<PAGE> 1
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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12.
</TABLE>
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: .......
(2) Aggregate number of securities to which transaction applies: ..........
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
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<PAGE> 2
FIRST UNION LOGO
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 PUBLIC SQUARE - SUITE 1900 - CLEVELAND, OHIO 44113-1937
NOTICE OF
1999 SPECIAL MEETING OF BENEFICIARIES
TO THE BENEFICIARIES:
Notice is hereby given that the 1999 Special Meeting in lieu of Annual
Meeting of the Beneficiaries of First Union Real Estate Equity and Mortgage
Investments ("First Union" or the "Trust") will be held in the Regent Parlor at
the Hilton New York and Towers located at 1335 Avenue of the Americas (53rd to
54th Streets), New York, NY 10019-6078, on Monday, May 17, 1999, at 10:00 a.m.,
local time, for the following purposes:
1. To elect three Class III Trustees.
2. To consider and vote upon a proposal to adopt certain amendments to the
Trust's 1994 Long Term Incentive Performance Plan.
3. To consider and vote upon a proposal to adopt the 1999 Share Option Plan
for Trustees.
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
Beneficiaries of record at the close of business on April 19, 1999 are entitled
to notice of and to vote at the meeting.
By order of the Board of Trustees
WILLIAM A. ACKMAN
Chairman of the Board of Trustees
April 19, 1999
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PLEASE FILL IN, DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY CARD
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE.
- --------------------------------------------------------------------------------
<PAGE> 3
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 PUBLIC SQUARE - SUITE 1900 - CLEVELAND, OHIO 44113-1937
------------------
PROXY STATEMENT
------------------
SPECIAL MEETING OF BENEFICIARIES
MAY 17, 1999
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy are being sent by the Board
of Trustees (sometimes referred to herein as the "Board") of First Union Real
Estate Equity and Mortgage Investments ("First Union" or the "Trust") in
connection with the solicitation of proxies from the holders of shares of
beneficial interest, par value $1 per share, of the Trust ("Shares") to be voted
at the 1999 Special Meeting in lieu of Annual Meeting of Beneficiaries,
including any adjournments or postponements thereof (the "Annual Meeting"), to
be held in the Regent Parlor at the Hilton New York and Towers located at 1335
Avenue of the Americas (53rd to 54th Streets), New York, NY 10019-6078, on
Monday, May 17, 1999, at 10:00 a.m., local time, to take the following actions:
(i) to elect as Trustees to Class III of the Board of Trustees, Daniel J.
Altobello, David S. Klafter and William A. Scully (the "Board's
Nominees"), current Trustees whose terms on Class III of the Board of
Trustees will expire at the Annual Meeting, upon the election of
successors;
(ii) to consider and vote upon a proposal to adopt certain amendments to
the Trust's 1994 Long Term Incentive Performance Plan (the "1994
Plan");
(iii) to consider and vote upon a proposal to adopt the 1999 Share Option
Plan for Trustees (the "Trustees Share Option Plan"); and
(iv) to transact such other business as may properly come before the Annual
Meeting.
The principal executive offices of the Trust are located at 55 Public
Square, Suite 1900, Cleveland, Ohio 44113-1937. The approximate date on which
this Proxy Statement and the accompanying proxy are first being sent to the
Trust's beneficiaries is April 21, 1999.
VOTING
The record date for determination of beneficiaries entitled to vote at the
Annual Meeting is April 19, 1999. On that date, 31,376,105 Shares were
outstanding. Each Share has one vote.
The affirmative vote of the holders of a majority of the Shares present in
person or by proxy and voting at the Annual Meeting is required to adopt the
amendments to the Trust's 1994 Plan and to adopt the Trustees Share Option Plan.
Nominees for election to the Board of Trustees at the Annual Meeting
<PAGE> 4
who receive the greatest number of votes duly cast (although not necessarily a
majority of the votes duly cast) by the Shares represented at the Annual Meeting
will be elected as Trustees. The proxies solicited for the Annual Meeting cannot
be voted for a greater number of persons than three, the number of nominees
named. If the requisite approval is not obtained with respect to a particular
matter, the proposal referred to in that matter will not be implemented.
Abstentions and broker non-votes will be included in determining the number
of Shares present for purposes of determining the presence of a quorum.
Abstentions and broker non-votes will have no effect on the election of the
Board's Nominees to the Board of Trustees. The affirmative vote of a majority of
the Shares present in person or by proxy at the 1999 Annual Meeting and entitled
to vote is required to adopt the amendments to the 1994 Plan and the Trustees
Share Option Plan. Consequently, with respect to these two proposals,
abstentions will have the same effect as a negative vote and broker non-votes
will not be counted as Shares entitled to vote on the matter and will have no
effect on the result of the vote.
Shares represented by properly executed proxy cards will be voted at the
Annual Meeting as marked and, in the absence of specific instructions, will be
voted for the Board's Nominees, for the amendments to the 1994 Plan, for the
Trustees Share Option Plan, and, in the discretion of the persons named as
proxies, on all such other business as may properly come before the Annual
Meeting.
A beneficiary may revoke his proxy at any time prior to its exercise by
giving notice to First Union in writing or by attending the Annual Meeting and
voting in person (attendance alone at the Annual Meeting will not by itself
revoke a proxy). The delivery of a subsequently dated proxy which is properly
completed will constitute a revocation of any earlier dated proxy. The
revocation may be delivered to First Union in care of Corporate Investor
Communications, Inc. at 111 Commerce Road, Carlstadt, New Jersey 07072-2586 or
to First Union at 55 Public Square, Suite 1900, Cleveland, Ohio 44113-1937, or
any other address provided by First Union.
Gotham Partners, L.P. ("Gotham LP") and certain of its affiliates, which
beneficially own 9.71% (as shown in the table in "Security Ownership of Trustees
and Officers and Certain Beneficial Owners") of the Trust's outstanding Shares,
and Apollo Real Estate Advisors II, LP and certain of its affiliates, which
beneficially own 7.6% (as shown in the table in "Security Ownership of Trustees
and Officers and Certain Beneficial Owners") of the Trust's outstanding Shares,
have each indicated that they intend to vote for the Board's Nominees, for the
amendments to the 1994 Plan and for the Trustees Share Option Plan.
As far as the Trustees are aware, no matters other than those outlined in
this Proxy Statement will be presented to the Annual Meeting for action on the
part of the beneficiaries. If any other matters are properly brought before the
meeting, it is the intention of the persons named in the accompanying proxy card
to vote the Shares to which the proxy relates in accordance with their best
judgment.
CERTAIN TRANSACTIONS
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 First Union, 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
2
<PAGE> 5
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. On April 13, 1999, Mr. Edelman resigned his positions with First
Union. As of that date Brenda J. Mixson became Interim Chief Financial Officer.
At First Union's Special Meeting of Beneficiaries held on May 19, 1998,
following a proxy contest successfully waged by 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 A. 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 Trust's principal credit facilities,
including its $110 million credit facility (the "FUR Credit Facility") and the
Cdn.$38.8 million credit facility of Imperial Parking Limited ("Impark"), an
affiliate of First Union (the "Impark Credit Facility" and, together with the
FUR Credit Facility, 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.
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 a bridge loan (the "Bridge Loan") to First Union
in an original principal amount of $90 million. The lenders under the Bridge
Loan include Elliott Associates, L.P. ("Elliott"), Gotham LP and Gotham III LP.
3
<PAGE> 6
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 a registration statement to register for the issuance of rights and
Shares and also obtained standby purchase commitments from Elliott Associates,
Gotham LP and Gotham III LP to ensure that the proceeds of the rights offering
would be at least sufficient to repay all amounts outstanding under the Bridge
Loan.
In 1998, First Union recognized $20.5 million of expenses primarily in
connection with the proxy contest and the change in the Board's composition.
These expenses included $4.8 million of proxy expenses and related legal fees
incurred by First Union, Gotham LP and Gotham III LP, $1.5 million in other
professional fees to avoid the change of the Board's composition, $3.4 million
for cash severance and vesting of restricted stock for Mr. Mastandrea, First
Union's terminated Chairman of the Board, Chief Executive Officer and President,
$4.7 million for vesting of restricted stock granted to other employees of First
Union and First Union Management, Inc., an affiliate of First Union, and $6.1
million of severance expenses related to employee change-in-control and
termination agreements (the "Change-in-Control Expenses"). First Union also
recognized the loss of a $2.25 million deposit when First Union did not close on
the purchase of a parking facility because the Board of Trustees believed that
the contract to acquire the parking facility, which was approved prior to the
change in June 1998 of a majority of the Board, was on disadvantageous terms.
First Union partially offset this loss by assigning the contract to a third
party for $200,000 in the fourth quarter of 1998. 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 Change-in-Control Expenses and Percentage Rent
Deferral also negatively affected net income and funds from operations.
The Change-in-Control 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.
The lenders under the FUR Credit Facility agreed to:
- modify the debt service and interest coverage requirements,
- modify 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, and
- extend 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. Concomitant 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. 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 and First Union have more recently agreed, in
principle, that the maximum commitment under the FUR Credit Facility
4
<PAGE> 7
will be $105 million, and on April 30, 1999, it will be reduced to $80 million,
and on June 30, 1999 it will be reduced to $50 million. This agreement in
principle also contemplates that First Union's minimum net worth requirement
will be modified, that there will be restrictions on future borrowings for
purposes other than tenant improvement costs and that $9.0 million of the net
proceeds from First Union's proposed Rights offering will be used to repay
amounts outstanding under the FUR Credit Facility.
The lenders under the Impark Credit Facility agreed to:
- 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,
- decrease the margin added to the Canadian Bankers Acceptance interest
rate from 175 basis points to 150 basis points, and
- extend 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,
- incorporate the revised covenants in the FUR Credit Facility into the
Bridge Loan, and
- modify 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:
- 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,
- increase the lenders' interest rate on the loan from 9.875% to 12% per
annum, and
- pay
(1) on February 11, 1999 a fee of 1% of the outstanding principal
amount of the loan on such date (such fee having been paid),
(2) 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 (such fee having been paid), and
(3) 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.
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<PAGE> 8
The lenders under the Bridge Loan and First Union have more recently
agreed, in principle, to require First Union to reduce the outstanding principal
balance under the Bridge Loan to less than approximately $38 million by May 15,
1999 and to allow $9.0 million of the net proceeds from First Union's proposed
Rights offering that would otherwise be used to repay a portion of the Bridge
Loan extended by three of these lenders to be used to repay amounts outstanding
under the FUR Credit Facility. Although the $9.0 million in principal will
remain outstanding under the Bridge Loan, it will be considered paid for
purposes of the mandatory repayment of principal described above. This $9.0
million portion of the Bridge Loan will bear interest at 15% per annum and
mature on August 11, 1999. First Union and Impark intend to repay, to the extent
possible, the amounts outstanding under the Credit Facilities by June 30, 1999,
the date the waivers with respect to the Board Change Default expire. However,
if they are unable to do so, they will either refinance the indebtedness or
negotiate extensions of those waivers.
In November 1998, in consideration for various services previously provided
to First Union, the Trust paid Enterprise a consulting fee and made an expense
reimbursement aggregating $750,000 and issued Enterprise ten-year warrants for
500,000 Shares exercisable at $10.00 per Share.
In March 1999, First Union agreed, in principle, to amend its standby
purchase arrangements with Gotham LP and Gotham III LP. Among other things, the
parties agreed, in principle, that:
- Gotham Partners International, Ltd. would be added as another standby
purchaser,
- 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 up to such number of Shares that would result in gross proceeds
to First Union of the lesser of $50 million and the amount of the First
Offering.
- First Union would pay the standby purchasers an amount equal to 4% of
their maximum standby commitment in the First Offering, whether or not
the First Offering is completed. Each of the standby purchasers is
entitled to its pro-rata portion of the payment based on its share of the
standby commitment. Although the Gotham entities are collectively
entitled to receive $2,000,000 of the payment, they agreed to accept only
$1,800,000.
- The standby purchasers would have certain customary rights to terminate
their respective obligations, and
- The standby purchase commitment would expire August 11, 1999.
To enable First Union to conduct a second Rights offering (the "Second
Offering"), First Union and the Gotham entities have agreed, in principle, that
the Gotham entities would "standby" to purchase such number of Shares that would
result in gross proceeds to First Union of the lesser of $40 million and the
aggregate principal amount outstanding under the Bridge Loan. The standby
purchasers would be entitled to an aggregate payment of 4% of their maximum
standby commitment in connection with any Second Offering, which would not be
contingent upon the closing of such Second Offering. First Union and the standby
purchasers are currently seeking the consent of the lenders under the Bridge
Loan to the revised terms of the standby commitments.
The Trust plans to conduct a rights offering to enable holders of Shares to
purchase additional Shares. The registration statement, which became effective
on April 13, 1999, currently contemplates the issuance of rights to purchase
Shares having a total subscription price of approximately $50 million.
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<PAGE> 9
The registration statement provides that a holder of rights who validly
exercises in full its basic subscription may also oversubscribe at the
subscription price for additional Shares that have not been purchased through
the exercise of rights, subject to certain conditions.
On April 14, 1999 the Trust announced that it had entered into a contract
to sell its residential portfolio to Apartment Investment and Management
Company, a NYSE-listed company ("AIMCO"), for approximately $86 million. Under
the agreement, AIMCO will assume approximately $37 million of first mortgage
debt (allowing the Trust to avoid $5 million in prepayment penalties), deliver
530,000 shares of AIMCO common stock, and pay the balance of the purchase price
in cash. The amount of cash will be adjusted to reflect the value of AIMCO stock
based on a trading period average with a minimum value of $36.50 per share and a
maximum value of $40.50. The sale is scheduled to close April 30th with the
purchaser having one 30-day extension option. First Union has obtained the
consent of its lenders to proceed with this transaction.
The Trust has engaged the law firm of Hale and Dorr LLP ("Hale and Dorr")
to advise the Trust on certain matters. Stephen S. Snider, a member of the Board
of Trustees, is a senior partner at Hale and Dorr. As of December 31, 1998, no
payments have been made to Hale and Dorr.
The Trust leases four of its parking facilities to a third party which is
partially owned by an affiliate of Apollo. In 1998, the Trust received $.9
million in rent from this third party.
The Trust in December 1998 engaged a firm to provide mortgage brokerage
services. A member of the immediate family of a Trustee is a principal of such
firm and such Trustee is also a principal of Gotham LP and certain of its
affiliates. No fees were paid to this firm during fiscal year 1998.
The related party transactions described above, including without
limitation, the Bridge Loan, the engagement of Hale and Dorr for legal services,
the leasing of four parking facilities to an affiliate of Apollo and the
engagement of a firm for mortgage brokerage services were negotiated at arms
length or were subject to competitive bidding and the Trust believes such
transactions are as favorable to the Trust as would have been obtained from
unrelated third parties.
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<PAGE> 10
PROPOSAL NUMBER 1
ELECTION OF TRUSTEES
Under the Declaration of Trust of First Union, the Board of Trustees is
divided into three classes, with each class as nearly equal in number to the
other classes as possible. The term of office of each class expires in
successive years. Accordingly, at each annual meeting, successors to the
Trustees whose terms expire at that meeting are elected to three-year terms. Any
vacancy occurring in a class of Trustees may be filled by a majority vote of the
Trustees remaining in office, effective for the remainder of the term for such
class.
NOMINEES
Daniel J. Altobello, David S. Klafter and William A. Scully, current
Trustees whose terms on Class III of the Board of Trustees will expire at the
Annual Meeting, are nominees for election at the Annual Meeting as Trustees, to
serve for a term of three years expiring at the 2002 Annual Meeting, upon the
election of successors.
The Board of Trustees is currently composed of 14 Trustees and is divided
into three classes known as Class I, II and III whose terms expire in 2000, 2001
and 1999, respectively. The size of each class has been set by the beneficiaries
at five members. A vacancy currently exists in Class III. The Board of Trustees
does not expect to fill the vacancy at the Annual Meeting as the Board has not
found a suitable nominee for the vacancy. In addition, it is currently proposed
that three Trustees be elected to Class III at the Annual Meeting, as Mr. Allen
H. Ford, a current member of Class III, has informed the Board that he will not
stand for reelection, and the Board has not found a suitable nominee to fill Mr.
Ford's seat. Consequently, immediately following the Annual Meeting, the Board
of Trustees expects that Class III will consist of three members and will have
two vacancies. Each of the other two classes will consist of five members.
While the Trustees do not anticipate that any of the Board's Nominees will
be unable to serve, if any is not available for election, proxies may be voted
for a substitute as well as for the other persons named.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS.
ALTOBELLO, KLAFTER AND SCULLY AS TRUSTEES, TO SERVE FOR A TERM OF THREE YEARS
EXPIRING AT THE 2002 ANNUAL MEETING, UPON THE ELECTION OF SUCCESSORS.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
------------ ---------------------- ---------- ----------
<S> <C> <C> <C>
CLASS III
Daniel J. Altobello (58) Mr. Altobello has been the Chairman of the Board of June 1998 1999
ONEX Food Services, Inc., an airline catering company to Date
and a partner in Ariston Investment Partners, a
consulting firm, since October 1995. Mr. Altobello
was the Chairman, President and Chief Executive
Officer of Caterair International Corporation, an
airline catering company, from November 1989 until
October 1995. Mr. Altobello is a member of the Board
of Directors of American Management Systems, Inc.,
Colorado Prime, Inc., Care First, Inc., Care First of
Maryland, Inc., Mesa Air Group, Inc., World Airways,
Inc., Sodexho Marriott Services, Inc., Atlantic
Aviation Holdings and Thayer Capital Partners.
</TABLE>
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<PAGE> 11
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
------------ ---------------------- ---------- ----------
<S> <C> <C> <C>
David S. Klafter (44) Mr. Klafter has been an in-house counsel and a June 1998 1999
principal of Gotham Partners Management Co. LLC to Date
("GPM"), an investment management firm, since April
1996. Mr. Klafter was a partner at White & Case, a
law firm, from January 1994 until April 1996, counsel
at White & Case from January 1993 until December 1993
and an associate at White & Case from May 1987 until
January 1993. 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.
William A. Scully (37) Mr. Scully has been Vice Chairman of the Board of October 1999
Trustees of First Union since November 1998. Mr. 1998
Scully has been a partner of Apollo since 1996 and is to Date
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.
</TABLE>
REMAINING TRUSTEES
Each remaining Trustee, whose present term of office as Trustee will
continue after the Annual Meeting and will expire in the year set forth opposite
his or her name, upon the election and qualification of his or her successor,
and certain additional information with respect to each of them, is as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
------------ ---------------------- ---------- ----------
<S> <C> <C> <C>
CLASS I
William E. Conway (71) Mr. Conway has been Chairman of Fairmount Minerals, 1985 to 2000
Ltd., a miner and processor of industrial minerals, Date
since 1978, and was Chairman and Chief Executive
Officer 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, a
producer of chemicals, petroleum and related
products, from 1970 to 1974. Mr. Conway is a trustee
of The Cleveland Clinic Foundation and University
School and the Cleveland Botanical Garden. Mr. Conway
is also a director of R Tape Corporation and an
advisory director of Kirtland Capital Partners II and
Kirtland Capital Partners III.
</TABLE>
9
<PAGE> 12
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
------------ ---------------------- ---------- ----------
<S> <C> <C> <C>
Daniel P. Friedman (41) Mr. Friedman has been President and Chief Executive November 2000
Officer of First Union since November 1998. He was 1998 to
President and Chief Operating Officer of Enterprise Date
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, he was a manager of 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.
Russell R. Gifford (59) Mr. Gifford is a partner with The Gifford Group, a 1991 to 2000
corporate and customer relations consulting company. Date
He was Chief Operating Officer of the Cleveland
Public School System from June 1998 to March 1999. 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.
Daniel Shuchman (33) Mr. Shuchman has been a principal of GPM since June 1998 2000
October 1994. Mr. Shuchman was an investment banker to Date
at Goldman, Sachs & Co., an investment banking firm,
from December 1988 until October 1994.
Stephen S. Snider (42) Mr. Snider has been a senior partner at Hale and June 1998 2000
Dorr, a law firm, since June 1988 and a junior to Date
partner from June 1985 to June 1988.
</TABLE>
10
<PAGE> 13
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
------------ ---------------------- ---------- ----------
<S> <C> <C> <C>
CLASS II
William A. Ackman (32) Mr. Ackman has been Chairman of the Board of Trustees June 1998 2001
of First Union since June 1998. Since January 1, to Date
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. ("GIA").
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, LP ("Gotham II LP").
Gotham II LP was dissolved in October 1998. Since
March 1993, Mr. Ackman has served as Vice President,
Secretary and Treasurer of GPLP Management Corp., the
Managing Member of Gotham Partners Management Co.
LLC, an investment management firm. Mr. Ackman was a
general partner of Section H Partners, L.P., the
General Partner of Gotham LP, Gotham II LP and Gotham
III LP investment funds, from January 1993 through
September 1993. Mr. Ackman has been the President,
Secretary and Treasurer of Karenina Corporation, a
general partner of Section H Partners, L.P., since
October 1993.
David P. Berkowitz (37) From June 1998 until November 1998, Mr. Berkowitz was June 1998 2001
Vice Chairman of the Board of Trustees of First to Date
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 GIA. 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. Since March 1993,
Mr. Berkowitz has served as President of GPLP
Management Corp. Mr. Berkowitz was a general partner
of Section H Partners, L.P. from January 1993 through
September 1993. Mr. Berkowitz has been the President,
Secretary and Treasurer of DPB Corporation, a general
partner of Section H Partners, L.P., since October
1993.
Stephen J. Garchik (45) Mr. Garchik has been President of The Evans Company, June 1998 2001
a commercial real estate development and management to Date
firm, since January 1987. Since July 1996, Mr.
Garchik has been the Chairman of Gotham Golf
Partners, L.P.
Mary Ann Tighe (50) Ms. Tighe has been Vice Chairman of Insignia/ESG, a June 1998 2001
commercial real estate firm ("Insignia"), since to Date
January 1999, was an Executive Managing Director of
Insignia from March 1993 until January 1999 and was
Senior Managing Director of Insignia from June 1992
until March 1993. She has also chaired the Executive
and Strategic Planning Committees of Insignia since
November 1998. She is on the Board of Directors of
The New 42nd Street, a New York City-based community
revitalization organization.
James A. Williams (57) Mr. Williams has been the President of Williams, June 1998 2001
Williams, Ruby & Plunkett PC, a law firm, since to Date
December 1969. Mr. Williams has also been the
Chairman of Michigan National Bank and Michigan
National Corporation since November 1996. 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.
</TABLE>
11
<PAGE> 14
COMPENSATION OF TRUSTEES
Trustees, other than Messrs. Ackman, Berkowitz, Friedman, Klafter, Shuchman
and Scully, received an annual retainer fee of $12,000 and were paid an
attendance fee of $1,000 for meetings of the Board and committees thereof.
Additionally, Mr. Gifford received a fee of $50,000 for his services as the
Chairman of the Trust's Special Committee formed in connection with the proxy
contest prior to the change in the Board's composition. For fiscal year 1999,
Trustees, other than Messrs. Ackman, Berkowitz, Friedman, Klafter, Shuchman and
Scully, will receive a $1,500 fee for each Board or committee meeting attended
in person and a $500 fee for each Board or committee meeting attended
telephonically. In addition, the Board is presently seeking shareholder approval
of the Trustees Share Option Plan. See "Proposal Number 3 -- 1999 Share Option
Plan for Trustees."
ORGANIZATION OF BOARD OF TRUSTEES
The Board of Trustees held nine meetings during 1998, one of which was held
prior to the change in the Board's composition in June 1998. Each of the present
Trustees attended at least 75% of the aggregate of the meetings of the Board and
the committees of the Board on which he served. The Board has standing Audit,
Compensation and Nominating Committees.
AUDIT COMMITTEE
The current Audit Committee was formed on June 3, 1998 and is composed
entirely of Trustees who are not employees of First Union. The Committee
recommends to the Board the appointment of auditors to examine and report on the
combined financial statements, reviews with the independent auditors the
arrangements for and results of the audit engagement, reviews the independence
of the auditors, considers the range of audit and non-audit fees and reviews the
reports of First Union's internal auditor and its system of internal accounting
controls. Present members are Daniel J. Altobello (Chairman), David P. Berkowitz
and Allen H. Ford. The Audit Committee held four meetings during 1998, one of
which was held prior to the change in the Board's composition.
NOMINATING COMMITTEE
The current Nominating Committee was formed on June 3, 1998. The Committee
is responsible for recommending nominees to the Board of Trustees to fill
vacancies on the Board of Trustees and for evaluating shareholder nominees for
election as Trustees. Present members of the Nominating Committee are James A.
Williams (Chairman), Stephen J. Garchik, Daniel Shuchman and Mary Ann Tighe. The
current Nominating Committee did not meet during 1998.
COMPENSATION COMMITTEE
From January 1, 1998 to June 3, 1998, Messrs. William E. Conway, Daniel G.
DeVos and Herman J. Russell, members of the Board of Trustees prior to the
change in the Board's composition, served as members of the Trust's Management,
Organization and Compensation Committee (the "Prior Compensation Committee").
During this time, the Prior Compensation Committee held four meetings and made
recommendations to the Board with respect to (i) the compensation of all
officers with annual salaries of $75,000 or more, and (ii) awards to employees
under the 1994 Plan, and the Board of Trustees acted on the basis of these
recommendations. On June 3, 1998, the current members of the Board of Trustees
voted unanimously to dissolve all standing committees of the Board, including
the Prior Compensation Committee. At that time, the consensus of the Board was
to defer the formation of a new compensation committee and have the entire Board
of Trustees take responsibility for the hiring and compensation of
12
<PAGE> 15
the Trust's executives. The present Compensation Committee (the "Current
Compensation Committee") was formed on February 9, 1999 and, consequently, held
no meetings during 1998. The Current Compensation Committee is responsible for
making recommendations to the Board of Trustees regarding matters of employee
and officer compensation and the overseeing of administration of benefit plans
of the Trust, including the 1994 Plan. Present members of the Current
Compensation Committee are Daniel J. Altobello (Chairman), William A. Ackman and
James A. Williams.
EXECUTIVE OFFICERS
The table below sets forth the names and ages of the executive officers of
First Union and their positions and business experience during at least the past
five years. The executive officers serve at the discretion of the Board.
<TABLE>
<CAPTION>
NAME AND AGE POSITION, OFFICES AND BUSINESS EXPERIENCE PERIOD OF SERVICE
------------ ----------------------------------------- -----------------
<S> <C> <C>
Daniel P. Friedman (41) For a description of the Positions, Offices and November 1998 to Date
Business Experience of Mr. Friedman, see "Remaining
Trustees" above.
Anne N. Zahner (43) Ms. Zahner has been Executive Vice President of First November 1998 to Date
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.
David Schonberger (44) Mr. Schonberger has been Executive Vice President of November 1998 to Date
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.
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
NAME AND AGE POSITION, OFFICES AND BUSINESS EXPERIENCE PERIOD OF SERVICE
------------ ----------------------------------------- -----------------
<S> <C> <C>
Steven M. Edelman (44) Mr. Edelman was Chief Financial Officer and Executive 1980 to April 1999
Vice President from February 1997 until April 1999
when he resigned his position with First Union. 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.
Paul F. Levin (52) Mr. Levin has been Senior Vice President, General 1989 to Date
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.
John J. Dee (48) Mr. Dee has been Senior Vice President and Chief 1978 to Date
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.
Brenda J. Mixson (46) Ms. Mixson became Interim Chief Financial Officer of 1999
First Union upon the departure of Mr. Edelman on
April 13, 1999. Previously, Ms. Mixson served as
Managing Director/Chief Investment and Financial
Officer of Prime Capital Holding, LLC, a privately
owned commercial real estate finance company. From
1995 to 1997, Ms. Mixson held positions with ING
Capital Corp. and ING Barings Securities, Inc.,
initially as Portfolio Manager for all real estate
investment activity and subsequently, as global head
of ING Barings Emerging Markets International Finance
Business. Prior to joining ING, Ms. Mixson was
Executive Vice President and Chief Operating Officer
of Reichmann International, the manager of Quantum
North American Realty Fund. From 1989 to 1994, she
was Managing Director and Executive Vice President of
Travelers Realty Investment Corp. From 1986 to 1989,
she was Manager and Vice President for the Chicago
Region of Chemical Bank.
</TABLE>
14
<PAGE> 17
SECURITY OWNERSHIP OF TRUSTEES AND OFFICERS
AND CERTAIN BENEFICIAL OWNERS
The table below sets forth, with respect to Trustees and nominees, certain
named executive officers, and all Trustees and executive officers as a group,
information relating to their beneficial ownership of Shares as of April 13,
1999:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT
------------------------ ----------------------- -------
<S> <C> <C>
TRUSTEES
William A. Ackman (2)......................... 3,047,800 9.71%
Daniel J. Altobello........................... 0 --
David P. Berkowitz (2)........................ 3,047,800 9.71%
William E. Conway............................. 21,574 .07%
Allen H. Ford................................. 25,000 .08%
Daniel P. Friedman (also an Executive
Officer).................................... 0 --
Stephen J. Garchik............................ 0 --
Russell R. Gifford............................ 16,240 .05%
David S. Klafter (3), (4)..................... 0 --
William A. Scully (5)......................... 0 --
Daniel Shuchman (3), (4)...................... 0 --
Stephen S. Snider............................. 0 --
Mary Ann Tighe (4)............................ 0 --
James A. Williams (4)......................... 7,000 .02%
EXECUTIVE OFFICERS
Anne N. Zahner................................ 0 --
David Schonberger............................. 0 --
Steven M. Edelman (6)......................... 62,669 .20%
Paul F. Levin (7)............................. 53,000 .17%
John J. Dee (8)............................... 82,995 .26%
Brenda J. Mixson.............................. 0 --
All Trustees and executive officers (20 in number)
as a group (9)................................... 3,316,278 10.52%
</TABLE>
- ---------------
(1) Pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as amended, a
person is deemed to be a beneficial owner if he has or shares voting power
or investment authority in respect of such security or has the right to
acquire beneficial ownership within 60 days. The amounts shown in the above
table do not purport to represent beneficial ownership except as determined
in accordance with this Rule. Each Trustee and executive officer has sole
voting and investment power with respect to the amounts shown or shared
voting and investment powers with his or her spouse, except as indicated
below.
(2) Mr. Ackman is the President of Karenina Corporation, a general partner of
Section H Partners, L.P. and Mr. Berkowitz is the President of DPB
Corporation, a general partner of Section H Partners, L.P. Section H
Partners, L.P. is the sole general partner of Gotham LP, Gotham II LP and
Gotham International. Accordingly, Mr. Ackman, Mr. Berkowitz, Karenina
Corporation, DPB Corporation and Section H Partners, L.P. may be deemed
beneficial owners of Shares owned by Gotham LP, Gotham II LP and Gotham
International. Mr. Ackman and Mr. Berkowitz are senior managing members of
GIA and may be deemed beneficial owners of Shares owned by GIA. For purposes
of this table, all of such ownership is included.
(3) Mr. Klafter and Mr. Shuchman are limited partners of Section H Partners,
L.P. and members of GIA. As limited partners of Section H Partners, L.P.,
Mr. Klafter and Mr. Shuchman have no right to vote or dispose of any Shares
held by Gotham LP, and
15
<PAGE> 18
therefore do not beneficially own any Shares held by Gotham LP. As members
of GIA, Mr. Klafter and Mr. Shuchman have no right to vote or dispose of any
Shares held by GIA, and therefore do not beneficially own any Shares held by
GIA.
(4) Mr. Klafter, Mr. Shuchman, Ms. Tighe and Mr. Williams are limited partners
of Gotham LP. As limited partners of Gotham LP, they have no right to vote
or dispose of any Shares held by Gotham LP, and therefore do not
beneficially own any Shares held by Gotham LP.
(5) Mr. Scully is a limited partner of Apollo. As a limited partner, he has no
right to vote or dispose of any Shares held by Apollo, and therefore does
not beneficially own any Shares held by Apollo.
(6) Includes 45,200 Shares that Mr. Edelman has the vested right to acquire
through the exercise of options.
(7) Includes 53,000 Shares that Mr. Levin has the vested right to acquire
through the exercise of options.
(8) Includes 45,200 Shares that Mr. Dee has the vested right to acquire through
the exercise of options.
(9) Includes 143,400 Shares which executive officers have the vested right to
acquire through the exercise of options.
The following table sets forth, according to publicly available information
on file with the Securities and Exchange Commission (the "Commission") as of the
dates indicated in the accompanying footnotes, except as otherwise indicated,
information concerning each person known by First Union to be the beneficial
owner of more than 5% of the Shares:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT
------------------- -------------------- -------
<S> <C> <C>
Franklin Resources, Inc. 2,669,732(1) 8.4%
777 Mariners Island Blvd
San Mateo, CA 94404
Charles B. Johnson
777 Mariners Island Blvd
San Mateo, CA 94404
Rupert H. Johnson
777 Mariners Island Blvd
San Mateo, CA 94404
Franklin Mutual Advisors, Inc.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Franklin Mutual Series Fund, Inc.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Gotham Partners, L.P. 3,047,800(2) 9.71%
Gotham Partners II, L.P.
Gotham International Advisors, L.L.C.
Gotham Partners III, L.P.
110 East 42nd Street
New York, NY 10017
Apollo Real Estate Investment Fund II, L.P. 2,135,987(3) 7.6%
Apollo Real Estate Advisors II, L.P.
1301 Avenue of the Americas
New York, NY 10019
</TABLE>
16
<PAGE> 19
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT
------------------- -------------------- -------
<S> <C> <C>
Stephen Feinberg 1,602,327(4) 5.7%
Cerberus Partners L.P.
Cerberus International Ltd.
Ultra Cerberus Fund, Ltd.
Certam Private Funds
450 Park Avenue, 28th Floor
New York, NY 10022
Kennedy Capital Management 1,584,700(5) 5.0%
10829 Olive Boulevard
St. Louis, MO 63141
Talton R. Embry 3,973,600(6) 12.5%
Magten Asset Management
35 East 21st Street
New York, NY 10010
Snyder Capital Management, L.P. 2,191,200(7) 7.0%
Snyder Capital Management, Inc.
350 California Street
Suite 1460
San Francisco, CA 94104
</TABLE>
- ---------------
(1) The information regarding this holder, together with information on the
holdings of Franklin Mutual Advisors, Inc. ("FMAI"), Franklin Mutual Series
Fund, Inc., Charles B. Johnson and Rupert H. Johnson, was received by First
Union from a Schedule 13G filed with the Commission on September 15, 1998.
Collectively, the persons reported in such Schedule 13D filing may be deemed
to own beneficially an aggregate of 2,669,732 Shares. FMAI has sole voting
and dispositive power with respect to such Shares.
(2) The information regarding this holder is as of February 19, 1999 and was
obtained from Gotham LP and certain of its affiliates.
(3) The information regarding this holder was received by First Union from a
Schedule 13D filed with the Commission on October 29, 1998.
(4) The information regarding this holder was received by First Union from a
Schedule 13D filed with the Commission on February 17, 1998.
(5) The information regarding this holder was received by First Union from a
Schedule 13G filed with the Commission on February 9, 1999.
(6) The information regarding this holder was received by First Union from a
Schedule 13G filed with the Commission on March 26, 1999. On March 11, 1999
the Board granted a limited waiver of the restriction contained in the
Trust's By-Laws limiting beneficial ownership of Shares to no more than 9.8%
of all Shares outstanding, contingent upon compliance with certain
conditions.
(7) The information regarding this holder was received by First Union from a
Schedule 13G filed with the Commission on February 5, 1999.
17
<PAGE> 20
EXECUTIVE COMPENSATION
The table below sets forth the plan and non-plan compensation awarded, paid
or earned for services rendered to First Union during each of the last three
years to or by the Chief Executive Officer during 1998 and each of the remaining
highest compensated executive officers of the Trust at December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ----------------------------------------
----------------------------------- SECURITIES RESTRICTED
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING SHARE LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS/SHARES AWARDS(2) PAYOUTS(3) COMPENSATION(4)
------------------ ---- ------- ------- --------------- -------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel P. Friedman 1998 $56,667 1,080,000 $126,414
President and Chief
Executive Officer(5)
Anne N. Zahner 1998 33,333 360,000 9,062
Executive Vice
President(5)
David Schonberger 1998 33,333 360,000
Executive Vice
President(5)
Steven M. Edelman 1998 194,167 $ 7,548
Executive Vice 1997 157,500 $63,450 20,000 $ 385,000 7,719
President--Chief 1996 120,000 51,769 40,000 142,500 7,469
Financial Officer(6)
Paul F. Levin 1998 129,000 7,548
Senior Vice President-- 1997 122,500 41,125 20,000 303,750 7,557
General Counsel and 1996 115,000 39,808 40,000 142,500 6,804
Secretary
John J. Dee 1998 139,000 7,548
Senior Vice President-- 1997 127,333 42,748 20,000 310,438 7,719
Chief Accounting 1996 112,000 38,900 40,000 142,500 6,585
Officer
James C. Mastandrea 1998 138,542 3,447,976
Former Chairman, 1997 340,000 228,285 $17,131 225,000 3,471,428 13,094
President and Chief 1996 290,000 140,441 5,467 200,000 1,603,125 12,694
Executive Officer(7)
</TABLE>
- ---------------
(1) Amounts shown in 1997 and 1996 are the reimbursement of taxes for relocation
expenses and taxes for term life insurance premiums.
(2) The 1994 Plan was implemented in 1994. Restricted Shares were awarded as
targeted financial goals were met or exceeded, except for restricted Shares
awarded upon exercise of stock options as noted below. Restricted Shares are
entitled to dividends at the same rate and on the same terms as unrestricted
Shares of the same class. Due to the change in the Board's composition that
occurred in June 1998, the restrictions were removed from the restricted
Shares awarded in prior years. No restricted Shares were held by the
individuals listed above as of December 31, 1998.
To encourage employees to exercise stock options, the 1994 Plan provides for
the grant of one restricted Share for every four stock options exercised.
The restrictions are removed after four years as long as the individual is
an employee of the Trust and has retained the unrestricted Shares received
from exercising the original options or upon a change in control. Messrs.
Edelman, Levin and Dee received restricted Shares of 14,560, 12,908, and
13,480, respectively, upon exercise of stock options in May 1998. Due to the
change in the Board's composition that occurred in June 1998, the
restrictions were removed from the restricted Shares.
18
<PAGE> 21
The amounts for Restricted Share Awards in the table above were based on the
Share closing price on the date the restricted Shares were awarded.
(3) Amounts shown are payments of one-third of the Long-Term Compensation
awarded to the executive officers in accordance with their employment
contracts. The remaining amount will be paid one-third each on the second
and fourth anniversaries of the commencement of their employment.
(4) Amounts shown are composed solely of annual contributions made to a defined
contribution pension plan, except the amount for Mr. Mastandrea, which also
included term life insurance premiums for 1996 and 1997 and a payment in
1998 upon termination of his employment. The pension plan contribution for
each participant is equal to the sum of (i) 3% of the participant's total
cash compensation paid for such year up to that year's Social Security
taxable wage base, and (ii) 6% of the portion of the participant's cash
compensation paid for such year which is in excess of that year's Social
Security taxable wage base up to a maximum of $160,000 for 1996, 1997 and
1998. The contributions made by First Union on behalf of the above named
individuals are based on salary earned and paid in that year, plus executive
incentive compensation paid in that year. The insurance premiums of $5,375
in 1997 and $4,975 in 1996 for Mr. Mastandrea were net of the amount
recoverable by First Union upon his termination. The policy provided a death
benefit of $2.5 million to Mr. Mastandrea's beneficiary. The amount shown in
1998 for Mr. Mastandrea represents the amount paid to him upon termination
of his employment in lieu of the amount due under his employment agreement.
(5) Employment for Messrs. Friedman and Schonberger and Ms. Zahner commenced
November 2, 1998. Shareholder approval of the proposed amendments to the
1994 Plan is required to approve the full amount of the stock option grant
to Mr. Friedman.
(6) Mr. Edelman served as Interim Chief Executive Officer from May 19, 1998 to
November 2, 1998, when Mr. Friedman was appointed President and Chief
Executive Officer. Mr. Edelman received no additional compensation in 1998
for serving as Interim Chief Executive Officer.
(7) Mr. Mastandrea's employment was terminated on May 17, 1998.
19
<PAGE> 22
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL AGREEMENTS
EMPLOYMENT AGREEMENTS
In July 1994, the Trust entered into an employment agreement with Mr.
Mastandrea. Mr. Mastandrea's employment was terminated without cause on May 17,
1998. The Trust paid Mr. Mastandrea the sum of $3,447,976 and removed the
restrictions on 128,017 Shares in full settlement of all obligations to him
under his employment agreement and other restricted shares held by him were
forfeited.
In November 1998, the Trust entered into a four-year employment agreement
with Mr. Friedman. The agreement provides that he will be President and Chief
Executive Officer of the Trust and that he shall be nominated for election by
the Trust to the Board of Trustees and that the Trust shall use its reasonable
best efforts to cause him to be elected to the Board of Trustees and its
Executive Committee. Under the agreement, Mr. Friedman receives an annual base
salary of not less than $340,000, subject to annual review and increase by the
Board of Trustees by at least 5% each year, health and welfare benefits and
1,080,000 stock options, as described in the Stock Option table below. Mr.
Friedman is also entitled to options to purchase additional Shares equal to 3%
of the Shares issued by the Trust in connection with raising an additional $120
million of equity. Such options will have an exercise price equal to the
purchase price of the Shares offered for sale. Additionally, the Trust agreed to
pay Mr. Friedman long-term compensation as follows: one-third on the
commencement of his employment, and one-third on the second and fourth
anniversaries of the commencement of his employment.
The Trust also entered into a four-year employment agreement with Mr.
Schonberger and Ms. Zahner in November 1998. Mr. Schonberger and Ms. Zahner are
Executive Vice Presidents of the Trust and receive annual base salaries of not
less than $200,000 each, subject to annual review and increase by the Board of
Trustees by at least 5% each year, health and welfare benefits and 360,000 stock
options, as described in the Stock Option table below. Under each of their
employment agreements, Ms. Zahner and Mr. Schonberger are also entitled to
options to purchase additional Shares equal to 1% of the Shares issued by the
Trust in connection with raising an additional $120 million of equity. Such
options will have an exercise price equal to the purchase price of the Shares
offered for sale. Additionally, the Trust agreed to pay Ms. Zahner long-term
compensation as follows: one-third on the commencement of her employment, and
one-third on the second and fourth anniversaries of the commencement of her
employment.
Each executive's employment may be terminated at any time; however, if the
Trust terminates such executive's employment without cause, or if he or she
terminates his or her employment for good reason or in the event of a "change in
control," the Trust is required to: (1) continue to pay his or her accrued but
unpaid base salary and earned but unpaid bonuses and incentive compensation, (2)
provide benefits for a period of two years, and (3) pay a lump sum equal to
three times base salary, if the executive is terminated prior to 18 months from
the commencement of his or her term, or a lump sum equal to two and a half times
base salary, if the executive is terminated after 18 months from the
commencement of his or her term.
20
<PAGE> 23
For purposes of the employment agreements, a "change in control" occurs if
any of the following events occur:
(A) an acquisition (other than directly from the Trust or any
subsidiary, an employment benefit plan (in a trust forming a part thereof)
maintained by the Trust or any subsidiary of the Trust, or any person in
connection with such acquisition) of any voting securities of the Trust
(treating all classes of outstanding voting securities or other securities
convertible into voting securities as if they were converted into voting
securities) by any person (other than Gotham LP, Apollo or any affiliate of
Gotham LP or Apollo) immediately after which such person has beneficial
ownership of 30% percent or more of the combined voting power of the
Trust's then outstanding voting securities.
(B) Six (6) of the ten (10) individuals who were appointed to the
Board of Trustees after April 1, 1998 cease for any reason to be members of
the Board; provided, however, that if the election, or nomination for
election by the Trust's shareholders, of any new trustee was approved by
Mr. Friedman, such new trustee shall, for purposes of the employment
agreement, be considered as a member of the Board of Trustees who was
appointed after April 1, 1998.
(C) A merger, consolidation or reorganization involving the Trust,
unless
(1) the shareholders of the Trust, immediately before such merger,
consolidation or reorganization, own, directly or indirectly,
immediately following such merger, consolidation or reorganization more
than 70% of the combined voting power of the outstanding voting
securities of the entity resulting from such merger or consolidation or
reorganization in substantially the same proportion as their ownership
of the voting securities immediately before such merger, consolidation
or reorganization,
(2) the individuals who were members of the Board of Trustees
immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least two-thirds
of the members of the board of directors of the surviving entity or an
entity beneficially owning, directly or indirectly, a majority of the
voting securities of the surviving entity, and
(3) no person (other than the Trust, any subsidiary, any employee
benefit plan (or any trust forming a part thereof) maintained by the
Trust, the surviving entity or any subsidiary, or any person who,
immediately prior to such merger, consolidation or reorganization had
beneficial ownership of 30% or more of the then outstanding voting
securities) owns, directly or indirectly, 30% or more of the combined
voting power of the surviving entity's then outstanding voting
securities.
(D) A complete liquidation or dissolution of the Trust.
(E) The Trust makes aggregate cash or non-cash distributions to its
shareholders of the proceeds from the sales of assets equal to or greater
than $4.00 per Share and immediately following such distribution the "Net
Asset Value" of the Trust is less than $150 million. "Net Asset Value"
shall be the fair market value of all of the Trust's assets (as determined
by mutual agreement of the executive and the Trust or, if the parties
cannot agree, by an arbitrator in accordance with the employment
agreements) less all Trust liabilities.
21
<PAGE> 24
Notwithstanding the foregoing, a change in control shall not be deemed to
occur solely because any person acquired beneficial ownership of more than the
permitted amount of the outstanding voting securities as a result of the
acquisition of voting securities by the Trust which, by reducing the number of
voting securities outstanding, increases the proportional number of shares
beneficially owned by such person, provided that if a change in control would
occur (but for the operation of this sentence) as a result of the acquisition of
voting securities by the Trust, and after such Share acquisition by the Trust,
such person becomes the beneficial owner of any additional voting securities
which increases the percentage of the then outstanding voting securities
beneficially owned by such person, then a change in control shall occur.
CHANGE IN CONTROL AGREEMENTS
On February 17, 1998, the Trust entered into agreements (each, a "Change in
Control Agreement") with Messrs. Edelman, Levin and Dee (each, an "executive
officer"). Each Change in Control Agreement provides that in the event such
executive officer's employment with the Trust is terminated within two years
following "a change in control of the Trust" (as described below) either by the
executive officer for good reason or by the Trust without cause, such executive
officer will be entitled to receive, among other things, (i) his base salary and
other benefits earned or accrued, (ii) an amount equal to two times such
person's base salary and any additional compensation payable under such person's
employment agreement, and (iii) cash for such unvested portion of such person's
interest in any of the Trust's pension plans. In addition, if any payment or
distribution (including payments under each Change in Control Agreement, any
stock option agreement or otherwise) to an executive officer is determined to be
an "excess parachute payment" under the Internal Revenue Code of 1986, as
amended (the "Code"), such executive officer would be entitled to receive an
additional tax-neutral payment to compensate such executive officer for any
excise tax imposed on such payment or distribution.
For purposes of the Change in Control Agreements, "a change in control of
the Trust" occurs if (a) any person (other than the Trust, any subsidiary of the
Trust, any employee benefit plan or employee share ownership plan of the Trust,
or any person organized, appointed, or established by the Trust or any
subsidiary of the Trust for or pursuant to the terms of any such plan), alone or
together with any of its affiliates or associates, becomes the beneficial owner
of 25% or more of the Shares then outstanding, (b) at any time during a period
of 24 consecutive months, individuals who were Trustees at the beginning of the
period no longer constitute a majority of the members of the Board of Trustees
unless the election, or the nomination for election by the Trust's
beneficiaries, of each Trustee who was not a Trustee at the beginning of the
period is approved by at least a majority of the Trustees who are in office at
the time of the election or nomination and were Trustees at the beginning of the
period and (c) a record date is established for determining beneficiaries of the
Trust entitled to vote upon (i) a merger or consolidation of the Trust with
another business trust, REIT, partnership, corporation, or other entity in which
the Trust is not the surviving or continuing entity or in which all or part of
the outstanding Shares are to be converted into or exchanged for cash,
securities or other property, (ii) a sale or other disposition of all or
substantially all of the assets of the Trust, or (iii) the dissolution of the
Trust. Subsequent to the election of nine new Trustees at the May 19, 1998
Special Meeting of Beneficiaries, but prior to the time the new Trustees took
office on June 3, 1998, the Board of Trustees determined that a "change in
control" had occurred for purposes of the Change in Control Agreements.
22
<PAGE> 25
OPTION GRANTS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------ ANNUAL RATES OF
NUMBER OF % OF TOTAL SHARE PRICE
SHARES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR 10 YEARS(2)
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED(1) IN 1998 PER SHARE DATE 5% 10%
---- ---------- ---------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Daniel P. Friedman............. 540,000 30% $6.50 11/02/2008 -- --
540,000 30% 8.50 11/02/2008 -- --
Anne N. Zahner................. 180,000 10% 6.50 11/02/2008 -- --
180,000 10% 8.50 11/02/2008 -- --
David Schonberger.............. 180,000 10% 6.50 11/02/2008 -- --
180,000 10% 8.50 11/02/2008 -- --
Steven M. Edelman..............
Paul F. Levin..................
John J. Dee....................
James C. Mastandrea............
</TABLE>
- ---------------
(1) The options for Messrs. Friedman and Schonberger and Ms. Zahner were granted
under the 1994 Plan in the form of Incentive Stock Options to the maximum
extent permitted by Section 422 of the Code and Nonstatutory Stock Options.
Options on 50% of the Shares have an exercise price of $6.50 per Share and
the remaining 50% have an exercise price of $8.50 per Share. The options
have a cost of capital feature, which provides that the exercise price will
increase by 10% per annum, and they will decrease by the amount of per annum
per Share dividends or other distributions to shareholders; however, the
increase in the exercise price will not begin until May 2, 2000. The options
become exercisable ratably over four years and expire after 10 years.
(2) The potential realizable value cannot be calculated because the amount of
dividends or other distributions to shareholders which decreases the option
prices on a per Share basis are not determinable over the 10-year option
life.
AGGREGATED SHARE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
---- ----------- -------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Daniel P. Friedman..... 1,080,000
Anne N. Zahner......... 360,000
David Schonberger...... 360,000
Steven M. Edelman...... 58,240 $137,881 45,200
Paul F. Levin.......... 51,950 134,651 53,000
John J. Dee............ 55,240 129,256 45,200
James C. Mastandrea....
</TABLE>
- ---------------
(1) No options were "in-the-money" at December 31, 1998.
23
<PAGE> 26
BOARD OF TRUSTEES REPORT ON EXECUTIVE COMPENSATION
CURRENT APPROACH TO EXECUTIVE COMPENSATION
On June 3, 1998, the Board of Trustees voted unanimously to dissolve the
Prior Compensation Committee. At such time, the Board of Trustees itself assumed
the responsibility for the hiring and compensation of the Trust's executives
until February 9, 1999, when the Board formed the Current Compensation
Committee.
The Board's policy with respect to the compensation of executive officers
is to pay cash and other compensation to attract and retain high quality
executive officers. The compensation packages provided to the Chief Executive
Officer and President and the Executive Vice Presidents were the outcome of
negotiations between the Trust and the individuals involved. Additionally, the
Board and the Current Compensation Committee have honored the commitments made
by the Prior Compensation Committee.
The Board's policy is that a substantial portion of an executive officer's
compensation is to be incentive based; however, the Board believes that option
compensation is generally only appropriate for those employees who can
materially impact the value of the entire company. Otherwise, the Board intends
to compensate executives with cash bonuses based on an executive officer's
performance in his or her particular area of responsibility.
The Trust has granted the three new members of management options at strike
prices significantly above market, each with a cost of capital feature. The
strike prices of the options granted will increase by 10% per annum and they
will decrease by the amount of any dividends or distributions made to
shareholders; however, the increase in the strike prices will not begin until
May 2, 2000. The Current Compensation Committee presently intends that options
granted in the future to executive officers will generally have similar cost of
capital features. As a result of the increasing strike prices of the options
granted and the fact that the options' initial strike price is significantly
above market, the options will only have significant value in the event the
stock price and/or dividends to shareholders increase substantially from current
levels.
To the extent consistent with the general business goals of the Trust and
its other compensation policies, the Board and the Current Compensation
Committee structure annual bonus and long-term incentive awards with the
intention that compensation deductions attributable thereto would not be limited
by Section 162(m) of the Code.
COMPENSATION OF CURRENT CHIEF EXECUTIVE OFFICER
During the last two months of 1998, Mr. Friedman served as Chief Executive
Officer and President pursuant to an employment agreement. See "Employment
Agreements" for further information. For the period of his employment in 1998,
he received a base salary at the rate of $340,000 per annum and
24
<PAGE> 27
options to purchase 1,080,000 Shares, which become exercisable ratably over four
years and expire after 10 years. The Board believes that such compensation is
competitive with the market and necessary to attract and retain the caliber of
executive talent capable of leading a successful REIT.
APPROACH OF PRIOR COMPENSATION COMMITTEE
From January 1, 1998 to June 3, 1998, Messrs. William E. Conway, Daniel G.
DeVos and Herman J. Russell, members of the Trust's Board of Trustees prior to
the change in the Board's composition, served as members of the Prior
Compensation Committee. During this time, the Prior Compensation Committee was
responsible for making recommendations to the Board with respect to (i) the
compensation of all officers with annual salaries of $75,000 or more, and (ii)
awards to employees under the 1994 Plan, and the Board of Trustees acted on the
basis of these recommendations.
The following information is based upon the Management, Organization and
Compensation Committee Report on Executive Compensation included in the Trust's
1998 Proxy Statement.
The Prior Compensation Committee viewed compensation as consisting of four
principal elements: base salaries, annual cash/stock bonus awards, stock options
and restricted stock. In its recommendations regarding base salaries, the Prior
Compensation Committee examined base compensation of executive officers at other
real estate investment trusts in similar product types and/or with comparable
market capitalization. Base salary amounts were determined without direct
reference to corporate performance. The Trust's annual cash/stock bonus awards
were intended to be the method for compensating executive officers for achieving
performance goals for a particular fiscal year. With respect to stock options,
the primary goal was to link beneficiary and employee interests by providing a
way for both to gain from appreciation in the market price of Shares over time.
Restricted stock awards were designed to encourage senior executives to think
and act like owners and, as a result, to promote the long term growth and
performance of the Trust and increase the market price of the Shares. For more
information regarding the decisions made by the Prior Compensation Committee,
see "Executive Compensation" above.
COMPENSATION OF PRIOR CHIEF EXECUTIVE OFFICER AND INTERIM CHIEF EXECUTIVE
OFFICER
During the first four and a half months of 1998, Mr. Mastandrea served as
Chairman of the Board of Trustees, Chairman of the Executive Committee of the
Board of Trustees, and President and Chief Executive Officer of the Trust. On
May 17, 1998, a then existing Special Committee of the Board of Trustees
terminated the employment of Mr. Mastandrea. For the period of his employment in
1998, he received a base salary at the rate of $385,000 per annum, an annual
bonus of $228,285 that was earned in 1997, options to purchase 225,000 Shares
and restricted stock of 228,390 Shares. In addition, Mr. Mastandrea received a
severance payment of $3,447,976 upon termination of his employment. See the
table entitled "Summary Compensation Table."
25
<PAGE> 28
The Prior Compensation Committee believed that the compensation payable to
Mr. Mastandrea under his employment agreement was consistent with its general
approach to executive compensation, which is described above, with his position
and responsibilities with the Trust, with his individual performance during
1997, and with commitments made to him when he was hired by the Trust in July
1993.
From June 1998 until November 1998, Mr. Edelman served as Interim Chief
Executive Officer of the Trust. Mr. Edelman has been Chief Financial Officer and
Executive Vice President since February 1997. Mr. Edelman received no additional
compensation in 1998 for serving as Interim Chief Executive Officer.
SUBMITTED BY THE BOARD OF TRUSTEES:(1)
<TABLE>
<S> <C>
William A. Ackman Russell R. Gifford
Daniel J. Altobello David S. Klafter
David P. Berkowitz William A. Scully
William E. Conway Daniel Shuchman
Allen H. Ford Stephen S. Snider
Stephen J. Garchik Mary Ann Tighe
James A. Williams
</TABLE>
- ---------------
(1) Daniel P. Friedman did not participate in determining the Trust's
compensation policy because the Board has a policy that Trustees whose
compensation as an employee is at issue are not included in the Board's
discussion of, or voting on, such compensation.
26
<PAGE> 29
PERFORMANCE GRAPH
The performance graph assumes $100 invested on December 31, 1993 in Shares,
All REITs and the NYSE Composite Index, with dividends reinvested when paid and
share prices as of the last day of each calendar year. The total return for all
REITs was compiled by NAREIT.
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
[GRAPH]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
First Union $100 $73 $82 $153 $206 $74
All REITs 100 101 119 162 192 156
NYSE Composite Index 100 100 134 163 217 257
</TABLE>
PROPOSAL NUMBER 2
AMENDMENTS TO THE 1994 LONG TERM INCENTIVE PERFORMANCE PLAN
INTRODUCTION
The Board is seeking beneficiary approval of certain amendments to the 1994
Plan. On March 11, 1999, the Board approved the proposed amendments to the 1994
Plan (which is referred to herein, in its amended and restated form, as the
"1999 Plan"), which are described below, subject to approval by the Trust's
beneficiaries. The purposes of the amendments are to (i) allow for certain
grants that were made in November 1998, (ii) limit awards generally only to
those employees who can materially impact the value of the entire Trust, (iii)
limit the type of awards which may be granted to such employees to stock
27
<PAGE> 30
options and stock appreciation rights, and (iv) increase the number of Shares
available for grant and which may be made in the future to such employees.
1994 LONG TERM INCENTIVE PERFORMANCE PLAN
The 1994 Plan provides for the grant of stock options, restricted stock,
stock appreciation rights, stock equivalent units, cash awards, and other stock
or performance-based incentives. These awards are payable in cash or Shares, or
any combination thereof, as established by the Current Compensation Committee.
Under the 1994 Plan, the maximum number of Shares that may be subject to
awards is 1,629,785, plus 9% of the number of Shares issued by the Trust (other
than Shares issued under the 1994 Plan) during the term of the 1994 Plan (the
"Current Plan Maximum"), and the maximum number of Shares that may be subject to
awards granted to any particular participant is 905,434, plus 5% of the number
of Shares issued by the Trust during the term of the 1994 Plan (other than
Shares issued under the 1994 Plan (the "Per Person Plan Maximum")). The maximum
number of Shares that may be subject to awards granted in any given fiscal year
is 3% of the number of Shares outstanding at the beginning of that year (the
"Per Year Plan Maximum"), and the maximum number of Shares that may be subject
to awards granted to any particular Participant in any given year is 1.67% of
the number of Shares outstanding at the beginning of that year (the "Per Year
Person Maximum"). The maximum number of Shares that may be issued upon exercise
of incentive stock options is 1,629,785.
1999 AMENDED AND RESTATED LONG TERM INCENTIVE PERFORMANCE PLAN
The 1999 Plan is an amendment and restatement of the 1994 Plan. On March
11, 1999, the Board approved the 1999 Plan, subject to approval by the Trust's
beneficiaries. Set forth below is a description of the material features of the
1999 Plan. The 1999 Plan is attached as Exhibit A to this Proxy Statement and
reference is made to Exhibit A for a complete statement of its terms and
provisions.
The 1999 Plan is intended to encourage the Trust's managers to think and
act as owners and, as a result, to foster and promote the long term growth and
performance of the Trust and increase the market price of its Shares. The 1999
Plan is also intended to provide the Trust with flexibility to attract and
retain personnel. To achieve these purposes, the Plan gives authority to a
committee of non-employee Trustees (the "1999 Plan Committee") to grant stock
options and stock appreciation rights.
As discussed above in "Employment Agreements," the Board has approved
grants to Mr. Friedman, Ms. Zahner and Mr. Schonberger of options to purchase
1,080,000, 360,000 and 360,000 Shares, respectively, and approved options to
purchase additional Shares equal to 3%, 1% and 1%, respectively, of the Shares
issued by the Trust in connection with raising an additional $120 million of
equity. If the 1999 Plan is not approved by June 30, 1999, each of Mr. Friedman,
Ms. Zahner and Mr. Schonberger may terminate his or her employment for "good
reason" in accordance with his or her employment agreement. Shareholder approval
of the 1999 Plan, as discussed below, is required to approve the full amount of
the option grant made to Mr. Friedman in November 1998. See "Employment
Agreements" for further information.
The 1999 Plan Committee will have the authority to select the employees to
receive awards, determine the number and type of awards to be granted, determine
the terms, conditions, and restrictions applicable to the awards, determine how
the exercise price is to be paid, and establish rules governing the 1999 Plan.
Generally only employees of the Trust or any of its affiliates who have
28
<PAGE> 31
responsibilities that affect the performance of the entire Trust, and the market
price of its Shares, over the long term will be eligible to participate in the
1999 Plan. The number of employees currently eligible to participate in the 1999
Plan is approximately ten. The closing price of a Share on April 15, 1999 was
$4.0625.
The Current Plan Maximum is 2,833,876 Shares and there are 270,485 Shares
remaining under the 1994 Plan that may become subject to awards, after taking
into account the options to purchase 1,800,000 Shares in the aggregate granted
in November 1998 to Messrs. Friedman and Schonberger and Ms. Zahner. The Board,
under the 1999 Plan, increased the Current Plan Maximum by 1,357,037 Shares to
4,190,913 to enable the Trust to grant to Messrs. Friedman and Schonberger and
Ms. Zahner options to purchase in the aggregate 627,522 Shares in connection
with the Trust's contemplated rights offering and to grant to present and future
employees options to purchase up to an additional 1,000,000 Shares. Under the
1999 Plan, the Current Plan Maximum would be fixed at 4,190,913 Shares and would
not be increased (as would be the case under the 1994 Plan) as a result of new
Shares issued by the Trust during the term of the 1999 Plan. In addition, under
the 1999 Plan, the Per Person Plan Maximum and Per Year Plan Maximum would be
eliminated and the Per Year Person Maximum would be increased to 1,080,000
Shares, the number of Shares subject to options granted to Mr. Friedman in 1998.
Unlike the 1994 Plan, which provides for the grant of stock options,
restricted stock, stock appreciation rights, stock equivalent units, cash
awards, and other stock or performance-based incentives, the 1999 Plan will only
provide for grants of stock options and stock appreciation rights. The stock
appreciation rights will give an employee the right to receive a payment equal
in value to all or a portion of the appreciation of a fixed number of Shares
over a specified period of time. The period of time over which the appreciation
is measured is within the discretion of the 1999 Plan Committee.
The 1999 Plan Committee may permit participants to pay the exercise price
of a stock option (other than an Incentive Stock Option) in cash, by the
transfer of Shares, by the surrender of all or part of an award (including the
award being exercised), or by a combination of these methods, as and to the
extent permitted by the 1999 Plan Committee. The 1999 Plan Committee may permit
participants to pay the exercise price of an Incentive Stock Option in cash, by
the transfer of Shares, or by a combination of these methods, but not by the
surrender of an award. The 1999 Plan Committee may prescribe any other method of
paying the exercise price that it determines to be consistent with applicable
law and the purpose of the 1999 Plan.
Prior to the payment of an award, the Trust may withhold, or require a
participant to remit to the Trust, an amount sufficient to pay any federal,
state, and local taxes associated with the award. The 1999 Plan Committee may
permit participants to pay the taxes associated with an award (other than an
Incentive Stock Option) in cash, by the transfer of Shares, by the surrender of
all or part of an award (including the award being exercised), or by a
combination of these methods. The 1999 Plan Committee may permit a participant
to pay the taxes associated with an Incentive Stock Option in cash, by the
transfer of Shares, or by a combination of these methods, but not by the
surrender of an Award.
The Board of Trustees may amend or suspend the 1999 Plan at any time.
Shareholder approval for any such amendment will be required only to the extent
necessary to preserve (i) the exemption for awards provided by Rule 16b-3 under
the Securities Exchange Act of 1934 and (ii) the deductibility of compensation
associated with the award for federal income tax purposes under Section 162(m)
of the Code. The 1999 Plan will become effective on the date it is adopted by
the Trust, subject to approval by
29
<PAGE> 32
the Trust's shareholders, and will remain in effect until December 31, 2009. The
1999 Plan Committee may waive any restrictions or conditions applicable to, or
accelerate the vesting of, any Award.
The 1999 Plan Committee shall, in its sole discretion, determine in the
event of a change in control (as described below) of the Trust whether all Stock
Appreciation Rights and Stock Options then outstanding will become fully
exercisable as of the date of the change in control. A "change in control" for
purposes of the 1999 Plan is the same as a change in control for purposes of the
employment agreements between the Trust and each of Mr. Friedman, Mr.
Schonberger and Ms. Zahner. See "Employment Agreements" for further information
on what constitutes a "change in control" for purposes of the 1999 Plan.
The benefits or amounts that will be received by certain named executive
officers, executive officers as a group, and non-executive officers as a group,
as a result of the amendments, are not presently determinable because the
recipients of awards under the 1999 Plan will be determined by the 1999 Plan
Committee; provided, however, that shareholder approval of the 1999 Plan is
required in order for Mr. Friedman to receive the full amount of the option
grants made to him in November 1998.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to awards under the 1999 Plan. This summary is not intended to be exhaustive
and, among other things, does not describe state, local or foreign income and
other tax consequences. A participant in the 1999 Plan will not recognize any
taxable income upon the grant of a stock option or stock appreciation right and
First Union will not be entitled to a tax deduction with respect to such grant.
Upon exercise of a stock option, the excess of the fair market value of the
Shares purchased on the exercise date over the purchase price paid for such
Shares will be taxable as compensation income to the participant. Upon exercise
of a share appreciation right, the amount of cash or fair market value of the
Shares paid to the participant will be taxable as compensation income. Subject
to the option or share appreciation right holder including such excess amount or
payment, as applicable, in income, or First Union satisfying applicable income
tax reporting requirements, First Union should, subject to Section 162 of the
Code, be entitled to a tax deduction in the amount of such compensation income.
The participant's tax basis in the Shares received pursuant to the exercise of a
stock option or stock appreciation right will equal the sum of the compensation
income recognized upon exercise and, in the case of options, the purchase price
paid for the Shares. In the event of a sale of the Shares received upon the
exercise of a stock option or stock appreciation right, any appreciation or
depreciation after the exercise date generally will be taxed as capital gain or
loss, provided that any gain will be subject to reduced rates of tax if the
Shares were held for more than 12 months after exercise.
The Board of Trustees Recommends a vote FOR the proposal to amend the 1994
Long Term Incentive Performance Plan.
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PROPOSAL NUMBER 3
1999 SHARE OPTION PLAN FOR TRUSTEES
INTRODUCTION
The Board is seeking beneficiary approval of the Trustees Share Option
Plan. The material features of the Trustees Share Option Plan are described
below, but the following description is subject to, and qualified in its
entirety by, the full text of the Trustees Share Option Plan, which is attached
as Exhibit B. The Board approved, in principle, the Trustees Share Option Plan
on February 9, 1999 and, on March 11, 1999, the Board approved the form of the
Trustees Share Option Plan, subject to approval by First Union's beneficiaries.
DESCRIPTION OF 1999 SHARE OPTION PLAN FOR TRUSTEES
PURPOSE
The Board adopted the Trustees Share Option Plan to provide compensation in
the form of Shares and options to acquire Shares ("Options") to the members of
the Board who are not employees of First Union and who are not affiliated with
Apollo or Gotham LP (each an "Outside Trustee" and collectively the "Outside
Trustees"). Currently, there are eight Outside Trustees. The purpose of the
Trustees Share Option Plan is to encourage certain Trustees to think and act as
owners by aligning the financial interests of those individuals with those of
the beneficiaries of the Trust and to enhance the Trust's ability to attract and
retain well qualified individuals to serve as Trustees.
ADMINISTRATION
The Trustees Share Option Plan is to be administered by the Board. The
Board has the authority to interpret the Trustees Share Option Plan and may, at
any time, adopt such rules and regulations for the Trustees Share Option Plan as
it deems advisable.
SHARES AVAILABLE FOR ISSUANCE
The total number of Shares which may be issued under the Trustees Share
Option Plan is 500,000. As of March 11, 1999, the Shares had an aggregate market
value of $2,031,250 (based on the closing price of the Shares on the New York
Stock Exchange on that date). In the event of a "change in capitalization," the
Board may adjust the maximum number and class of securities which may be granted
under the Trustees Share Option Plan in the aggregate, and the number, class and
purchase price of securities covered by outstanding Options.
INITIAL SHARE AWARD
Each Outside Trustee serving on the Board on the day following the Annual
Meeting will be granted a number of Shares on that date equal to the lesser of
(i) 2,500 Shares and (ii) a number of Shares having a fair market value
(determined as of the close of business on the day of the Annual Meeting) equal
to $12,500 (the "Share Award"). Each Share Award will become vested and
non-forfeitable on the day immediately prior to the date of First Union's annual
meeting in the year 2000 if the Outside Trustee to whom the Share Award was
granted is then still a member of the Board. Notwithstanding the foregoing, an
Outside Trustee's Share Award will immediately become vested and non-forfeitable
in the event that the Trustee's Board membership is terminated because of his
death or "disability" or upon a "change in
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control." See "Employment Agreements" for further information on what
constitutes a "change in control." The Trustees Share Option Plan does not
provide for any grants of Share Awards other than the grants of Share Awards
that shall occur on the day following the Annual Meeting.
ANNUAL OPTION GRANT
On the first business day following each annual meeting of First Union,
commencing with the annual meeting occurring in the year 2000, each Eligible
Outside Trustee (as defined below) will be granted an Option to purchase a
number of Shares equal to four times the number of Shares that the Eligible
Outside Trustee purchased during the period of time between that annual meeting
and the immediately preceding annual meeting. Notwithstanding the foregoing, for
purposes of determining the number of Shares subject to the Option, purchases of
Shares during the period of time between that annual meeting and the immediately
preceding annual meeting in excess of $25,000 will not be taken into account.
For purposes of the Trustees Share Option Plan, an "Eligible Outside Trustee" is
an Outside Trustee who (i) on the date of the grant of an Option was not elected
to membership on the Board of Trustees for the first time at the then most
recent annual meeting of Beneficiaries of First Union and (ii) has satisfied the
Minimum Purchase Requirement (as defined below). Options granted under the
Trustees Share Option Plan will be nonqualified stock options.
For each period of time between annual meetings of beneficiaries that an
individual serves as an Outside Trustee, such individual is required to purchase
on the open market and become the beneficial owner of Shares having an aggregate
purchase price of not less than $5,000 (the "Minimum Purchase Requirement").
Notwithstanding the foregoing, an Outside Trustee will be deemed to have
satisfied the Minimum Purchase Requirement for any such period if the average
purchase price per period of the Outside Trustee's Share purchases for all
periods during which the individual has served as an Outside Trustee is not less
than $5,000. All purchases of Shares by Outside Trustees will be in accordance
with First Union's policies regarding the purchase and sale of securities by
insiders.
OPTION PRICE
The purchase price per Share (the "Initial A Share Purchase Price") for 50%
of the Shares (the "A Shares") covered by an Option will initially be the
greater of (i) the fair market value of a Share on the date of grant of the
Option and (ii) an amount (not less than zero) equal to (A) $6.50, which amount
will, for Options granted after May 2, 2000, be increased at an annual rate of
10% for the period between May 2, 2000 and the date of grant of the Option minus
(B) all dividends and other distributions declared per Share for the period
between November 2, 1998 and the date of grant of the Option.
The purchase price per Share (the "Initial B Share Purchase Price") for the
other 50% of the Shares (the "B Shares") covered by an Option will initially be
the greater of (i) the fair market value of a Share on the date of grant of the
Option and (ii) an amount (not less than zero) equal to (A) $8.50, which amount
will, for Options granted after May 2, 2000, be increased at an annual rate of
10% for the period between May 2, 2000 and the date of grant of the Option minus
(B) all dividends and other distributions declared per Share for the period
between November 2, 1998 and the date of grant of the Option.
On each November 2 following the date of grant of an Option commencing
November 2, 2000, the purchase price per Share for all A Shares then covered by
the Option will be adjusted to an amount (not less than zero) equal to (i) the
Initial A Share Purchase Price, as adjusted from time to time in accordance
herewith, increased at an annual rate of 10% for the period between the date of
the most
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recent prior such adjustment (or if there shall then have been no prior such
adjustment, the date of grant of the Option) and the date of the adjustment
minus (ii) all dividends and other distributions declared per Share for the
period between the date of the most recent prior such adjustment (or if there
shall then have been no prior such adjustment, the date of grant of the Option)
and the date of the adjustment.
On each November 2 following the date of grant of an Option commencing
November 2, 2000, the purchase price per Share for all B Shares then covered by
the Option will be adjusted to an amount (not less than zero) equal to (i) the
Initial B Share Purchase Price, as adjusted from time to time in accordance
herewith, increased at an annual rate of 10% for the period between the date of
the most recent prior such adjustment (or if there shall then have been no prior
such adjustment, the date of grant of the Option) and the date of the adjustment
minus (ii) all dividends and other distributions declared per Share for the
period between the date of the most recent prior such adjustment (or if there
shall then have been no prior such adjustment, the date of grant of the Option)
and the date of the adjustment.
In the event that all or any portion of an Option is exercised on any day
other than November 2, the purchase price for each Share covered by the Option
then being purchased will be appropriately adjusted consistent with the manner
set forth above.
Payment of the purchase price for Shares covered by the Option may be made,
at the discretion of the Board, (i) in cash, (ii) by transferring Shares to
First Union or (iii) by a combination of the foregoing. In addition, Options may
be exercised through a registered broker-dealer pursuant to the cashless
exercise procedures as are, from time to time, deemed acceptable by the Board.
VESTING
Each Option will become 100% vested and exercisable on the day immediately
preceding the annual meeting next occurring after the date of grant, but only if
the applicable Option holder is then a member of the Board. Notwithstanding the
foregoing, an Option will immediately become 100% vested and exercisable in the
event that the Option holder's membership on the Board is terminated as a result
of the Option holder's death or disability or upon a change in control of First
Union. In addition, the Board reserves the authority to accelerate the exercise
date of any Option at any time.
TERM
Each Option shall have a term of five years following the date of grant.
Notwithstanding the foregoing, in the event that an Option holder's membership
on the Board is terminated (i) for any reason other than cause or the Option
holder's death, all Options then held by the Option holder will terminate on the
90th day following the date of termination, (ii) as a result of the Option
holder's death, all Options then held by the Option holder shall terminate on
the 12-month anniversary of the Option holder's death or (iii) for cause, all
Options then held by the Option holder will immediately be forfeited.
Notwithstanding the foregoing, in the event that an Option holder dies within 90
days of a termination of the Option holder's membership on the Board for any
reason other than cause, all Options then held by the Option holder shall
terminate on the 12-month anniversary of the Option holder's death.
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TRANSFERABILITY
Options are not transferable except by will or the laws of descent and
distribution or pursuant to a domestic relations order. Notwithstanding the
foregoing, the Board may provide, at the time of grant of an Option or at any
time thereafter, that the Option may be transferred to members of the Option
holder's immediate family, to trusts solely for the benefit of immediate family
members and to partnerships in which immediate family members and/or trusts are
the only partners.
AMENDMENT AND TERMINATION
The Trustees Share Option Plan will terminate on the day preceding the
tenth anniversary of the date of its adoption by the Board.
The Board may at any time and from time to time suspend, amend, modify or
terminate the Trustees Share Option Plan; provided, however, that, to the extent
necessary under any applicable law, regulation or exchange requirement, no
change will be effective without the approval of First Union's beneficiaries. In
addition, no change may impair any rights or obligations under any Options or
Share Awards previously granted, except with the written consent of the
applicable Option or Share Award holder.
NEW PLAN BENEFITS
First Union cannot currently determine the number of Share Awards or the
number of Shares that may be covered by Options granted in the future to Outside
Trustees under the Trustees Share Option Plan because the number of Share Awards
is dependent upon the fair market value of a Share at a future date and the
number of Shares that may be covered by Options is dependent upon the number and
purchase price of Shares purchased on the open market by each Outside Trustee.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to Options awarded under the Trustees Share Option Plan. This summary is not
intended to be exhaustive and, among other things, does not describe state,
local or foreign income and other tax consequences. An Option holder will not
recognize any taxable income upon the grant of an Option and First Union will
not be entitled to a tax deduction as a result of the grant of the Option. Upon
exercise of an Option, the excess of the fair market value of the Shares
purchased on the exercise date over the purchase price paid for the Shares will
be taxable as compensation income to the Option holder. Subject to the Option
holder including the excess amount in income, or First Union satisfying
applicable income tax reporting requirements, First Union should, subject to
Section 162 of the Code, be entitled to a tax deduction in the amount of the
compensation income. The Option holder's tax basis in the Shares received upon
exercise of an Option will equal the sum of the compensation income recognized
upon exercise and the purchase price paid for the Shares. In the event of a sale
of the Shares received upon the exercise of an Option, any appreciation or
depreciation after the exercise date generally will be taxed as capital gain or
loss, provided that any gain will be subject to reduced rates of tax if the
Shares were held for more than 12 months after exercise.
The Board of Trustees recommends a vote FOR the proposal to adopt the 1999
Share Option Plan for Trustees.
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SELECTION OF AUDITORS
First Union has not yet selected its independent public accountants for its
fiscal year ending December 31, 1999. This selection will be made later in the
year by First Union's Board of Trustees, based upon the recommendations of the
Audit Committee. Arthur Andersen LLP has been First Union's auditors since the
founding of the Trust in 1961. A representative of Arthur Andersen LLP is
expected to be present at the Annual Meeting and will have the opportunity to
make a statement if he so desires and to respond to appropriate beneficiary
questions.
COST OF PROXIES AND SOLICITATIONS
First Union will bear the cost of preparing and mailing this Proxy
Statement, the accompanying proxy and any other related materials. First Union
has engaged Corporate Investor Communications, Inc. ("CIC") to assist in the
search for beneficiaries and distribution of proxies, at a fee of $1,100 plus
reimbursement of its out-of-pocket expenses. First Union will also pay the
standard charges and expenses of brokerage houses, or other nominees or
fiduciaries, for forwarding such materials to, and obtaining the proxies from,
beneficiaries for whose account they hold registered title to Shares of First
Union. In addition to use of the mail, proxies may be solicited personally, by
telephone or otherwise, by Trustees, officers and regular employees of First
Union without receiving additional compensation, as well as by employees of CIC.
First Union will pay the expense of such solicitation.
FORM 10-K ANNUAL REPORT
A COPY OF THE TRUST'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998,
WILL BE FURNISHED WITHOUT CHARGE TO BENEFICIARIES UPON WRITTEN REQUEST DIRECTED
TO JEANNE GIBSON, DIRECTOR OF INVESTOR RELATIONS, FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS, 55 PUBLIC SQUARE, SUITE 1900, CLEVELAND, OHIO
44113-1937.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Trust's
trustees and executive officers, and persons who own beneficially more than 10%
of the Shares of the Trust, to file reports of ownership and changes of
ownership with the Securities and Exchange Commission and the New York Stock
Exchange. Copies of all filed reports are required to be furnished to the Trust
pursuant to Section 16(a). Based solely on the reports received by the Trust and
on written representations from reporting persons, the Trust believes that the
trustees, executive officers, and greater than 10% beneficial owners complied
with all applicable filing requirements during the fiscal year ended December
31, 1998.
BENEFICIARY PROPOSALS
Any beneficiary proposals intended to be presented at the 2000 Annual
Meeting of Beneficiaries must be received by First Union for inclusion in First
Union's proxy statement and form of proxy relating to that meeting on or before
November 13, 1999. In addition, under First Union's By-laws, beneficiaries must
comply with specified procedures to nominate trustees or introduce an item of
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business at the Annual Meeting. Nominations or an item of business to be
introduced at an annual meeting must be submitted in writing and received by
First Union generally not less than 120 days in advance of an annual meeting. To
be in proper written form, a shareholder's notice must contain the specific
information required by First Union's By-laws. A copy of First Union's By-laws
which describes the advance notice procedures can be obtained from the Secretary
of First Union. Any such proposals should be sent to the following address:
First Union Real Estate Equity and Mortgage Investments, Suite 1900, 55 Public
Square, Cleveland, Ohio 44113-1937, Attention: Daniel P. Friedman, President and
Chief Executive Officer.
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
WILLIAM A. ACKMAN
Chairman of the Board of Trustees
April 19, 1999
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EXHIBIT A
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
1999 AMENDED AND RESTATED LONG TERM INCENTIVE PERFORMANCE PLAN
1. PURPOSE
This Plan is an amendment and restatement of the Trust's 1994 Long Term
Incentive Performance Plan. This Plan is intended to encourage the Trust's
managers to think and act as owners and, as a result, to foster and promote the
long term growth and performance of the Trust and increase the market price of
its Shares. The Plan is also intended to provide the Trust with flexibility to
attract and retain personnel. To achieve these purposes, this Plan provides
authority to grant stock options and stock appreciation rights.
2. DEFINITIONS
(a) "Affiliate and Associate" -- These terms have the meanings given
to them in Rule 12b-2 under the Exchange Act.
(b) "Agreement" -- means the written agreement between the Trust and a
Participant evidencing the grant of an Award and setting forth the terms
and conditions thereof.
(c) "Award" -- A grant of Stock Options or Stock Appreciation Rights
under this Plan.
(d) "Board of Trustees" -- The Board of Trustees of the Trust.
(e) "Change in Control" -- A "Change in Control" shall mean:
(i) An acquisition (other than directly from the Trust) of any
voting securities of the Trust (treating all classes of outstanding
voting securities or other securities convertible into voting securities
as if they were converted into voting securities) (the "Voting
Securities") by any "person", "entity" or "group of affiliated persons"
(as such terms are used for purposes of Section 13(d) or 14(d)
(collectively, "Persons") of the Exchange Act (other than Gotham
Partners, L.P. ("Gotham"), Apollo Real Estate Advisors, L.P. ("Apollo")
or any affiliate of Gotham or Apollo or entity in which Gotham or Apollo
owns at least a 50% interest (collectively, the "Gotham/Apollo
Entities")) immediately after which such Person has "Beneficial
Ownership" (within the meaning of Rule 13d-3 promulgated under the
Exchange Act and irrespective of any vesting or waiting periods) of
thirty (30%) percent or more of the combined voting power of the Trust's
then outstanding Voting Securities; provided, however, that in
determining whether a Change in Control has occurred, Voting Securities
which are acquired in a "Non-Control Acquisition" (as hereinafter
defined) shall not constitute an acquisition which would cause a Change
in Control. A "Non-Control Acquisition" shall mean an acquisition by (1)
an employee benefit plan (or a trust forming a part thereof) maintained
by (x) the Trust or (y) any corporation or other Person of which a
majority of its voting power or its equity securities or equity interest
is owned directly or indirectly by the Trust (a "Subsidiary"), (2) the
Trust or any Subsidiary, or (3) any Person in connection with a
"Non-Control Transaction."
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(ii) Six (6) of the ten (10) individuals who were appointed to the
Board of Trustees after April 1, 1998 (the "Incumbent Board of
Trustees") cease for any reason to be members of the Board of Trustees;
provided, however, that if the election, or nomination for election by
the Trust's shareholders, of any new trustee was approved by the
Chairman of the Board, such new trustee shall, for purposes of this
Agreement, be considered as a member of the Incumbent Board of Trustees.
(iii) A merger, consolidation or reorganization involving the
Trust, unless
(1) the shareholders of the Trust, immediately before such merger,
consolidation or reorganization, own, directly or indirectly, immediately
following such merger, consolidation or reorganization, more than seventy
(70%) percent of the combined voting power of the outstanding Voting
Securities of the entity resulting from such merger or consolidation or
reorganization (the "Surviving Entity") in substantially the same
proportion as their ownership of the Voting Securities immediately before
such merger, consolidation or reorganization, and
(2) the individuals who were members of the Incumbent Board of
Trustees immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute at least two-thirds
of the members of the Board of Trustees of the Surviving Entity or an
entity beneficially owning, directly or indirectly, a majority of the
Voting Securities of the Surviving Entity, and
(3) no Person (other than the Trust, any Subsidiary, any employee
benefit plan (or any trust forming a part thereof) maintained by the Trust,
the Surviving Entity or any Subsidiary, or any Person who, immediately
prior to such merger, consolidation or reorganization had Beneficial
Ownership of 30% or more of the then outstanding Voting Securities) owns,
directly or indirectly, 30% or more of the combined voting power of the
Surviving Entity's then outstanding voting securities.
A transaction described in clauses (1) through (3) shall herein be referred
to as a "Non-Control Transaction".
(iv) A complete liquidation or dissolution of the Trust.
(v) The Trust makes aggregate cash or non-cash distributions to its
shareholders of the proceeds from the sales of assets equal to or
greater than $4.00 per Share and immediately following such distribution
the "Net Asset Value" of the Trust is less than $150 million. "Net Asset
Value" shall be the fair market value of all of the Trust's assets (as
determined by the Board of Trustees or the Committee) less all Trust
liabilities.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Trust which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Trust, and after such
share acquisition by the Trust, the Subject Person becomes the Beneficial Owner
of any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
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(f) "Code" -- The Internal Revenue Code of 1986, or any law that
supersedes or replaces it, as amended from time to time.
(g) "Committee" -- The Compensation Committee of the Board of
Trustees, or any other committee of the Board of Trustees that the Board of
Trustees authorizes to administer this Plan. The Committee will be
constituted in a manner that satisfies all applicable legal requirements,
including satisfying the disinterested administration standard set forth in
Rule 16b-3 under the Exchange Act and the outside director requirement
under Section 162(m) of the Code.
(h) "Exchange Act" -- Securities Exchange Act of 1934, and any law
that supersedes or replaces it, as amended from time to time.
(i) "Fair Market Value" of Shares -- on any date means the closing
sales prices of the Shares on such date on the principal national
securities exchange on which such Shares are listed or admitted to trading,
or, if such Shares are not so listed or admitted to trading, the average of
the per Share closing bid price and per Share closing asked price on such
date as quoted on the National Association of Securities Dealers Automated
Quotation System or such other market in which such prices are regularly
quoted, or, if there have been no published bid or asked quotations with
respect to Shares on such date, the Fair Market Value shall be the value
established by the Board in good faith and, in the case of an Incentive
Stock Option, in accordance with Section 422 of the Code.
(j) "Incentive Stock Option" -- A Stock Option that meets the
requirements of Section 422 of the Code, or any provision that supersedes
or replaces Section 422 of the Code, as amended from time to time.
(k) "Participant" -- Any person to whom an Award has been granted
under this Plan.
(l) "Pooling Transaction" -- means an acquisition which is intended to
be treated as a "pooling of interests" under generally accepted accounting
principles.
(m) "Rule 16b-3" -- Rule 16b-3 under the Exchange Act, or any rule
that supersedes or replaces it, as amended from time to time.
(n) "Securities Act" -- Securities Act of 1933, and any law that
supersedes or replaces it, as amended from time to time.
(o) "Shares" -- Shares of beneficial interest, $1.00 par value, of the
Trust or any equity security or securities of the Trust that are issued in
substitution or exchange therefor in a recapitalization of the Trust.
(p) "Stock Appreciation Right" -- This term has the meaning given to
it in Section 6(b)(i).
(q) "Stock Option" -- This term has the meaning given to it in Section
6(b)(ii).
(r) "Trust" -- First Union Real Estate Equity and Mortgage
Investments, an Ohio business trust.
3. ELIGIBILITY
Generally only employees of the Trust or any of its Affiliates who, in the
judgment of the Committee, have responsibilities that affect the performance of
the entire Trust, and the market price of its Shares, over the long term are
eligible for the grant of Awards.
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4. SHARES AVAILABLE UNDER PLAN; ADJUSTMENT
(a) Number of Shares. The number of Shares that may be subject to
Awards granted under this Plan is subject to the following limitations:
(i) The maximum number of Shares that may be subject to Awards
granted throughout the term of this Plan is 4,190,913.
(ii) The maximum number of Shares that may be subject to Awards
granted in any given fiscal year of the Trust to any particular
Participant is 1,080,000.
The assumption of awards granted by an organization acquired by the Trust
or any of its Affiliates, or the grant of Awards under this Plan in substitution
for any such awards, will not reduce the number of Shares available for the
grant of Awards under this Plan.
Shares subject to an Award that is forfeited, terminated, canceled, or
surrendered without having been exercised (other than (i) Shares subject to a
Stock Option that is canceled upon the exercise of a related Stock Appreciation
Right and (ii) Shares subject to an Award that is surrendered in payment of the
exercise price of a Stock Option) will again be available for grant under this
Plan, without reducing the number of Shares that may be subject to Awards,
except to the extent that the availability of those Shares would cause this Plan
or any Awards granted under this Plan to fail to qualify for the exemption
provided by Rule 16b-3.
(b) No Fractional Shares. No fractional Shares will be distributed
under this Plan; the Committee will determine the manner in which
fractional Shares will be treated.
(c) Adjustment. In the event of any change in the Shares by reason of
a merger, consolidation, reorganization, recapitalization, or similar
transaction, or in the event of a stock dividend, stock split, distribution
to shareholders (other than normal cash dividends), or rights offering or
similar sale of Shares for less than their Fair Market Value at the time of
sale, the Committee will adjust the number and class of Shares or other
securities that may be issued under this Plan, the number and class of
Shares or other securities subject to outstanding Awards, the exercise
price applicable to outstanding Awards, and any value determinations
applicable to outstanding Awards.
5. ADMINISTRATION
(a) Committee. This Plan will be administered by the Committee. The
Committee will, subject to the terms of this Plan, have the authority to
(i) select the eligible employees who will receive Awards, (ii) determine
the number and types of Awards to be granted, (iii) determine the term,
conditions, vesting periods, and restrictions applicable to the Awards,
(iv) prescribe the forms of any notices, agreements, or other instruments
relating to the Awards, (v) grant the Awards, (vi) adopt, alter, and repeal
administrative rules and practices governing this Plan, (vii) interpret the
terms and provisions of this Plan and any Awards granted under this Plan,
and (viii) otherwise supervise the administration of this Plan. All
decisions by the Committee will be made with the approval of not less than
a majority of its members.
(b) Delegation. The Committee may delegate any of its authority to any
other person or persons that it deems appropriate, provided the delegation
does not (i) cause this Plan, or any Awards granted under this Plan, to
fail to qualify for the exemption provided by Rule 16b-3 under
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the Exchange Act or (ii) result in a reduction in the amount of
compensation associated with any Award that is deductible for Federal
income tax purposes under Section 162(m) of the Code.
(c) Decisions Final. All decisions by the Committee, and by any other
person or persons to whom the Committee has delegated authority, will be
final and binding on all persons.
6. AWARDS
(a) Grant of Awards. The Committee will determine the type or types of
Awards to be granted to each employee and the terms, conditions, vesting
periods, and restrictions applicable to each Award. More than one Award may
be granted to the same employee. Awards may be granted singly or in
combination or tandem with other Awards. The Trust may assume awards
granted by an organization acquired by the Trust or may grant Awards in
replacement of, or in substitution for, any such awards.
(b) Types of Awards. The following types of Awards are permitted under
this Plan:
(i) Stock Appreciation Right -- A right to receive a payment, in
cash or Shares, equal to the excess of (A) the Fair Market Value of a
specified number of Shares on the date the right is exercised over (B)
the Fair Market Value of the Shares on the date the right is granted,
all as determined by the Committee. The right may be conditioned upon
the occurrence of certain events, such as a Change in Control of the
Trust, or may be unconditional, as determined by the Committee.
(ii) Stock Option -- A right to purchase a specified number of
Shares, during a specified period, and at a specified exercise price,
all as determined by the Committee. A Stock Option may be an Incentive
Stock Option or a Stock Option that does not qualify as an Incentive
Stock Option. In addition to the terms, conditions, vesting periods, and
restrictions established by the Committee, Incentive Stock Options must
comply with the requirements of Section 422 of the Code.
7. PAYMENT OF EXERCISE PRICE
The exercise price of a Stock Option (other than an Incentive Stock Option)
may be paid in cash, by the transfer of Shares, by the surrender of all or part
of an Award (including the Award being exercised), or by a combination of these
methods, as and to the extent permitted by the Committee. The exercise price of
an Incentive Stock Option may be paid in cash, by the transfer of Shares, or by
a combination of these methods, as and to the extent permitted by the Committee
at the time of grant, but may not be paid by the surrender of all or part of an
Award. The Committee may prescribe any other method of paying the exercise price
that it determines to be consistent with applicable law and the purpose of this
Plan.
8. TAXES ASSOCIATED WITH AWARD
Prior to the exercise or payment of an Award, the Trust may withhold, or
require a Participant to remit to the Trust, an amount sufficient to pay any
Federal, state, and local taxes associated with the Award. The Committee may, in
its discretion and subject to such rules as the Committee may adopt, permit a
Participant to pay any or all taxes associated with the Award (other than an
Incentive Stock Option) in cash, by the transfer of Shares, by the surrender of
all or part of an Award (including the
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Award being exercised), or by a combination of these methods. The Committee may
permit a Participant to pay any or all taxes associated with an Incentive Stock
Option in cash, by the transfer of Shares, or by a combination of these methods,
but not by the surrender of all or part of an Award.
9. TERMINATION OF EMPLOYMENT
If the employment of a Participant terminates for any reason, all
unexercised, deferred, and unpaid Awards may be exercisable or paid as set forth
in an Agreement or as subsequently determined by the Committee.
10. TERMINATION OF AWARDS UNDER CERTAIN CONDITIONS
The Committee may cancel any unexpired or unpaid Award at any time if the
Participant is not in compliance with all applicable provisions of this Plan or
with the terms or conditions of the Award or if the Participant, without the
prior written consent of the Trust, engages in any of the following activities:
(i) Renders services for an organization, or engages in a business,
that is, in the judgment of the Committee, in competition with the
Trust.
(ii) Discloses to anyone outside of the Trust, or uses for any
purpose other than the Trust's business, any confidential information or
material relating to the Trust, whether acquired by the Participant
during or after employment with the Trust.
The Committee may, in its discretion and as a condition to the exercise of
an Award, require a Participant to acknowledge in writing that he or she is in
compliance with all applicable provisions of this Plan and with the terms and
conditions of the Award and has not engaged in any activities referred to in
clauses (i) and (ii) above.
11. CHANGE IN CONTROL
The Committee shall, in its sole discretion, determine in the event of a
Change in Control of the Trust whether Stock Appreciation Rights and Stock
Options then outstanding will become fully exercisable as of the date of the
Change in Control.
12. AMENDMENT OR SUSPENSION OF THIS PLAN; AMENDMENT OF OUTSTANDING AWARDS
(a) Amendment or Suspension of this Plan. The Board of Trustees may
amend or suspend this Plan at any time. Shareholder approval for any such
amendment will be required only to the extent necessary to preserve (i) the
exemption provided by Rule 16b-3 under the Exchange Act for this Plan and
Awards granted under this Plan and (ii) the deductibility of compensation
associated with any Award for Federal income tax purposes under Section
162(m) of the Code.
(b) Amendment of Outstanding Awards. The Committee may, in its
discretion, amend the terms of any Award, prospectively or retroactively,
but no such amendment may impair the rights of any Participant without his
or her consent. The Committee may, in whole or in part, waive any
restrictions or conditions applicable to, or accelerate the vesting of, any
Award. The Committee may accelerate the vesting of any Awards.
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13. NONASSIGNABILITY
Unless otherwise determined by the Committee, (i) no Award granted under
this Plan may be transferred or assigned by the Participant to whom it is
granted other than by will, pursuant to the laws of descent and distribution, or
pursuant to a qualified domestic relations order and (ii) an Award granted under
this Plan may be exercised, during the Participant's lifetime, only by the
Participant or by the Participant's guardian or legal representative.
14. GOVERNING LAW
The interpretation, validity, and enforcement of this Plan will, to the
extent not otherwise governed by the Code or the securities laws of the United
States, be governed by the laws of the State of Ohio.
15. RIGHTS OF EMPLOYEES
Nothing in this Plan will confer upon any Participant the right to
continued employment by the Trust or limit in any way the Trust's right to
terminate any Participant's employment at will.
16. EFFECTIVE AND TERMINATION DATES
(a) Effective Date. The Plan will become effective on the date it is
adopted by the Board of Trustees subject to approval by holders of a
majority of the Shares present in person or by proxy and voting on the Plan
within twelve months of the date of such adoption.
(b) Termination Date. This Plan will continue in effect until December
31, 2009.
17. INTERPRETATION
(a) The Plan is intended to comply with Rule 16b-3 promulgated under
the Exchange Act and the Committee shall interpret and administer the
provisions of the Plan or any Agreement in a manner consistent therewith.
Any provisions inconsistent with such Rule shall be inoperative and shall
not affect the validity of the Plan.
(b) Unless otherwise expressly stated in the relevant Agreement, each
Stock Option and Stock Appreciation Right granted under the Plan is
intended to be performance-based compensation within the meaning of Section
162(m)(4)(C) of the Code. The Committee shall not be entitled to exercise
any discretion otherwise authorized hereunder with respect to Awards if the
ability to exercise such discretion or the exercise of such discretion
itself would cause the compensation attributable to Awards to fail to
qualify as performance-based compensation.
18. POOLING TRANSACTIONS
Notwithstanding anything contained in the Plan or any Agreement to the
contrary, in the event of a Change in Control which is also intended to
constitute a Pooling Transaction, the Committee shall take such actions, if any,
as are specifically recommended by an independent accounting firm retained by
the Trust to the extent reasonably necessary in order to assure that the Pooling
Transaction will qualify as such, including but not limited to (i) deferring the
vesting, exercise, payment, settlement or lapsing of restrictions with respect
to any Award, (ii) providing that the payment or settlement in respect of any
Award be made in the form of cash, Shares or securities of a successor or
acquirer of the Trust, or a combination of the foregoing, and (iii) providing
for the extension of the term of any Award to the
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extent necessary to accommodate the foregoing, but not beyond the maximum term
permitted for any Award.
19. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW
(a) The obligation of the Trust to sell or deliver Shares with respect
to Awards granted under the Plan shall be subject to all applicable laws,
rules and regulations, including all applicable federal and state
securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Committee.
(b) The Board of Trustees may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Participants granted Incentive Stock Options
the tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.
(c) Each Award is subject to the requirement that, if at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Award or the issuance
of Shares, no Awards shall be granted or payment made or Shares issued, in
whole or in part, unless listing, registration, qualification, consent or
approval has been effected or obtained free of any conditions as acceptable
to the Committee.
(d) Notwithstanding anything contained in the Plan or any Agreement to
the contrary, in the event that the disposition of Shares acquired pursuant
to the Plan is not covered by a then current registration statement under
the Securities Act, and is not otherwise exempt from such registration,
such Shares shall be restricted against transfer to the extent required by
the Securities Act and Rule 144 or other regulations thereunder. The
Committee may require any individual receiving Shares pursuant to an Award
granted under the Plan, as a condition precedent to receipt of such Shares,
to represent and warrant to the Trust in writing that the Shares acquired
by such individual are acquired without a view to any distribution thereof
and will not be sold or transferred other than pursuant to an effective
registration thereof under said Act or pursuant to an exemption applicable
under the Securities Act or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall be
appropriately amended to reflect their status as restricted securities as
aforesaid.
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EXHIBIT B
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
1999 SHARE OPTION PLAN FOR TRUSTEES
1. PURPOSE.
The purpose of this Plan is to encourage certain members ("Trustees") of
the Board of Trustees who are not employees of First Union Real Estate Equity
and Mortgage Investments (the "Trust") to think and act as owners by aligning
the financial interests of those individuals with those of the beneficiaries of
the Trust and to enhance the Trust's ability to attract and retain well
qualified individuals to serve as Trustees. To achieve these purposes, this Plan
provides for compensation to Trustees in the form or Shares and Options (as each
term is defined below).
2. DEFINITIONS.
For purposes of the Plan:
2.1 "Affiliate" and "Associate" have the meanings given in Rule 12b-2 under
the Exchange Act.
2.2 "Agreement" means the written agreement between the Trust and an
Optionee or Grantee evidencing the grant of an Option or Restricted Share Award
and setting forth the terms and conditions thereof.
2.3 "Apollo" means Apollo Real Estate Advisors, L.P., a real estate
investment firm located in New York City.
2.4 "Board" means the Board of Trustees of the Trust.
2.5 "Cause" means the commission of an act of fraud or intentional
misrepresentation or an act of embezzlement, misappropriation or conversion of
assets or opportunities of the Trust or any of its Subsidiaries.
2.6 "Change in Capitalization" means any increase or reduction in the
number of Shares, or any change (including, but not limited to, in the case of a
spin-off, dividend or other distribution in respect of Shares, a change in
value) in the Shares or exchange of Shares for a different number or kind of
shares or other securities of the Trust or another entity, by reason of a
reclassification, recapitalization, merger, consolidation, reorganization,
spin-off, split-up, issuance of warrants or rights or debentures, stock
dividend, stock split or reverse stock split, cash dividend, property dividend,
combination or exchange of Shares, repurchase of Shares, change in corporate
structure or otherwise.
2.7 A "Change in Control" means
(i) An acquisition (other than directly from the Trust) of any voting
securities of the Trust (treating all classes of outstanding voting
securities or other securities convertible into voting securities as if
they were converted into voting securities) (the "Voting Securities") by
any "person", "entity" or "group of affiliated persons" (as such terms are
used for purposes of Section 13(d) or 14(d) (collectively, "Persons") of
the Exchange Act (other than Gotham, Apollo or any affiliate of Gotham or
Apollo or entity in which Gotham or Apollo own at least a 50% interest
(collectively, the
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"Gotham/Apollo Entities")) immediately after which such Person has
"Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under
the Exchange Act and irrespective of any vesting or waiting periods) of 30%
or more of the combined voting power of the Trust's then outstanding Voting
Securities; provided, however, that in determining whether a Change in
Control has occurred, Voting Securities which are acquired in a
"Non-Control Acquisition" (as hereinafter defined) shall not constitute an
acquisition which would cause a Change in Control. A "Non-Control
Acquisition" shall mean an acquisition by (1) an employee benefit plan (or
a trust forming a part thereof) maintained by (x) the Trust or (y) any
corporation or other Person of which a majority of its voting power or its
equity securities or equity interest is owned directly or indirectly by the
Trust (a "Subsidiary"), (2) the Trust or any Subsidiary, or (3) any Person
in connection with a "Non-Control Transaction."
(ii) Six of the 10 individuals who were appointed to the Board of
Trustees after April 1, 1998 (the "Incumbent Board of Trustees") cease
for any reason to be members of the Board of Trustees; provided,
however, that if the election, or nomination for election by the Trust's
shareholders, of any new trustee was approved by the Chairman of the
Board, such new trustee shall, for purposes of this Agreement, be
considered as a member of the Incumbent Board of Trustees.
(iii) A merger, consolidation or reorganization involving the
Trust, unless
(1) the shareholders of the Trust, immediately before such merger,
consolidation or reorganization, own, directly or indirectly, immediately
following such merger, consolidation or reorganization, more than 70% of
the combined voting power of the outstanding Voting Securities of the
entity resulting from such merger or consolidation or reorganization (the
"Surviving Entity") in substantially the same proportion as their ownership
of the Voting Securities immediately before such merger, consolidation or
reorganization, and
(2) the individuals who were members of the Incumbent Board of
Trustees immediately prior to the execution of the agreement providing for
such merger, consolidation or reorganization constitute at least two-thirds
of the members of the Board of Trustees of the Surviving Entity or an
entity beneficially owning, directly or indirectly, a majority of the
Voting Securities of the Surviving Entity, and
(3) no Person (other than the Trust, any Subsidiary, any employee
benefit plan (or any trust forming a part thereof) maintained by the Trust,
the Surviving Entity or any Subsidiary, or any Person who, immediately
prior to such merger, consolidation or reorganization had Beneficial
Ownership of 30% or more of the then outstanding Voting Securities) owns,
directly or indirectly, 30% or more of the combined voting power of the
Surviving Entity's then outstanding voting securities.
A transaction described in clauses (1) through (3) shall herein be referred
to as a "Non-Control Transaction".
(iv) A complete liquidation or dissolution of the Trust.
(v) The Trust makes aggregate cash or non-cash distributions to its
shareholders of the proceeds from the sales of assets equal to or
greater than $4.00 per Share and immediately following such distribution
the "Net Asset Value" of the Trust is less than $150 million. "Net
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Asset Value" shall be the fair market value of all of the Trust's assets
(as determined by the Board) less all Trust liabilities.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur solely because any Person (the "Subject Person") acquired Beneficial
Ownership of more than the permitted amount of the outstanding Voting Securities
as a result of the acquisition of Voting Securities by the Trust which, by
reducing the number of Voting Securities outstanding, increases the proportional
number of shares Beneficially Owned by the Subject Person, provided that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Trust, and after such
share acquisition by the Trust, the Subject Person becomes the Beneficial Owner
of any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
2.8 "Code" means the Internal Revenue Code of 1986, as amended.
2.9 "Disability" means a physical or mental infirmity which impairs the
Optionee's or Grantee's ability to perform substantially his or her duties for a
period of one hundred eighty (180) consecutive days.
2.10 "Eligible Trustee" means any member of the Board who (i) is not an
employee of the Trust or any Subsidiary of the Trust or (ii) an employee,
officer, director, member, partner or principal of either Apollo or Gotham or
any of its or their Affiliates or Associates.
2.11 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.12 "Fair Market Value" of Shares on any date means the closing sales
prices of the Shares on such date on the principal national securities exchange
on which such Shares are listed or admitted to trading, or, if such Shares are
not so listed or admitted to trading, the average of the per Share closing bid
price and per Share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System or such other
market in which such prices are regularly quoted, or, if there have been no
published bid or asked quotations with respect to Shares on such date, the Fair
Market Value shall be the value established by the Board in good faith.
2.13 "Gotham" means Gotham Partners, L.P.
2.14 "Grantee" means a person to whom a Restricted Share has been granted
under the Plan.
2.15 "Minimum Purchase Requirement" shall have the meaning set forth in
Section 6.2 hereof.
2.16 "Option" means a right to purchase a specified number of Shares,
during a specified period and at a specified purchased price.
2.17 "Optionee" means a person to whom an Option has been granted under the
Plan.
2.18 "Plan" means the First Union Real Estate Equity and Mortgage
Investments 1999 Share Option Plan for Trustees, as amended and restated from
time to time.
2.19 "Pooling Transaction" means an acquisition of the Trust in a
transaction which is intended to be treated as a "pooling of interests" under
generally accepted accounting principles.
2.20 "Restricted Share" means a Share issued or transferred to an Eligible
Trustee pursuant to Section 5 hereof.
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2.21 "Shares" means Shares of beneficial interest, $1.00 par value, of the
Trust or any equity security or securities of the Trust that are issued in
substitution or in exchange therefor in a recapitalization of the Trust.
2.22 "Trust" means First Union Real Estate Equity and Mortgage Investments,
an Ohio business trust.
2.23 "1999 Annual Meeting" means the annual meeting of beneficiaries of the
Trust occurring in calendar year 1999.
2.24 "2000 Annual Meeting" means the annual meeting of beneficiaries of the
Trust occurring in calendar year 2000.
3. ADMINISTRATION.
3.1 The Plan shall be administered by the Board, which shall hold meetings
at such times as may be necessary for the proper administration of the Plan. The
Board shall keep minutes of its meetings. Any decision or determination reduced
to writing and signed by a majority of all of the members of the Board shall be
as fully effective as if made by a majority vote at a meeting duly called and
held.
3.2 No member of the Board shall be liable for any action, failure to act,
determination or interpretation made in good faith with respect to this Plan or
any transaction hereunder. The Trust hereby agrees to indemnify each member of
the Board for all costs and expenses and, to the extent permitted by applicable
law, any liability incurred in connection with defending against, responding to,
negotiating for the settlement of or otherwise dealing with any claim, cause of
action or dispute of any kind arising in connection with any actions in
administering this Plan or in authorizing or denying authorization to any
transaction hereunder.
3.3 Subject to the express terms and conditions set forth herein, the Board
shall have the power from time to time to:
(a) make any amendment or modification to any Agreement consistent
with the terms of this Plan;
(b) to construe and interpret this Plan and the Options and Restricted
Share Awards granted hereunder and to establish, amend and revoke rules and
regulations for the administration of this Plan, including, but not limited
to, correcting any defect or supplying any omission, or reconciling any
inconsistency in this Plan or in any Agreement, in the manner and to the
extent it shall deem necessary or advisable, including so that this Plan
complies with Rule 16b-3 under the Exchange Act and other applicable law,
and otherwise to make this Plan fully effective. All decisions and
determinations by the Board in the exercise of this power shall be final,
binding and conclusive upon the Trust and its Affiliates and Associates,
the Optionees and Grantees, and all other persons having any interest
herein;
(c) to determine the duration and purposes for leaves of absence which
may be granted to an Optionee or Grantee on an individual basis without
constituting a termination of service for purposes of the Plan;
(d) to exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan; and
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(e) generally, to exercise such powers and to perform such acts as are
deemed necessary or advisable to promote the best interests of the Trust
with respect to the Plan.
4. STOCK SUBJECT TO THE PLAN.
4.1 The maximum number of Shares that may be made the subject of Options
and Restricted Share Awards granted under the Plan is 500,000. Upon a Change in
Capitalization, the maximum number of Shares that may be made the subject of
Options and Restricted Share Awards granted under the Plan shall be adjusted in
number and kind pursuant to Section 7 hereof. The Trust shall reserve for the
purposes of the Plan, out of its authorized but unissued Shares or out of Shares
held in the Trust's treasury, or partly out of each, such number of Shares as
shall be determined by the Board.
4.2 In connection with the granting of an Option or a Restricted Share
Award, the maximum number of Shares available under Section 4.1 hereof shall be
reduced by the number of Shares in respect of which the Option or a Restricted
Share Award is granted or denominated; provided, however, that if any Option is
exercised by tendering Shares, either actually or by attestation, to the Trust
as full or partial payment of the purchase price, the maximum number of Shares
available under Section 4.1 hereof shall be increased by the number of Shares so
tendered.
4.3 Whenever any outstanding Option or Restricted Share Award or any
portion thereof expires, is canceled, or is otherwise terminated for any reason
without having been exercised or payment having been made in respect of the
entire Option or Restricted Share Award, the Shares allocable to the expired,
canceled, or otherwise terminated portion of the Option or Restricted Share
Award may again be the subject of Options or Restricted Shares granted
hereunder.
5. RESTRICTED SHARE AWARDS.
5.1 Grant. On the first business day following the date of the 1999 Annual
Meeting, each Eligible Trustee shall be granted a Restricted Share Award in
respect of a number of Shares equal to the lesser of (a) two thousand five
hundred (2,500) Shares and (b) a number of Shares having a Fair Market Value
determined as of the date of the 1999 Annual Meeting equal to twelve thousand
five hundred dollars ($12,500).
Restricted Share Awards shall be evidenced by an Agreement containing such
terms and conditions not inconsistent with the provisions of this Plan as shall
be determined by the Board, including without limitation the requirement that an
appropriate legend be placed on Share certificates; provided, however, that no
such terms or conditions shall vary the number of Shares subject to Restricted
Share Awards, the timing of Restricted Share Awards or the vesting, forfeiture
or termination provisions applicable to Restricted Share Awards.
5.2 Rights of Grantee. Shares subject to a Restricted Share Award shall be
issued in the name of the Grantee as soon as reasonably practicable after the
Restricted Share Award is granted, but only if the Grantee shall have executed
an Agreement evidencing the Restricted Share Award, the appropriate blank stock
powers and, in the discretion of the Board, an escrow agreement and any other
documents which the Board may require as a condition to the issuance of such
Shares. If a Grantee shall fail to execute the Agreement evidencing a Restricted
Share Award, or any documents which the Board may require within the time period
prescribed by the Board at the time the Restricted Share Award is granted, the
Restricted Share Award shall be null and void. At the discretion of the Board,
Shares issued in connection with a Restricted Share Award shall be deposited
together with the stock powers with an
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escrow agent (which may be the Trust) designated by the Board. Unless the Board
determines otherwise and as set forth in the Agreement, upon delivery of the
Restricted Shares to the escrow agent, the Grantee shall have all of the rights
of a stockholder with respect to such Shares, including the right to vote such
Shares and to receive all dividends or other distributions paid or made with
respect to such Shares.
5.3 Non-transferability. Until all restrictions upon the Shares subject to
a Restricted Share Award shall have lapsed in the manner set forth in Section
5.4 hereof, such Shares shall not be sold, transferred or otherwise disposed of
and shall not be pledged or otherwise hypothecated.
5.4 Lapse of Restrictions.
(a) Generally. All restrictions upon Shares subject to a Restricted
Share Award shall lapse and the Grantee shall become fully (100%) vested in
such Shares on the day immediately preceding the date of the 2000 Annual
Meeting, but only if the Grantee to whom such Restricted Share Award shall
have been granted shall then be a member of the Board; provided, however,
that all restrictions upon Shares subject to a Restricted Share Award shall
immediately lapse and the Grantee shall become fully (100%) vested in such
Shares upon a termination of such Grantee's membership on the Board as a
result of such Grantee's death or Disability.
(b) Effect of a Change in Control. All restrictions upon Shares
subject to a Restricted Share Award shall lapse and the Grantee shall
become fully (100%) vested in such Shares upon a Change in Control.
5.5 Treatment of Dividends. At the time a Restricted Share Award is
granted, the Board may, in its discretion, determine that the payment to the
Grantee of dividends, or a specified portion thereof, declared or paid on such
Shares by the Trust shall be (a) deferred until the lapsing of the restrictions
imposed upon such Shares and (b) held by the Trust for the account of the
Grantee until such time. In the event that dividends are to be deferred, the
Board shall determine whether such dividends are to be reinvested in Shares
(which shall be held as additional Restricted Shares) or held in cash. If
deferred dividends are to be held in cash, there may be credited at the time of
lapsing of restrictions upon Shares in respect of which such dividends shall
have been paid interest on the amount of dividends at a rate per annum as the
Board, in its discretion, may determine. Payment of deferred dividends in
respect of Restricted Shares (whether held in cash or as additional Restricted
Shares), together with interest accrued thereon, if any, shall be made upon the
lapsing of restrictions imposed on the Shares in respect of which the deferred
dividends were paid, and any dividends deferred (together with any interest
accrued thereon) in respect of any Restricted Shares shall be forfeited upon the
forfeiture of such Shares.
5.6 Delivery of Shares. Upon the lapse of the restrictions on Restricted
Shares, the Board shall cause a Share certificate to be delivered to the Grantee
with respect to such Shares, free of all restrictions hereunder.
6. OPTION GRANTS.
6.1 Grant. On the first business day following each annual meeting of
beneficiaries of the Trust commencing with the 2000 Annual Meeting, each
Eligible Trustee who shall (a) not have been elected to membership on the Board
at the then most recent annual meeting of beneficiaries of the Trust and (b)
have satisfied the Minimum Purchase Requirement (as defined below) shall be
granted an Option to
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purchase a number of Shares equal to four times the number of Shares that such
Eligible Trustee shall have purchased during the most recent prior completed
Service Year (as defined below); provided, however, that for purposes of
determining the number of Shares subject to such Option, purchases of Shares
during such Service Year with a cost to such Eligible Trustee in excess of
$25,000 shall not be taken into account.
All Options shall be evidenced by an Agreement containing such terms and
conditions not inconsistent with the provisions of this Plan as determined by
the Board; provided, however, that such terms shall not vary the price, amount
or timing of Options provided under this Section 6, including provisions dealing
with vesting, forfeiture and termination of such Options.
6.2 Minimum Purchase Requirement. For each full period of time (each such
period of time a "Service Year") between annual meetings of beneficiaries of the
Trust that an individual shall serve as an Eligible Trustee, such individual
shall be required to purchase on the open market Shares having an aggregate
purchase price of not less than $5,000 (the "Minimum Purchase Requirement");
provided, however, that an Eligible Trustee shall be deemed to have satisfied
the Minimum Purchase Requirement for any Service Year if the average aggregate
purchase price per Service Year of such Eligible Trustee's Share purchases for
all Service Years is not less than $5,000.
6.3 Purchase Price. At any time and from time to time, the purchase price
for Shares subject to an Option shall be determined as follows:
(a) On the date of grant of an Option, the purchase price for Shares
subject to such Option shall be determined as follows:
(i) the purchase price per Share (the "Initial A Share Purchase
Price") with respect to fifty percent (50%) of the Shares (the "A
Shares") subject to such Option shall be equal to the greater of (A) the
Fair Market Value of a Share on the date of grant of such Option and (B)
an amount (not less than zero) equal to the difference between (1)
$6.50, which amount shall, for all Options granted after May 2, 2000, be
increased at a rate of 10% per annum for the period which shall commence
on May 2, 2000 and shall terminate on the date of grant of each such
Option and (2) the amount of all dividends or other distributions
(including the value of non-cash dividends, including without
limitation, share dividends and spin-off distributions) declared per
Share during the period that shall commence on November 2, 1998 and
shall terminate on the date of grant of such Option; and
(ii) the purchase price per Share (the "Initial B Share Purchase
Price") with respect to the other fifty percent (50%) of the Shares (the
"B Shares") subject to such Option shall be equal to the greater of (A)
the Fair Market Value of a Share on the date of grant of such Option and
(B) an amount (not less than zero) equal to the difference between (1)
$8.50, which amount shall, for all Options granted after May 2, 2000, be
increased at a rate of 10% per annum for the period which shall commence
on May 2, 2000 and shall terminate on the date of grant of each such
Option and (2) the amount of all dividends or other distributions
(including the value of non-cash dividends, including without
limitation, share dividends and spin-off distributions) declared per
Share during the period that shall commence on November 2, 1998 and
shall terminate on the date of grant of such Option.
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(b) On each November 2 following the date of grant of an Option
commencing with November 2, 2000:
(i) the purchase price per Share for all A Shares then subject to
such Option shall be adjusted to an amount (not less than zero) equal to
the difference between (A) the Initial A Share Purchase Price of such
Option, as the same shall from time to time be adjusted in accordance
with the provisions of this Section 6.3(b)(i), increased at a rate of
ten percent (10%) per annum for the period that shall commence on the
date of the most recent prior adjustment (or if there shall not have
been any such prior adjustment, the date of grant of such Option) and
shall terminate on the date of the current adjustment and (B) the amount
of all dividends or other distributions (including the value of non-cash
dividends, including without limitation, share dividends and spin-off
distributions) declared per Share during the period that shall commence
on the date of the most recent prior adjustment (or if there shall not
have been any such prior adjustment, the date of grant of such Option)
and shall terminate on the date of the current adjustment; and
(ii) the purchase price per Share for all B Shares then subject to
such Option shall be adjusted to an amount (not less than zero) equal to
the difference between (A) the Initial B Share Purchase Price of such
Option, as the same shall from time to time be adjusted in accordance
with the provisions of this Section 6.3(b)(ii), increased at a rate of
10% per annum for the period that shall commence on the date of the most
recent prior adjustment (or if there shall not have been any such prior
adjustment, the date of grant of such Option) and shall terminate on the
date of the current adjustment and (B) the amount of all dividends or
other distributions (including the value of non-cash dividends,
including without limitation, share dividends and spin-off
distributions) declared per Share during the period that shall commence
on the date of the most recent prior adjustment (or if there shall not
have been any such prior adjustment, the date of grant of such Option)
and shall terminate on the date of the current adjustment.
(c) In the event that all or any portion of an Option shall be
exercised on any day other than November 2, the purchase per Share for all
Shares with respect to which such Option is then being exercised shall be
appropriately adjusted on a per diem basis in accordance with the
provisions of Section 6.3(a) or 6.3(b), as the case may be, to the extent
necessary to take into account the period of time elapsed from the date of
the most recent prior adjustment (or if there shall not have been any such
prior adjustment, the date of grant of such Option) through the date of
exercise.
6.4 Vesting. Subject to Sections 6.5 and 6.10 hereof, each Option shall
become fully (100%) vested and exercisable on the day immediately preceding the
date of the annual meeting of beneficiaries of the Trust next occurring after
the date of grant of such Option, but only if the Optionee to whom such Option
was granted shall then be a member of the Board; provided, however, that such
Option shall immediately become fully (100%) vested upon a termination of such
Optionee's membership on the Board as a result of such Optionee's death or
Disability.
6.5 Duration. Subject to Section 6.9 hereof, each Option shall terminate on
the date which is the fifth anniversary of the date of grant (or if later, the
first anniversary of the date of the Optionee's death if such death occurs prior
to such fifth anniversary), unless terminated earlier as follows:
(a) If an Optionee's membership on the Board terminates for any reason
other than death or the Optionee's removal from the Board for Cause, the
Optionee may for a period of 90 days after
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such termination exercise his or her Options to the extent, and only to the
extent, that each such Option or portion thereof was vested and exercisable
as of the date the Optionee's membership on the Board terminated, after
which time each such Option shall automatically terminate in full.
(b) If an Optionee's membership on the Board terminates due to the
Optionee's removal from the Board for Cause, all Options granted to the
Optionee hereunder shall immediately terminate in full and no rights
thereunder may be exercised.
(c) If an Optionee dies while a Trustee or within 90 days after
termination of his or her membership on the Board as described in clause
(a) of this Section 6.4, all Options granted to the Optionee may be
exercised at any time within 12 months after the Optionee's death by the
person or persons to whom such rights under each such Option shall pass by
will, or by the laws of descent or distribution, after which time each such
Option shall terminate in full; provided, however, that each such Option
may be exercised to the extent, and only to the extent, that the Option or
portion thereof was exercisable on the date of death or earlier termination
of the Optionee's membership on the Board.
(d) Each Option granted to an Eligible Trustee hereunder (or portion
thereof), to the extent not yet vested and exercisable as of the date the
Eligible Trustee's membership on the Board terminates for any reason, shall
terminate immediately upon such date.
6.6 Non-Transferability. No Option shall be transferable by the Optionee
otherwise than by will or by the laws of descent and distribution or pursuant to
a domestic relations order (within the meaning of Rule 16a-12 promulgated under
the Exchange Act), and an Option shall be exercisable during the lifetime of
such Optionee only by the Optionee or his or her guardian or legal
representative. Notwithstanding the foregoing, the Board may set forth in the
Agreement evidencing an Option at the time of grant or thereafter, that the
Option may be transferred to members of the Optionee's immediate family, to
trusts solely for the benefit of such immediate family members and to
partnerships in which such family members and/or trusts are the only partners,
and for purposes of this Plan, a transferee of an Option shall be deemed to be
the Optionee. For this purpose, immediate family means the Optionee's spouse,
parents, children, stepchildren and grandchildren and the spouses of such
parents, children, stepchildren and grandchildren. The terms of an Option shall
be final, binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Optionee.
6.7 Method of Exercise. The exercise of an Option shall be made only by a
written notice delivered in person or by mail to the Secretary of the Trust at
the Trust's principal executive office, specifying the number of Shares with
respect to which the Option is then being exercised and, to the extent
applicable, accompanied by payment therefor and otherwise in accordance with the
Agreement pursuant to which the Option was granted. The purchase price for any
Shares purchased pursuant to the exercise of an Option shall be paid, as
determined by the Board in its discretion, in either of the following forms (or
any combination thereof): (a) cash or (b) the transfer, either actually or by
attestation, to the Trust of Shares that have been held by the Optionee for at
least six (6) months (or such lesser period as may be permitted by the Board),
prior to the exercise of the Option, such transfer to be upon such terms and
conditions as determined by the Board. In addition, Options may be exercised
through a registered broker-dealer pursuant to such cashless exercise procedures
which are, from time to time, deemed acceptable by the Board. Any Shares
transferred to the Trust (or withheld upon exercise) as payment of the purchase
price under an Option shall be valued at their Fair Market Value on the day
preceding the date of exercise of such Option. If requested by the Board, the
Optionee shall deliver the Agreement
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evidencing the Option to the Secretary of the Trust who shall endorse thereon a
notation of such exercise and return such Agreement to the Optionee. No
fractional Shares (or cash in lieu thereof) shall be issued upon exercise of an
Option and the number of Shares that may be purchased upon exercise shall be
rounded to the nearest number of whole Shares.
6.8 Rights of Optionees. No Optionee shall be deemed for any purpose to be
the owner of any Shares subject to any Option unless and until (a) the Option
shall have been exercised pursuant to the terms thereof, (b) the Trust shall
have issued and delivered Shares to the Optionee, and (c) the Optionee's name
shall have been entered as a stockholder of record on the books of the Trust.
Thereupon, the Optionee shall have full voting, dividend and other ownership
rights with respect to such Shares, subject to such terms and conditions as may
be set forth in the applicable Agreement.
6.9 Effect of Change in Control. In the event of a Change in Control, all
Options outstanding on the date of such Change in Control shall become
immediately and fully exercisable.
6.10 Prior Board Approval of Option Grants. Prior to each grant of an
Option pursuant to the provisions of this Section 6, the Trust shall use
reasonable efforts to have each such grant approved by the Board for purposes of
complying with Rule 16b-3 promulgated under the Exchange Act; provided, however,
that no such Option grant shall be conditioned upon or otherwise subject to
obtaining such approval nor shall the timing of any such Option grant be
unreasonably delayed for purposes of obtaining such approval.
7. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event of a Change in Capitalization, the Board shall
conclusively determine the appropriate adjustments, if any, to (i) the
maximum number and class of Shares or other stock or securities with
respect to which Options or Restricted Share Awards may be granted under
the Plan, (ii) the number and class of Shares or other stock or securities
which are subject to outstanding Options or Restricted Share Awards granted
under the Plan and the purchase price therefor, if applicable and (iii) the
number and class of Shares or other securities in respect of which Options
are to be granted under Section 6 hereof.
(b) If, by reason of a Change in Capitalization, a Grantee of a
Restricted Share Award shall be entitled to, or an Optionee shall be
entitled to exercise an Option with respect to, new, additional or
different shares of stock or securities, such new, additional or different
shares shall thereupon be subject to all of the conditions and restrictions
which were applicable to the Shares subject to the Restricted Share Award
or Option, as the case may be, prior to such Change in Capitalization.
8. EFFECT OF CERTAIN TRANSACTIONS.
Subject to Sections 5.4(b) or 6.10 hereof or as otherwise provided in an
Agreement, in the event of (a) the liquidation or dissolution of the Trust or
(b) a merger or consolidation of the Trust (a "Transaction"), the Plan and the
Options and Restricted Share Awards issued hereunder shall continue in effect in
accordance with their respective terms, except that following a Transaction each
Optionee and Grantee shall be entitled to receive in respect of each Share
subject to any outstanding Options or Restricted Share Awards, as the case may
be, upon exercise of any Option or transfer in respect of any Restricted Share
Award, the same number and kind of stock, securities, cash, property or other
consideration that each holder of a Share was entitled to receive in the
Transaction in respect of a Share; provided, however, that such stock,
securities, cash, property, or other consideration shall
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<PAGE> 57
remain subject to all of the conditions and restrictions which were applicable
to the Options and Restricted Share Awards prior to such Transaction.
9. INTERPRETATION.
The Plan is intended to comply with Rule 16b-3 promulgated under the
Exchange Act and the Board shall interpret and administer the provisions of the
Plan or any Agreement in a manner consistent therewith. Subject to the
provisions of Section 6.10 hereof, any provisions inconsistent with such Rule
shall be inoperative and shall not affect the validity of the Plan.
10. POOLING TRANSACTIONS.
Notwithstanding anything contained in the Plan or any Agreement to the
contrary, in the event of a transaction involving the Trust which is intended to
constitute a Pooling Transaction, the Board shall take such actions, if any, as
are specifically recommended by an independent accounting firm retained by the
Trust to the extent reasonably necessary in order to assure that the Pooling
Transaction will qualify as such, including but not limited to (a) deferring the
vesting, exercise, payment, settlement or lapsing of restrictions with respect
to any Option or Restricted Share Award, (b) providing that the payment or
settlement in respect of any Option or Restricted Share Award be made in the
form of cash, Shares or securities of a successor or acquirer of the Trust, or a
combination of the foregoing, and (c) providing for the extension of the term of
any Option to the extent necessary to accommodate the foregoing, but not beyond
the maximum term permitted for any Option.
11. TERMINATION AND AMENDMENT OF THE PLAN OR MODIFICATION OF OPTIONS AND
RESTRICTED SHARE AWARDS.
11.1 Plan Amendment or Termination. The Plan shall terminate on the day
preceding the tenth anniversary of the date of its adoption by the Board and no
Option or Restricted Share Award may be granted thereafter. The Board may sooner
terminate the Plan and the Board may at any time and from time to time amend,
modify or suspend the Plan; provided, however, that:
(a) no such amendment, modification, suspension or termination shall
impair or adversely alter any Options or Restricted Share Awards
theretofore granted under the Plan, except with the consent of the Optionee
or Grantee, nor shall any amendment, modification, suspension or
termination deprive any Optionee or Grantee of any Shares which he or she
may have acquired through or as a result of the Plan; and
(b) to the extent necessary under any applicable law, regulation or
exchange requirement no amendment shall be effective unless approved by the
beneficiaries of the Trust in accordance with applicable law, regulation or
exchange requirement.
11.2 Modification of Options and Restricted Share Awards. No modification
of an Option or Restricted Share Award shall adversely alter or impair any
rights or obligations under the Option or Award without the consent of the
Optionee or Grantee, as the case may be.
12. NON-EXCLUSIVITY OF THE PLAN.
The adoption of the Plan by the Board shall not be construed as amending,
modifying or rescinding any previously approved compensation arrangement or as
creating any limitations on the power of the
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Board to adopt such other compensation arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
13. LIMITATION OF LIABILITY.
As illustrative of the limitations of liability of the Trust, but not
intended to be exhaustive thereof, nothing in the Plan shall be construed to:
(a) give any person any right to be granted an Option or Restricted
Share Award other than as expressly provided in the Plan;
(b) give any person any rights whatsoever with respect to Shares
except as specifically provided in the Plan;
(c) limit in any way the right of the Trust to terminate the Board
membership of any person at any time; or
(d) be evidence of any agreement or understanding, expressed or
implied, that the Trust will guarantee membership on the Board for any
person at any particular rate of compensation or for any particular period
of time.
14. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
14.1 Except as to matters of federal law, the Plan and the rights of all
persons claiming hereunder shall be construed and determined in accordance with
the laws of the State of Ohio without giving effect to conflicts of laws
principles thereof.
14.2 The obligation of the Trust to sell or deliver Shares with respect to
Options and Restricted Share Awards granted under the Plan shall be subject to
all applicable laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by governmental
agencies as may be deemed necessary or appropriate by the Board.
14.3 The Board may make such changes as may be necessary or appropriate to
comply with the rules and regulations of any government authority.
14.4 Each Option and Restricted Share Award is subject to the requirement
that, if at any time the Board determines, in its discretion, that the listing,
registration or qualification of Shares issuable pursuant to the Plan is
required by any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the grant of an Option or
Restricted Share Award or the issuance of Shares, no Options or Restricted Share
Awards shall be granted or payment made or Shares issued, in whole or in part,
unless listing, registration, qualification, consent or approval has been
effected or obtained free of any conditions as acceptable to the Board.
14.5 Notwithstanding anything contained in the Plan or any Agreement to the
contrary, in the event that the disposition of Shares acquired pursuant to the
Plan is not covered by a then current registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), and is not otherwise
exempt from such registration, such Shares shall be restricted against transfer
to the extent required by the Securities Act and Rule 144 or other regulations
thereunder. The Board may require any individual receiving Shares pursuant to an
Option or Restricted Share Award granted under the Plan, as a
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<PAGE> 59
condition precedent to receipt of such Shares, to represent and warrant to the
Trust in writing that the Shares acquired by such individual are acquired
without a view to any distribution thereof and will not be sold or transferred
other than pursuant to an effective registration thereof under said Act or
pursuant to an exemption applicable under the Securities Act or the rules and
regulations promulgated thereunder. The certificates evidencing any of such
Shares shall be appropriately amended to reflect their status as restricted
securities as aforesaid.
15. MISCELLANEOUS.
15.1 Withholding of Taxes. At such times as an Optionee or Grantee
recognizes taxable income in connection with the receipt of Shares or cash
hereunder (a "Taxable Event"), the Optionee or Grantee shall pay to the Trust an
amount equal to the federal, state and local income taxes and other amounts as
may be required by law to be withheld by the Trust in connection with the
Taxable Event (the "Withholding Taxes") prior to the issuance, or release from
escrow, of such Shares. The Trust shall have the right to deduct from any
payment of cash to an Optionee or Grantee an amount equal to the Withholding
Taxes in satisfaction of the obligation to pay Withholding Taxes. In
satisfaction of the obligation to pay Withholding Taxes to the Trust, the
Optionee or Grantee may make a written election (the "Tax Election"), which may
be accepted or rejected in the discretion of the Board, to have withheld a
portion of the Shares then issuable to him or her having an aggregate Fair
Market Value equal to the Withholding Taxes.
15.2 Effective Date. The effective date of this Plan shall be the date of
its adoption by the Board, subject only to the approval by the affirmative vote
of a majority of the beneficiaries of the Trust present, or represented, and
entitled to vote at a meeting of beneficiaries duly held in accordance with the
applicable laws of the State of Ohio within 12 months of the adoption of the
Plan by the Board.
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DETACH CARD
- --------------------------------------------------------------------------------
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 PUBLIC SQUARE, SUITE 1900, CLEVELAND, OHIO 44113-1937
1999 SPECIAL MEETING OF BENEFICIARIES, MAY 17, 1999
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
[FIRST UNION LOGO]
The undersigned hereby appoints Daniel P. Friedman and William A.
Ackman, or any one of them, each with power of substitution,
attorneys and proxies (the "Proxies") for and in the name and place
of the undersigned, to vote, as designated below, all of the shares
of beneficial interest, par value $1 per share ("Shares"), of First
Union Real Estate Equity and Mortgage Investments, a business trust
formed under the laws of the State of Ohio (the "Trust"), at the
1999 Special Meeting of Beneficiaries to be held on Monday, May 17,
1999, at 10:00 A.M., local time, and any adjournment or
postponement thereof, upon the matters set forth in the Notice of
1999 Special Meeting of Beneficiaries and the Proxy Statement,
receipt of which is hereby acknowledged, as follows:
1. Election of Class III Trustees
[ ] FOR all nominees listed below (except as noted to the
contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
Nominees: Daniel J. Altobello, David S. Klafter and William A.
Scully
Instruction: To withhold authority to vote for any individual
nominee, write that nominee's name on the following line:
---------------------------------------------------------------
2. Proposal to amend the Trust's 1994 Long Term Incentive
Performance Plan [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to adopt the 1999 Share Option Plan for Trustees
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on the reverse side)
P
R
O
X
Y
<PAGE> 61
DETACH CARD
- --------------------------------------------------------------------------------
(Continued from reverse side)
4. In their discretion, the Proxies are authorized to vote upon all
other matters properly brought before the meeting, and any
adjournment or postponement thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED IN
THE SPACE PROVIDED. TO THE EXTENT NO DIRECTIONS ARE GIVEN, THEY WILL
BE VOTED FOR THE ELECTION OF ANY OR ALL NOMINEES FOR TRUSTEES, FOR
PROPOSALS 2 AND 3 AND IN THE DISCRETION OF THE PROXIES ON ALL OTHER
MATTERS PROPERLY BROUGHT BEFORE THE MEETING AND ANY ADJOURNMENT OR
POSTPONEMENT THEREOF. THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO
ITS EXERCISE.
Date , 1999
----------------
---------------------------
Signature
---------------------------
Signature (if jointly held)
Where Shares are registered
jointly in the name of two
or more persons, all should
sign. Signatures should
correspond exactly with the
name on the Share
certificate. Persons
signing in a representative
capacity should indicate
that capacity.
IMPORTANT: PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
