding
at the beginning of each period.
(7) EBIDA is calculated as income (loss) before capital gain or loss,
extraordinary loss, cumulative effect of accounting change and minority
interest plus interest expense and depreciation and amortization and
after preferred dividend.
(8) The amount of funds from operations is calculated as income (loss)
before capital gain or loss, extraordinary loss, cumulative effect of
accounting change and minority interest and after preferred dividend,
plus noncash charges for depreciation and amortization for both First
Union and the joint venture interest and less amortization allocated to
the minority interest. However, amortization of intangible assets from
the acquisition of Impark has been included in funds from operations.
First Union has adopted the new definition of funds from operations as
recommended by the National Association of Real Estate Investment
Trusts (NAREIT) in 1997. This definition of funds from operations
excludes depreciation and amortization of debt issue costs and other
corporate assets. Previously, First Union has chosen to add back all
expenses included in depreciation and amortization. Accordingly, funds
from operations and dividend payout as a percentage of funds from
operations for the years 1993 through 1996 have been restated to
conform with the NAREIT definition. Although funds from operations
does not replace net income (determined in accordance with generally
accepted accounting principles) as a measure of performance, or net
cash flows as a measure of liquidity, it is often used by real estate
investment trusts as a supplemental measure of operating performance.
(9) Not meaningful.
</TABLE>
<PAGE>
THE OFFERING
BASIC SUBSCRIPTION; LIMITATIONS ON SUBSCRIPTION
First Union is distributing, at no cost, to each holder of Common
Shares of record as of the close of business on the Record Date, one Right
for every 3.333 Common Shares held. Each Right entitles its holder to
purchase one Common Share at the Subscription Price. Holders who own Common
Shares through the Company's dividend reinvestment plan as of the Record
Date will not receive Rights for such Common Shares unless they follow the
procedures described in "-- Holders of Common Shares in Dividend
Reinvestment Plan." Any Common Shares issued in the offering will be
stapled to a proportionately equal interest in FUMI Shares, subject to
certain exceptions. See "Description of Capital Stock -- Common Shares --
Beneficial Ownership of FUMI" in the accompanying prospectus.
A holder may exercise only up to the number of Rights that would cause
that holder to reach but not exceed the Share Ownership Limit. See
"Description of Capital Stock -- Common Shares -- Restriction on Size of
Holdings" in the accompanying prospectus. A holder's Beneficial Ownership
Interest will be calculated promptly following the Expiration Time by
dividing (i) the sum of (a) the total number of Common Shares beneficially
owned by that holder immediately prior to the Expiration Time, (b) the
total number of Common Shares for which that holder has exercised Rights
and (c) the total number of Common Shares into which all Series A Preferred
Shares beneficially owned by that holder immediately prior to the
Expiration Time are convertible, by (ii) the sum of (a) the total number of
Common Shares outstanding immediately after completion of this offering and
(b) the total number of Common Shares into which all Series A Preferred
Shares beneficially owned by that holder immediately after completion of
this offering are convertible.
The anticipated size of a holder's Beneficial Ownership Interest after
consummation of this offering cannot be determined at the time that holder
exercises its Rights because the size of that interest will depend in large
part on the number of Common Shares subscribed for by other holders.
However, in light of the Standby Commitment, a holder, in calculating such
Beneficial Ownership Interest, may assume that at least 9,000,000 Common
Shares offered for sale in the offering will be issued. See "-- Standby
Commitment." Any Rights exercised by that holder and any Common Shares
subscribed for by that holder through the exercise of its Oversubscription
Privilege that would cause it to exceed the Share Ownership Limit will be
deemed not to have been exercised or subscribed for by that holder. The
aggregate Subscription Price paid by a holder for Rights that are deemed
not to have been exercised will be returned to that holder, without
interest, as soon as practicable following consummation of the offering.
See "-- Escrow Arrangements; Return of Funds."
If a holder subscribes for and, inadvertently or otherwise, is issued
a number of Common Shares that causes that holder to exceed the Share
Ownership Limit, the number of Common Shares in excess of the Share
Ownership Limit will constitute Excess Shares under First Union's by-laws
and therefore will not, in the hands of that holder, carry dividend, voting
and other rights or be deemed outstanding for quorum, voting and other
purposes. See "Description of Capital Stock -- Common Shares -- Restriction
on Size of Holdings" in the accompanying prospectus.
Rights are represented by Rights Certificates which shareholders will
receive with the delivery of this prospectus supplement. A holder of Rights
may (a) subscribe for Common Shares through the exercise of all of its
Rights (including the exercise of the Oversubscription Privilege, if that
holder so elects), (b) subscribe for Common Shares through the exercise of
a portion of its Rights or (c) allow all or a portion of its Rights to
expire unexercised.
No fractional Rights or cash in lieu of fractional Rights will be
issued or paid by First Union.
Promptly after the Expiration Time, First Union will send each holder
exercising the Basic Subscription a written confirmation of the number of
Common Shares allocated to that holder in the Basic Subscription.
Certificates representing Common Shares purchased through the Basic
Subscription will be delivered to holders as soon as practicable following
the Expiration Time. Any amounts paid by holders in respect of Rights
deemed not to have been exercised will be refunded as soon as practicable
after the Expiration Time without interest.
EXPIRATION TIME
The Rights will expire at 5:00 p.m., Eastern Standard Time, on [ ],
1999 or such later date and time as First Union may determine in its sole
discretion. After that time, Rights will become void and have no value.
Notice will be given to shareholders of record on the Record Date, by mail
or by publication in a newspaper of national circulation, of a new
Expiration Time if First Union extends the period for the exercise of the
Rights.
OVERSUBSCRIPTION PRIVILEGE
A holder of Rights who validly exercises in full its Basic
Subscription without exceeding the Share Ownership Limit may also
oversubscribe at the Subscription Price for additional Common Shares that
have not been purchased through the exercise of Rights, subject to the
Share Ownership Limit.
If an insufficient number of unsubscribed Common Shares is available
to satisfy fully all elections to exercise the Oversubscription Privilege,
the available unsubscribed Common Shares will be allocated pro rata among
holders who exercise the Oversubscription Privilege based on the respective
numbers of Rights exercised by those holders through the Basic
Subscription. If that allocation, however, results in any holder being
allocated a greater number of unsubscribed Common Shares than that holder
subscribed for through the exercise of the Oversubscription Privilege, then
that holder will be allocated only the number of unsubscribed Common Shares
as that holder subscribed for, and the remaining unsubscribed Common Shares
otherwise allocable to that holder will be allocated among all other
holders exercising the Oversubscription Privilege pro rata based upon the
number of Rights exercised by each such holder. No fractional Common Shares
will be issued in connection with the Oversubscription Privilege. A holder
that elects to exercise the Oversubscription Privilege must do so
concurrently with its exercise of the Basic Subscription.
As soon as practicable after the Expiration Time, First Union will
send each holder exercising the Oversubscription Privilege a written
confirmation of the number of Common Shares allocated to that holder
through the Oversubscription Privilege. Certificates representing the
Common Shares purchased through the Oversubscription Privilege will be
delivered to holders as soon as practicable following the Expiration Time
and after all prorations have been effected. Any amounts overpaid by
holders will be refunded as soon as practicable after the Expiration Time
without interest.
SUBSCRIPTION PRICE
The Subscription Price for one Common Share, which may be purchased
upon the exercise of one Right, is $5.00. Common Shares purchased by a
holder through the Oversubscription Privilege or by a Standby Purchaser
through the Standby Commitment shall have the same Subscription Price as
Common Shares purchased through the Basic Subscription.
HOLDERS OF COMMON SHARES IN DIVIDEND REINVESTMENT PLAN
Certain shareholders may own Common Shares through the First Union
Dividend Investment Service, the Company's dividend reinvestment plan (the
"Plan"). Those Common Shares are registered in the name of a nominee of the
Plan administrator. Shareholders who own Common Shares through the Plan
will not receive Rights for those Common Shares unless such holders request
certificates for some or all of those Common Shares (so that such Common
Shares are held directly by such holders and not by the Plan) at least 48
hours prior to the Record Date. Holders who so request certificates in
accordance with the Plan will receive Rights only for the number of Common
Shares covered by the certificates. The Plan administrator will not
exercise any Rights issued in respect of the Common Shares held by the
Plan.
WITHDRAWAL
First Union reserves the right to withdraw the offering at any time
prior to or at the Expiration Time and for any reason (including, without
limitation, the market price of the Common Shares), in which event all
funds received from holders will be refunded promptly without interest.
SUBSCRIPTION AGENT
The Subscription Agent and escrow agent for this offering is National
City Bank. The address to which Rights Certificates, Notices of Guaranteed
Delivery and payments should be mailed or delivered is:
By Regular Mail: By Facsimile Transmission: By Hand or Overnight
Courier
National City Bank, 216-476-8367 National City Bank,
Subscription Agent (for Eligible Subscription Agent
Corporate Trust Operations Institutions only) Corporate Trust
P.O. Box 94720 Confirm by Telephone Operations
Cleveland, Ohio 44101-4720 216-476-8936 3rd Floor, North Annex
(for Facsimile 4100 West 150th Street
Confirmation Only) Cleveland, Ohio 44135
Delivery of Rights Certificates, Notices of Guaranteed Delivery and
payments (other than wire transfers) other than as set forth above will not
constitute a valid delivery.
ANY QUESTIONS OR REQUESTS FOR ASSISTANCE CONCERNING THE METHOD OF
SUBSCRIBING FOR COMMON SHARES OR FOR ADDITIONAL COPIES OF THIS PROSPECTUS
SHOULD BE DIRECTED TO NATIONAL CITY BANK, THE SUBSCRIPTION AGENT, AT
800-622-6757.
FRACTIONAL COMMON SHARES
No fractional Common Shares will be issued as a result of the exercise
of any Rights or Oversubscription Privilege or pursuant to the Standby
Commitment. Rights Certificates may not be divided in any manner as to
create fractional Rights. Banks, trust companies, securities dealers and
brokers that hold Common Shares as nominees for more than one beneficial
owner may have a Rights Certificate divided by the Subscription Agent or
may, upon proper showing to the Subscription Agent, exercise their Rights
on the same basis as if the beneficial owners were record holders on the
Record Date. First Union reserves the right to deny any division of Rights
Certificates if in its opinion the result would be inconsistent with the
intent of this privilege.
METHOD OF EXERCISING RIGHTS AND OVERSUBSCRIPTION PRIVILEGE
A holder may exercise its Basic Subscription and Oversubscription
Privilege by properly completing and executing the Rights Certificate
accompanying this prospectus supplement and related prospectus and
forwarding the Rights Certificate, together with payment of the
Subscription Price for each Common Share subscribed for through the Basic
Subscription and the Oversubscription Privilege, to the Subscription Agent
at the appropriate address set forth above. Persons holding Common Shares
and receiving Rights through a broker, dealer, commercial bank, trust
company or other nominee, as well as persons holding stock certificates who
would prefer to have such institutions effect transactions relating to
Rights on their behalf, should contact the appropriate nominee or
institution and request it to effect the transactions for them. Banks,
trust companies, securities dealers and brokers that hold Common Shares as
nominee for more than one beneficial owner may, upon proper showing to the
Subscription Agent, exercise their Basic Subscription and Oversubscription
Privilege on the same basis as if the beneficial owners were record holders
on the Record Date. In the case of holders of Rights that are held of
record through The Depository Trust Company ("DTC"), those Rights may be
exercised by instructing DTC to transfer Rights from that holder's DTC
account to the Subscription Agent's DTC account, together with payment of
the full Subscription Price. Except as described under "-- Late Delivery of
Payments and Rights Certificates," to be accepted, the properly completed
and duly executed Rights Certificate and the payment must be received by
the Subscription Agent prior to the Expiration Time. Rights Certificates
received after such time will not be honored.
Payments must be made in full in United States currency by either (a)
a check or bank draft drawn upon a U.S. bank or postal, telegraphic or
express money order payable to National City Bank, as Subscription Agent,
or (b) a wire transfer of funds to the account maintained by the
Subscription Agent for that purpose at National City Bank, Cleveland, Ohio.
Any wire transfer of funds should clearly indicate the identity of the
subscriber who is paying the Subscription Price by the wire transfer.
Holders should contact the Subscription Agent at 800-622-6757 for specific
payment instructions. The Subscription Price will be deemed to have been
received by the Subscription Agent only upon (i) clearance of any
uncertified check, (ii) receipt by the Subscription Agent of any certified
check or bank draft drawn upon a U.S. bank or of any postal, telegraphic or
express money order or (iii) receipt of good funds in the Subscription
Agent's account designated above.
The instruction letter accompanying the Rights Certificate should be
read carefully and strictly followed. DO NOT SEND RIGHTS CERTIFICATES OR
PAYMENTS TO FIRST UNION. Except as described under the caption "-- Late
Delivery of Payments and Rights Certificates," no subscription will be
deemed to have been received until the Subscription Agent has received
delivery of a properly completed and duly executed Rights Certificate and
payment of the full Subscription Price. The risk of delivery of all
documents and payments is on holders, not First Union or the Subscription
Agent.
THE METHOD OF DELIVERY OF RIGHTS CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE RISK OF THE
RIGHTS HOLDERS, BUT IF SENT BY MAIL, IT IS RECOMMENDED THAT THOSE
CERTIFICATES AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE
ALLOWED TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT AND CLEARANCE OF
PAYMENT PRIOR TO THE EXPIRATION TIME. BECAUSE UNCERTIFIED PERSONAL CHECKS
MAY TAKE UP TO FIVE BUSINESS DAYS TO CLEAR, YOU ARE STRONGLY URGED TO PAY
OR ARRANGE FOR PAYMENT BY MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY
ORDER OR WIRE TRANSFER OF FUNDS.
LATE DELIVERY OF PAYMENTS AND RIGHTS CERTIFICATES
If, prior to the Expiration Time, the Subscription Agent has received
a properly completed and duly executed Notice of Guaranteed Delivery
substantially in the form accompanying this prospectus supplement and
related prospectus (either by hand, mail, telegram or facsimile
transmission) specifying the name of the holder of Rights and the number of
Common Shares subscribed for (stating separately the number of Common
Shares subscribed for through the exercise of the Basic Subscription and
the Oversubscription Privilege) and guaranteeing that the properly
completed and executed Rights Certificate and payment of the full
Subscription Price for all Common Shares subscribed and oversubscribed for
will be delivered to the Subscription Agent within three business days
after the Expiration Time, such subscription may be accepted, subject to
the Subscription Agent's withholding the certificates for Common Shares
until receipt of the properly completed and duly executed Rights
Certificate and payment of such amount within such time period. In the case
of holders of Rights that are held of record through DTC, those Rights may
be exercised by instructing DTC to transfer Rights from that holder's DTC
account to the Subscription Agent's DTC account, together with payment of
the full Subscription Price. The Notice of Guaranteed Delivery must be
guaranteed by a commercial bank, trust company or credit union having an
office, branch or agency in the United States or by a member of a Stock
Transfer Association approved medallion program such as STAMP, SEMP or MSP.
Notices of Guaranteed Delivery and payments should be mailed or delivered
to the appropriate addresses set forth under "-- Subscription Agent."
TRANSFERABILITY OF RIGHTS
The Rights may not be transferred, except by operation of law in the
event of death or dissolution of their holder.
VALIDITY OF SUBSCRIPTIONS
All questions regarding the validity and form of the exercise of the
Basic Subscription or the Oversubscription Privilege (including time of
receipt and eligibility to participate in the offering) will be determined
solely by First Union, which determination shall be final and binding. Once
made, subscriptions and directions are irrevocable, and no alternative,
conditional or contingent subscriptions or directions will be accepted.
First Union reserves the absolute right to reject any subscriptions or
directions not properly submitted or the acceptance of which, in the
opinion of First Union's counsel, would be unlawful. See "-- Basic
Subscription; Limitations on Subscription." Any irregularities in
connection with subscriptions must be cured prior to the Expiration Time
unless waived by First Union in its sole discretion. Neither First Union
nor the Subscription Agent shall be under any duty to give notification of
defects in subscriptions or incur any liability for failure to give that
notification. A subscription will be deemed to have been accepted (subject
to First Union's right to withdraw or terminate the offering or to limit
the size of the subscription as described in "-- Basic Subscription;
Limitations on Subscription") only when a properly completed and duly
executed Rights Certificate, any other required documents and payment of
the full Subscription Price with respect to that subscription have been
received by the Subscription Agent. First Union's interpretations of the
terms and conditions of the offering shall be final and binding.
ESCROW ARRANGEMENTS; RETURN OF FUNDS
Funds received in payment of the Subscription Price for Common Shares
subscribed for will be held in a segregated account by the Subscription
Agent pending completion of this offering. Monies will be held in escrow
until this offering is completed or is canceled. If the offering is
canceled for any reason, monies will be returned to subscribers without
interest or deduction promptly thereafter. If a Rights holder exercising
the Basic Subscription or the Oversubscription Privilege is allocated fewer
than the number of Common Shares that that holder wished to subscribe for
through the Basic Subscription or the Oversubscription Privilege, the
excess funds paid by such holder will be returned without interest as soon
as practicable after the Expiration Time.
RIGHTS OF SUBSCRIBERS
Holders will have no rights as shareholders of First Union with
respect to Common Shares subscribed for until certificates representing
those Common Shares are issued to them. Holders will have no right to
revoke their subscriptions after delivery to the Subscription Agent of a
completed Rights Certificate and any other required documents.
FOREIGN SHAREHOLDERS
Rights Certificates will not be mailed to holders whose addresses are
outside the United States or who have an APO or FPO address, but will be
held by the Subscription Agent for their account. To exercise Rights, those
holders must notify the Subscription Agent by completing an International
Holder Subscription Form which will be delivered to those holders in lieu
of a Rights Certificate, and sending it by mail or telecopy to the
Subscription Agent at the address and telecopy number specified above.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED THE BASIC SUBSCRIPTION OR THE
OVERSUBSCRIPTION PRIVILEGE THAT EXERCISE MAY NOT BE REVOKED.
STANDBY COMMITMENT
The Standby Purchasers have agreed, in principle, to purchase, at the
Subscription Price and subject to certain customary rights to terminate,
those Common Shares that are not purchased through the exercise of Rights
or the Oversubscription Privilege, up to 9,000,000 Common Shares having an
aggregate Subscription Price of up to $45,000,000. If holders subscribe for
fewer than 9,000,000 Common Shares in the aggregate through their Basic
Subscription and Oversubscription Privilege, the Standby Purchasers will
subscribe for the difference. Gotham has agreed to acquire 7/9ths of all
Standby Commitment Shares and Elliott Associates has agreed to acquire
2/9ths of all Standby Commitment Shares. The Standby Purchasers'
obligations to purchase the Standby Commitment Shares will expire on April
15, 1999 if this offering has not been completed by that date. The Board of
Trustees has agreed to waive the Share Ownership Limit to enable Gotham to
exercise Rights and the Oversubscription Privilege and to satisfy its
obligations under the Standby Commitment. An independent committee of the
Board of Trustees has approved the terms and conditions of the Standby
Commitment.
As of January 14, 1999, Gotham and Elliott Associates beneficially
owned 9.70% and 1.35%, respectively, of the outstanding Common Shares.
DELIVERY OF COMMON SHARES
Certificates representing Common Shares purchased through the exercise
of the Basic Subscription, the Oversubscription Privilege or the Standby
Commitment will be delivered as soon as practicable after the Expiration
Time, the receipt of all required documents and payment in full of the
aggregate Subscription Price due for such Common Shares. In the case of
shareholders whose Common Shares are held through DTC and third-party
investors who arrange for delivery and payment through DTC, the appropriate
participant account will be credited.
SHAREHOLDER RIGHTS PLAN
In connection with First Union's Shareholder Rights Plan, the Board of
Trustees has agreed, with respect to each holder who acquires Common Shares
pursuant to the Basic Subscription, the Oversubscription Privilege or the
Standby Commitment, to increase the 15% threshold for triggering a
"flip-in" event by an amount equal to the increase in the percentage of
beneficial ownership of Common Shares achieved by that holder as a result
of the acquisition of such Common Shares. Accordingly, any acquisition of
Common Shares through the offering will not be deemed to be a "flip-in"
event under First Union's Shareholder Rights Plan. For a description of
First Union's Shareholder Rights Plan, see "Description of Capital Stock --
Common Shares -- Shareholder Rights Plan."
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES REGARDING THE OFFERING
In the opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel to
First Union, the following discussion summarizes all material U.S. federal
income tax consequences of this offering to First Union and its
shareholders. The following discussion is based upon the current provisions
of the Internal Revenue Code of 1986, as amended, its legislative history,
administrative pronouncements, judicial decisions and Treasury regulations,
all of which are subject to change, possibly with retroactive effect. The
following discussion does not purport to be a complete discussion of all
U.S. federal income tax considerations. The following discussion does not
address the tax consequences of the offering under state, local or non-U.S.
tax laws. In addition, the following discussion may not apply, in whole or
in part, to particular categories of First Union shareholders, such as
dealers in securities, insurance companies, foreign persons, tax-exempt
organizations, financial institutions and persons who hold Common Shares or
Rights as part of a hedging, straddle, integrated or conversion
transaction. The discussion of U.S. federal income tax considerations of
the offering set forth below assumes that the Common Shares owned by a
shareholder and the Common Shares or Rights issued pursuant to the offering
constitute capital assets in the hands of such shareholder. It should be
noted that under current law, net capital gains of individuals are, under
certain circumstances, taxed at lower rates than items of ordinary income,
and the deductibility of capital losses is subject to limitations.
TAXATION OF FIRST UNION'S SHAREHOLDERS
Receipt of Right. A shareholder (including a foreign shareholder) will
not recognize any gain or loss upon such shareholder's receipt of a Right.
Tax Basis of Right. A shareholder's tax basis in a Right will depend
on whether (i) the shareholder exercises the Right, or alternatively (ii)
the shareholder allows the Right to lapse unexercised.
If a shareholder exercises a Right, the tax basis of such Right in the
hands of the shareholder will be determined by allocating the shareholder's
existing tax basis of such holder's Common Shares with respect to which the
Right was distributed ("Old Common Shares") between such holder's Old
Common Shares and the Right, in proportion to their relative fair market
values on the date of distribution. If, however, the fair market value of
the Rights distributed to the shareholder (on the date of distribution) is
less than 15% of the fair market value of such holder's Old Common Shares,
the tax basis of each Right will be deemed to be zero unless the
shareholder affirmatively elects, by attaching an election statement to
such holder's federal income tax return for the year in which such holder
receives such holder's Rights, to compute the tax basis of such holder's
Rights in accordance with the preceding sentence. Once made, such an
election is irrevocable.
A Right will not be treated as having any tax basis if it lapses and,
therefore, the holder of an expired Right will not recognize a loss for tax
purposes.
Exercise of Right. No gain or loss will generally be recognized by a
shareholder (including a foreign shareholder) upon the purchase of a Common
Share pursuant to the exercise of a Right.
The tax basis of a Common Share purchased pursuant to the exercise of
a Right shall be equal to the sum of (a) the shareholder's tax basis of the
Right exercised and (b) the Subscription Price paid for such Common Share.
The holding period of the Common Shares purchased pursuant to the
exercise of Rights will commence on the date of exercise. Upon the
subsequent sale of Common Shares (other than to First Union pursuant to a
redemption), the shareholder will generally recognize capital gain or loss
in an amount equal to the difference between the proceeds of the sale and
the shareholder's tax basis of such Common Shares. Such gain or loss will
be long-term capital gain or loss if the shareholder's holding period for
such Common Shares is more than one year on the date of sale.
FOREIGN PERSONS
Assuming that First Union currently qualifies and has qualified as a
domestically controlled REIT (which First Union believes is the case) (see
"Federal Income Tax Consequences -- Taxation of First Union's Shareholders
- -- Taxation of Non-U.S. Shareholders" in the accompanying prospectus) and
continues to so qualify through the time of any sale of Common Shares by a
foreign person, any gain from such sale should not be subject to U.S.
taxation, unless such gain is effectively connected with such person's U.S.
trade or business or, in the case of an individual foreign person, such
person is present within the U.S. for 183 days or more in such taxable
year.
TAXATION OF FIRST UNION
First Union will not recognize any gain or loss upon (a) the issuance
of Rights, (b) the receipt of cash for Common Shares pursuant to the
exercise of Rights or (c) the lapse of Rights.
PLAN OF DISTRIBUTION
The Common Shares offered hereby are being offered by First Union
pursuant to the issuance of Rights to holders of Common Shares on the
Record Date.
Holders of Rights who desire to subscribe for the purchase of Common
Shares in this offering are urged to complete, date and sign the Rights
Certificate and return it to the Subscription Agent on or before the
Expiration Time, together with payment in full of the Subscription Price.
See "The Offering." Any questions concerning the procedure for subscribing
for the purchase of Common Shares should be directed to the Subscription
Agent.
THE FINANCIAL ADVISOR
The Company has engaged PaineWebber Incorporated ("PaineWebber") to
act as financial advisor in connection with this offering. In this
capacity, PaineWebber has provided advice to the Board of Trustees of First
Union regarding the terms, structure and timing of this offering.
PaineWebber has not agreed to any standby or other arrangements to purchase
any Rights or any Common Shares or to solicit exercises of the Rights. In
addition, PaineWebber does not intend to engage in any stabilization
activities with respect to any of First Union's securities and PaineWebber
will not engage in any bids for or market making activities in First
Union's securities subsequent to the date hereof and prior to the
Expiration Time.
First Union has agreed to pay PaineWebber a fee of $375,000 for its
services and has agreed to indemnify PaineWebber against certain liabilities
under the Securities Act of 1933, as amended. Of the total fee payable,
$187,500 has been paid, and the remaining portion is payable at the time
this offering is consummated. PaineWebber has been engaged by First Union to
explore strategic alternatives for Impark and to sell a parking garage in
Chicago for customary compensation.
Other than PaineWebber, First Union has not engaged any financial
advisors, brokers or dealers in connection with this offering.
LEGAL MATTERS
Certain legal matters relating to the validity of the Common Shares
offered pursuant to this prospectus supplement and the accompanying
prospectus will be passed upon for First Union by Hahn Loeser & Parks LLP.
<PAGE>
GLOSSARY
Set forth below is a list of certain of the more significant terms
used in this prospectus supplement.
Annual Reports Annual Reports on Form 10-K of First
Union for the years ended December
31, 1997, 1996, 1994 and 1993 and
Amendment to Annual Report on Form
10-K of First Union for the year
ended December 31, 1995 on Form
10-K/A.
Basic Subscription Privilege of the holder of each Right
to purchase one Common Share.
Beneficial Ownership Interest A holder's percentage beneficial
ownership interest in the outstanding
Common Shares.
Bridge Loan $90 million loan to First Union from
a syndicate of lenders led by Bankers
Trust Company that (i) bears interest
at 12%, (ii) is subject to mandatory
reductions of outstanding principal
to less than $70 million by March 31,
1999 and less than $50 million by
May 31, 1999 and (iii) terminates
August 11, 1999, the proceeds of
which financed the repurchase of the
Senior Notes.
Common Shares Shares of beneficial interest, $1.00
par value per share, of First Union.
DTC The Depository Trust Company.
Excess Shares Common Shares owned by a person or
group in excess of 9.8% of the
outstanding Common Shares.
Expiration Time 5:00 p.m., Eastern Standard Time, on
[ ], 1999, or such later time
and date as First Union may determine
in its sole discretion.
First Union First Union Real Estate Equity and
Mortgage Investments and its
subsidiaries.
First Union Companies FUMI and First Union.
FUMI First Union Management, Inc., an
affiliate of First Union, and its
subsidiaries.
FUMI Shares Shares of common stock, without par
value, of FUMI.
Gotham Gotham Partners, L.P., Gotham
Partners III, L.P. and Gotham
Partners International, Ltd.
Impark Imperial Parking Limited and its
subsidiaries and Impark Services
Limited and its subsidiaries.
NYSE The New York Stock Exchange, Inc.
Old Common Shares A holder's Common Shares with respect
to which a Right is distributed.
Oversubscription Privilege The privilege to oversubscribe by a
holder of Rights who validly
exercises in full its Basic
Subscription and who may do so
without exceeding the Share Ownership
Limit.
PaineWebber PaineWebber Incorporated.
Plan First Union Dividend Reinvestment
Service, the Company's dividend
reinvestment plan.
Quarterly Report Company's Quarterly Report on Form
10-Q for the nine months ended
September 30, 1998.
Record Date The close of business on [ ],
1999.
REIT Real estate investment trust.
Right A right distributed by First Union
for every 3.333 Common Shares held of
record on the Record Date which
entitles the holder thereof to
subscribe for and purchase one Common
Share at the Subscription Price.
Rights Certificate A certificate evidencing Rights.
Series A Preferred Shares Series A Cumulative Redeemable
Preferred Shares of Beneficial
Interest.
Share Ownership Limit 9.8% of the outstanding Common Shares.
Standby Commitment Agreement by the Standby Purchasers
to purchase (subject to certain
customary rights of termination), at
the Subscription Price, those Common
Shares that are not purchased through
the exercise of Rights or the
Oversubscription Privilege up to
9,000,000 Common Shares having an
aggregate subscription price of up to
$45,000,000.
Standby Commitment Shares Common Shares subject to the Standby
Commitment.
Standby Purchasers Gotham and Elliott Associates.
Subscription Agent National City Bank, as subscription
agent.
Subscription Price $5.00 per Common Share.
2% Payment The payment to be made to the Standby
Purchasers in connection with the
offering, equal to 2% of the original
principal amount of the Bridge Loan
($1,800,000). Each Standby Purchaser
will receive a pro rata portion of
the payment based on its share of the
Standby Commitment.
<PAGE>
SUBJECT TO COMPLETION, DATED JANUARY 15, 1999
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
SHARES OF BENEFICIAL INTEREST
AND
RIGHTS TO PURCHASE SHARES OF BENEFICIAL INTEREST
--------------
First Union Real Estate Equity and Mortgage Investments ("First
Union") is a real estate investment trust (a "REIT") whose primary business
has been to acquire, reposition and own retail, apartment, office and
parking properties throughout the United States and Canada. First Union
Management, Inc., an affiliate of First Union ("FUMI"), manages or leases
certain of First Union's assets and owns a controlling interest in a
Canadian parking and management services company. First Union and FUMI have
an organizational structure commonly referred to as "stapled," whereby
First Union's shares of beneficial interest, par value $1.00 per share
("Common Shares"), are "stapled to" a proportionately equal interest in the
common stock of FUMI, subject to certain exceptions. Common Shares may not
be issued or transferred without their "stapled" counterparts in FUMI.
FUMI's common stock is held in trust for the benefit of the holders of
Common Shares.
Through this prospectus, First Union may periodically offer Common
Shares or rights to purchase Common Shares ("Rights"). The specific terms
of any offering of Common Shares or Rights by First Union will be described
in a prospectus supplement that will accompany this prospectus. If Common
Shares are offered, the number of shares, the public offering price and
other terms relating to the offer and sale of those shares will be
described. If Rights are offered, the number of Rights to be distributed,
the record date for shareholders entitled to receive Rights, the number of
Common Shares for which Rights are exercisable, the subscription price for
each Common Share for which Rights are exercisable, whether Rights are
transferable and other terms of the offer and sale of the Common Shares
underlying Rights will be described. The total offering price of all Common
Shares to be issued under this prospectus may not exceed $157,155,000.
This prospectus may also be used by certain selling shareholders of
First Union (the "Selling Shareholders") to periodically sell Common Shares
to be acquired by them in any offering by First Union under this prospectus
up to a maximum number of Common Shares having a total offering price of
$90,000,000 based on the price per Common Share paid by such Selling
Shareholders. Any Common Shares sold by the Selling Shareholders may be
sold directly or through agents or broker-dealers on terms to be determined
at the time of sale or as otherwise described in "Plan of Distribution."
The terms of any sale, if required, will be described in a prospectus
supplement that will accompany this prospectus. First Union will receive no
proceeds from any sales of Common Shares by the Selling Shareholders.
Common Shares trade on the New York Stock Exchange (the "NYSE") under
the symbol "FUR." First Union will apply to list any Common Shares sold
under this prospectus on the NYSE.
SEE "RISK FACTORS" BEGINNING ON PAGE 3 HEREIN FOR A DISCUSSION OF THE
MATERIAL RISKS THAT SHOULD BE CONSIDERED BEFORE MAKING AN INVESTMENT IN
COMMON SHARES.
--------------
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.
--------------
THE DATE OF THIS PROSPECTUS IS [ ], 1999.
[RED HERRING]
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.
<PAGE>
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 60661-2511 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Information regarding the operation of the Public
Reference Section of the Commission may be obtained by calling the
Commission at 1 (800) SEC-0330. In addition, the Commission maintains a Web
site on the Internet at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that
file electronically with the Commission, including First Union. First
Union's outstanding Common Shares and outstanding Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest, $1.00 par value per
share (the "Series A Preferred Shares"), are listed on the NYSE under the
symbols, "FUR" and "FURPrA," respectively, 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,
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 OF CERTAIN DOCUMENTS 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 into
this Prospectus:
(1) First Union's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, as amended by First Union's Amendment to
its Annual Report on Form 10-K on Form 10-K/A filed April 3, 1998;
(2) First Union's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998;
(3) First Union's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1998;
(4) First Union's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998;
(5) First Union's Current Report on Form 8-K dated May 6, 1998;
(6) First Union's Current Report on Form 8-K dated May 18, 1998;
(7) First Union's Current Report on Form 8-K dated June 9, 1998;
(8) First Union's Current Report on Form 8-K dated June 17, 1998;
(9) First Union's Current Report on Form 8-K dated July 21, 1998; and
(10) Description of First Union's Share Purchase Rights included in
First Union's 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 into this Prospectus and to be a part hereof
from the date of the 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 oral or
written 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: Jeanne Gibson, Director of Investor Relations,
telephone (216) 781-4030.
<PAGE>
RISK FACTORS
Investors should carefully review the information contained elsewhere
or incorporated by reference in this prospectus and should particularly
consider the following matters with respect to First Union and FUMI (the
"First Union Companies"):
NEW MANAGEMENT
In June 1998, First Union appointed William A. Ackman as Chairman of
the Board. In November 1998, First Union appointed Daniel P. Friedman as
its President and Chief Executive Officer, William Scully as Vice Chairman
of the Board and David Schonberger and Anne N. Zahner, each as Executive
Vice Presidents. Until their appointments, these individuals had little, if
any, previous working experience or relationships with First Union or its
senior management and other personnel. The failure of the new management
team to work effectively with First Union's other senior management could
result in the departure of key personnel or disruptions in the operations
of First Union, which in turn could have a material adverse effect on First
Union's business, financial condition or results of operations.
In addition, none of the members of the new management team has ever
operated or served as an executive officer, director or trustee of a public
company or a REIT. The lack of experience with or knowledge of issues that
confront public companies or REITs could have an adverse effect on the
ability of such individuals to effectively manage the operations of First
Union and thereby could have an adverse effect on First Union's business,
financial condition or results of operations.
FAILURE TO ACHIEVE BUSINESS OBJECTIVES
First Union's Board of Trustees (the "Board of Trustees" or the
"Board") is currently evaluating First Union's assets to assess their
ongoing potential to contribute to shareholder value. Although the Board is
seeking to sell certain assets, there can be no assurance that First Union
will be able to sell such assets on advantageous terms or expeditiously.
Moreover, to the extent that any such assets are sold (and their net
proceeds are not applied towards the repayment of existing indebtedness),
there can be no assurance that First Union will be able to invest the net
proceeds from such sales in other assets that will provide greater returns
to First Union and its shareholders.
LEGISLATION LIMITING ADVANTAGE OF STAPLED REIT STRUCTURE
On July 22, 1998, tax legislation was enacted limiting the
"grandfathering" rule applicable to stapled REITs such as First Union (the
"Stapled REIT Legislation"). See "-- REIT Tax Risk -- Dependence on
Qualification as a REIT." Under the Stapled REIT Legislation, the
anti-stapling rules provided in the Internal Revenue Code of 1986, as
amended (the "Code") apply to real property interests acquired or
substantially improved after March 26, 1998 by the First Union Companies,
or a subsidiary or partnership in which a ten percent or greater interest
is owned by the First Union Companies unless (1) the real property
interests are acquired pursuant to a written agreement that was binding on
March 26, 1998 and at all times thereafter or (2) the acquisition of such
real property interests was described in a public announcement or in a
filing with the Commission on or before March 26, 1998. Consequently, the
income and activities of FUMI with respect to any property acquired by the
First Union Companies after March 26, 1998, for which there was no binding
written agreement, public announcement or filing with the Commission on or
before March 26, 1998, will be attributed to First Union for purposes of
determining whether First Union qualifies as a REIT under the Code.
In addition, the Stapled REIT Legislation also provides that a
property held by a stapled REIT but not subject to the anti-stapling rules
would become subject to such rules in the event of either (1) an
improvement placed in service after December 31, 1999 that changes the use
of the property and the cost of which is greater than 200 percent of (A)
the undepreciated cost of the property (prior to the improvement) or (B) in
the case of property acquired where there is a substituted basis, the fair
market value of the property on the date it was acquired by the stapled
REIT or (2) an addition or improvement that expands beyond the boundaries
of the land included in such property. The Stapled REIT Legislation
contains an exception for improvements placed in service before January 1,
2004 pursuant to a binding contract in effect on December 31, 1999 and at
all times thereafter.
Other legislation (including legislation previously introduced, but
not yet passed), as well as regulations, administrative interpretations or
court decisions, also could change the tax law with respect to First
Union's qualification as a REIT and the federal income tax consequence of
such qualification. The adoption of any such legislation, regulations or
administrative interpretations or court decisions could have a material
adverse effect on the results of operations, financial condition and
prospects of First Union and could restrict First Union's ability to grow.
First Union believes that there may be certain advantages to
maintaining its stapled REIT status and is in the process of considering
the advantages of retaining such structure, but there can be no assurance
that it will be able to take advantage of its stapled REIT status or will
maintain such structure in the future.
REIT TAX RISKS
Dependence on Qualification as a REIT. First Union believes that it
operates so as to qualify as a REIT for federal income tax purposes.
However, there can be no assurance that First Union has satisfied the
requirements for REIT qualification in the past or will qualify as a REIT
in the future. Qualification as a REIT involves the application of highly,
technical and complex provisions of the Code, for which there are only
limited judicial or administrative interpretations. The complexity of these
provisions is greater in the case of a stapled REIT such as First Union.
Qualification as a REIT also involves the determination of various factual
matters and circumstances not entirely within First Union's control. In
addition, First Union's ability to qualify as a REIT is dependent upon its
continued exemption from the anti-stapling rules of Section 269B(a)(3) of
the Code, which, if they were to apply, would prevent First Union from
qualifying as a REIT. The "grandfathering" rules governing Section 269B
generally provide, however, that Section 269B(a)(3) does not apply to a
stapled REIT (except with respect to new real property interests, as
described above in "-- Legislation Limiting Advantage of Stapled REIT
Structure") if the REIT and its stapled operating company were stapled on
June 30, 1983. On June 30, 1983, First Union was stapled with FUMI. There
are, however, no judicial or administrative authorities interpreting this
"grandfathering" rule. Moreover, if for any reason First Union failed to
qualify as a REIT in 1983, the benefit of the "grandfathering" rule would
not be available to First Union, in which case First Union would not
qualify as a REIT for any taxable year from and after 1983. The failure of
First Union to qualify as a REIT would have a material adverse effect on
First Union's ability to make dividends to its shareholders and to pay
amounts due on its indebtedness. See "Federal Income Tax Consequences --
Taxation of First Union."
Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations) ("Fried Frank"), counsel to First Union, has
rendered an opinion that, commencing with First Union's taxable year ended
December 31, 1994, First Union has been organized as, and has operated in
conformity with the requirements for qualification as, a REIT 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 FUMI and of any partnerships in which First Union will
hold an interest, and is conditioned upon representations made by First
Union as to certain factual matters relating to First Union's and FUMI's
organization and manner of operation. Fried Frank's opinion also relies on
the opinion of Mayer, Brown & Platt, dated July 21, 1997, which is based
upon certain representations and assumptions, stating that, as of that
date, First Union's then existing legal organization and method of
operation enabled First Union to satisfy the requirements for qualification
as a REIT.
If it is subsequently determined that First Union did not qualify as a
REIT in those years, First Union potentially could incur corporate tax with
respect to a year that is still open to adjustment by the Internal Revenue
Service ("IRS"). See "Federal Income Tax Consequences -- Taxation of First
Union." If First Union were to fail to qualify as a REIT, it would be
subject to federal income tax (including any applicable alternative minimum
tax) on its taxable income at corporate rates. In addition, unless entitled
to relief under certain statutory provisions and subject to the discussion
above regarding the impact if First Union failed to qualify as a REIT in
1983, First Union also would be disqualified from re-electing REIT status
for the four taxable years following the year during which qualification is
lost. Failure to qualify as a REIT would result in additional tax liability
to First Union for the year or years involved. In addition, First Union
would no longer be required by the Code to make dividends to its
shareholders. To the extent that dividends to shareholders would have been
made in anticipation of First Union's qualifying as a REIT, First Union
might be required to borrow funds or to liquidate certain of its
investments on disadvantageous terms to pay the applicable tax. See
"Federal Income Tax Consequences -- Taxation of First Union."
The failure to qualify as a REIT would also constitute a default under
certain debt obligations of First Union, which would generally allow the
holders thereof to demand the immediate repayment of such indebtedness,
which could have a material adverse effect on First Union and its ability
to make dividends to shareholders and to pay amounts due on its
indebtedness.
Adverse Effects of REIT Minimum Dividend Requirements. In order to
qualify as a REIT, First Union is generally required each year to
distribute to its shareholders at least 95% of its taxable income
(excluding any net capital gain). In addition, if First Union were to
dispose of assets acquired in certain acquisitions during the ten-year
period following the acquisitions, First Union would be required to
distribute at least 95% of the amount of any "built-in gain" attributable
to such assets that First Union recognizes in the disposition, less the
amount of any tax paid with respect to such recognized built-in gain. See
"Federal Income Tax Consequences -- Taxation of First Union." First Union
generally is subject to a 4% nondeductible excise tax on the amount, if
any, by which certain distributions paid by it with respect to any calendar
year are less than the sum of (i) 85% of its ordinary income for that
year, (ii) 95% of its capital gain net income for that year, and (iii) 100%
of its undistributed income from prior years.
First Union intends to make distributions to its shareholders to
comply with the 95% distribution requirement and to avoid the nondeductible
excise tax. Differences in timing between the recognition of taxable income
and the receipt of cash available for distribution could require First
Union to borrow funds on a short-term basis on disadvantageous terms to
meet the 95% distribution requirement and to avoid the nondeductible excise
tax.
Distributions to shareholders by First Union are determined by the
Board of Trustees and depend on a number of factors, including, the amount
of cash available for distribution, financial condition, results of
operations, any decision by the Board of Trustees to reinvest funds rather
than to distribute such funds, capital expenditures, the annual
distribution requirements under the REIT provisions of the Code and such
other factors as the Board of Trustees deems relevant. For federal income
tax purposes, distributions paid to shareholders may consist of ordinary
income, capital gains, return of capital, or a combination thereof. First
Union will provide shareholders with annual statements as to the taxability
of distributions.
REAL ESTATE INVESTMENT RISKS
General Risks. First Union's investments will be subject to the risks
inherent in owning real estate. The underlying value of First Union's real
estate investments, the results of its operations and its ability to make
distributions to its shareholders and to pay amounts due on its
indebtedness will depend on its ability to operate First Union's properties
in a manner sufficient to maintain or increase revenues and to generate
sufficient revenues in excess of its operating and other expenses.
Results of operations of First Union's properties may also be
adversely affected by, among other things:
- changes in national economic conditions, changes in local market
conditions due to changes in general or local economic conditions
and neighborhood characteristics;
- changes in interest rates and in the availability, cost and terms
of financing;
- the impact of present or future environmental legislation and
compliance with environmental laws and other regulatory
requirements;
- the ongoing need for capital improvements, particularly in older
structures;
- changes in real estate tax rates and assessments and other
operating expenses;
- adverse changes in governmental rules and fiscal policies;
- adverse changes in zoning and other land use laws; and
- earthquakes and other natural disasters (which may result in
uninsured losses) and other factors which are beyond its control.
Illiquidity of Real Estate. Real estate investments are relatively
illiquid. First Union's ability to vary its portfolio in response to
changes in economic and other conditions will therefore be limited. If
First Union decides to sell an investment, no assurance can be given that
First Union will be able to dispose of it in the time period it desires or
that the sales price of any investment will recoup or exceed the amount of
First Union's investment.
Increases in Property Taxes Could Affect Ability to Make Expected
Shareholder Distributions. First Union's real estate investments are all
subject to real property taxes. The real property taxes on properties in
which First Union invests may increase or decrease as property tax rates
change and as the value of the properties are assessed or reassessed by
taxing authorities. Increases in property taxes may have an adverse effect
on First Union and its ability to make distributions to shareholders and to
pay amounts due on its indebtedness.
Environmental Liabilities. The obligation to pay for the cost of
complying with existing environmental laws, ordinances and regulations, as
well as the cost of complying with future legislation, may affect the
operating costs of the Company. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner
or operator of real property may be liable for the costs of removal or
remediation of hazardous or toxic substances on or under the property.
Environmental laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances and whether or not such substances originated from the
property. In addition, the presence of hazardous or toxic substances, or
the failure to remediate such property properly, may adversely affect First
Union's ability to borrow by using such real property as collateral.
Certain environmental laws and common law principles could be used to
impose liability for releases of hazardous materials, including
asbestos-containing materials or "ACMs," into the environment. In addition,
third parties may seek recovery from owners or operators of real properties
for personal injury associated with exposure to released ACMs or other
hazardous materials. Environmental laws may also impose restrictions on the
use or transfer of property, and these restrictions may require
expenditures. In connection with the ownership and operation of any of
First Union's properties, First Union, FUMI and the other lessees of these
properties may be liable for any such costs. The cost of defending against
claims of liability or remediating contaminated property and the cost of
complying with environmental laws could materially adversely affect the
First Union Companies and their ability to pay amounts due on their
indebtedness and with respect to First Union, to make distributions to its
shareholders.
Compliance with the ADA May Affect Expected Distributions to First
Union's Shareholders. Under the Americans with Disabilities Act of 1990
(the "ADA"), all public accommodations are required to meet certain federal
requirements related to access and use by disabled persons. A determination
that First Union is not in compliance with the ADA could also result in the
imposition of fines and/or an award of damages to private litigants. If
First Union were required to make modifications to comply with the ADA,
there could be a material adverse effect on its ability to pay amounts due
on its indebtedness or to make distributions to its shareholders.
Uninsured and Underinsured Losses. Comprehensive insurance is
generally required to be maintained on each of the properties of First
Union, including liability, fire and extended coverage. However, there are
certain types of losses, generally of a catastrophic nature, such as
earthquakes and floods, that may be uninsurable or not economically
insurable. First Union will use its discretion in determining amounts,
coverage limits and deductibility provisions of insurance, with a view to
maintaining appropriate insurance coverage on its investments at a
reasonable cost and on suitable terms. This may result in insurance
coverage that, in the event of a substantial loss, would not be sufficient
to pay the full current market value or current replacement cost of the
lost investment and also may result in certain losses being totally
uninsured. Inflation, changes in building codes, zoning or other land use
ordinances, environmental considerations, lender imposed restrictions and
other factors also might make it not feasible to use insurance proceeds to
replace the property after such property has been damaged or destroyed.
Under such circumstances, the insurance proceeds, if any, received by First
Union might not be adequate to restore its economic position with respect
to such property.
REAL ESTATE FINANCING RISKS
Inability to Refinance. First Union is subject to the normal risks
associated with debt and preferred stock financings, including the risk
that First Union's cash flow will be insufficient to meet required payments
of principal and interest and distributions, the risk that indebtedness on
its properties, or unsecured indebtedness, will not be able to be renewed,
repaid or refinanced when due or that the terms of any renewal or
refinancing will not be as favorable as the terms of such indebtedness. If
First Union were unable to refinance the indebtedness on acceptable terms,
or at all, First Union might be forced to dispose of one or more of its
properties on disadvantageous terms, which might result in losses to First
Union, which losses could have a material adverse effect on First Union and
its ability to make distributions to shareholders and to pay amounts due on
its indebtedness. Furthermore, if a property is mortgaged to secure payment
of indebtedness and First Union is unable to meet mortgage payments, the
mortgagee could foreclose upon the property, appoint a receiver and receive
an assignment of rents and leases or pursue other remedies, all with a
consequent loss of revenues and asset value to First Union. Foreclosures
could also create taxable income without accompanying cash proceeds,
thereby hindering First Union's ability to meet the REIT distribution
requirements of the Code.
Rising Interest Rates. First Union has incurred and expects in the
future to incur indebtedness which bears interest at variable rates.
Accordingly, increases in interest rates would increase First Union's
interest costs (to the extent that the related indebtedness was not
protected by interest rate protection arrangements), which could have a
material adverse effect on First Union and its ability to make
distributions to shareholders and to pay amounts due on its indebtedness or
cause First Union to be in default under certain debt instruments. In
addition, an increase in market interest rates may cause holders to sell
their Common Shares and reinvest the proceeds thereof in higher yielding
securities, which could adversely affect the market price for the Common
Shares.
RESTRICTIVE DEBT COVENANTS AND COMPLIANCE WITH DEBT INSTRUMENTS
General Risks. Debt instruments, including First Union's $110 million
credit facility (the "FUR Credit Facility"), the Cdn.$38.8 million credit
facility of Imperial Parking Limited, an affiliate of First Union (the
"Impark Credit Facility" and, together with the FUR Credit Facility, the
"Credit Facilities"), and the $90 million loan to First Union from a
syndicate led by Bankers Trust Company (the "Bridge Loan"), to which either
of the First Union Companies is currently a party, and to which either of
the First Union Companies may become a party, contain and may contain a
number of significant covenants that, among other things, restrict in
varying degrees either of the First Union Companies from selling assets,
incurring additional indebtedness, repaying other indebtedness, paying
dividends, creating liens on assets, entering into leases, making
investments, loans or advances, making acquisitions, engaging in mergers or
consolidations, engaging in certain transactions with affiliates and
certain other corporate activities. Each of the First Union Companies'
ability to remain in compliance with certain such covenants will depend
upon, among other things, its results of operations and may be affected by
events beyond its control, including economic, financial and industry
conditions. Accordingly, there can be no assurance that either of the First
Union Companies will remain in compliance with such agreements and
covenants. In the event of a default under such instruments or agreements
relating to any indebtedness of either of the First Union Companies, the
holders of such indebtedness generally will be able to declare all such
indebtedness, together with accrued interest thereon, to be due and payable
immediately and, in the case of collateralized indebtedness, to proceed
against their collateral. In addition, default under one debt instrument
could in turn permit lenders under other debt instruments to declare
borrowings outstanding thereunder to be due and payable pursuant to
cross-default clauses. Accordingly, the occurrence of a default under any
debt instrument could have a material adverse effect on the First Union
Companies.
Default under the FUR Credit Facility, the Impark Credit Facility and
the Bridge Loan. In January 1999, the lenders under the Credit Facilities
granted First Union and Impark, respectively, and the lenders under the
Bridge Loan granted First Union relief from compliance with certain
financial covenants. The lenders under the FUR Credit Facility also waived
until June 30, 1999 any event of default resulting from the May 1998 change
in the Board's composition (as described in "The Company --Recent
Developments"). In exchange for such relief, and for amending the financial
covenants, First Union paid a fee of $825,000 to the lenders under the FUR
Credit Facility, Impark paid a fee of Cdn.$388,400 to the lenders under the
Impark Credit Facility, and First Union paid a fee of $300,000 to the
lenders under the Bridge Loan and agreed to pay such lenders on February
11, 1999 an additional fee in an amount equal to 1% of the outstanding
principal balance of the Bridge Loan on such date. First Union also agreed
to pay the Bridge Loan lenders certain additional fees based upon the
amounts outstanding under the Bridge Loan on certain future dates. The
interest rate under the FUR Credit Facility was increased from the
Eurodollar rate plus 200 basis points or the prime rate to the Eurodollar
rate plus 300 basis points or the prime rate plus 50 basis points, the
interest rate under the Bridge Loan was increased from 9.875% to 12% per
annum, and the margin on the Canadian Bankers Acceptance interest rate for
borrowings under the Impark Credit Facility was reduced from 175 basis
points to 150 basis points. The FUR Credit Facility was also amended to
decrease the amount available under the facility from $125 million to $110
million, to shorten the maturity of amounts outstanding under the facility
from December 16, 1999 to August 11, 1999 and to provide for further
reductions in availability under the facility to $80 million on March 17,
1999 and to $50 million on May 17, 1999. The Impark Credit Facility was
also amended to provide that First Union issue as of the date of the
amendment an $8 million letter of credit under the FUR Credit Facility as
collateral for Impark's obligations under the Impark Credit Facility and to
provide an additional $5 million in collateral for such obligations on
August 11, 1999. The Bridge Loan was also modified to extend its maturity
to August 11, 1999 and to provide for the reduction of the principal
balance under the loan to less than $70 million on March 31, 1999 and less
than $50 million on May 31, 1999. As of January 12, 1999, $93 million, $90
million and approximately Cdn.$33 million were outstanding under the FUR
Credit Facility, the Bridge Loan and the Impark Credit Facility,
respectively.
There can be no assurance that either First Union or Impark will
satisfy their respective financial covenants or their respective
obligations, including principal and interest repayment obligations, under
the FUR Credit Facility, the Bridge Loan or the Impark Credit Facility. If
First Union or Impark is unable to satisfy its obligations under either of
these facilities or the Bridge Loan, the lenders thereunder may declare all
indebtedness outstanding thereunder, together with any accrued interest
thereon, due and payable immediately and by such action trigger
cross-defaults under other debt instruments. There can be no assurance that
First Union or Impark will be able to refinance any of such indebtedness.
YEAR 2000 ISSUES
In June 1998, the First Union Companies implemented a multi-step Year
2000 Compliance Project (the "Project"). The Project is addressing the
issue of computer systems and embedded computer chips that may not be able
to properly recognize dates prior to, on, or after January 1, 2000.
The general phases of the Project are as follows: (1) inventorying
systems and equipment that may be affected by the Year 2000 issue; (2)
assigning priorities to the items identified; (3) evaluating the Year 2000
compliance of items deemed to be critical to the First Union Companies'
operations; (4) testing critical items; (5) repairing or replacing critical
items that are determined not to be Year 2000 compliant; and (6) developing
and implementing contingency plans for each location.
As of September 30, 1998, the inventory and priority assessment phases
of the Project were completed. Critical items are those believed by the
First Union Companies to involve a risk to the safety of individuals, or
that may cause damage to property, or affect revenues. Testing of critical
items is being performed and is expected to be completed in the first
quarter of 1999.
The Project addresses three main sections: (a) Information Technology
Systems; (b) Process Control and Instrumentation; and (c) Third Party
Tenants, Suppliers and Customers.
The Information Technology Systems section of the Project consists of
all computer hardware and software. These systems are primarily used for
accounting and financial reporting as well as property management purposes
throughout the First Union Companies' operations. Impark uses other
systems, mainly for revenue control purposes at the parking facility level.
The testing phase is ongoing as hardware and software are remediated,
upgraded or replaced. Currently, Impark's accounting and financial
reporting systems are not Year 2000 compliant; these systems will be
replaced by a new general-purpose financial reporting and general ledger
package by September 30, 1999. Additionally, new hardware and software are
being installed at various properties and subsidiaries, which is
anticipated to be completed by June 30, 1999.
The Process Control and Instrumentation section of the Project
includes the hardware, software and associated embedded computer chips that
are used in the operations of certain facilities owned by the First Union
Companies. Testing and repair of this equipment is in process. The First
Union Companies' evaluation of these items and communications with
manufacturers and suppliers revealed that the majority of this equipment is
mechanical in nature and is not date-sensitive, and accordingly will not
require remediation or replacement to function properly in the Year 2000.
Contingency planning is in process, and all repair and testing is expected
to be completed by March 31, 1999.
The Third Party Tenants, Suppliers and Customers section of the
Project includes the process of identifying critical suppliers and
customers and obtaining information from them regarding their plans and
progress in addressing the Year 2000 issue. A written notice regarding the
Year 2000 issue was sent to all tenants occupying space at properties owned
by First Union and to landlords of parking facilities operated by Impark.
Additionally, inquiries have been forwarded to critical third parties
(primarily financial institutions and utility service providers), and
responses are currently being obtained and evaluated. These evaluations
will be followed by the development of contingency plans. All activities
for this section are expected to be completed by June 30, 1999.
The total cost of required modifications to achieve Year 2000
compliance is not expected to be material to the First Union Companies'
financial position. Estimated total costs are expected to be between $1.0
million and $2.0 million, including enhancements to software programs and
upgrades to hardware, some portion of which would have been done
irrespective of the Year 2000 issue.
The failure to correct a material Year 2000 issue could result in the
interruption or failure of certain normal business activities or operations.
Such failures could have a material adverse affect on the First Union
Companies' results of operations, liquidity and financial condition. Due to
the inherent uncertainty of the Year 2000 issue, resulting in part from the
uncertainty of the Year 2000 readiness of third-party tenants, suppliers and
customers, the First Union Companies are unable to determine at this time
whether the consequences of Year 2000 failures will have a material impact on
its results of operations, liquidity or financial condition. The Project is
expected to reduce the First Union Companies' level of uncertainty regarding
the Year 2000 issue.
EXCHANGE RATE AND CURRENCY RISK
At September 30, 1998, FUMI had approximately $138 million of revenues
attributable to Impark's Canadian operations, representing approximately 57%
of the First Union Companies' total revenues. First Union does not hedge its
foreign currency exposure and does not currently intend to do so in the
future.
First Union recognized a $2.6 million charge during the nine months
ended September 30, 1998 related to unrealized exchange rate losses on loans
to affiliated Canadian companies. As of September 30, 1998, First Union also
has recorded a $1.5 million loss from the translation of the Canadian
operations as a separate component of shareholders' equity. There can be no
assurance that foreign currency rate fluctuations will not have a material
adverse effect on First Union's business, financial condition or results of
operations in the future.
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
Any statements in this prospectus and any accompanying prospectus
supplement, including any statements in the documents that are incorporated
by reference herein that are not strictly historical are forward-looking
statements within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Any such forward-looking
statements contained or incorporated by reference herein should not be
relied upon as predictions of future events. Certain such forward-looking
statements can be identified by the use of forward-looking terminology such
as "believes," "expects," "may," "will," "should," "seeks,"
"approximately," "intends," "plans," "pro forma," "estimates" or
"anticipates" or the negative thereof or other variations thereof or
comparable terminology, or by discussions of strategy, plans, intentions or
anticipated or projected events, results or conditions. Such
forward-looking statements are dependent on assumptions, data or methods
that may be incorrect or imprecise and they may be incapable of being
realized. Such forward-looking statements include statements with respect
to (i) the declaration or payment of distributions by the First Union
Companies, (ii) the ownership, management and operation of properties,
(iii) potential acquisitions or dispositions of properties, assets or other
businesses by the First Union Companies, (iv) the policies of the First
Union Companies regarding investments, acquisitions, dispositions,
financings and other matters, (v) the qualification of First Union as a
REIT under the Code and the "grandfathering" rules under Section 269B of
the Code, (vi) the real estate industry and real estate markets in general,
(vii) the availability of debt and equity financing, (viii) interest rates,
(ix) general economic conditions, (x) supply and customer demand, (xi)
trends affecting the First Union Companies, (xii) the effect of
acquisitions or dispositions on capitalization and financial flexibility,
(xiii) the anticipated performance of the First Union Companies and of
acquired properties and businesses, including, without limitation,
statements regarding anticipated revenues, cash flows, funds from
operations, earnings before interest, depreciation and amortization
("EBIDA"), property net operating income, operating or profit margins and
sensitivity to economic downturns or anticipated growth or improvements in
any of the foregoing, and (xiv) the ability of the First Union Companies
and of acquired properties and businesses to grow. Shareholders are
cautioned that, while forward-looking statements reflect the respective
companies' good faith beliefs, they are not guarantees of future
performance and they involve known and unknown risks and uncertainties.
Actual results may differ materially from those in the forward-looking
statements as a result of various factors. The information contained or
incorporated by reference in this prospectus and any accompanying
prospectus supplement, including, without limitation, the information set
forth in "Risk Factors" or in any risk factors in documents that are
incorporated by reference in this prospectus and any accompanying
prospectus supplement, identifies important factors that could cause such
differences. The First Union Companies undertake no obligation to publicly
release the results of any revisions to these forward-looking statements
that may reflect any future events or circumstances.
<PAGE>
THE COMPANY
As used in this prospectus, the terms (i) "First Union" or the
"Company" refer to First Union Real Estate Equity and Mortgage Investments
and its subsidiaries, (ii) "FUMI" refers to First Union Management, Inc.
and its subsidiaries, and (iii) "Impark" refers to Imperial Parking Limited
and its subsidiaries and Impark Services Limited and its subsidiaries,
except where it is clear that such terms mean only the parent company in
each instance. See also "Glossary" beginning on page G-1 for the
definitions of certain other capitalized terms used in this prospectus.
First Union is a REIT whose primary business has been to acquire,
reposition and own retail, apartment, office and parking properties
throughout the United States and Canada. FUMI, an affiliate of First Union,
manages or leases certain of First Union's assets and owns a controlling
interest in Impark. The First Union Companies have an organizational
structure commonly referred to as "stapled," whereby Common Shares are
"stapled to" a proportionately equal interest in shares of Common Stock of
FUMI (the "FUMI Shares"), subject to certain exceptions. Common Shares may
not be issued or transferred without their "stapled" counterparts in FUMI.
FUMI Shares are held in trust for the benefit of the holders of Common
Shares.
First Union owns regional enclosed shopping malls, apartment
complexes, office buildings and parking facilities. First Union's portfolio
is diversified by type of property, geographical location, tenant mix and
rental market. As of December 31, 1998, First Union owned (in fee or under
long-term ground leases where First Union is lessee) 21 shopping malls,
eight apartment complexes, five office properties, eight parking
facilities, and ten parking lots in Canada, as well as land leased to a
third party. First Union also owns 50% of another mall in a joint venture
with an unrelated party.
RECENT DEVELOPMENTS
On May 18, 1998, First Union announced that its Board of Trustees had
terminated the employment of James C. Mastandrea, Chairman of the Board,
Chief Executive Officer and President of First Union prior to such
termination, and had appointed Steven M. Edelman, Executive Vice President
and Chief Financial Officer of the Company, as Interim Chief Executive
Officer. Mr. Edelman served as Interim Chief Executive Officer until
November 2, 1998, when the Board of Trustees appointed Daniel P. Friedman
as President and Chief Executive Officer. Mr. Friedman was formerly
President and Chief Operating Officer of Enterprise Asset Management Inc.,
a real estate investment firm located in New York City ("Enterprise"). The
Board of Trustees also appointed David Schonberger and Anne N. Zahner as
Executive Vice Presidents of First Union. Mr. Schonberger and Ms. Zahner
were also previously employed by Enterprise.
At First Union's Special Meeting of Beneficiaries held on May 19,
1998, following a proxy contest successfully waged by Gotham Partners, L.P.
("Gotham LP"), nine new Trustees were elected to the Board of Trustees and
the Board's size was increased from nine to 15 Trustees. Four of the nine
new Trustees are principals or employees of Gotham LP and Gotham Partners
III, L.P. ("Gotham III LP"), including William A. Ackman, Chairman of the
Board. At the time the new Trustees took office on June 3, 1998, three of
the six then incumbent Trustees resigned, resulting in three vacancies.
William Scully and Daniel P. Friedman were elected to the Board of Trustees
on October 8, 1998 and November 2, 1998, respectively, filling two of the
three vacancies. On November 16, 1998, Mr. Scully was appointed Vice
Chairman of the Board, succeeding David P. Berkowitz, who had been Vice
Chairman of the Board since June 3, 1998. Mr. Scully is a partner of Apollo
Real Estate Advisors, LP, a real estate investment firm located in New York
City ("Apollo").
In June 1998, the lenders under the Credit Facilities determined that
a default had occurred under their respective Credit Facilities as a result
of the change in the Board's composition (the "Board Change Default").
However, the lenders under both Credit Facilities granted temporary waivers
with respect to the Board Change Default and also granted First Union and
Impark relief from compliance with certain financial covenants under the
Credit Facilities.
To help stabilize First Union's financial condition, the Board
suspended First Union's quarterly dividend on its Common Shares, effective
as of the quarter ended June 30, 1998, and instituted an annual dividend
policy. The Board intends to make the minimum amount of distributions to
shareholders required to maintain First Union's REIT status. See "Federal
Income Tax Consequences -- Taxation of First Union -- Annual Distribution
Requirements."
On July 22, 1998, the Stapled REIT Legislation was enacted limiting
the "grandfathering" rule applicable to Stapled REITs, such as First Union.
As a result, the income and activities of FUMI with respect to any real
property interests acquired by the First Union Companies after March 26,
1998 will be attributed to First Union for purposes of determining whether
First Union qualifies as a REIT under the Code. First Union believes that
there may be certain advantages, however, to maintaining its stapled REIT
status and is in the process of considering the advantages of retaining
such structure. The Stapled REIT Legislation nevertheless limits the
benefits of the stapled REIT structure, and there can be no assurance that
First Union will be able to take advantage of its stapled REIT status or
maintain such structure in the future. See "Risk Factors -- Legislation
Limiting Advantage of Stapled REIT Structure."
In July 1998, First Union commenced a tender offer to repurchase all
$100 million principal amount of its 8-7/8% Senior Notes due 2003 (the
"Senior Notes") for $970 per $1,000 principal amount of Senior Notes, plus
accrued and unpaid interest. Concurrently with the tender offer, First
Union conducted a consent solicitation and offered a consent payment of $30
per $1,000 principal amount of Senior Notes to amend the indenture
governing the Senior Notes and to terminate listing of the Senior Notes on
the NYSE. Prior to its amendment, the Senior Notes indenture required First
Union to offer to repurchase the Senior Notes at 101% of their principal
amount if within 90 days following the date of a "change of control," the
rating of the Senior Notes by both Standard & Poor's Corporation ("S&P")
and Moody's Investors Services, Inc. ("Moody's") declined by one or more
rating gradations. In April 1998, S&P placed First Union on Credit Watch
and in November 1998, S&P downgraded First Union's debt rating. In June
1998, Moody's placed the Senior Notes under review for possible downgrade
and in October 1998, Moody's downgraded its rating for the Senior Notes.
In August 1998, through the tender offer and consent solicitation,
holders of approximately 88% of the outstanding Senior Notes consented to
the indenture amendments and delisting and First Union purchased
approximately $88 million principal amount of the Senior Notes. The
repurchase of the Senior Notes was financed with the proceeds of the Bridge
Loan. The lenders under the Bridge Loan are Bankers Trust Company, as
agent, and BankBoston, N.A., Blackacre Bridge Capital, Elliott Associates,
Gotham LP, Gotham III LP and Wellsford Capital, each as syndicate members.
At the time the Bridge Loan was funded, the terms of the Bridge Loan
required that First Union conduct a Rights offering to raise funds to repay
all amounts outstanding under the Bridge Loan. To satisfy these
obligations, First Union filed this Registration Statement to register for
issuance Rights and Common Shares and secured standby purchase commitments
to ensure that the proceeds of the Rights offering would be at least
sufficient to repay all amounts outstanding under the Bridge Loan. The
standby purchase arrangements contemplated that First Union make a payment
to the standby purchasers in an amount equal to 2% of the original
principal amount of the Bridge Loan (or $1,800,000) (the "2% Payment"). The
standby purchasers were Elliott Associates, Gotham LP and Gotham III LP.
During the nine months ended September 30, 1998, First Union
recognized $16.9 million of one-time expenses primarily in connection with
the proxy contest and the change in the Board's composition. These one-time
expenses included proxy expenses and related legal fees incurred by First
Union, Gotham LP and Gotham III LP, cash severance and vesting of
restricted stock for Mr. Mastandrea, First Union's terminated Chairman of
the Board, Chief Executive Officer and President, vesting of restricted
stock granted to other employees of the First Union Companies and other
expenses related to anticipated employee terminations (the "One-Time
Expenses"). First Union also recognized the potential loss of a $2.3
million deposit to purchase a parking facility. In addition, because of the
adoption of a new accounting pronouncement related to "contingent rents,"
First Union recorded no percentage rent from tenants in the third quarter
of 1998, which resulted in a decrease of $1.5 million in revenues in the
quarter (the "Percentage Rent Deferral"). The One-Time Expenses and
Percentage Rent Deferral also negatively affected net income and funds from
operations.
The One-Time Expenses and the Percentage Rent Deferral, as well as
certain foreign currency mark-to-market losses, were largely responsible
for First Union's inability to satisfy financial covenants under the FUR
Credit Facility and the Bridge Loan during the third quarter of 1998. In
addition, Impark was not in compliance with the leverage and interest
coverage ratios under the Impark Credit Facility. In January 1999, First
Union and Impark reached an agreement with their respective lenders to
amend the FUR Credit Facility, the Impark Credit Facility and the Bridge
Loan. See "Risk Factors -- Restrictive Debt Covenants and Compliance with
Debt Instruments -- Default under the FUR Credit Facility, the Impark
Credit Facility and the Bridge Loan."
The lenders under the FUR Credit Facility agreed to modify the debt
service and interest coverage requirements and the methodology for
calculating net income by excluding certain non-recurring or extraordinary
charges or expenses, including percentage rent on a pro forma basis, and
eliminating any expense or adjustment in any fiscal quarter relating to any
non-cash foreign currency mark-to-market expense or adjustment. In
addition, the lenders under the FUR Credit Facility extended the waiver
with respect to the Board Change Default until June 30, 1999. In
consideration for these modifications, First Union paid the lenders an
$825,000 fee. Concomitantly with the covenant modifications and the waiver
extension, the lenders reduced their maximum commitment under the FUR
Credit Facility from $125 million to $110 million and will reduce such
commitment further to $80 million on March 17, 1999 and to $50 million on
May 17, 1999. The lenders also increased the interest rate under the
facility from the Eurodollar rate plus 200 basis points or the prime rate
to the Eurodollar rate plus 300 basis points or the prime rate plus 50
basis points.
The lenders under the Impark Credit Facility agreed to (i) modify the
interest coverage and leverage requirements and the methodology for
determining earnings before interest, taxes, depreciation and amortization
by adjusting for certain non-recurring or extraordinary charges or expenses
for each of the quarters ended September 30, 1998 through September 30,
1999 and (ii) decrease the margin added to the Canadian Bankers Acceptance
interest rate from 175 basis points to 150 basis points. In addition, the
lenders extended the waiver with respect to the Board Change Default until
June 30, 1999. In consideration for these amendments and the waiver
extension, the principal balance under the Impark Credit Facility was
reduced from Cdn.$50 million to Cdn.$38.8 million, Impark paid the lenders
a fee of Cdn.$388,400, and First Union issued an $8 million letter of
credit under the FUR Credit Facility as collateral for Impark's obligations
and agreed to provide an additional $5 million in collateral for such
obligations on August 11, 1999.
The lenders under the Bridge Loan agreed to amend the Bridge Loan by
extending the maturity of the loan to August 11, 1999, incorporating the
revised covenants in the FUR Credit Facility into the Bridge Loan and
modifying First Union's obligation to conduct a Rights offering to raise
funds to repay all amounts outstanding under the Bridge Loan. The Bridge
Loan originally contemplated a Rights offering that would raise proceeds at
least sufficient to repay all amounts outstanding under the Bridge Loan.
The amendments to the Bridge Loan now enable First Union to conduct one or more
Rights offerings sufficient to pay off amounts outstanding under the Bridge
Loan when due and payable. In consideration for these amendments, First
Union paid such lenders a fee of $300,000 and agreed to (i) reduce the
outstanding principal balance under the Bridge Loan to less than $70
million by March 31, 1999 and to less than $50 million by May 31, 1999,
(ii) increase the lenders' interest rate on the loan from 9.875% to 12% per
annum and (iii) pay (A) on February 11, 1999 a fee of 1% of the outstanding
principal amount of the loan on such date, (B) a fee in an amount equal to
50 basis points of the outstanding principal amount of the loan on March
31, 1999 if the outstanding principal balance of the loan is in excess of
$60 million on March 31, 1999, and (C) a fee in an amount equal to 50 or
100 basis points of the outstanding principal amount of the loan on May 31,
1999, depending on the loan balance outstanding at May 31, 1999. See "Risk
Factors -- Restrictive Debt Covenants and Compliance with Debt Instruments
- -- Default under the FUR Credit Facility, the Impark Credit Facility and
the Bridge Loan."
In November 1998, Mr. Friedman, Ms. Zahner and Mr. Schonberger entered
into four-year employment agreements, which provide total cash
compensation of $340,000, $200,000 and $200,000 per annum (increasing 5%
per year), respectively, and option grants on 1,080,000, 360,000 and
360,000 Common Shares, respectively. The options are exercisable ratably
over four years. The options for 50% of the Common Shares have an exercise
price of $6.50 and the options for the other 50% of the Common Shares have
an exercise price of $8.50. The options also have a cost of capital
feature, which provides that starting May 3, 2000, the exercise price will
increase by 10% per annum, less the amount of per share dividends or other
distributions to shareholders. Mr. Friedman, Ms. Zahner and Mr. Schonberger
are also entitled to options to purchase additional shares equal to 3%, 1%
and 1%, respectively, of the shares issued by the Company in connection
with raising an additional $120,000,000 of equity. Such options will have
an exercise price equal to the purchase price of the shares offered for
sale.
Also in November 1998, in consideration for various services
previously provided to First Union, the Company paid Enterprise a
consulting fee and expense reimbursement of $750,000 and issued Enterprise
ten-year warrants for 500,000 Common Shares exercisable at $10.00 per
Common Share.
In January 1999, Charles E. Huntzinger was appointed President and
Chief Executive Officer of Impark. He was formerly Regional Vice President
of Central Parking, one of the largest parking companies in North America.
Paul T. Clough, the former President and Chief Executive Officer of Impark,
remains Chairman of Impark.
In January 1999, First Union agreed, in principle, to amend its
standby purchase arrangements with Elliott Associates, Gotham LP and Gotham
III LP. Among other things, the parties agreed, in principle, that (i)
Gotham Partners International, Ltd. would be added as another standby
purchaser, (ii) First Union would conduct a Rights offering for at least
$20 million (the "First Offering") and for which the standby purchasers
would "standby" to purchase such number of Common Shares that would result
in gross proceeds to First Union of the lesser of $45 million and the
amount of the First Offering, (iii) First Union could elect to conduct a
second Rights offering (the "Second Offering") for which the standby
purchasers would "standby" to purchase such number of Common Shares that
would result in gross proceeds to First Union of the lesser of $45 million
and the aggregate principle amount outstanding under the Bridge Loan, (iv)
the 2% Payment would be made to the standby purchasers the earlier of the
closing of the First Offering and March 31, 1999, (v) the standby
purchasers would be entitled to an aggregate payment of $1,800,000 in
connection with any contemplated Second Offering, subject to reduction, but
not contingent upon the closing of such Second Offering, (vi) the standby
purchasers would have customary rights to terminate their respective
obligations under both the First Offering and the Second Offering, and
(vii) the standby purchase arrangements, with respect to the First
Offering, would expire April 15, 1999 and with respect to the Second
Offering, would expire on August 11, 1999.
First Union has signed or is presently negotiating contracts or has
determined to sell its residential portfolio and certain shopping centers,
office buildings and parking facilities. It is also presently engaged in
arranging new non-recourse financing and refinancing existing mortgage
indebtedness to be secured by certain assets. The net book value as of
September 30, 1998 and net operating income for the nine-months ended
September 30, 1998 of the assets being sold are $182.2 million and $14.2
million, respectively. The net book value as of such date and net operating
income for such period of the assets being financed are $56.4 million and
$3.8 million, respectively. If these transactions are completed on terms
and conditions substantially similar to those expected by management, First
Union anticipates it will receive aggregate gross proceeds of approximately
$258.0 million and net proceeds of approximately $170.0 million after
payment of mortgage indebtedness, transaction expenses, and prepayment
penalties (but before any payment of indebtedness under the Credit
Facilities, which indebtedness is secured by certain of these assets). As a
result of these transactions, First Union is likely to incur approximately
$44.0 million of taxable gain. There can be no assurance, however, that
these sales or financings will be consummated or that they will be
consummated based upon the above terms and conditions. See "Risk Factors --
Failure to Achieve Business Objectives," "-- Real Estate Investment Risks
- -- Illiquidity of Real Estate" and "-- Real Estate Financing Risks."
To comply with the reporting requirements under certain accounting
pronouncements, First Union anticipates recording a one-time, non-cash
charge as of and for the year ended December 31, 1998 to reflect a loss on
assets held for sale and an impairment on assets held. First Union has
preliminarily estimated the magnitude of the charge to be in the range of
approximately $45 million to $55 million.
BUSINESS STRATEGY
In light of the change in the Board's composition, the Stapled REIT
Legislation and other strategic and business considerations, the Board is
currently re-evaluating First Union's overall business plan. Among other
things, the Board is reviewing First Union's capital, operational and
management structure, analyzing First Union's assets to assess their ongoing
potential to contribute to shareholder value and marketing its retail
portfolio. Various professionals have been engaged by First Union and are
assisting the Board in its reviews and analyses.
In the short-term, First Union intends to repay the amounts due under
the Bridge Loan and the FUR Credit Facility, in whole or in part, with the
proceeds of certain asset sales and offerings of Common Shares (including
through Rights offerings) and with any proceeds from the refinancing of any
of the Company's indebtedness. First Union also intends to terminate its
management agreements with FUMI, self-manage its retail, apartment and office
portfolios, and enter into third-party management arrangements for the
parking facilities it owns. Other than Messrs. Friedman and Schonberger and
Ms. Zahner, the individuals who will manage, as employees of First Union,
First Union's retail, apartment and office portfolios will be the individuals
who currently manage such portfolios as employees of FUMI.
In the long-term, the Board will, among other things, consider certain
opportunistic real estate investments where, for example, (i) sellers are
seeking liquidity for their private real estate portfolios and may be
interested in maintaining management positions with respect to such real
estate assets, (ii) management talent is an instrumental part of the overall
real estate acquisition or (iii) legal, tax, financing or other complexities
make it difficult for traditional purchasers to pursue the transaction.
First Union may also in the future transfer its assets to an operating
partnership to be controlled by First Union (commonly referred to as an
"UPREIT") in exchange for interests in such operating partnership.
First Union was formed as an Ohio business trust in 1961. First Union's
principal 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
Except as may be otherwise specified in any prospectus supplement,
First Union intends to use the net proceeds from the sale of any Common
Shares hereunder for general corporate purposes, including the repayment of
indebtedness and for acquisitions.
PRICE RANGE OF COMMON SHARES AND DISTRIBUTIONS
The Common Shares are listed on the NYSE under the symbol "FUR." The
following table sets forth the high and low sales prices of the Common
Shares on the NYSE and the distributions declared, for the periods
indicated.
HIGH LOW DISTRIBUTION
1997
----
First Quarter................. $ 14 1/2 $ 11 5/8 $ .11
Second Quarter................ 14 1/4 12 3/4 .11
Third Quarter................. 14 1/8 12 5/8 .11
Fourth Quarter................ 16 5/16 13 5/16 .11
1998
----
First Quarter................. $ 16 5/16 $ 10 5/8 $ .11
Second Quarter................ 11 5/16 8 1/2 (1)
Third Quarter................. 9 5/8 5 1/8 (1)
Fourth Quarter................ $ 6 1/8 $ 3 3/8 (1)
1999
----
First Quarter (through
January 14, 1999)............. $ 5 11/16 $ 5 1/2 (1)
- -------------
(1) On June 15, 1998, the Board of Trustees announced that it was
suspending First Union's quarterly distribution and instituting a new annual
distribution policy.
The closing price of the Common Shares on the NYSE on January 14, 1999
was $5.50 per share. On January 14, 1999, First Union had approximately
31,416,000 Common Shares outstanding, owned by approximately 13,000
beneficial holders. First Union had 1,349,000 Series A Preferred Shares
outstanding as of January 14, 1999. The Series A Preferred Shares are
listed on the NYSE under the symbol "FURPrA." The closing price of the
Series A Preferred Shares on the NYSE on January 14, 1999 was $22.125 per
share.
To qualify as a REIT, First Union is required to make distributions
(other than capital gain distributions) to its shareholders in amounts at
least equal to (i) the sum of (A) 95% of its "REIT taxable income"
(computed without regard to the dividends-paid deduction and its net
capital gain) and (B) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash
income. On June 15, 1998, First Union suspended its quarterly distributions
on its Common Shares and, in lieu thereof, instituted an annual
distribution policy. With this new policy, First Union intends to make only
the minimum required distributions to maintain REIT status and to maximize
the amount of capital retained for operations, debt repayment or future
acquisitions. 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. See "Federal Income Tax Consequences -- Taxation
of First Union -- Annual Distribution Requirements" elsewhere in this
prospectus.
Furthermore, if First Union fails to distribute for each calendar year
at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its capital gain net income for such year, and (iii) 100% of its
undistributed taxable income from prior calendar years, First Union will be
subject to a 4% nondeductible excise tax on the excess of such required
distributions over the amounts actually distributed.
The declaration and payment of distributions is subject to the
discretion of the Board of Trustees and is dependent upon the financial
condition and operating results of First Union.
For federal income tax purposes, distributions may consist of ordinary
income, capital gains, non-taxable return of capital or a combination
thereof. For a discussion of the federal income taxation of distributions
to holders of Common Shares, see "Federal Income Tax Consequences --
Taxation of First Union's Shareholders -- Taxation of Taxable U.S.
Shareholders," and "Federal Income Tax Consequences -- Taxation of Non-U.S.
Shareholders -- Distributions from First Union" as applicable, elsewhere in
this prospectus. First Union annually notifies shareholders of the
taxability of distributions paid during the preceding year. For federal
income tax purposes, approximately 27.9% of the distributions for 1997 were
treated as capital gain and approximately 72.1% of such distributions were
treated as ordinary income.
Under federal income tax rules, First Union's earnings and profits are
first allocated to its Series A Preferred Shares, to the extent any Series
A Preferred Shares are outstanding, which may increase the portion of the
Common Share distribution classified as a return of capital. First Union
anticipates that all of the distributions on the Common Shares will be
taxable income to its holders for calendar year 1998.
<PAGE>
MANAGEMENT
The executive officers and Trustees of First Union, and their ages as
of January 12, 1999, are as follows:
NAME AGE POSITION
William A. Ackman...................... 32 Chairman of the Board and
Trustee
William Scully......................... 37 Vice Chairman of the Board
and Trustee
Daniel P. Friedman..................... 41 President, Chief Executive
Officer and Trustee
Steven M. Edelman...................... 43 Executive Vice President and
Chief Financial Officer
John J. Dee............................ 47 Senior Vice President and
Chief Accounting Officer
Paul F. Levin.......................... 51 Senior Vice President,
General Counsel and Secretary
David Schonberger...................... 43 Executive Vice President
Anne N. Zahner......................... 43 Executive Vice President
Daniel J. Altobello.................... 57 Trustee
David P. Berkowitz..................... 36 Trustee
William E. Conway...................... 71 Trustee
Allen H. Ford.......................... 70 Trustee
Stephen J. Garchik..................... 44 Trustee
Russell R. Gifford..................... 59 Trustee
David S. Klafter....................... 43 Trustee
Daniel Shuchman........................ 33 Trustee
Stephen S. Snider...................... 42 Trustee
Mary Ann Tighe......................... 50 Trustee
James A. Williams...................... 56 Trustee
William A. Ackman. Mr. Ackman has been Chairman of the Board of
Trustees of First Union since June 1998. Since January 1, 1993, through a
company he owns, Mr. Ackman has acted as co-investment manager of Gotham
LP, Gotham III LP and Gotham International Advisors, L.L.C. ("Gotham
International"). From January 1, 1993 until October 1, 1998, through a
company he owns, Mr. Ackman acted as a co-investment manager of Gotham
Partners II, L.P. ("Gotham II LP"). Gotham II LP was dissolved in October
1998. Since before January 1, 1993, Mr. Ackman has served as Vice
President, Secretary and Treasurer of GPLP Management Corp. ("GPLP"), the
Managing Member of Gotham Partners Management Co. LLC, an investment
management firm ("GPM"). Mr. Ackman was a general partner of Section H
Partners, L.P. ("Section H"), the General Partner of the Gotham LP and
Gotham II LP investment funds, from before January 1993 through September
1993. Mr. Ackman has been the President, Secretary and Treasurer of
Karenina Corporation, a general partner of Section H, since October 1993.
William Scully. Mr. Scully has been a Trustee of First Union since
September 1998 and Vice Chairman of the Board of Trustees of First Union
since November 1998. Mr. Scully has been a partner of Apollo since 1996 and
is responsible for new investments and investment management. From 1994 to
1996, Mr. Scully was a Senior Vice President of O'Connor Capital, Inc., the
general partner of The Argo Funds, and the Director of Acquisitions for The
Argo Funds. From 1993 to 1994, Mr. Scully directed private investment
activities for entities related to Clark Construction and The Carlyle
Group, primarily in land development projects in suburban Washington, D.C.
Mr. Scully was a member of GE Capital's portfolio acquisitions group from
1991 to 1993.
Daniel P. Friedman. Mr. Friedman has been President, Chief Executive
Officer and a Trustee of First Union since November 1998. He was President
and Chief Operating Officer of Enterprise from June 1996 to November 1998
and was Executive Vice President and Chief Operating Officer of Enterprise
from February 1992 to June 1996. At Enterprise, he was responsible for
asset management and new business development. From September 1994 to
November 1998, Mr. Friedman was a manager of all the Cheshire Limited
Liability Companies ("Cheshire"). Cheshire acquires and restructures
non-performing underlying residential co-op mortgage loans and unsold co-op
apartments. From May 1993 to December 1997, Mr. Friedman was a board member
of Emax Advisors, Inc. From May 1993 to December 1996, he was a board
member of Emax Securities, Inc. (a NASD broker/dealer) (together with Emax
Advisors, Inc., the "Emax Companies"). The Emax Companies are real estate
investment banking companies that provide capital and advisory services for
real estate transactions.
Steven M. Edelman. Mr. Edelman has been Chief Financial Officer of
First Union since February 1997 and Executive Vice President since November
1998. From June 1998 until November 1998, he served as Interim Chief
Executive Officer of First Union. From January 1996 to January 1997, Mr.
Edelman served as Executive Vice President, Chief Investment Officer of
First Union. He was Senior Vice President, Chief Investment Officer of
First Union from March 1995 to December 1995, Senior Vice President, Asset
Management from July 1992 to February 1995, Vice President, Acquisitions
from December 1985 to June 1992, Assistant Vice President, Acquisitions
from January 1985 to November 1985, Acquisition Analyst from February 1984
to December 1985, Assistant Controller from July 1982 to January 1984 and
an internal auditor from June 1980 to June 1982. Mr. Edelman was an auditor
with Touche Ross & Co. from 1978 to 1980.
John J. Dee. Mr. Dee has been Senior Vice President and Chief
Accounting Officer of First Union since February 1996. He served as Senior
Vice President and Controller of First Union from July 1992 to February
1996, Vice President and Controller from December 1986 to July 1992,
Controller from April 1981 to December 1986, Assistant Controller from
December 1979 to April 1981 and Accounting Manager from August 1978 to
December 1979.
Paul F. Levin. Mr. Levin has been Senior Vice President, General
Counsel and Secretary since December 1994. He served as Vice President,
General Counsel and Secretary from May 1989 to November 1994. Mr. Levin was
a principal of Schwarzwald, Robiner, Rock & Levin, a Legal Professional
Association, from 1981 to 1989, an Associate of Gaines, Stern, Schwarzwald
& Robiner Co., L.P.A. from 1979 to 1980 and an Assistant Director of Law,
City of Cleveland, Ohio, from 1975 to 1978.
David Schonberger. Mr. Schonberger has been Executive Vice President
of First Union since November 1998, where he is primarily responsible for
retail, office and residential projects. From November 1997 to November
1998, he was Senior Vice President of Enterprise. At Enterprise, he was
responsible for retail and raw land development projects. Since January
1990, Mr. Schonberger has been Director of Legacy Construction Corp., a
privately held leasing and project management company specializing in
institutional property management and oversight of specialty construction
and development projects. In February 1996, Legacy Construction Corp.
merged with Peter Elliot Corporation to form Peter Elliot LLC. From
February 1996 to October 1997, Mr. Schonberger served as treasurer and
manager of Peter Elliot LLC.
Anne N. Zahner. Ms. Zahner has been Executive Vice President of First
Union since November 1998, where she is primarily responsible for the
retail division. She was Executive Vice President of Enterprise from March
1996 until November 1998. At Enterprise, she was primarily responsible for
Enterprise's asset management and new business development. From November
1990 until March 1996, Ms. Zahner was a director and Vice President of
Travelers Insurance Company, at Travelers Realty Investment Co., where she
was responsible for asset management and sales and investment recovery.
Daniel J. Altobello. Mr. Altobello has been a Trustee of First Union
since June 1998. He has been the Chairman of the Board of ONEX Food
Services, Inc., an airline catering company and a partner in Ariston
Investment Partners, a consulting firm, since September 1995. Mr. Altobello
was the Chairman, President and Chief Executive Officer of Caterair
International Corporation, an airline catering company, from before January
1, 1993 until September 1995. Mr. Altobello is a member of the Boards of
Directors of American Management Systems, Inc., Colorado Prime Corporation,
Care First, Inc., Care First of Maryland, Inc., Mesa Air Group, Inc., World
Airways, Inc. and Sodexho Marriott Services, Inc.
David P. Berkowitz. Mr. Berkowitz has been a Trustee of First Union
since June 1998. From June 1998 until November 1998, he was Vice Chairman
of the Board of Trustees of First Union. Since January 1, 1993, through a
company he owns, Mr. Berkowitz has acted as a co-investment manager of
Gotham LP, Gotham III LP and Gotham International. From January 1, 1993
until October 1, 1998, through a company he owns, Mr. Berkowitz acted as a
co-investment manager of Gotham II LP. Gotham II LP was dissolved in
October 1998. Since before January 1, 1993, Mr. Berkowitz has served as
President of GPLP. Mr. Berkowitz was a general partner of Section H from
before January 1993 through September 1993. Mr. Berkowitz has been the
President, Secretary and Treasurer of DPB Corporation, a general partner of
Section H, since October 1993.
William E. Conway. Mr. Conway has been a Trustee of First Union since
1985. Mr. Conway has been Chairman of Fairmont Minerals Ltd. ("Fairmont"),
a miner and processor of industrial minerals, since 1978, and was Chairman
and Chief Executive Officer of Fairmont from 1978 to 1996. Mr. Conway was a
Group Vice President of Midland-Ross Corporation, a diversified capital
goods manufacturer, from 1974 to 1978, and was Executive Vice President,
Administration of Diamond Shamrock Corporation ("Diamond Shamrock"), a
producer of chemicals, petroleum and related products, from 1970 to 1974.
Mr. Conway is a director of The Huntington National Bank of Ohio and a
trustee of The Cleveland Clinic Foundation and University School.
Allen H. Ford. Mr. Ford has been a Trustee of First Union since 1983.
He is a consultant and was, from 1981 to 1986, Senior Vice President -
Finance and Administration of The Standard Oil Company (BP America), an
integrated domestic petroleum company. Mr. Ford was Corporate Executive
Vice President and Unit President from 1976 to 1980, Vice President,
Finance, from 1969 to 1976, and Treasurer during 1969 of Diamond Shamrock.
Mr. Ford is a director of Gliatech, Inc. and Parker Hannifin Corporation,
and is a trustee and former Chairman of Case Western Reserve University, a
trustee of the Musical Arts Association (Cleveland Orchestra), University
Hospitals of Cleveland, the Western Reserve Historical Society, and
University Circle, Inc. He is also a trustee and former Chairman of the
Edison BioTechnology Center.
Stephen J. Garchik. Mr. Garchik has been a Trustee of First Union
since June 1998. He has served as President of The Evans Company, a
commercial real estate development and management firm, since before
January 1, 1993.
Russell R. Gifford. Mr. Gifford has been a Trustee of First Union
since 1991. He has been Chief Operating Officer of the Cleveland Public
School System since June 11, 1998. He was President of CNG Energy Services
Corporation ("CNG"), an unregulated energy marketing company providing gas
and electric energy services throughout North America, from 1994 to 1997.
He was President and Chief Executive Officer of The East Ohio Gas Company
("East Ohio"), Cleveland, Ohio, a distributor of natural gas, from 1989 to
1994. He was also President of West Ohio Gas Company ("West Ohio"), Lima,
Ohio, and River Gas Company ("River"), Marietta, Ohio. CNG, East Ohio, West
Ohio and River are subsidiaries of Consolidated Natural Gas Co. of
Pittsburgh, Pennsylvania. Mr. Gifford was Senior Vice President of East
Ohio from 1985 to 1988. Mr. Gifford is a director of Applied Industrial
Technologies, Inc., a trustee of Baldwin Wallace College, and a member of
the National Board of Governors of the American Red Cross.
David S. Klafter. Mr. Klafter has been a Trustee of First Union since
June 1998. He has been an in-house counsel and a principal of GPM since
April 1996. Mr. Klafter was counsel at White & Case, a law firm, from
before January 1, 1993 until December 1993, and a partner at White & Case
from January 1994 until April 1996. Mr. Klafter's law practice was in
general commercial litigation, with an emphasis on real-estate related
matters, including leases, mortgages and loan work-outs.
Daniel Shuchman. Mr. Shuchman has been a Trustee of First Union since
June 1998. He has been a principal of GPM since October 1994. Mr. Shuchman
was an investment banker at Goldman, Sachs & Co., an investment banking
firm, from before January 1, 1993 until August 1994.
Steven S. Snider. Mr. Snider has been a Trustee of First Union since
June 1998. Since before January 1, 1993, Mr. Snider has been a senior
partner at Hale and Dorr LLP, a law firm.
Mary Ann Tighe. Ms. Tighe has been a Trustee of First Union since June
1998. She has been an Executive Managing Director and a member of the
Executive and Strategic Planning Committees of Insignia/ESG, a commercial
real estate firm, since before January 1, 1993 and she has been Vice
Chairman of Insignia/ESG since January 1999. She is on the Board of
Directors of The New 42nd Street, a New York City-based community
revitalization organization.
James A. Williams. Mr. Williams has been a Trustee of First Union
since June 1998. He has been the President of Williams, Williams, Ruby &
Plunkett PC, a law firm, since before January 1, 1993. Mr. Williams has
also been the Chairman of Michigan National Bank and Michigan National
Corporation since November 1995. Mr. Williams is Chairman of the Henry Ford
Hospital in West Bloomfield, Michigan. He is a Trustee of Henry Ford Health
System and the Oakland University (Michigan) Foundation and a member of the
Board of Governors of the Cranbrook School.
TERMS OF OFFICE OF THE TRUSTEES
The Board of Trustees is divided into three classes: Messrs. Shuchman,
Snider, Gifford, Conway and Friedman are Class I Trustees and their terms
end upon the election of their successors at First Union's annual meeting
of shareholders in 2000. Messrs. Ackman, Berkowitz, Williams, and Garchik
and Ms. Tighe are Class II Trustees and their terms end upon the election
of their successors at First Union's annual meeting of shareholders in
2001. Messrs. Klafter, Altobello, Ford and Scully are Class III Trustees
and their terms end upon the election of their successors at First Union's
annual meeting of shareholders in 1999.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
COMMON SHARES
General
The following description sets forth certain general terms and
provisions of the Common Shares. The statements below describing the Common
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 Common Shares which First Union is authorized to issue
is unlimited. All Common 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, each outstanding Common 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
preemptive rights. The outstanding Common Shares are fully paid and
non-assessable and have equal liquidation rights. The Common 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
Common Shares are not redeemable at the option of First Union or of any
shareholder. The Board of Trustees is generally authorized without
shareholder approval to borrow money and issue obligations and equity
securities which may or may not be convertible into Common Shares and
warrants, rights or options to purchase Common Shares; and to issue other
securities of any class or classes which may or may not have preferences or
restrictions not applicable to the Common Shares. The issuance of
additional Common 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 in the State of Ohio
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 25% of the outstanding
Common 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 the
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 the State of 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 would 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 previous paragraph also
apply to holders of the preferred shares of beneficial interest, $1.00 par
value per share ("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 IRS, 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 Code. Consequently, the only voting power
presently granted to the shareholders is the right by a majority vote or a
supermajority vote, as the case may be, (i) to elect Trustees, (ii) to
approve or disapprove certain transfers of assets or mergers of First
Union, (iii) to approve or disapprove amendments to the Declaration of
Trust or termination of the Declaration of Trust, and (iv) when removal is
proposed by all other Trustees, to approve 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 Common Shares is National
City Bank.
Restriction on Size of Holdings
The By-Laws restrict beneficial or constructive ownership of First
Union's outstanding capital stock by a single person, or persons acting as
a group, to 9.8% of the Common Shares, which limitation assumes that all
securities convertible into Common 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. 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 Common
Shares, or an aggregate of 49% of the outstanding Common Shares, and thus,
assists the Trustees in protecting and preserving REIT status for tax
purposes.
Unless a waiver of such restrictions is granted by the Board, Common
Shares owned by a person or group of persons in excess of 9.8% of First
Union's outstanding Common 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 distributions with respect to the securities.
The Declaration of Trust provides that the Share Ownership Limit
contained in the By-Laws may be amended from time to time with the approval
of either (i) 70% of the Trustees then in office or (ii) a majority of the
Trustees then in office and the approval of at least 70% of the holders of
the outstanding Common Shares.
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 business
trusts, 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.
Beneficial Ownership of FUMI
All of the shares of FUMI are owned in trust (the "Trust") for the
benefit of owners of Common Shares pursuant to an amended and restated
declaration of trust dated as of October 1, 1996. FUMI's 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
Common Shares held by them. Upon termination of the Trust, each holder of
Common Shares 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 Common Shares owned by it, together with any Common
Shares the ownership of which is attributed to it by the Code, do not
exceed 5% of the then outstanding Common Shares. In addition, FUMI's
Declaration of Trust provides that any person who owns, directly or by
attribution, 5% or more of the outstanding shares of First Union, is deemed
to have no beneficial interest in the Trust. These restrictions on
ownership of the Trust are intended to avoid implicating constructive
ownership rules which could otherwise cause rental payments from FUMI to
First Union to be non-qualifying income for purposes of determining whether
First Union qualifies as a REIT. FUMI's Declaration of Trust provides that
the Trust shall terminate upon the termination 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 Common Share consisting of one right to purchase one Common Share
at an exercise price of $50 per right. Pursuant to the Rights Agreement,
dated as of March 7, 1990, between the Company and National City Bank, as
Rights Agent, which governs First Union's Shareholder Rights Plan, if a
person or group, excluding certain affiliated entities of First Union, who
acquires 15% or more of the outstanding Common 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 First Union ("flip-in events"), each right,
other than rights owned by a 15% owner or an "adverse person," entitles the
holder to purchase one Common 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 Common 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.
PREFERRED SHARES
General
Subject to limitations as may be prescribed by Ohio law and First
Union's by-laws (the "By-Laws") and 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 distributions, qualifications and terms and
conditions of redemption of the shares of each such series. First Union
currently has outstanding the Series A Preferred Shares. The following
description sets forth certain general terms and provisions of the Series A
Preferred Shares. The statements below describing the Series A Preferred
Shares do not purport to be complete and are in all respects subject to,
and qualified in their entirety by reference to, the terms and provisions
of the Certificate of Designations authorizing the Series A Preferred
Shares (the "Certificate of Designations"), the Declaration of Trust and
the By-Laws.
The outstanding Series A Preferred Shares have been validly issued,
fully paid and, except as set forth under "-- Common Shares -- Shareholder
Liability," non-assessable. The holders of the Series A Preferred Shares
have no pre-emptive rights with respect to any shares of the capital stock
of First Union or any other securities of First Union convertible into or
carrying rights or options to purchase any such shares. The Series A
Preferred Shares are not subject to any sinking fund or other obligation of
First Union to redeem or retire the Series A Preferred Shares. Unless
converted into Common Shares or redeemed by First Union, the Series A
Preferred Shares have a perpetual term, with no maturity.
The Series A Preferred Shares, unlike the Common Shares, are not
entitled to the benefit of FUMI's Declaration of Trust. See "-- Common
Shares -- Beneficial Ownership of FUMI."
Distributions
Holders of the Series A Preferred Shares are entitled to receive,
when, as and if declared by the Board of Trustees, out of funds legally
available for the payment of distributions, cumulative preferential cash
distributions in an amount per share equal to the greater of $2.10 per
share (equivalent to 8.4% of the liquidation preference per annum) or the
cash distributions on the Common Shares, or portion thereof, into which a
Series A Preferred Share is convertible. Such distributions shall equal the
number of Common Shares, or portion thereof, into which a Series A
Preferred Share is convertible, multiplied by the most current quarterly
cash dividend on a Common Share on or before the applicable dividend
payment date.
Distributions on the Series A Preferred Shares accrue whether or not
First Union has earnings, whether or not there are funds legally available
for the payment of such distributions and whether or not such distributions
are declared. Accrued but unpaid distributions on the Series A Preferred
Shares do not bear interest. Holders of the Series A Preferred Shares are
not entitled to any distributions in excess of full cumulative
distributions as described above.
Unless full cumulative distributions on the Series A Preferred Shares
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
distribution periods and the then current distribution period, no
distributions (other than in Common Shares or other Junior Shares will be
declared or paid or set aside for payment upon the Common Shares or any
other Junior Shares, nor will any Common Shares or any other Junior Shares
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 Junior Shares).
Liquidation Rights
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of First Union, then, before any distribution or payment
is made to the holders of any Common Shares or any other class or series of
capital shares of First Union ranking junior to the Series A Preferred
Shares in the distribution of assets upon any liquidation, dissolution or
winding up of First Union, the holders of Series A Preferred Shares will be
entitled to receive out of assets of First Union (excluding the assets of
FUMI) legally available for distribution to shareholders, liquidating
distributions in the amount of the liquidation preference ($25.00 per
share), plus an amount equal to all distributions accrued and unpaid
thereon, if any. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Series A Preferred
Shares will have no right or claim to any of the remaining assets of First
Union.
If liquidating distributions have been made in full to all holders of
Series A Preferred Shares and all other classes or series of capital shares
of First Union ranking on a parity with the Series A Preferred Shares in
the distribution of assets, the remaining assets of First Union will be
distributed among the holders of any other classes or series of capital
shares ranking junior to the Series A Preferred Shares in the distribution
of assets upon any 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, the
sale, lease or conveyance of all or substantially all of the property or
business of First Union or a statutory share exchange will not be deemed to
constitute a liquidation, dissolution or winding up of First Union.
Redemption
The Series A Preferred Shares are not redeemable by the Company prior
to October 29, 2001, and at no time are the Series A Preferred Shares
redeemable for cash (except to the extent provided below in lieu of the
issuance of fractional Common Shares). On and after October 29, 2001, the
Series A Preferred Shares will be redeemable at the option of the Company,
in whole or in part, for such number of Common Shares as equals the
liquidation preference of the Series A Preferred Shares to be redeemed
(without regard to accrued and unpaid distributions) divided by the
Conversion Price (as defined herein under "-- Conversion Rights") as of the
opening of business on the date set for such redemption (equivalent to a
conversion rate of 3.31 Common Shares for each Series A Preferred Share),
subject to adjustment in certain circumstances as described below. See "--
Conversion Price Adjustments." The Company may exercise this option only if
for 20 trading days, within any period of 30 consecutive trading days,
including the last trading day of such period, the closing price of the
Common Shares on the NYSE equals or exceeds the Conversion Price per share,
subject to adjustments in certain circumstances as described below. See "--
Conversion Price Adjustments."
Voting Rights
Except as indicated below, or except as otherwise from time to time
required by applicable law, the holders of Series A Preferred Shares have
no voting rights.
If six quarterly distributions (whether or not consecutive) payable on
the Series A Preferred Shares or any shares of beneficial interest ranking
on a parity with the Series A Preferred Shares with respect to the payment
of distributions and 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 Series A Preferred Shares, voting
together as a class with the holders of any other series of Parity Shares
(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 Series A Preferred Shares and such Voting Preferred Shares and
at each subsequent annual meeting of shareholders until all such
distributions and distributions for the current quarterly period on the
Series A Preferred Shares and such other Voting Preferred Shares have been
paid or 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 Series A Preferred
Shares 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, By-Laws or the Certificate of Designations to affect materially
and adversely the rights, preferences or voting power of the holders of the
Series A Preferred Shares or the Voting Preferred Shares, (ii) enter into a
share exchange that affects the Series A Preferred Shares, 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 Series A Preferred
Share remains outstanding without a material adverse change to its terms
and rights or is converted into or exchanged for convertible preferred
stock of the surviving entity having preferences, conversion and other
rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms or conditions of redemption thereof identical to
that of a Series A Preferred Share (except for changes that do not
materially and adversely affect the holders of the Series A Preferred
Shares) or (iii) authorize, reclassify, create or increase the authorized
amount of any class of shares of beneficial interest having rights senior
to the Series A Preferred Shares as to distributions or in the distribution
of assets. However, First Union may create additional classes of Parity
Shares and shares ranking junior to the Series A Preferred Shares as to
distributions or in the distribution of assets ("Junior Shares"), increase
the authorized number of Parity Shares and Junior Shares and issue
additional series of Parity Shares and Junior Shares without the consent of
any holder of Series A Preferred Shares.
Conversion Rights
The Series A Preferred Shares are convertible, in whole or in part, at
any time, unless previously redeemed, at the option of the holders thereof,
into Common Shares at a conversion price of $7.5625 per Common Share
(equivalent to a conversion rate of 3.31 Common Shares for each Series A
Preferred Share), subject to adjustment as described below (the "Conversion
Price"). See "-- Conversion Price Adjustments." The right to convert Series
A Preferred Shares called for redemption will terminate at the close of
business on the redemption date for such Series A Preferred Shares.
Conversion Price Adjustments
The Conversion Price is subject to adjustment upon certain events,
including without duplication (i) distributions payable in Common Shares,
(ii) the issuance to all holders of Common Shares of certain rights,
options or warrants entitling them to subscribe for or purchase Common
Shares at a price per share less than the fair market value per Common
Share (which, as defined, includes an adjustment for underwriting
commissions avoided in rights offerings to shareholders), (iii)
subdivisions, combinations and reclassifications of Common Shares, (iv)
distributions to all holders of Common Shares of any capital stock of First
Union (other than Common Shares), evidences of indebtedness of First Union
or assets (including securities, but excluding those rights, warrants and
distributions referred to above and excluding Permitted Common Share Cash
Distributions, as hereinafter defined) and (v) payment in respect of a
tender or exchange offer by First Union or any subsidiary of First Union
for Common Shares if the cash and value of any other consideration included
in such payment per Common Share (as determined by the Board of Trustees)
exceeds the current market price (as defined) per Common Share on the
trading day next succeeding the last date tenders or exchanges may be made
pursuant to such tender or exchange offer. "Permitted Common Share Cash
Distributions" are those cumulative cash distributions paid with respect to
the Common Shares after December 31, 1995 which are not in excess of the
following: the sum of (i) First Union's cumulative undistributed income
from operations and capital gains and cumulative depreciation and
amortization at December 31, 1995, plus (ii) the cumulative amount of net
income before distributions accrued or paid on the Series A Preferred
Shares, plus depreciation and amortization, after December 31, 1995, minus
(iii) the cumulative amount of distributions accrued or paid on the Series
A Preferred Shares or any other class of Preferred Shares after the date of
original issue of the Series A Preferred Shares. In addition to the
foregoing adjustments, First Union is permitted to make such reductions in
the Conversion Price as it considers to be advisable in order that any
event treated for federal income tax purposes as a distribution of stock or
stock rights will not be taxable to the holders of the Common Shares.
Restrictions on Ownership
With limited exceptions, no person, or persons acting as a group, may
beneficially own more than 25% of the Series A Preferred Shares outstanding
at any time, except as a result of First Union's redemption of any Series A
Preferred Shares; provided that after any redemption, additional Series A
Preferred Shares acquired by such person will be subject to the Preferred
Shares Ownership Limit Provision. Series A Preferred Shares owned in excess
of the Preferred Shares Ownership Limit Provision are not entitled to
dividends, interest or any other distribution with respect to such shares,
are not entitled to any conversion rights, are not entitled to any voting
rights, and shall not be considered outstanding for quorums or voting
purposes.
With limited exceptions, no person or persons acting as a group may
beneficially own more than 9.8% of the Common Shares, which limitation
assumes that all securities convertible into Common Shares owned by such
person or group of persons, such as the Series A Preferred Shares, have
been converted. In addition, in order for a holder of Common Shares to be
entitled to the benefit of FUMI's Declaration of Trust, such shareholder
may not own, after taking into consideration all Common Shares owned by
such person together with any Common Shares attributed to such person under
the Code, which would include the Series A Preferred Shares on an as
converted basis, more than 5% of the outstanding Common Shares of First
Union. See "-- Common Shares -- Restriction on Size of Holdings" and "--
Common Shares -- Beneficial Ownership of FUMI."
SELLING SHAREHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of Common Shares as of January 11, 1999 for the
Selling Shareholders. To the extent indicated in an accompanying prospectus
supplement, one or more of the Selling Shareholders may from time to time
offer Common Shares (the "Selling Shareholder Shares") for sale.
NUMBER OF COMMON MAXIMUM AGGREGATE
SHARES NUMBER OF COMMON SHARES
SELLING BENEFICIALLY WHICH MAY
SHAREHOLDER OWNED BE OFFERED(1)
----------- ---------------- -----------------------
Gotham Partners, L.P. 2,206,515
Gotham Partners III, L.P. 25,885
Gotham Partners International, Ltd. 815,400
Elliott Associates, L.P. 424,700(2)
- ------------------
(1) Shall include only such Common Shares as may be acquired by such
Selling Shareholders in connection with any offering of Common Shares
by First Union under this prospectus, provided that the aggregate
number of Common Shares to be offered for sale by such Selling
Shareholders shall not exceed an amount equal to the sum of (i)
9,000,000 and (ii) an amount equal to the quotient of $45 million
divided by the offering price per Common Share in the Second Offering.
(2) An investment partnership under common management with Elliott
Associates also owns 424,700 Common Shares.
Each of Gotham LP, Gotham III LP and Gotham Partners International,
Ltd. ("GPI") is an affiliate of First Union. William Ackman, Chairman of
First Union is a principal of Gotham LP and Gotham III LP, and certain
other Trustees of First Union are principals or employees of Gotham LP and
Gotham III LP. Other than these relationships, the ownership of Common
Shares, its participation as a lender in the Bridge Loan and its agreement
to act as a standby purchaser in certain Rights offerings contemplated by
this prospectus, neither Gotham LP nor Gotham III LP has had any material
relationships with First Union or any of its affiliates within the past
three years. Other than the ownership of Common Shares and its agreement to
act as a standby purchaser in certain Rights offerings contemplated by this
prospectus, GPI has had no material relationships with First Union or any
of its affiliates within the past three years. Other than the ownership of
Common Shares, its participation as a lender in the Bridge Loan and its
agreement to act as a standby purchaser in certain Rights offerings
contemplated by this prospectus, Elliott Associates has had no material
relationships with First Union or any of its affiliates within the past
three years. For additional information regarding Gotham LP, Gotham III LP
and Elliott Associates' roles as lenders under the Bridge Loan and Gotham
LP, Gotham III LP, GPI and Elliott Associates' role as standby purchasers,
see "The Company -- Recent Developments." Since the Selling Shareholders
may sell all, some or none of the Selling Shareholder Shares, no estimate
can be made of the aggregate number of Selling Shareholder Shares that are
to be offered hereby or that will be beneficially owned by the Selling
Shareholders upon completion of any offering contemplated by this
prospectus.
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
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 tax
treatment of a shareholder will vary depending upon the holder's particular
situation, and this discussion addresses only holders that hold Common
Shares as capital assets and does not purport to deal with all aspects of
taxation that may be relevant to particular holders in light of their
personal investment or tax circumstances, or to certain types of holders
(including dealers in securities or currencies, traders in securities that
elect to mark-to-market, banks, tax-exempt organizations, life insurance
companies, persons that hold Common Shares that are a hedge or that are
hedged against currency risks or that are part of a straddle or conversion
transaction, or persons whose functional currency is not the U.S. dollar)
subject to special treatment under the federal income tax laws. This
summary is based on the Code, its legislative history, existing and
proposed regulations thereunder, published rulings and court decisions, all
as currently in effect and all subject to change at any time, perhaps with
retroactive effect.
Fried Frank, counsel to First Union, has rendered an opinion that,
commencing with First Union's taxable year ended December 31, 1994, First
Union has been organized as, and has operated in conformity with the
requirements for qualification as, a REIT, 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 FUMI
and of any partnerships in which First Union will hold an interest, and is
conditioned upon representations made by First Union as to certain factual
matters relating to First Union's and FUMI's organization and manner of
operation. Fried Frank's opinion also relies upon the opinion of Mayer,
Brown & Platt, dated July 21, 1997, which is based upon certain
representations and assumptions, stating that, as of that date, First
Union's then existing legal organization and method of operation enabled
First Union to satisfy the requirements for qualification as a REIT.
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 qualification as a REIT
under the Code, and the assumption that all organizational documents for
First Union and FUMI 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. Fried Frank 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 COMMON SHARES, 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. However, as noted below under "-- Taxation of First Union's
Shareholders -- Taxation of Taxable U.S. Shareholders," corporate
shareholders will not be entitled to a dividends received deduction with
respect to dividends paid on their shares.
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, based on internal calculations and advice of counsel,
believes it properly elected and continued to elect REIT status for all
taxable years since its filing of a REIT election and that it has operated
and expects that it will continue to operate in a manner that will permit
it 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, in
general it will not 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 to satisfy either the 75%
test 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) net 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. For taxable years beginning after August 5, 1997, the Taxpayer
Relief Act of 1997 (the "1997 Act") permits a REIT, with respect to
undistributed net long-term capital gains it received during the taxable
year, to designate in a notice mailed to shareholders within 60 days of the
end of the taxable year (or in a notice mailed with its annual report for
the taxable year) such amount of such gains which its shareholders are to
include in their taxable income as long-term capital gains. Thus, if First
Union made this designation, the shareholders of First Union would include
in their income as long-term capital gains their proportionate share of the
undistributed net capital gains as designated by First Union and First
Union would have to pay the tax on such gains within 30 days of the close
of its taxable year. Each shareholder of First Union would be deemed to
have paid such shareholder's share of the tax paid by First Union on such
gains, which tax would be credited or refunded to the shareholder. A
shareholder would increase its tax basis in its First Union stock by the
difference between the amount of income to the holder resulting from the
designation less the holder's credit or refund for the tax paid by First
Union. First Union may also be subject to the corporate "alternative
minimum tax", as well as tax in certain situations and on certain
transactions not presently contemplated. First Union will use the calendar
year both for federal income tax purposes and for financial reporting
purposes.
Stapled Stock. First Union and FUMI 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 FUMI, 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 IRS sanctioning the stapling of First Union
and FUMI. These rulings provided that (i) even though First Union and FUMI
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 FUMI were stapled. The effective
date provision for Section 269B provides that Section 269B of the Code does
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 FUMI were stapled on June 30, 1983, Section 269B should not apply
to First Union and FUMI. However, as described above in "Risk Factors --
Legislation Limiting Advantage of Stapled REIT Structure" and "Risk Factors
- -- REIT Tax Risks," newly enacted legislation provides that the income and
activities of FUMI with respect to any real property acquired by the First
Union Companies after March 26, 1998, for which there was no binding
written agreement, public announcement or filing with the Commission on or
before March 26, 1998, will be attributed to First Union for purposes
determining whether First Union qualifies as a REIT.
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. For purposes of this
provision, certain attribution rules are applicable. Under this provision,
even though Section 269B of the Code does not apply to First Union and
FUMI, if any person were to acquire, directly or indirectly, a 10% or
greater beneficial interest in the Trust (taking into account such
attribution rules), then rents received from FUMI 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.
FUMI's Declaration of Trust provides that any person who owns,
directly or by attribution, 5% or more of the outstanding shares of First
Union, is deemed to have no beneficial interest in the Trust. Assuming this
restriction precludes any person from owning 10% or more of the voting
power of all classes of stock of FUMI, First Union believes that amounts
otherwise qualifying as rents from real property received from FUMI will
qualify as rents from real property for REIT purposes. First Union intends
to terminate its management arrangements with FUMI, self-manage its retail,
apartment and office portfolios, and enter into third-party management
arrangements for the parking facilities it owns. Assuming this occurs,
First Union will no longer receive any rents from FUMI.
The Code defines a REIT as an electing corporation, trust or
association (1) which is managed by one or more trustees or directors, (2)
the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest, (3) which would
otherwise be taxable as a domestic corporation, but for Section 856 through
859 of the Code, (4) which is neither a financial institution nor an
insurance company subject to certain provisions of the Code, and (5) which
meets the share ownership, asset and income tests described below.
First Union has a number of wholly-owned subsidiaries. Code Section
856(i) provides that a corporation which is a "qualified REIT subsidiary"
shall not be treated as a separate corporation, and all assets,
liabilities, and items of income, deductions, and credit of a "qualified
REIT subsidiary" shall be treated as assets, liabilities and such items (as
the case may be) of the REIT. Thus, in applying the requirements described
below, the assets, liabilities and items of income, deduction and credit of
First Union's qualified REIT subsidiaries will be treated as assets,
liabilities and items of First Union. Furthermore, First Union's
proportionate share of the assets, liabilities and items of income of any
partnership in which First Union is a partner will be treated as assets,
liabilities and items of income of First Union for purposes of applying the
requirements described below.
Share Ownership Test. First Union's shares of stock 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 stock 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 entities. Under the
1997 Act, for taxable years beginning after August 5, 1997, if First Union
complies with the Treasury regulations for ascertaining its actual
ownership and did not know, or exercising reasonable diligence would not
have reason to know, that more than 50% in value of its outstanding shares
of stock were held, actually or constructively, by five or fewer
individuals, then First Union will be treated as meeting such requirement.
In order to ensure compliance with the 50% test, First Union has
placed certain restrictions on the transfer of the shares of its stock to
prevent additional concentration of 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 stock. 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 shares of its stock
disclosing the actual owners of such shares (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 such holder's tax returns a similar statement disclosing
the actual ownership of shares of First Union's stock and certain other
information. In addition, the Bylaws provide restrictions regarding the
transfer of shares of First Union's stock that are intended to assist First
Union in continuing to satisfy the share ownership requirements. See
"Description of Capital Stock -- Common Shares -- Restriction on Size of
Holdings." First Union intends to enforce the 9.8% limitation on ownership
of shares of its stock to assure that its qualification as a REIT will not
be compromised.
Asset Tests. At the close of each quarter of First Union's taxable
year, First Union must satisfy certain tests relating to the nature of its
assets (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, and government
securities, and certain qualified temporary investments (for a period of
one year from the date of First Union's receipt of proceeds of an offering
of its shares of beneficial interest or long-term (at least five years)
debt, stock or debt instruments purchased with such proceeds). Second,
although the remaining 25% of First Union's assets generally may be
invested without restriction, securities in this class of a single issuer
may not exceed either (i) 5% of the value of First Union's total assets or
(ii) 10% of the outstanding voting securities of any one issuer.
In connection with the acquisition of equity interests in Impark by
FUMI, First Union made certain subordinated loans to Impark on an unsecured
basis. In connection with such loans, First Union has determined that (i)
the fair market value of each of such loans, including any accrued
interest, fees and any other amounts payable thereon, is not in excess of
5% of the fair market value of the total gross assets of First Union
determined in accordance with generally accepted accounting principles and
(ii) the fair market value of all such loans and First Union's other assets
(other than assets 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) do not have an
aggregate fair market value in excess of 25% of the fair market value of
the total gross assets of First Union determined in accordance with
generally accepted accounting principles. Based on existing facts, First
Union believes that it will be able to reaffirm this determination at the
applicable times in the future. If, however, First Union were unable to
satisfy the foregoing asset tests at the applicable time, First Union would
be required to take preventative steps by disposing of certain assets or
otherwise risk a loss of REIT status.
In addition, as part of the acquisition of Impark, certain lenders of
Impark have the right to transfer certain loans of Impark to First Union at
certain times. If the transfer rights were exercised at a time when First
Union's total assets were not sufficient to satisfy the foregoing asset
tests, First Union would be required to take such preventative steps or
otherwise risk such REIT status.
Gross Income Tests. There are currently two separate percentage tests
relating to the sources of First Union's gross income which must be
satisfied for each taxable year. Additionally, for its taxable years before
1998, short-term gain from the sale or other disposition of stock or
securities, gain from the sale or other disposition of stock or securities,
gain from prohibited transactions and gain on the sale or other disposition
or real property held for less than four years (apart from involuntary
conversions and sales of foreclosure property) must represent less than 30%
of First Union's gross income (including gross income from prohibited
transactions) for each such taxable year. The two current tests are as
follows:
1. The 75% Test. At least 75% of First Union's gross income for each
taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents
from real property"--which term generally includes expenses of First Union
that are paid or reimbursed by tenants) or from certain types of temporary
investments.
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 resident. 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, First Union generally must not operate or manage
the property or furnish or render services to tenants of such property,
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". For taxable years beginning after August 5,
1997, a REIT is permitted to render a de minimis amount of impermissible
services to tenants, or in connection with the management of property, and
still treat amounts received with respect to that property as rent from
real property. The amount received or accrued by the REIT during the
taxable year for the impermissible services with respect to a property may
not exceed one percent of all amounts received or accrued by the REIT
directly or indirectly from the property. The amount received for any
service (or management operation) for this purpose shall be deemed to be
not less than 150% of the direct cost of the REIT in furnishing or
rendering the service (or providing the management or operation).
2. The 95% Test. At least 95% of First Union's gross income for each
taxable year must be derived from the real property investments included in
the 75% test, dividends, interest and gain from the sale or disposition of
stock or securities (or from any combination of the foregoing).
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount
depends in whole or in part on the income or profits of any person.
However, an amount received or accrued generally will not be excluded from
the term "interest" solely by reason of being based on a fixed percentage
or percentages of receipts or sales.
For purposes of determining whether First Union complies with the 75%
and 95% income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property
(excluding foreclosure property) unless such property is held by First
Union for at least four years and certain other requirements are satisfied.
See "-- Taxation of First Union -- General."
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 special tax upon the greater of the amount by
which it fails either the 75% or 95% gross income test for that year.
Annual Distribution Requirements. In order to qualify as a REIT, First
Union is required to make distributions (other than capital gain dividends)
to its shareholders each year in an amount at least equal to (i) the sum of
(a) 95% of First Union's REIT taxable income (computed without regard to
the dividends paid deduction and the REIT's net capital gain) and (b) 95%
of the net income (after tax), if any, from foreclosure property, minus
(ii) 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 with an appropriate election 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. For taxable years beginning after August 5,
1997, the 1997 Act permits a REIT, with respect to undistributed net
long-term capital gains it received during the taxable year, to designate
in a notice mailed to shareholders within 60 days of the end of the taxable
year (or in a notice mailed with its annual report for the taxable year)
such amount of such gains which its shareholders are to include in their
taxable income as long-term capital gains. Thus, if First Union made this
designation, the shareholders of First Union would include in their income
as long-term capital gains their proportionate share of the undistributed
net capital gains as designated by First Union and First Union would have
to pay the tax on such gains within 30 days of the close of its taxable
year. Each shareholder of First Union would be deemed to have paid such
shareholder's share of the tax paid by First Union on such gains, which tax
would be credited or refunded to the shareholder. A shareholder would
increase its tax basis in its First Union stock by the difference between
the amount of income to the holder resulting from the designation less the
holder's credit or refund for the tax paid by First Union.
First Union intends to make timely distributions sufficient to satisfy
the annual distribution requirements. It is possible that First Union may
not have sufficient cash or other liquid assets to meet the 95%
distribution requirement, due to, among other things, 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. To avoid
any 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 IRS, 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 certain relief provisions do not apply, First
Union will be subject to tax (including 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 distributees may be eligible for the dividends-received
deduction. Unless entitled to relief under specific statutory provisions,
First Union also will be disqualified from reelecting taxation as a REIT
for the four taxable years following the year during which qualification
was lost.
TAXATION OF FIRST UNION'S SHAREHOLDERS
Taxation of Taxable U.S. Shareholders. As used herein, the term "U.S.
Shareholder" means a holder of Common Shares who (for United States federal
income tax purposes) is (i) a citizen or resident of the United States,
(ii) a corporation or partnership organized under the laws of the United
States, or of any political subdivision thereof, or (iii) an estate the
income of which is subject to United States federal income taxation
regardless of its source or (iv) a trust subject to the primary supervision
of a court within the United States and the control of one or more U.S.
persons. A "Non-U.S. Shareholder" is a shareholder other than a U.S.
Shareholder.
As long as First Union qualifies as a REIT, distributions made to
First Union's taxable U.S. 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 (and for
tax years beginning after August 5, 1997, undistributed amounts) 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. However, corporate U.S. 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 U.S. Shareholder,
reducing the tax basis of a U.S. Shareholder's shares by the amount of such
distribution (but not below zero), with distributions in excess of the U.S.
Shareholder's tax basis taxable 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 U.S. Shareholder on December 31 of such
year, provided that the dividend is actually paid by First Union during
January of the following calendar year. U.S. 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.
Distributions made by First Union and gain arising from the sale or
exchange by a U.S. Shareholder of Common Shares will not be treated as
passive activity income, and, as a result, U.S. Shareholders generally will
not be able to apply any "passive losses" against such income or gain.
Upon any sale or other disposition of Common Shares, a U.S.
Shareholder will recognize gain or loss for federal income tax purposes in
an amount equal to the difference between (i) the amount of cash and the
fair market value of any property received on such sale or other
disposition, and (ii) the holder's adjusted basis in the Common Shares for
tax purposes. Such gain or loss will be capital gain or loss if the Common
Shares have been held by the U.S. Shareholder as a capital asset and will
be long-term gain or loss if such Common Shares have been held for more
than one year. Long-term capital gain of an individual U.S. Shareholder is
generally subject to a maximum tax rate of 20%. In general, any loss
recognized by a U.S. Shareholder upon the sale or other disposition of
Common Shares of First Union that have been held for six months or less
(after applying certain holding period rules) will be treated as long-term
capital loss, to the extent of distributions received by such U.S.
Shareholder from First Union which were required to be treated as long-term
capital gains.
Backup Withholding. First Union will report to its U.S. Shareholders
and to the IRS the amount of distributions paid during 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 applicable rates with respect to distributions 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 U.S. Shareholder that does not provide
First Union with its correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup
withholding will be credited 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.
Taxation of Tax-Exempt Shareholders. The IRS 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 the ruling, the analysis therein and the statutory
framework of the Code, distributions by First Union to a shareholder that
is a tax-exempt entity should also 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, and 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 real estate mortgage
investment conduit.
For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and
qualified group legal services plans exempt from federal income taxation
under Sections 501(c)(7), (c)(9), (c)(17), and (c)(20) of the Code,
respectively, income from an investment in Common Shares will constitute
UBTI unless the organization is able to properly deduct amounts set aside
or placed in reserve for certain purposes so as to offset the income
generated by its Common Shares. Such prospective investors should consult
their own tax advisors concerning these "set aside" and reserve
requirements.
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 stock 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.
Taxation of Non-U.S. Shareholders. The rules governing United States
federal income taxation of Non-U.S. Shareholders are complex, and no
attempt will be made to provide herein more than a summary of such rules.
PROSPECTIVE NON-U.S. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX
ADVISORS TO DETERMINE THE IMPACT OF U.S. FEDERAL, STATE AND LOCAL TAX LAWS
WITH REGARD TO AN INVESTMENT IN COMMON SHARES, INCLUDING ANY REPORTING
REQUIREMENTS.
Distributions From First Union
------------------------------
1. 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
generally be subject to U.S. withholding tax at the rate of 30% (unless
reduced by treaty or the Non-U.S. Shareholder files an IRS Form 4224 (or
successor form) 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 Common Shares. In cases where the dividend income from a Non-U.S.
Shareholder's investment in Common Shares 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).
2. 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 any distribution that could be
designated by First Union as a capital gain dividend. However, if First
Union designates as a capital gain dividend a distribution made prior to
the day First Union actually effects such designation, then (although such
distribution may be taxable to a Non-U.S. Shareholder) such distribution is
not subject to withholding under FIRPTA; rather, First Union must effect
the 35% FIRPTA withholding from distributions made on and after the date of
such designation, until the distributions so withheld equal the amount of
the prior distribution designated as a capital gain dividend. The amount
withheld is creditable against the Non-U.S. Shareholder's U.S. tax
liability. 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.
3. Non-Dividend Distributions. Distributions in excess of current and
accumulated earnings and profits of First Union, which are not attributable
to the gain from disposition by First Union of a USRPI, will not be taxable
to a Non-U.S. Shareholder to the extent that they do not exceed the
adjusted basis of the Non-U.S. Shareholder's Common Shares, but rather will
reduce the adjusted basis of such Common Shares. To the extent that such
distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common
Shares, they will give rise to tax liability if the Non-U.S. Shareholder
otherwise would be subject to tax on any gain from the sale or disposition
of its Common Shares, as described below. If it cannot be determined at the
time a distribution is made whether such distribution will be in excess of
current and accumulated earnings and profits, the distribution will be
subject to withholding at the rate applicable to dividends. However, the
Non-U.S. Shareholder may seek a refund of such amounts from the IRS if it
is subsequently determined that such distribution was, in fact, in excess
of current accumulated earnings and profits of First Union.
Dispositions of Common Shares
-----------------------------
Unless the Common Shares constitute USRPIs, a sale or exchange of
Common Shares by a Non-U.S. Shareholder generally will not be subject to
U.S. taxation under FIRPTA. The Common Shares 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. First Union believes that it is and will continue to
be a domestically controlled REIT and, therefore, that the sale of Common
Shares will not be subject to taxation under FIRPTA. However, 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 Common Shares generally will
still not be subject to tax under FIRPTA as a sale of USRPIs provided that
(i) First Union's Common Shares are "regularly traded" (as defined by
applicable Treasury regulations) on an established securities market (e.g.,
the NYSE, on which the Common Shares are listed) and (ii) the selling
Non-U.S. Shareholder held 5% or less of First Union's outstanding Common
Shares at all times during a specified testing period.
If gain on the sale or exchange of Common Shares 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 Common Shares could be required to withhold 10% of the
purchase price and remit such amount to the IRS. The branch profits tax
generally 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 Common Shares 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 certain other conditions apply, in which case
the nonresident alien individual will be subject to 30% tax on the
individual's capital gain (unless reduced or eliminated by treaty).
Treaty Benefits
---------------
Pursuant to current Treasury regulations, dividends paid to an address
in a country outside the United States are generally presumed to be paid to
a resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate.
Shareholders that are partnerships or entities that are similarly fiscally
transparent for federal income tax purposes, and persons holding Common
Shares through such entities, may be subject to restrictions on their
ability to claim benefits under U.S. tax treaties and should consult a tax
advisor.
Under recently issued Treasury regulations that are effective for
payments made after December 31, 1999 (the "Withholding Regulations"),
however, a Non-U.S. Shareholder who wishes to claim the benefit of an
applicable treaty rate would be required to satisfy applicable
certification requirements. In addition, under the Withholding Regulations,
in the case of Common Shares held by a foreign partnership, (x) the
certification requirement would generally be applied to the partners in the
partnership and (y) the partnership would be required to provide certain
information, including a United States taxpayer identification number. The
Withholding Regulations provide look-through rules in the case of tiered
partnerships.
<PAGE>
PLAN OF DISTRIBUTION
DISTRIBUTION OF RIGHTS AND SALE OF COMMON SHARES BY FIRST UNION
Any Rights to be issued by First Union will be distributed to
shareholders of First Union as of a specified record date. Any Common
Shares offered pursuant to such Rights will be offered by First Union
directly to its shareholders. First Union may elect to retain dealer
managers in connection with any Rights offering to provide marketing
assistance or to solicit exercises of Rights. The identity of any such
dealer managers and any compensation provided by First Union to such dealer
managers will be described in the related prospectus supplement.
With respect to Common Shares offered other than pursuant to the
exercise of Rights, First Union may sell such Common Shares to or through
one or more underwriters or dealers and also may sell Common Shares
directly to institutional investors or other purchasers, or through agents.
The distribution of such Common Shares may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices
related to such prevailing market prices or at negotiated prices.
In connection with the sale of such Common Shares, underwriters or
agents may receive compensation from First Union or from purchasers of
Common Shares for whom they may act as agents in the form of discounts,
concessions or commissions. Underwriters may sell Common Shares 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 agents.
Underwriters, dealers and agents that participate in the distribution of
Common Shares may be deemed to be underwriters, and any discounts or
commissions received by them from First Union and any profit on the resale
of securities by them may be deemed to be underwriting discounts and
commissions under the Securities Act. Any such underwriter or agent will be
identified, and any such compensation received from First Union will be
described, in the related prospectus supplement.
Under agreements which may be entered into by First Union,
underwriters and agents who participate in the distribution of Common
Shares may be entitled to indemnification by First Union against certain
liabilities, including liabilities under the Securities Act, or to
contribution by First Union with respect to payments they may be required
to make in respect thereof.
If so indicated in the related prospectus supplement, First Union will
authorize underwriters or other persons acting as First Union's agents to
solicit offers by certain institutions to purchase Common Shares from First
Union pursuant to contracts providing for payment and delivery on a future
date. Institutions with which such contracts may be made include commercial
and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions and others, but in all
cases such institutions must be approved by First Union. The obligations of
any purchaser under any such contract will be subject to the condition that
the purchase of Common Shares shall not at the time of delivery be
prohibited under the laws of the jurisdiction to which such purchaser is
subject. The underwriters and such other agents will not have any
responsibility in respect of the validity or performance of such contracts.
Until a distribution of the Common Shares is completed, the rules of
the Commission may limit the ability of underwriters and certain selling
group members to bid for and purchase Common Shares. As an exception to
these rules, underwriters are permitted to engage in certain transactions
that stabilize the price of the Common Shares. Such transactions consist of
bids or purchases for the purpose of pegging, fixing or maintaining the
price of the Common Shares.
If any underwriters create a short position in the Common Shares in
connection with an offering, i.e., if they sell more Common Shares than are
set forth on the cover page of the applicable prospectus supplement, the
underwriters may reduce that short position by purchasing securities in the
open market.
Underwriters may also impose a penalty bid on certain selling group
members. This means that if the underwriters purchase Common Shares in the
open market to reduce the underwriters' short position or to stabilize the
price of the Common Shares, they may reclaim the amount of the selling
concession from the selling group members who sold those Common Shares as
part of the offering.
In general, purchases of a security for the purpose of stabilization
or to reduce a short position could cause the price of the security to be
higher than it might be in the absence of such purchases. The imposition of
a penalty bid might also have an effect on the price of the securities to
the extent that it discourages resales of the securities.
Neither First Union nor any underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Shares. In
addition, neither First Union nor any underwriter makes any representation
that the underwriter will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
Any Common Shares sold pursuant to a prospectus supplement will be
listed on the NYSE, subject to official notice of issuance. No assurances
can be given that there will be an active trading market for the Common
Shares.
Certain of the underwriters or agents and their affiliates may engage
in transactions with and perform services for First Union or its affiliates
in the ordinary course of their respective businesses.
SALE OF SELLING SHAREHOLDER SHARES BY THE SELLING SHAREHOLDERS
Selling Shareholder Shares may be sold from time to time by the
Selling Shareholders. Sales of the Selling Shareholder Shares may be made
on one or more exchanges or in the over-the-counter market, or otherwise at
prices and at terms then prevailing or at prices related to the then
current market price, or in negotiated transactions. Selling Shareholder
Shares may be sold through one or more of the following transactions: (a) a
block trade in which the broker or dealer so engaged will attempt to sell
Selling Shareholder Shares as agent but may position and resell a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this prospectus; (c) an exchange distribution in
accordance with the rules of such exchange; (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers, (e)
dispositions in private transactions; and (f) deliveries to settle short
sales and options transactions. In effecting sales, brokers or dealers
engaged by the Selling Shareholders may arrange for other brokers or
dealers to participate. Brokers or dealers may receive compensation from
the Selling Shareholders or from purchasers for whom they act in the form
of discounts, concessions or commissions. Such brokers or dealers and any
other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales.
Upon First Union being notified by the Selling Shareholders that any
material arrangement has been entered into with a broker-dealer for the
sale of Selling Shareholder Shares through a block trade, special offering,
exchange distribution, secondary distribution or a purchase by a broker or
dealer, a supplemental prospectus will be filed, if required, pursuant to
Rule 424(c) under the Securities Act, disclosing (i) the name of the
Selling Shareholders and of the participating broker-dealer(s), (ii) the
number of Selling Shareholder Shares involved, (iii) the price at which
such Selling Shareholder Shares were sold, (iv) the commissions paid or
discounts or concessions allowed to such broker-dealer(s), where
applicable, (v) that such broker-dealer(s) did not conduct any
investigation to verify the information set out or incorporated by
reference in this prospectus and (vi) other facts material to the
transaction.
The securities laws of a particular state might require that the
Selling Shareholder Shares be sold in that state only through registered or
licensed brokers or dealers.
EXPERTS
The combined financial statements and schedules as of December 31,
1997 and 1996, and for each of the three years in the period ended December
31, 1997, 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 Common Shares
offered pursuant to this prospectus will be passed upon for First Union by
Hahn Loeser & Parks LLP.
<PAGE>
GLOSSARY
Set forth below is a list of certain of the more significant terms
used in this prospectus.
ACMs Asbestos-containing materials.
ADA Americans with Disabilities Act of
1990.
Apollo Apollo Real Estate Advisors, LP.
Board; Board of Trustees First Union's Board of Trustees.
Board Change Default Default under the Credit Facilities
as a result of the change in the
Board's composition.
Bridge Loan $90 million loan to First Union from
a syndicate of lenders led by Bankers
Trust Company that (i) bears interest
at 12%, (ii) is subject to mandatory
reductions of outstanding principal
to less than $70 million by March 31,
1999 and less than $50 million by
May 31, 1999 and (iii) terminates
August 11, 1999, the proceeds of
which financed the repurchase of the
Senior Notes.
Certificate of Designations First Union's Certificate of
Designations authorizing the Series A
Preferred Shares.
Code Internal Revenue Code of 1986, as
amended.
Commission Securities and Exchange Commission.
Common Shares Shares of beneficial interest, $1.00
par value per share, of First Union.
Conversion Price $7.5625 per Common Share, subject to
adjustment.
Credit Facilities The Impark Credit Facility and the
FUR Credit Facility.
Declaration of Trust First Union's Amended Declaration of
Trust, as amended through July 25,
1986.
Enterprise Enterprise Asset Management Inc., a
real estate investment firm located
in New York City.
Excess Shares Common Shares owned by a person or
group in excess of 9.8% of the
outstanding Common Shares.
Exchange Act Securities Exchange Act of 1934, as
amended.
FIRPTA Foreign Investment in Real Property
Tax Act of 1980.
First Offering As part of the standby purchase
arrangements between First Union
and Gotham LP, Gotham III LP, GPI
and Elliott Associates, each as
standby purchasers, First Union's
Rights offering that would generate
minimum gross proceeds of $20
million and for which the standby
purchasers would "standby" to
purchase such number of Common
Shares that would result in gross
proceeds to First Union of up to
$45 million.
First Union First Union Real Estate Equity and
Mortgage Investments and its
subsidiaries.
First Union Companies FUMI and First Union.
Fried Frank Fried, Frank, Harris, Shriver &
Jacobson, tax counsel to First Union.
FUMI First Union Management, Inc., an
affiliate of First Union, and its
subsidiaries.
FUMI Shares Shares of common stock, without par
value, of FUMI.
FUR Credit Facility First Union's $110 million credit
facility which terminates on August
11, 1999. The availability under the
facility will be reduced to $80
million on March 17, 1999 and to $50
million on May 17, 1999..
Gotham International Gotham International Advisors, L.L.C.
Gotham II LP Gotham Partners II, L.P.
Gotham III LP Gotham Partners III, L.P.
GPI Gotham Partners International, Ltd.
Gotham LP Gotham Partners L.P. and Gotham
Partners III, L.P.
GPLP GPLP Management Corp.
GPM Gotham Partners Management Co. LLC.
Impark Imperial Parking Limited and its
subsidiaries and Impark Services
Limited and its subsidiaries.
Impark Credit Facility Impark's Cdn.$38.8 million credit
facility.
IRS Internal Revenue Service.
Junior Shares Capital shares of First Union ranking
junior to the Series A Preferred
Shares as to distributions and in
distribution of assets as described
in the Certificate of Designations.
1997 Act Taxpayer Relief Act of 1997, as
amended.
Moody's Moody's Investors Services, Inc.
Non-U.S. Shareholder A shareholder other than a U.S.
Shareholder.
One-Time Expenses One-time expenses incurred by First
Union during the nine months ended
September 30, 1998 primarily in
connection with the proxy contest
waged by Gotham LP and Gotham
III LP and the change in the Board's
composition. These one-time expenses
included proxy expenses and related
legal fees incurred by First Union,
Gotham LP and Gotham III LP, cash
severance and vesting of restricted
stock for Mr. Mastandrea, First
Union's terminated Chairman of the
Board, Chief Executive Officer and
President, vesting of restricted
stock granted to other employees of
the First Union Companies and other
expenses related to anticipated
employee terminations.
Parity Shares Shares of beneficial interest ranking
on a parity with the Series A
Preferred Shares with respect to the
payment of distributions and amounts
upon liquidation, dissolution and
winding up as described in the
Certificate of Designations.
Percentage Rent Deferral Non-recording of percentage rent by
First Union during the third quarter
of 1998.
Permitted Common Share Cash Cumulative cash distributions paid
Distributions with respect to the Common Shares
after December 31, 1995 which are not
in excess of the following: the sum
of (i) First Union's cumulative
undistributed income from operations
and capital gains and cumulative
depreciation and amortization at
December 31, 1995, plus (ii) the
cumulative amount of net income
before distributions accrued or paid
on the Series A Preferred Shares,
plus depreciation and amortization,
after December 31, 1995, minus (iii)
the cumulative amount of
distributions accrued or paid on the
Series A Preferred Shares or any
other class of Preferred Shares after
the date of original issue of the
Series A Preferred Shares.
Preferred Shares Preferred shares of beneficial
interest, $1.00 par value per share.
Project The First Union Companies' Year
2000 Compliance Project.
Registration Statement First Union's Registration Statement
on Form S-3, together with all
amendments and exhibits, registering
under the Securities Act the Rights
and the Common Shares issuable upon
exercise of the Rights.
REIT Real estate investment trust.
Rights Rights to purchase First Union's
Common Shares.
Rights Agreement Rights Agreement, dated as of March
7, 1990, between the Company and
National City Bank, as Rights Agent.
Second Offering As part of the standby purchase
arrangements between First Union
and Gotham LP, Gotham III LP, GPI
and Elliott Associates, each as
standby purchasers, the Rights
offering that First Union may
conduct for which the standby
purchasers would "standby" to
purchase such number of Common
Shares that would result in gross
proceeds to First Union of up to
$45 million.
Securities Act Securities Act of 1933, as amended.
Selling Shareholders Gotham LP, Gotham III LP, GPI and
Elliott Associates, Inc.
Senior Notes First Union's 8-7/8% Senior Notes due
2003.
Series A Preferred Shares Series A Cumulative Redeemable
Preferred Shares of Beneficial
Interest.
S&P Standard & Poor's Corporation.
Specified Offering An offering of Common Shares by First
Union under this prospectus.
Stapled REIT Legislation 1998 tax legislation limiting the
"grandfathering" rule applicable to
stapled REITs.
Trust The trust in which all of the shares
of FUMI are owned for the benefit of
the holders of Common Shares.
UBTI Unrelated business taxable income.
USRPIs United States real property interests.
USRPI Capital Gains Gains from dispositions of USRPIs.
U.S. Shareholder Holder of Common Shares who (for
United States federal income tax
purposes) is (i) a citizen or
resident of the United States, (ii) a
corporation or partnership organized
under the laws of the United States,
or of any political subdivision
thereof, (iii) an estate, the income
of which is subject to United States
federal income taxation regardless of
its source or (iv) a trust subject to
the primary supervision of a court
within the United States and the
control of one or more U.S. persons.
Voting Preferred Shares Parity Shares with voting rights.
Withholding Regulations Recently issued Treasury regulations
relating to federal withholding tax
procedures.
<PAGE>
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
FIRST UNION REAL ESTATE
EQUITY AND MORTGAGE
INVESTMENTS
9,425,840 RIGHTS TO PURCHASE
9,425,840 SHARES
OF BENEFICIAL INTEREST
------------------------------------
PROSPECTUS SUPPLEMENT
------------------------------------
, 1999
==============================================================================
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses (other than the
SEC registration fee) in connection with the issuance and distribution of
the securities registered hereby, all of which will be paid by the
Registrant:
SEC registration fee........................................ $46,361
Printing and duplicating expenses........................... [ ]
Legal fees and expenses..................................... [ ]
Blue Sky fees and expenses.................................. [ ]
Accounting fees and expenses................................ [ ]
Miscellaneous expenses...................................... [ ]
--------
Total.................................................... $
========
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 with the
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 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.
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 that: (1) for purposes of
determining any liability under the Securities Act of 1933, the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained in a form of prospectus
filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and (2) for the purpose
of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus 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.
<PAGE>
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 on Form S-3 (File No.
333-63547) 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
January, 1999.
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
By: /s/ William A. Ackman
----------------------------
William A. Ackman
Chairman of the Board
of Trustees
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-3 has been signed by the following persons
in the capacities and on the 15th day of January, 1999.
SIGNATURE TITLE
--------- -----
/s/ William A. Ackman Chairman of the Board of Trustees
- ------------------------------
William A. Ackman
/s/ Daniel P. Friedman President and Chief Executive Officer
- ------------------------------ (Principal Executive Officer)
Daniel P. Friedman
*
- ------------------------------ Executive Vice President and Chief
Steven M. Edelman Financial Officer (Principal
Financial Officer)
*
- ------------------------------ Senior Vice President and Chief
John J. Dee Accounting Officer
*
- ------------------------------ Vice Chairman of the Board of
William Scully Trustees
*
- ------------------------------ Trustee
Daniel J. Altobello
*
- ------------------------------ Trustee
David P. Berkowitz
*
- ------------------------------ Trustee
William E. Conway
*
- ------------------------------ Trustee
Allen H. Ford
*
- ------------------------------ Trustee
Stephen J. Garchick
*
- ------------------------------ Trustee
Russell R. Gifford
*
- ------------------------------ Trustee
David S. Klafter
*
- ------------------------------ Trustee
Daniel Shuchman
*
- ------------------------------ Trustee
Stephen S. Snider
*
- ------------------------------ Trustee
Mary Ann Tighe
*
- ------------------------------ Trustee
James A. Williams
*/s/ William A. Ackman
- ------------------------------
William A. Ackman
Attorney-in-Fact
<PAGE>
INDEX TO EXHIBITS
3(a) -- Declaration of Trust of Registrant dated August 1, 1961,
as amended through July 25, 1986 (incorporated by
reference from Registrant's Registration Statement on
Form S-3 (No. 33-4493)).
3(b)+ -- By-laws of the Registrant, as amended, dated June 3,
1998.
4(a) -- Rights Agreement between the Registrant and National
City Bank dated March 7, 1990 (incorporated by reference
from Registrant's Form 8-A dated March 30, 1990).
4(b)** -- Amendment No. 1 to Rights Agreement between the
Registrant and National City Bank dated August 11, 1998.
4(c) -- Form of certificate for Shares of Beneficial Interest
(incorporated by reference from Registrant's
Registration Statement on Form S-3 (No. 33-2818)).
4(d) -- Amended and Restated Declaration of Trust of First Union
Management, Inc. dated October 1, 1996 (incorporated by
reference from Registrant's Form 10-Q for the quarter
ended September 30, 1996 (File No. 1-6249)).
4(e) -- Certificate of Designations relating to Registrant's
Series A Cumulative Redeemable Preferred Shares of
Beneficial Interest (incorporated by reference from
Registrant's Form 8-K dated October 24, 1996).
4(f) -- Standby Purchase Agreement between Registrant and Gotham
Partners, L.P. dated August 11, 1998 (incorporated by
reference from Schedule 13D, dated August 11, 1998, of
Gotham Partners, L.P. regarding Registrant's Shares of
Beneficial Interest).
4(g) -- Standby Purchase Agreement between Registrant and Gotham
Partners III, L.P. dated August 11, 1998 (incorporated
by reference from Schedule 13D, dated August 11, 1998,
of Gotham Partners III, L.P. regarding Registrant's
Shares of Beneficial Interest).
4(h)* -- Standby Purchase Agreement between Registrant and
Elliott Associates, L.P. dated August 11, 1998.
4(i)** -- Letter Agreement, dated January __, 1999, among the
Registrant, Gotham Partners, L.P., Gotham Partners III,
L.P., Gotham Partners International, Ltd. and Elliott
Associates, L.P.
5** -- Opinion of Hahn Loeser & Parks LLP as to validity of the
Shares of Beneficial Interest.
8(a)** -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as
to Federal Income Tax Consequences.
10(a)+ -- Fixed Rate Loan Agreement dated as of August 11, 1998 by
and among the Registrant, as borrower, Bankers Trust
Company, as agent, and Wellsford Capital and BankBoston,
N.A., as lenders.
10(b)+ -- Fixed Rate Loan Agreement dated as of August 11, 1998 by
and among the Registrant, as borrower, Bankers Trust
Company, as agent, and Gotham Partners, L.P., Gotham
Partners III, L.P., Elliott Associates, L.P. and
Blackacre Bridge Capital, L.L.C., as lenders.
10(c)** -- First Amendment to Fixed Rate Loan Agreement, dated
January 8, 1999, by and among the Registrant, as
borrower, Bankers Trust Company, as agent, and Wellsford
Capital and BankBoston, N.A., as lenders.
10(d)** -- First Amendment to Fixed Rate Loan Agreement, dated
January 8, 1999, by and among the Registrant, as
borrower, Bankers Trust Company, as agent, and Gotham
Partners, L.P., Gotham Partners III, L.P., Elliott
Associates, L.P. and Blackacre Bridge Capital, L.L.C.,
as lenders.
10(e)** -- Letter Agreement, dated January 8, 1999, by and among
the Registrant, as borrower, Bankers Trust Company, as
agent, and Wellsford Capital and BankBoston, N.A., as
lenders.
10(f)** -- Letter Agreement, dated January 8, 1999, by and among
the Registrant, as borrower, Bankers Trust Company, as
agent, and Gotham Partners, L.P., Gotham Partners III,
L.P., Elliott Associates, L.P. and Blackacre Bridge
Capital, L.L.C., as lenders.
23(a) * -- Consent of Arthur Andersen LLP.
23(b) -- Consent of Hahn Loeser & Parks LLP included as part of
Exhibit 5.
23(c) -- Consent of Fried, Frank, Harris, Shriver & Jacobson
included as part of Exhibit 8(a).
23(d)** -- Consent of Mayer Brown & Platt.
24(a) -- Powers of Attorney (included on signature pages of
original filing).
99(a)** -- Form of Rights Certificate.
99(b)** -- Instructions as to Use of Rights Certificates.
99(c)** -- Form of Notice of Guaranteed Delivery.
99(d)** -- Form of Letter to Holders of Common Shares.
99(e)** -- Form of Letter to Dealers, Banks, Brokers, etc.
99(f)** -- Form of Letter to Clients.
99(g)** -- Nominee Holder Certification.
99(h)** -- Special Notice to Foreign Shareholders.
99(i)** -- Tax Information.
99(j)** -- Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
- -----------------------
* Filed herewith.
** To be filed by amendment.
+ Previously filed.
EXHIBIT 4(h)
STANDBY PURCHASE AGREEMENT
THIS STANDBY PURCHASE AGREEMENT (as the same may be amended or
otherwise modified from time to time, the "AGREEMENT"), made and entered
into as of August 11, 1998, by and between (i) First Union Real Estate
Equity and Mortgage Investments, a business trust organized under the laws
of Ohio (the "COMPANY"), and (ii) Elliott Associates, L.P., a Delaware
limited partnership (together with its permitted successors and assigns
hereunder the "PURCHASER") and acknowledged and agreed to by (a) Bankers
Trust Company, a New York banking corporation, as agent under that certain
Fixed Rate Loan Agreement (as the same may be amended or otherwise modified
from time to time, the "BANK LOAN AGREEMENT") dated as of August 11, 1998
(in such capacity, together with its successors and assigns under the Bank
Loan Agreement, the "BANK AGENT"), and (b) Bankers Trust Company, a New
York banking corporation, as agent under that certain Fixed Rate Loan
Agreement (as the same may be amended or otherwise modified from time to
time, the "GFB LOAN AGREEMENT"; the Bank Loan Agreement and the GFB Loan
Agreement are referred to herein collectively, as the "LOAN AGREEMENTS")
dated as of August 11, 1998 (in such capacity, together with its successors
and assigns under the GFB Loan Agreement, the "GFB AGENT"; the Bank Agent
and the GFB Agent are referred to herein collectively, as the "Agents").
WITNESSETH:
WHEREAS, under the terms of the Loan Agreements, the lenders
thereunder (the "LENDERS") have agreed to make certain loans to the Company
(the "LOANS");
WHEREAS, in accordance with the terms of the Loan Agreements, the
Company is required to implement a rights offering (the "RIGHTS OFFERING")
pursuant to which it anticipates issuing certain rights (the "RIGHTS") to
subscribe for and purchase additional securities of the Company (the
securities issued pursuant to such Rights being referred to herein
individually as a "SECURITY", and collectively, as the "SECURITIES") which
Securities may consist, in whole or in part, of a unit entitling the owner
of such unit to purchase one or more securities of the Company, at a price
per Security (the "SUBSCRIPTION PRICE") to be determined by the Company at
the time such Rights are issued, and which in any event would, if fully
subscribed, result in aggregate proceeds to the Company of not less than
the outstanding principal, accrued and unpaid interest, fees and any other
amounts due in connection with the Loan Agreements; and
WHEREAS, in order to induce the Lenders to make the Loans to the
Company, the Purchaser is required to, and by these presents hereby does,
agree to serve as a Standby Purchaser (defined below) for a specified
amount of Securities available for issuance upon the expiration of
unexercised Rights, and the Company has agreed with the Agents and the
Purchaser to issue and sell such Securities to the Purchaser, all as is
more particularly set forth herein.
NOW, THEREFORE, for and in consideration of the premises, and other
good and valuable consideration the receipt and sufficiency of all of which
is hereby acknowledged, the parties hereto agree as follows:
1. RIGHTS OFFERING.
The Company will, as promptly as possible, (i) prepare the appropriate
documentation for the Rights Offering, (ii) commence the Rights Offering
and (iii) consummate the Rights Offering, all in accordance with the
Company's obligations under Article XI of the Loan Agreements.
2. PURCHASE AND DELIVERY OF UNSUBSCRIBED SECURITIES.
(a) The Purchaser, the Agents and the Company hereby acknowledge
and agree that the Company may enter into, or contemplates entering into,
one or more other Standby Purchase Agreements (the "ADDITIONAL STANDBY
AGREEMENTS") with certain other parties (together with the Purchaser, the
"STANDBY PURCHASERS") providing for the same Subscription Price per
Security as this Agreement and having material terms substantially similar
to those in this Agreement except that they may provide for the purchase of
a different number of Standby Securities (defined below) in subsection 2(b)
and in certain instances, may not provide for delivery of the waiver of
ownership limitations described in subsection 7(a) and Section 17 of this
Agreement. The rights or obligations of the Agents, the Purchaser and the
Company hereunder are not contingent on the consummation of the
transactions contemplated in any of the Additional Standby Agreements.
Notwithstanding the foregoing, the Purchaser, the Agents and the Company
hereby acknowledge and agree that if any Standby Purchaser fails to
purchase its "Standby Securities" ("DEFAULTED STANDBY SECURITIES") in
accordance with the terms of its respective Additional Standby Agreement,
the Purchaser shall have the right (but not the obligation), at its option,
in its sole discretion, to purchase all or any portion of such Defaulted
Standby Securities at a price equal to the Subscription Price per Security;
provided, however, if multiple Standby Purchasers (including the Purchaser)
exercise rights to acquire Defaulted Standby Securities (the "EXERCISING
STANDBY PURCHASERS"), such Defaulted Standby Securities shall be allocated
to each such Exercising Standby Purchaser pro rata in the same proportion
as the Standby Securities that each such Exercising Standby Purchaser has
agreed to purchase bears to the aggregate number of Standby Securities to
be purchased by all Exercising Standby Purchasers, to the extent necessary
to avoid an oversubscription with respect to such Defaulted Standby
Securities.
(b) Subject to the terms and conditions herein set forth, the
Company hereby agrees with the Agents and the Purchaser to issue and sell
to the Purchaser, and the Purchaser hereby agrees with the Agents and the
Company to purchase from the Company, at the Subscription Price, the number
of Securities (the "STANDBY SECURITIES") equal to 22.222222% of the
Residual Securities (defined below). For purposes of this Agreement the
term "RESIDUAL SECURITIES" shall mean a number of Securities (which number
shall not be less than zero), equal to (i) the aggregate outstanding
principal amount of the Loans, plus all accrued and unpaid interest and
fees and any other amounts due thereunder, as of the date the Rights may no
longer be exercised by the recipients of the Rights pursuant to the terms
of the Rights Offering, divided by the Subscription Price, minus (ii) the
number of Securities validly subscribed for through the exercise of the
Rights in accordance with the terms of the Rights Offering (including the
exercise of any oversubscription options or privileges).
3. THE CLOSING.
Promptly following its determination of the number of Securities
validly subscribed for through the exercise of the Rights in accordance
with the terms of the Rights Offering (including the exercise of any
oversubscription options or privileges), the Company shall notify the
Purchaser of the number of Standby Securities, if any, to be purchased by
the Purchaser pursuant to Section 2(b). The delivery of and payment for the
Standby Securities shall take place at the New York offices of Fried,
Frank, Harris, Shriver & Jacobson at 10:00 a.m., New York City time, on the
date of the sale of the Securities to the subscribing shareholders in the
Rights Offering (such time and date being referred to as the "CLOSING
TIME", the date of the Closing Time being referred to as the "CLOSING DATE"
and the consummation of the transaction being referred to as the
"CLOSING").
4. DELIVERY OF STANDBY SECURITIES.
At the Closing, the Standby Securities to be purchased by the
Purchaser hereunder, registered in the name of the Purchaser or such of its
nominees as the Purchaser may specify at least two business days prior to
the Closing Date, shall be delivered by or on behalf of the Company to the
Purchaser, for the Purchaser's account, and Purchaser shall deliver the
Subscription Price for each Standby Security purchased by the Purchaser in
immediately available funds in the form of one or more wire transfers to an
account designated by the Company.
5. REPRESENTATIONS AND WARRANTIES.
(a) The Company hereby represents and warrants to the Purchaser
and the Agents as of the date hereof and as of the Closing Date as follows:
(i) The Company is a real estate investment trust (a "REIT")
within the meaning of Section 856 of the Internal Revenue Code of
1986, as amended (the "CODE"), has complied with all applicable
material provisions of the Code relating to a REIT and has been
duly formed and is an existing business trust in good standing
under the laws of the State of Ohio with all requisite power and
authority to perform its obligations under this Agreement and the
Rights Offering.
(ii) The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby have been duly authorized by
all necessary trust action of the Company; and this Agreement,
when duly executed and delivered by the Purchaser and
acknowledged and agreed to by the Agents, will constitute a valid
and legally binding instrument of the Company enforceable in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to
general equity principles.
(iii) On or prior to the date the Rights Offering shall be
commenced by the Company, the Rights and the Standby Securities
shall have been duly authorized by the Company, the Standby
Securities and any securities into which the Standby Securities
may be exercisable or convertible shall have been reserved for
issuance by the Company and the Standby Securities when issued
and delivered by the Company against payment therefor as
contemplated hereby, will be validly issued, fully paid and
non-assessable.
(iv) The execution and delivery of this Agreement by the
Company, the consummation by the Company of the transactions
herein contemplated and the compliance by the Company with the
terms hereof do not and will not violate the Amended Declaration
of Trust or By-laws of the Company as in effect as of the date
hereof, or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company is a party or by which the
Company is bound or to which any of its Properties or assets are
subject, with such exceptions as would not have a Material
Adverse Effect, or any applicable statute or any order, judgment,
decree, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its
Properties or assets; and no consent, approval, authorization,
order, registration or qualification of or with any such court or
governmental agency or body is required for the valid
authorization, execution, delivery and performance by the Company
of this Agreement, the issue of the Rights and the Standby
Securities or the consummation by the Company of the other
transactions contemplated by this Agreement, except such as have
been, or prior to the Closing Time will have been, obtained under
the Securities Act, and such consents, approvals, authorizations,
registrations or qualifications as may be required under
applicable state securities or "blue sky" laws.
(v) The Standby Securities, and any securities into which
they are exercisable or convertible, shall be issued by the
Company under either that certain registration statement on Form
S-3 (No. 333-31695) originally filed with the Securities and
Exchange Commission (the "COMMISSION") on July 21, 1997, and
declared effective on August 6, 1997, as the same may be amended
and supplemented through one or more prospectus supplements or
post-effective amendments and/or under a subsequently filed
registration statement necessary to implement the Rights Offering
in accordance with the requirements of Section 1 of this
Agreement (collectively, the "SHELF REGISTRATION STATEMENT"). The
Shelf Registration Statement shall be effective at the time of
the purchase by the Purchaser of any Standby Securities and no
stop order suspending the effectiveness of such registration
statement or any amendment or supplement thereto shall have been
issued. Any common stock that comprises a portion of the Standby
Securities and any securities issuable upon exercise or
conversion of the Standby Securities shall be listed on the New
York Stock Exchange as of the Closing Date.
(vi) As of the date hereof, the Shelf Registration Statement
does not include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and, as
of the Closing Date, the Shelf Registration Statement and the
prospectus included therein will not include any untrue statement
of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein not
misleading.
(b) The Purchaser hereby represents and warrants to the Company
and the Agents as follows:
(i) The Purchaser is a limited partnership duly formed,
validly existing and in good standing under the laws of the State
of New York, with partnership power and authority to perform its
obligations under this Agreement and to own or hold under lease
its properties and to transact the businesses in which it is now
engaged, and to execute and deliver this Agreement.
(ii) The execution, delivery and performance of this
Agreement by the Purchaser and the consummation by the Purchaser
of the transactions contemplated hereby have been duly authorized
by all necessary partnership action of the Purchaser; and this
Agreement, when duly executed and delivered by the Purchaser will
constitute a valid and legally binding instrument, enforceable in
accordance with its terms subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors rights and to
general equity principles.
(iii) The Purchaser is not insolvent and has sufficient cash
funds on hand (including funds under management) and/or access to
margin loans or other credit to purchase the Standby Securities
on the terms and conditions contained in this Agreement and will
have such funds on the Closing Date. The Purchaser has
simultaneously with the execution and delivery of this Agreement
or prior thereto provided the Company and the Agents with
evidence or substantiated that Purchaser has the financial means
to satisfy its financial obligations under this Agreement and the
foregoing evidence and substantiation is a true and accurate
representation of such means.
(iv) No state, federal or foreign regulatory approvals,
permits, licenses, or consents or other contractual or legal
obligations are required in order for the Purchaser to enter into
this Agreement or otherwise purchase the Standby Securities,
except those that have been obtained or performed and those which
the failure to obtain or perform will not impair the Purchaser's
ability to perform its obligations under this Agreement.
(v) The execution and delivery of this Agreement, the
consummation by the Purchaser of the transactions herein
contemplated and the compliance by the Purchaser with the terms
hereof do not and will not conflict with, or result in a breach
or violation of any of the terms or provisions of, or constitute
a default under the partnership agreement of the Purchaser or
other applicable document governing the Purchaser or any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Purchaser is a party or by
which any of its Properties or assets are bound, with such
exceptions as would not have a material adverse effect on the
financial condition of the Purchaser, or any applicable statute
or any order, judgment, decree, rule or regulation of any court
or governmental agency or body, domestic or foreign, having
jurisdiction over the Purchaser or any of its Properties or
assets; and no consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the valid
authorization, execution, delivery and performance by the
Purchaser of this Agreement or the consummation by the Purchaser
of the transactions contemplated by this Agreement.
(vi) The Purchaser has not entered into any contracts,
arrangements, understandings or relationships (legal or
otherwise) with any other person or persons with respect to any
securities of the Company, including but not limited to transfer
or voting of any of the securities, finder's fees, joint
ventures, loan or option arrangements, puts or calls, guarantees
of profits, division of profits or loss, or the giving or
withholding of proxies, except to the extent that any such
contract, arrangement, understanding or relationship shall have
only a minimal adverse effect on the ability of Purchaser to
consummate the transaction contemplated in this Agreement; and
the Purchaser does not own any securities of the Company which
are pledged or otherwise subject to a contingency the occurrence
of which would give another person voting power or investment
power over such securities, except to the extent that any such
pledge or contingency shall have only a minimal adverse effect on
the ability of Purchaser to consummate the transaction
contemplated in this Agreement.
(vii) Except as set forth on Schedule (vii), there are no
actions, suits or proceedings at law or in equity by or before
any Governmental Authority or other agency now pending or, to
Purchaser's knowledge, threatened against or affecting Purchaser,
except to the extent that any such action, suit or proceeding
shall have only a minimal adverse effect on the ability of
Purchaser to consummate the transaction contemplated in this
Agreement.
(viii) The Purchaser is not party to any agreement or
instrument or subject to any restriction which does or could
reasonably be expected to result in a material adverse effect on
the ability of the Purchaser to consummate the transaction
contemplated in this Agreement. The Purchaser is not in default
in any material respect in the performance, observance or
fulfillment of any of the obligations, covenants or conditions
contained in any material agreement or instrument to which it is
a party or by which such Purchaser is bound except to the extent
that any such default shall have only a minimal adverse effect on
the ability of Purchaser to consummate the transaction
contemplated in this Agreement.
(ix) The Purchaser has not filed, and is not contemplating
either the filing of a petition under any state or federal
bankruptcy or insolvency law or the liquidation of all or a major
portion of its assets or property, and the Purchaser has no
knowledge of any Person contemplating the filing of any such
petition against it.
6. PURCHASER NEGATIVE COVENANTS.
From the date hereof through the Closing Date, the Purchaser covenants
and agrees with Agents that it will not do, directly or indirectly, any of
the following:
(a) The Purchaser shall not dissolve, terminate or liquidate or
suffer any liquidation or dissolution.
(b) The Purchaser shall not cancel or otherwise forgive or
release any material claim or material Debt owed to the Purchaser by
any Person, unless such forgiveness or release is for adequate
consideration and in the ordinary course of Purchaser's business,
except to the extent that any forgiveness or release shall have only a
minimal adverse effect on the ability of Purchaser to consummate the
transaction contemplated in this Agreement.
(c) The Purchaser shall not enter into, or be a party to, any
transaction with any Affiliate of any Purchaser, except in the
ordinary course of business and on terms which are no less favorable
to the Purchaser or such Affiliate than would be obtained in a
comparable arm's-length transaction with an unrelated third party or
except to the extent that any such transaction shall have only a
minimal adverse effect on the ability of Purchaser to consummate the
transaction contemplated in this Agreement.
(d) The Purchaser shall not take any other action or actions
which individually or in the aggregate would result in the Purchaser
failing to have sufficient funds available on the Closing date to
purchase the Standby Securities on the terms and conditions set forth
in this Agreement.
7. CLOSING CONDITIONS.
The obligations of the Purchaser to consummate the purchase and sale
of the Standby Securities shall be subject, in the discretion of the
Purchaser, to satisfaction of each of the following conditions on or before
the Closing:
(a) [Intentionally Omitted].
(b) all of the Company's representations and warranties and other
statements in this Agreement (excluding subsection 5(a)(ii)) shall be
true, correct and complete in all material respects as of the Closing
Time;
(c) no stop order suspending the effectiveness of the Shelf
Registration Statement or any amendment or supplement thereto shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission or any other state or
federal authority; and
(d) the Subscription Price and other material terms of the Rights
Offering shall be fair and reasonable to each of the Purchaser, the
Company and shareholders of the Company entitled to participate in the
Rights Offering, and the Rights Offering shall otherwise provide for
customary terms and provisions for rights offerings to shareholders of
publicly traded companies that qualify as real estate investments
trusts under the Code.
8. TERMINATION.
The Purchaser may terminate this Agreement if the transactions
contemplated hereby are not consummated by February 11, 2000 through no
fault of the Purchaser. In addition, this Agreement shall terminate upon
mutual consent of the parties hereto and the Agents.
9. NOTICES.
All communications hereunder will be in writing and, if to the
Company, will be mailed, delivered or facsimiled and confirmed to it, at
the offices of the Company at Suite 1900, 55 Public Square, Cleveland, Ohio
44113-1937, Attention: Paul F. Levin, Facsimile: (216) 781-7364, with a
copy to Fried, Frank, Harris, Shriver & Jacobson, One New York Plaza, New
York, New York, 10004-1980 Attention: Steven G. Scheinfeld, Esq.,
Facsimile: (212) 859-8585; if to the Bank Agent at 130 Liberty Street, New
York, New York 10006, Attention: Jeffrey Baevsky, Facsimile: (212)
669-0764, with a copy Loeb & Loeb LLP, 345 Park Avenue, New York, New York
10154, Attention: Kenneth D. Freeman, Esq., Facsimile: (212) 407-4990; if
to the GFB Agent at 130 Liberty Street, New York, New York 10006,
Attention: Jeffrey Baevsky, Facsimile: (212) 669-0764, with a copy Loeb &
Loeb LLP, 345 Park Avenue, New York, New York 10154, Attention: Kenneth D.
Freeman, Esq., Facsimile: (212) 407-4990; and, if to the Purchaser, will be
mailed, delivered or facsimiled and confirmed to it, at the offices of
Purchaser at Elliott Associates, L.P., 712 fifth Avenue, New York, New York
10020, Attention: Michael Loew, Facsimile: (212) 586-9514; with a copy to
the Bank Agent and the GFB Agent at 130 Liberty Street, New York, New York
10006, Attention: Jeffrey Baevsky, Facsimile: (212) 669-0764; and Loeb &
Loeb LLP, 345 Park Avenue, New York, New York 10154, Attention: Kenneth D.
Freeman, Esq., Facsimile: (212) 407-4990.
10. BINDING EFFECT.
This Agreement shall be binding upon, and shall inure solely to the
benefit of, each of the parties hereto, and each of their respective heirs,
executors, administrators, successors and permitted assigns, and no other
person shall acquire or have any right under or by virtue of this
Agreement. The parties acknowledge that this Agreement is being entered
into in order to induce the Lenders to make the Loans to the Company
pursuant to the Loan Agreements, that the Lenders would not make such Loans
in the absence of this Agreement and that the Lenders are relying upon the
consummation of the transactions contemplated hereby in making the Loans.
The parties therefore expressly agree that monetary damages would be
insufficient to compensate the Agents for any breach by the Company or
Purchaser of this Agreement and that the Agents shall be entitled to
specifically enforce any and all of the terms and provisions of this
Agreement against the Company and/or the Purchaser on their own behalf or
on behalf of the Lenders. Neither the Company nor the Purchaser may amend
this Agreement or assign any of its rights or obligations hereunder to any
other person or entity without the prior written consent of the Agents;
provided, however, that Purchaser may assign its rights (but not its
obligation) to purchase all or any portion of the Standby Securities
without the consent of either the Company or the Agents.
11. GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of New York (without regard to its conflict
of laws provisions) in effect at the time of the execution hereof.
12. EXECUTION IN COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which counterparts when so executed and delivered shall be deemed to be an
original, but all such respective counterparts shall together constitute
but one and the same instrument.
13. ENTIRE AGREEMENT.
Except for any Subscription Rights Certificate which the Purchaser may
execute, this Agreement, together with the Loan Agreements and other
agreements related thereto, constitutes the entire agreement of the parties
with respect to the subject matter hereof.
14. DEFINED TERMS.
Capitalized terms used herein without definition and defined in the
Loan Agreements shall have meanings ascribed to such terms in the Loan
Agreements.
15. NON-SOLICITATION, ETC.
Notwithstanding anything to the contrary contained herein, the Company
is not making, and shall not be deemed to have made, any offer to sell
securities to the Purchaser or any solicitation of an offer to buy
securities from the Purchaser. Any offer by the Company to the Purchaser to
purchase securities or solicitation by the Company of an offer to buy
securities from the Purchaser shall be made pursuant to the Shelf
Registration Statement with respect to the proposed Rights Offering which
covers an offer to Purchaser of the Standby Securities.
16. LIABILITY OF OFFICERS, TRUSTEES, ETC.
Notwithstanding any provision of this Agreement to the contrary, this
Agreement has been executed and delivered by a duly authorized officer of
the Company, for and on behalf of the Company's trustees. The Agents and
Purchaser each acknowledge that neither the trustees of the Company, nor
any additional or successor trustees of the Company, nor any beneficiary,
officer, employee or agent of the Company, shall have any personal,
individual liability hereunder.
17. ASSIGNMENT.
Notwithstanding anything herein or in the Loan Agreements to the
contrary, Agents and Company acknowledge and agree that Purchaser may
assign any or all of its rights and interests to acquire the Standby
Securities hereunder to one or more persons without the consent and either
the Agent or Company provided however, that notwithstanding any such
assignment, Purchaser shall remain responsible in all respects for the
performance of all of its obligations hereunder.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound thereby, each of
the Purchaser and the Company has signed or caused to be signed its name,
all as of the day and year first above written.
FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS
By: /s/ Thomas T. Kmiecik
-------------------------------
Name: Thomas T. Kmiecik
Title: Senior Vice President - Treasurer
ELLIOTT ASSOCIATES, L.P.
By: /illegible/
-------------------------------
Name:
Title: General Partner
<PAGE>
ACKNOWLEDGED AND AGREED:
BANKERS TRUST COMPANY, as Bank Agent
By: /s/ Alexander B. Johnson
------------------------------------
Name: Alexander B. Johnson
Title: Managing Director
BANKERS TRUST COMPANY, as GFB Agent
By: /s/ Alexander B. Johnson
------------------------------------
Name: Alexander B. Johnson
Title: Managing Director
<PAGE>
SCHEDULE (VII)
--------------
CERTAIN LITIGATION
NONE
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Amendment No. 1 to Registration
Statement (File No. 333-63547) of our reports dated February 4, 1998
included in the Company's Form 10-K and Form 10-K/A for the year ended
December 31, 1997 and to all references to our Firm included in this
registration statement.
Cleveland, Ohio,
January 12, 1999. Arthur Andersen LLP
