<PAGE> 1
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
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
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(Name of Registrant as Specified in Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
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[ ] 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:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(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
Dear Beneficiary:
You are cordially invited to attend a Special Meeting of the
Beneficiaries of First Union Real Estate Equity and Mortgage Investments, a
trust organized in Ohio (the "Company"), which will be held in the Murray Hill
Room at The New York Helmsley Hotel located at 212 East 42nd Street, New York,
NY 10017, on Tuesday, November 16, 1999, at 10:00 a.m., local time.
The purpose of the meeting is to (a) consent to the sale of certain
properties of the Company (the "Properties") pursuant to a Purchase and Sale
Agreement, dated as of July 14, 1999, as amended by a first letter agreement,
dated as of August 11, 1999, by a second letter agreement, dated as of September
22, 1999, and by a third letter agreement, dated as of October 7, 1999
(together, the "Purchase and Sale Agreement"), between Southwest Shopping
Centers Co. II, L.L.C., a Delaware limited liability company and an indirect
wholly-owned subsidiary of the Company, and WXI/Z Southwest Malls Real Estate
Limited Partnership, a Delaware limited partnership, for a purchase price of
$191.5 million (the "Asset Sale") and (b) approve amendments (the "Amendments")
to the Company's Amended Declaration of Trust relating to the Company's ability
to (i) engage in certain activities in connection with the investment and
financing of Company assets and (ii) effectuate a reverse or forward split of
shares of beneficial interest, par value $1.00 per share, of the Company
("Shares").
Consent to the Purchase and Sale Agreement requires the affirmative
vote of holders of a majority of the outstanding Shares. The Board of Trustees
of the Company is seeking beneficiary consent to the Asset Sale in accordance
with the Company's Amended Declaration of Trust, which provides that no sale of
more than 50% of the Company's property may be made without the consent of
holders of at least a majority of the outstanding Shares. The Asset Sale,
together with prior asset sales that were part of a sales program initiated by
the Company in June 1998, would, in the aggregate, constitute a sale by the
Company of more than 50% of the Company's property. Accordingly, a vote to
consent to the Asset Sale will be deemed a vote to consent to the sale by the
Company of more than 50% of the Company's property.
Concurrently with the execution of the Purchase and Sale Agreement,
beneficiaries who own, in the aggregate, approximately 20.79% of the outstanding
Shares, agreed to consent to the sale of the Properties pursuant to the Purchase
and Sale Agreement.
Approval of each of the Amendments requires the affirmative vote of
holders of a majority of the outstanding Shares.
THE BOARD OF TRUSTEES OF THE COMPANY HAS UNANIMOUSLY APPROVED THE
PURCHASE AND SALE AGREEMENT AND EACH OF THE AMENDMENTS AND IS RECOMMENDING THAT
HOLDERS OF SHARES VOTE TO CONSENT TO THE SALE OF THE PROPERTIES PURSUANT TO THE
PURCHASE AND SALE AGREEMENT AND TO APPROVE EACH OF THE AMENDMENTS.
The Notice and Proxy Statement on the following pages contain important
details concerning the Asset Sale and the Amendments. Please complete, sign and
return your proxy card in the enclosed envelope to ensure that your Shares will
be represented and voted at the Special Meeting even if you cannot attend. You
are urged to complete, sign and return the enclosed proxy card even if you plan
to attend the meeting.
I look forward to personally meeting all beneficiaries who are able to
attend.
Sincerely,
William A. Ackman
Chairman of the Board of Trustees
<PAGE> 3
[FIRST UNION LOGO]
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 PUBLIC SQUARE SUITE 1900 CLEVELAND, OHIO 44113-1937
NOTICE OF
SPECIAL MEETING OF BENEFICIARIES
To the Beneficiaries:
Notice is hereby given that the Special Meeting of the Beneficiaries of
First Union Real Estate Equity and Mortgage Investments, a trust organized in
Ohio (the "Company"), will be held in the Murray Hill Room at The New York
Helmsley Hotel located at 212 East 42nd Street, New York, NY 10017, on Tuesday,
November 16, 1999 at 10:00 a.m., local time, for the following purposes:
1. To consent to the sale of certain properties of the Company
pursuant to a Purchase and Sale Agreement, dated as of July
14, 1999, as amended by a first letter agreement, dated as of
August 11, 1999, by a second letter agreement, dated as of
September 22, 1999, and by a third letter agreement, dated as
of October 7, 1999, between Southwest Shopping Centers Co. II,
L.L.C., a Delaware limited liability company and an indirect
wholly-owned subsidiary of the Company, and WXI/Z Southwest
Malls Real Estate Limited Partnership, a Delaware limited
partnership (the "Asset Sale").
2. To approve amendments to the Company's Amended Declaration of
Trust relating to the Company's ability to:
(a) engage in certain activities in connection with
the investment and financing of Company assets;
and
(b) effectuate a reverse or forward split of Shares.
3. To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
The Board of Trustees of the Company is seeking beneficiary consent to
the Asset Sale in accordance with the Company's Amended Declaration of Trust,
which provides that no sale of more than 50% of the Company's property may be
made without the consent of holders of at least a majority of the outstanding
Shares. The Asset Sale, together with prior asset sales that were part of a
sales program initiated by the Company in June 1998, would, in the aggregate,
constitute a sale by the Company of more than 50% of the Company's property.
Accordingly, a vote to consent to the Asset Sale will be deemed a vote to
consent to the sale by the Company of more than 50% of the Company's property.
Beneficiaries of record at the close of business on October 7, 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
October 12, 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.
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<PAGE> 4
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Introduction..................................................................................1
Information About Forward-Looking Statements..................................................3
Summary.......................................................................................3
The Special Meeting.................................................................3
Proposal One: Consent to the Asset Sale.............................................4
Proposals Relating to Amendments to the Company's Declaration of Trust..............7
Proposal Two: Approval of the Investment Amendment.................................7
Proposal Three: Approval of the Share Split Amendment..............................7
Special Considerations Relating to the Asset Sale.............................................9
Proposal One: Consent to the Asset Sale.....................................................10
Background of the Asset Sales Program..............................................10
Reasons for the Asset Sale.........................................................13
Use of Proceeds of the Asset Sale..................................................14
Plans for the Company Subsequent to the Asset Sale.................................14
The Parties........................................................................15
Terms of the Purchase and Sale Agreement...........................................15
Terms of the Voting Agreements.....................................................18
Security Ownership of Trustees and Officers and Certain Beneficial Owners..........20
Interests of Management or Trustees in the Asset Sale..............................22
Accounting Treatment of the Asset Sale.............................................22
Tax Consequences of the Asset Sale.................................................22
Government and Regulatory Approvals................................................23
No Dissenters' Rights..............................................................23
Required Vote for Proposal.........................................................23
Recommendation of the Board of Trustees............................................23
Pro Forma Financial Data of First Union Real Estate Equity and Mortgage
Investments......................................................................24
Selected Combined Financial Data of First Union Real Estate Equity and
Mortgage Investments.............................................................30
Proposals Relating to Amendments to the Company's Declaration of Trust.......................34
Proposal Two: Approval of the Investment Amendment..........................................34
Purpose of Investment Amendment....................................................34
Existing Guidelines and Limitations for Investment and Financing of
Company Assets...................................................................35
Effects of Investment Amendment....................................................36
Required Vote for Proposal.........................................................36
Recommendation of the Board of Trustees............................................36
Proposal Three: Approval of the Share Split Amendment.......................................37
Purpose of Share Split Amendment...................................................37
Plans of the Company with Respect to a Share Split.................................38
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</TABLE>
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<TABLE>
<S> <C>
Effects of Share Split Amendment...................................................38
Required Vote for Proposal.........................................................40
Recommendation of the Board of Trustees............................................40
Market for the Shares........................................................................41
Fees and Expenses............................................................................41
Experts......................................................................................41
Beneficiary Proposals........................................................................41
Available Information........................................................................41
Incorporation of Certain Documents by Reference..............................................42
Appendix A - Purchase and Sale Agreement.....................................................A-1
Appendix B - First Letter Agreement to the Purchase and Sale Agreement.......................B-1
Appendix C - Second Letter Agreement to the Purchase and Sale Agreement......................C-1
Appendix D - Third Letter Agreement to the Purchase and Sale Agreement.......................D-1
Appendix E - Proposed Amendments to the Declaration of Trust.................................E-1
</TABLE>
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<PAGE> 6
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 PUBLIC SQUARE SUITE 1900 CLEVELAND, OHIO 44113-1937
-------------------
PROXY STATEMENT
--------------------
SPECIAL MEETING OF BENEFICIARIES
NOVEMBER 16, 1999
INTRODUCTION
This Proxy Statement and the accompanying proxy are being sent by the
Board of Trustees (the "Board of Trustees" or the "Board") of First Union Real
Estate Equity and Mortgage Investments ("First Union" or the "Company") in
connection with the solicitation of proxies from the holders (the
"Beneficiaries") of shares of beneficial interest, par value $1.00 per share, of
the Company ("Shares"), to be voted at the Special Meeting of Beneficiaries,
including any adjournment or postponement thereof (the "Special Meeting"), to be
held in the Murray Hill Room at The New York Helmsley Hotel located at 212 East
42nd Street, New York, NY 10017, on Tuesday, November 16, 1999, at 10:00 a.m.,
local time, to take the following actions:
(i) To consent to the sale of certain properties (the
"Properties") of the Company pursuant to a Purchase and Sale
Agreement, dated as of July 14, 1999, as amended by a first
letter agreement, dated as of August 11, 1999, by a second
letter agreement, dated as of September 22, 1999, and by a
third letter agreement, dated as of October 7, 1999 (together,
the Purchase and Sale Agreement"), attached as Appendices A-D,
between Southwest Shopping Centers Co. II, L.L.C., a Delaware
limited liability company and an indirect wholly-owned
subsidiary of the Company ("Southwest" or "Seller"), and WXI/Z
Southwest Malls Real Estate Limited Partnership, a Delaware
limited partnership ("Whitehall/Zamias" or "Purchaser").
(ii) To approve amendments (the "Amendments") to the Company's
Amended Declaration of Trust (the "Declaration of Trust")
relating to the Company's ability to:
(a) engage in certain activities in connection with the
investment and financing of Company assets; and
(b) effectuate a reverse or forward split of Shares.
(iii) To transact such other business as may properly come before
the Special Meeting.
The Board is seeking Beneficiary consent to the sale of the Properties
pursuant to the Purchase and Sale Agreement (the "Asset Sale") in accordance
with the Declaration of Trust, which provides that no sale of more than 50% of
the Company's property may be made without the consent of holders of at least a
majority of the outstanding Shares. The Asset Sale, together with prior asset
sales that were part of a sales program initiated by the Company in June 1998,
would, in the aggregate, constitute a sale by the Company of more than 50% of
the Company's property. Accordingly, a vote to consent to the Asset Sale will be
deemed a vote to consent to the sale by the Company of more than 50% of the
Company's property.
<PAGE> 7
The principal offices of the Company are located at 55 Public Square,
Suite 1900, Cleveland, Ohio 44113-1937 and 551 Fifth Avenue, Suite 1416, New
York, New York 10176. The approximate date on which this Proxy Statement and the
accompanying proxy are first being sent to the Beneficiaries is October 13,
1999.
The record date for determination of the Beneficiaries that are
entitled to vote at the Special Meeting is October 7, 1999 (the "Record Date").
On that date, 42,459,604 Shares were outstanding. Each Share has one vote.
The affirmative vote of a majority of the outstanding Shares as of the
Record Date is required to consent to the Asset Sale and to approve each of the
Amendments. Abstentions and broker non-votes will be included in determining the
number of Shares present for purposes of determining the presence of a quorum
and will have the same effect as a negative vote with respect to the voting to
consent to the Asset Sale and to approve each of the Amendments.
Shares represented by properly executed proxy cards will be voted at
the Special Meeting as marked and, in the absence of specific instructions, will
be voted to consent to the Asset Sale and to approve each of the Amendments,
and, in the discretion of the persons named as proxies, on all such other
business as may properly come before the Special 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 Special Meeting and
voting in person (attendance alone at the Special 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
(collectively, "Gotham"), which beneficially own approximately 13.75% of the
Shares, and Apollo Real Estate Advisors II, L.P. ("Apollo LP") and certain of
its affiliates (collectively, "Apollo"), which beneficially own approximately
7.04% of the Shares, have each entered into agreements (each, a "Voting
Agreement"), pursuant to which they have agreed to vote to consent to the Asset
Sale.
As far as the Board of Trustees is aware, no matters other than those
outlined in this Proxy Statement will be presented to the Special 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.
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<PAGE> 8
INFORMATION ABOUT FORWARD-LOOKING STATEMENTS
Certain sections in this Proxy Statement, including "Special
Considerations Relating to the Asset Sale," "Proposal One: Consent to the Asset
Sale--Reasons for the Asset Sale," "--Use of Proceeds of the Asset Sale" and
"--Plans for the Company Subsequent to the Asset Sale," "Proposals Relating to
Amendments to the Company's Declaration of Trust" and "Pro Forma Financial Data
of First Union Real Estate Equity and Mortgage Investments," contain
forward-looking statements that are based on current beliefs, estimates and
assumptions concerning the operations, future results, and prospects of the
Company. All statements that address operating performance, events or
developments that are anticipated to occur in the future, including statements
related to future sales, profits, expenses, income and earnings per share, or
statements expressing general optimism about future results, are forward-looking
statements. In addition, words such as "expects," "anticipates," "intends,"
"plans," "believes," "estimates," and variations of such words and similar
expressions are intended to identify forward-looking statements.
The statements described in the preceding paragraph constitute
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Because these statements
are based on a number of beliefs, estimates and assumptions that could cause
actual results to materially differ from those in the forward-looking
statements, there is no assurance that forward-looking statements will prove to
be accurate.
Any number of factors could affect future operations and results,
including, without limitation, the Company's ability to be profitable with a
smaller and less diverse portfolio that will generate less revenue; the value of
replacement assets, if any; the Company's ability to maintain its real estate
investment trust ("REIT") status; general industry and economic conditions;
interest rate trends; capital requirements; competition from other companies and
venues; changes in applicable laws, rules and regulations (including changes in
tax laws); the availability of equity and/or debt financing in the amounts and
on the terms necessary to support the Company's future business; and those
specific risks that are discussed in the Risk Factors detailed in the Company's
Amendment to the Annual Report on Form 10-K/A for the fiscal year ended December
31, 1998, filed April 13, 1999.
Forward-looking statements are subject to the safe harbors created in
the Exchange Act. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information or future
events.
SUMMARY
The following is a brief summary of information contained elsewhere in
this Proxy Statement. This summary is not intended to be complete and is
qualified in all respects by reference to the detailed information appearing
elsewhere in this Proxy Statement and the appendices hereto.
THE SPECIAL MEETING
TIME, DATE AND PLACE The Special Meeting will be held in
the Murray Hill Room at The New York
Helmsley Hotel located at 212 East
42nd Street, New York, NY 10017, on
Tuesday, November 16, 1999, at 10:00
a.m., local time.
PURPOSES OF THE MEETING 1. To consent to the Asset Sale.
The Board is seeking Beneficiary
consent to the Asset Sale in
accordance with the Declaration of
Trust, which provides that no sale of
more than 50% of the Company's
property may be made without the
consent of holders of at least a
majority of the outstanding Shares.
The Asset
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<PAGE> 9
Sale, together with prior asset sales
that were part of a sales program
initiated by the Company in June 1998,
would, in the aggregate, constitute a
sale by the Company of more than 50%
of the Company's property.
Accordingly, a vote to consent to the
Asset Sale will be deemed a vote to
consent to the sale by the Company of
more than 50% of the Company's
property. See "Proposal One: Consent
to the Asset Sale--Background of the
Asset Sales Program."
2. To approve each Amendment.
The Board is seeking Beneficiary
approval of an amendment to the
Declaration of Trust relating to the
Company's ability to engage in certain
activities in connection with the
investment and financing of Company
assets (the "Investment Amendment").
See "Proposals Relating to Amendments
to the Company's Declaration of
Trust--Proposal Two: Approval of the
Investment Amendment."
The Board is also seeking Beneficiary
approval of an amendment to the
Declaration of Trust relating to the
Company's ability to effectuate a
reverse or forward split of Shares
(the "Share Split Amendment"). See
"Proposals Relating to Amendments to
the Company's Declaration of
Trust--Proposal Three: Approval of the
Share Split Amendment."
3. To transact such other business as
may properly come before the Special
Meeting.
RECORD DATE October 7, 1999.
PROPOSAL ONE: CONSENT TO THE ASSET SALE
THE ASSET SALE The Company will sell to
Whitehall/Zamias six malls (each, a
"Mall") of the nine-mall Marathon
portfolio that First Union acquired in
1996.
CONSIDERATION TO BE RECEIVED The Company will receive aggregate
consideration of $191.5 million, and
Purchaser will pay or reimburse Seller
for certain transaction costs, which
total approximately $400,000. As part
of the consideration, Purchaser will
assume the GMAC Mortgage (as described
in "Proposal One: Consent to the Asset
Sale--Terms of the Purchase and Sale
Agreement--Liabilities to be Assumed
by Purchaser").
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<PAGE> 10
SPECIAL CONSIDERATIONS RELATING TO THE
ASSET SALE The Beneficiaries should consider many
factors in deciding whether to vote to
consent to the Asset Sale, including,
without limitation, the following
special considerations:
- the Asset Sale will reduce the
size and diversity of First
Union's portfolio;
- replacement assets, if
any, may not provide
greater value; and
- the Asset Sale may cause
First Union to fail to
qualify as a REIT for
federal income tax
purposes.
FIRST UNION REAL ESTATE EQUITY AND
MORTGAGE INVESTMENTS First Union is a REIT whose primary
business has been to buy, manage,
improve cash flow of and own retail,
apartment, office and parking
properties throughout the United
States and Canada. First Union and
First Union Management, Inc., a
Delaware corporation and an affiliate
of First Union ("FUMI"), have an
organizational structure commonly
referred to as "stapled," where the
Shares are "stapled to" a
proportionately equal interest in the
common stock of FUMI, with some
exceptions. The Shares may not be
issued or transferred without their
"stapled" counterparts in FUMI. The
common stock of FUMI is held in trust
for the benefit of the Beneficiaries.
FUMI owns a controlling interest in
Imperial Parking Limited ("Impark"), a
Canadian parking and management
services company.
As of September 30, 1999, First Union
owned, including under long-term
ground leases, 11 shopping centers
(including the six Malls, which are
under contract to be sold), three
office properties and seven parking
facilities in the United States, and
14 Canadian real estate assets. First
Union also owns 50% of an additional
mall in a joint venture with an
unrelated party. Since the beginning
of 1999, First Union has sold ten
shopping centers, eight apartment
complexes, two office properties and a
parking facility. First Union is in
the process of selling the six Malls
pursuant to the Purchase and Sale
Agreement and evaluating a number of
proposals for other asset sales.
SELLER Southwest is a Delaware limited
liability company and an indirect
wholly-owned subsidiary of First
Union.
PURCHASER Whitehall/Zamias is a joint venture of
Whitehall Street Real Estate Limited
Partnership XI, a real estate fund
sponsored by Goldman, Sachs & Co., and
Zamias Services Inc.
USE OF PROCEEDS The Company will receive approximately
$188 million in aggregate
consideration for the Asset Sale after
the payment of expenses, including
broker, legal and
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<PAGE> 11
accounting fees and miscellaneous
costs and adjustments, but not
including operating income and expense
prorations. Of the approximately $188
million, approximately $73 million
will be in cash and approximately $115
million will be from the assumption of
the GMAC Mortgage. The Company expects
to use approximately $51 million of
the net cash proceeds to pay off
existing mortgage debt and a
prepayment penalty relating to the
Park Plaza Mall in Little Rock,
Arkansas, which is
cross-collateralized with the six
Malls. The Company may sell or
refinance the Park Plaza Mall, in
which case such portion of the net
cash proceeds or the sale or
refinancing proceeds, as the case may
be, would be available to the Company
for alternative uses. The Company is
in the process of exploring
alternative uses for the remaining net
cash proceeds to be received,
including, without limitation,
investing in its existing portfolio,
implementing or continuing a share
repurchase or similar program,
distributing such net proceeds to the
Beneficiaries, including, but not
necessarily limited to, amounts
required to satisfy certain REIT
distribution requirements resulting
from previous asset sales and net
income in 1999, if any, and making new
investments.
CONDITIONS TO THE CLOSING The Asset Sale is contingent upon,
among other things, the consent of the
Beneficiaries, the consent of the
existing lender and the applicable
rating agency to the assumption of the
GMAC Mortgage and to the Mezzanine
Financing (as described in "Proposal
One: Consent to the Asset Sale--Terms
of the Purchase and Sale
Agreement--Mezzanine Financing"), the
receipt of estoppel certificates from
certain anchor and mall space tenants
and other customary conditions.
THE CLOSING If the conditions to closing the Asset
Sale are satisfied, the closing is
expected to take place during the
fourth quarter of 1999 (the "Closing
Date").
TAX CONSEQUENCES OF THE ASSET SALE The Asset Sale will have federal
income tax consequences for both the
Company and the Beneficiaries as
described in "Proposal One: Consent to
the Asset Sale--Tax Consequences of
the Asset Sale."
NO DISSENTERS' RIGHTS Under Ohio law, the Beneficiaries do
not have dissenters' rights to receive
payment for their Shares as a result
of the Asset Sale.
REQUIRED VOTE FOR PROPOSAL The affirmative vote of the holders of
a majority of the outstanding Shares
as of the Record Date is required to
consent to the Asset Sale.
VOTING AGREEMENTS Gotham, which beneficially owns
approximately 13.75% of the Shares,
and Apollo, which beneficially owns
approximately 7.04% of the Shares,
have each entered
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<PAGE> 12
into agreements pursuant to which they
have agreed to vote to consent to the
Asset Sale.
RECOMMENDATION OF THE BOARD OF TRUSTEES The Board of Trustees unanimously
recommends that the Beneficiaries
consent to the Asset Sale.
PROPOSALS RELATING TO AMENDMENTS TO THE COMPANY'S DECLARATION OF TRUST
PROPOSAL TWO: APPROVAL OF THE INVESTMENT AMENDMENT
PURPOSE OF INVESTMENT AMENDMENT The Declaration of Trust provides for
various guidelines, limitations and
requirements with respect to the
investment and financing of Company
assets. The Board of Trustees believes
that the Investment Amendment will
enhance management's flexibility in
selecting appropriate investments for
Company assets. An additional purpose
of the Investment Amendment is to
enable the Company to compete more
effectively in the current real estate
marketplace. The proposed Investment
Amendment is intended to enable the
Board of Trustees to fulfill its
responsibilities in overseeing the
investment and financing of Company
assets in a manner which is in the
best interests of the Beneficiaries.
EFFECTS OF INVESTMENT AMENDMENT The proposed Investment Amendment
would authorize the Trustees to make
determinations with respect to asset
investment and financing, and related
matters, without regard to certain of
the current guidelines, limitations
and requirements set forth in Article
XI of the Declaration of Trust. The
provisions of the Declaration of Trust
that prohibit actions preventing the
Company from qualifying or continuing
to qualify as a REIT would continue in
effect.
REQUIRED VOTE FOR PROPOSAL The affirmative vote of holders of a
majority of the outstanding Shares as
of the Record Date is required to
approve the Investment Amendment.
RECOMMENDATION OF THE BOARD OF TRUSTEES The Board of Trustees unanimously
recommends that the Beneficiaries
approve the Investment Amendment.
PROPOSAL THREE: APPROVAL OF THE SHARE SPLIT AMENDMENT
PURPOSE OF SHARE SPLIT AMENDMENT The Declaration of Trust does not
specifically authorize the Trustees to
effectuate a share combination or
reverse split of the Shares or a
forward or regular split of the
Shares. The purpose of the Share Split
Amendment is to enhance the ability of
the Board of Trustees to modify the
number of Shares outstanding from time
to time without directly affecting the
Company's shareholders' equity.
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<PAGE> 13
PLANS OF THE COMPANY WITH RESPECT TO A SHARE SPLIT
At its August 10, 1999 regular
meeting, the Board of Trustees
preliminarily and conditionally
approved a one-for-ten share
combination or reverse split of the
Shares, whereby Beneficiaries would
receive one Share for every ten Shares
owned. In this connection, the Board
has determined to seek approval by the
Beneficiaries of the Share Split
Amendment in order to obtain the
authority to implement a reverse
split. Accordingly, the Board of
Trustees has decided to defer final
action with respect to effectuating a
specific reverse split affecting the
Shares pending approval by
Beneficiaries of the Share Split
Amendment.
EFFECTS OF SHARE SPLIT AMENDMENT For purposes of illustration, in the
event the Board of Trustees
effectuated a one-for-ten reverse
split, each Beneficiary would own
one-tenth of the number of Shares
previously owned. The number of Shares
that the Company is authorized to
issue will not change as a result of a
reverse or forward split. The par
value of the Shares may be changed or
may remain the same after giving
effect to a reverse or forward split,
as the Board may determine.
A reverse or forward split will not
affect any Beneficiary's proportionate
equity interest in the Company, other
than as a result of the treatment of
fractional interests, or the rights,
preferences, privileges or priorities
of the Shares. Furthermore, a reverse
or forward split will not affect the
total shareholders' equity of the
Company. In connection with a reverse
or forward split, appropriate
adjustments will be made in the
exercise price of, and number of
Shares issuable under, the Company's
outstanding share options and
warrants. Similar adjustments will be
made with respect to the conversion
rights relating to the Company's
Series A Cumulative Convertible
Redeemable Preferred Shares
("Preferred Shares").
REQUIRED VOTE FOR PROPOSAL The affirmative vote of holders of a
majority of the outstanding Shares as
of the Record Date is required to
approve the Share Split Amendment.
RECOMMENDATION OF THE BOARD OF TRUSTEES The Board of Trustees unanimously
recommends that the Beneficiaries
approve the Share Split Amendment.
-8-
<PAGE> 14
SPECIAL CONSIDERATIONS RELATING TO THE ASSET SALE
THE ASSET SALE WILL REDUCE THE SIZE AND DIVERSITY OF FIRST UNION'S PORTFOLIO
The Asset Sale will reduce the size and diversity of First Union's
portfolio. Consequently, the remaining properties will generate less revenue.
Additionally, the overall performance of the Company will depend more on each
individual property and will be more susceptible to poor performance at a
particular property and weaker economic conditions in a particular geographic
area.
REPLACEMENT ASSETS, IF ANY, MAY NOT PROVIDE GREATER VALUE
If any or all of the net proceeds are applied towards the purchase of
replacement assets, there can be no assurance that the replacement assets will
be as valuable as the assets they replace or provide greater returns to First
Union and the Beneficiaries.
THE ASSET SALE MAY CAUSE FIRST UNION TO FAIL TO QUALIFY AS A REIT FOR FEDERAL
INCOME TAX PURPOSES
A REIT is required to meet certain asset and income tests to maintain
its status as a REIT for federal income tax purposes. For example, in general,
at least 75% of the value of a REIT's assets must consist of real property, cash
and government securities. Additionally, among the remaining 25% of a REIT's
assets, the securities of a single issuer may not exceed 5% of the value of the
REIT's total assets. The Asset Sale may cause First Union to fail to meet either
or both of those asset tests. Furthermore, in general, at least 75% of a REIT's
annual income must consist of real property rents, mortgage interest, gain from
the sale of real estate assets, and other real estate related types of income,
while at least 95% of a REIT's annual income must come from those sources plus
other types of passive income. The Asset Sale may cause First Union to fail to
meet either or both of those income tests in the future. If First Union were to
fail to qualify as a REIT in any year, it would be subject to federal income
taxation as if it were a domestic corporation, and the Beneficiaries would be
taxed on distributions from First Union in the same manner as shareholders of
ordinary corporations (i.e., the distributions would be ordinary dividend income
to the extent of First Union earnings and profits). In this event, First Union
could be subject to potentially significant tax liabilities, and, therefore, the
amount of cash available for distribution to the Beneficiaries would be reduced
or eliminated. In addition, First Union could not re-elect REIT status for at
least five years, and First Union would permanently lose its grandfathered
status as a "stapled" REIT. First Union presently desires and intends to
maintain its status as a REIT for federal income tax purposes, but there can be
no assurance that, following the closing, it will be able to maintain this
status.
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<PAGE> 15
PROPOSAL ONE: CONSENT TO THE ASSET SALE
The Beneficiaries are being asked to consent to the Asset Sale. The
Board is seeking Beneficiary consent to the Asset Sale in accordance with the
Declaration of Trust, which provides that no sale of more than 50% of the
Company's property may be made without the consent of holders of at least a
majority of the outstanding Shares. The Asset Sale, together with prior asset
sales that were part of a sales program initiated by the Company in June 1998,
would, in the aggregate, constitute a sale by the Company of more than 50% of
the Company's property. Accordingly, a vote to consent to the Asset Sale will be
deemed a vote to consent to the sale by the Company of more than 50% of the
Company's property. The Board of Trustees unanimously determined that the
Purchase and Sale Agreement is advisable and fair and in the best interests of
the Company and the Beneficiaries. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS
THAT THE BENEFICIARIES VOTE TO CONSENT TO THE ASSET SALE.
The following information describes: (1) the background of the asset
sales program, (2) the reasons for the Asset Sale, (3) how the Company will use
the proceeds from the Asset Sale and (4) the plans for the Company subsequent to
the Asset Sale. Also included is information with respect to the parties to the
Asset Sale, the terms of the Purchase and Sale Agreement and the terms of the
Voting Agreements.
BACKGROUND OF THE ASSET SALES PROGRAM
GENERAL
In June 1998, following a proxy contest successfully waged by Gotham,
the Board decided to examine the Company's holdings to determine which assets to
retain and which assets to liquidate as part of a sales program. The Company
hired several brokers to market its assets and to explore possible individual
asset or packaged asset sales.
The following is a list of the properties that the Company sold as a
result of this marketing effort in general chronological order as to the date of
sale:
<TABLE>
<CAPTION>
PROPERTY LOCATION APPROXIMATE SIZE DATE SOLD GROSS PROCEEDS
-------- -------- ---------------- --------- --------------
<S> <C> <C> <C> <C>
Woodland Commons Shopping Buffalo Grove, IL 170,000 sq. ft. February 17, 1999 $ 21,636,511
Center
Beck Building (Office) Shreveport, LA 185,000 sq. ft. March 23, 1999 2,150,000
Sutter Buttes (Office) Marysville, CA 427,000 sq. ft. April 1, 1999 3,800,000
Northwest Malls May 5, 1999 37,400,000
Valley Mall Yakima, WA 272,000 sq. ft.
Valley North Mall Wenatchee, WA 163,000 sq. ft.
Mall 205 Portland, OR 255,000 sq. ft.
Plaza 205 Portland, OR 167,000 sq. ft.
Apartment Complexes May 12, 1999 86,000,000
Somerset Lakes Indianapolis, IN 360 units
Steeplechase Cincinnati, OH 272 units
Briarwood Fayetteville, NC 274 units
</TABLE>
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<PAGE> 16
continued from previous page
<TABLE>
<CAPTION>
PROPERTY LOCATION APPROXIMATE SIZE DATE SOLD GROSS PROCEEDS
-------- -------- ---------------- --------- --------------
<S> <C> <C> <C> <C>
Hunter's Creek Cincinnati, OH 146 units
Beech Lake Durham, NC 345 units
Woodfield Gardens Charlotte, NC 132 units
Windgate Place Charlotte, NC 196 units
Walden Village Atlanta, GA 372 units
Magic Mile Parking Lot Arlington, TX 1,000 spaces May 17, 1999 $ 2,000,000
Two Mall Sales Package June 10, 1999 22,050,000
Crossroads Mall Fort Dodge, IA 332,000 sq. ft.
Kandi Mall Willmar, MN 441,000 sq. ft.
Fingerlakes Mall Auburn, NY 405,000 sq. ft. June 3, 1999 2,250,000
Mountaineer Mall Morgantown, WV 618,000 sq. ft. July 1, 1999 11,000,000
Fairgrounds Square Mall Reading, PA 537,000 sq. ft. July 28, 1999 24,750,000
</TABLE>
The Company is marketing for possible sale certain additional
properties as part of the sales program commenced in June 1998. See "--Plans for
the Company Subsequent to the Asset Sale."
BACKGROUND OF THE ASSET SALE
The properties proposed to be sold in the Asset Sale are six malls of
the nine-mall Marathon portfolio that First Union acquired in 1996, namely
Alexandria Mall in Alexandria, Louisiana; Brazos Mall in Lake Jackson, Texas;
Killeen Mall in Killeen, Texas; Mesilla Valley Mall in Las Cruces, New Mexico;
Shawnee Mall in Shawnee, Oklahoma; and Villa Linda Mall in Santa Fe, New Mexico.
In September 1996, the Company purchased the portfolio of nine retail
shopping malls from Marathon U.S. Realties, Inc. by investing $30 million as
equity in a joint venture which purchased the portfolio, comprising
approximately 5,800,000 square feet of gross leaseable area. The joint venture's
purchase price for the nine malls was approximately $311.7 million, which
included the assumption of approximately $40 million in existing mortgage debt
and a new mortgage loan for approximately $165 million provided by GMAC
Commercial Mortgage Corporation ("GMAC"), an affiliate of one of the members of
the joint venture. Eight of the mall properties were acquired by the joint
venture in fee and one was acquired through the purchase of a 50% partnership
interest in the mall.
In September 1997, the Company acquired the interests of its joint
venture partners in the nine-mall Marathon portfolio for approximately $88
million in cash and the assumption of approximately $203 million of mortgage
debt.
In June 1998, the Company hired Granite Partners, Inc. ("Granite") to
market its shopping malls for a fee of 0.6% of the applicable purchase price. In
September 1998, Granite distributed an offering memorandum to seek indications
of interest in buying the Company's mall assets. After receiving bids from
interested buyers in December 1998 and in January 1999, the Company concluded
that it would maximize its profits if it sold each property separately or some
properties as a package, but not all of the properties as a group. As a result,
the Company contacted selected bidders and commenced preliminary negotiations
for the sale of different groups of properties, as well as for individual
properties.
-11-
<PAGE> 17
On April 12, 1999, Granite sent a letter to the four prospective buyers
which had submitted the best bids for the Malls and other properties, requesting
that they submit their highest and final offers. Whitehall/Zamias submitted a
bid on April 15, 1999 and another prospective purchaser (the "Competitor")
submitted a bid on April 20, 1999. The two other prospective bidders also
submitted bids, but the Company determined that the Whitehall/Zamias bid and the
Competitor's bid were superior to these two other bids. Consequently, the
Company decided to negotiate only with Whitehall/Zamias and the Competitor for
the sale of the Company's mall assets. On May 4, 1999, William A. Ackman,
Chairman of the Board of Trustees, together with senior management of the
Company, met separately with Whitehall/Zamias and the Competitor to discuss the
terms of their respective bids.
On May 7, 1999, the Company and its outside counsel commenced
negotiations with the Competitor for the sale of the Malls, Pecanland Mall in
Monroe, Louisiana and its 50% interest in Temple Mall in Temple, Texas. At that
time, the Competitor commenced a customary due diligence review. On May 17,
1999, the Board met and authorized management to pursue a purchase and sale
agreement with the Competitor containing the terms and conditions discussed at
the meeting. On May 26, 1999, the Company sent a draft purchase and sale
agreement to the Competitor.
On June 8, 1999, the Company received comments from the Competitor on
the draft purchase and sale agreement. At that time, significant outstanding
open issues remained. Discussions between the Company and the Competitor
continued for several days. On June 21, 1999, Daniel P. Friedman, President and
Chief Executive Officer of the Company, and Anne Zahner, Executive Vice
President of the Company, met with the Competitor's management to discuss the
status of the deal. Mr. Friedman and Ms. Zahner concluded that several
outstanding open issues remained between the Company and the Competitor.
Discussions between the Company and the Competitor were sporadic thereafter
until the week of July 5, 1999, when the Company and its outside counsel resumed
frequent negotiation sessions with the Competitor. The Company continued to
provide due diligence materials to the Competitor through July 13, 1999.
Meanwhile, on June 2, 1999, the Company and its outside counsel
commenced negotiations with Whitehall/Zamias for the sale of the Malls. On June
7, 1999, the Company distributed a draft purchase and sale agreement to
Whitehall/Zamias. At a meeting on June 16, 1999, Mr. Ackman and Michael K.
Klingher, a managing director of Goldman, Sachs & Co., discussed the potential
purchase price to be paid for the Malls. Also on June 16, 1999, Whitehall/Zamias
distributed to the Company a revised draft purchase and sale agreement. On June
22, 1999, Mr. Ackman met with Brad S. Lebovitz, Senior Vice President of Zamias
Services Inc., to discuss outstanding open issues. From June 16, 1999 until July
13, 1999, management and representatives of each of the Company and
Whitehall/Zamias participated in a number of meetings and negotiation sessions
to resolve any outstanding open issues with respect to their purchase and sale
agreement.
On July 13, 1999, the Board of Trustees considered the terms and status
of the proposals of Whitehall/Zamias and the Competitor and directed management
and the Chairman of the Board to pursue the Whitehall/Zamias proposal and to
seek certain modifications to the proposal. On July 13 and 14, 1999, the
Company's management and the Chairman of the Board negotiated further with
Whitehall/Zamias and Whitehall/Zamias agreed to the requested changes. On July
14, 1999, the parties executed the Purchase and Sale Agreement and each of
Gotham and Apollo executed a Voting Agreement agreeing to vote all of its Shares
to consent to the Asset Sale.
On August 11, 1999, the parties executed a letter agreement amending
the Purchase and Sale Agreement. On August 12, 1999, each of Gotham and Apollo
executed a new Voting Agreement agreeing to vote all of its Shares to consent to
the Asset Sale. On September 22, 1999, the parties executed a second letter
agreement and on October 7, 1999, the parties executed a third letter agreement,
each amending the Purchase and Sale Agreement.
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<PAGE> 18
REASONS FOR THE ASSET SALE
In reaching its decision to approve the Asset Sale, the Board of
Trustees considered the following factors:
- The Board's belief that the Company could earn a more attractive
return from reinvesting the net proceeds of the Asset Sale than
from retaining the Properties;
- That the Properties are subject to a cross-collateralized
mortgage, thereby reducing the Company's financial flexibility and
subjecting the equity in all of the Properties to the risk of loss
if one of the Properties performs poorly;
- That the Properties had been widely marketed for several months,
which gave the Company ample opportunity to determine the fair
market value of the Properties;
- The Board's belief that the Properties require significant
additional capital to maintain present occupancy levels and
compete effectively for tenants and shoppers; and
- The risk that the Properties may yield less attractive returns in
the future as a result of competition between tenants of the
Properties and Internet retailers.
The Board also considered the following potentially negative factors in
its deliberations concerning the Asset Sale:
- That the Company did not need the Asset Sale proceeds to satisfy
its capital requirements;
- That the Competitor's bid was somewhat higher than Purchaser's
bid; and
- That the Competitor had completed a significant portion of the
agreed upon due diligence, whereas Purchaser was in the early
stages of a standard due diligence review.
However, the Competitor's bid was contingent on obtaining additional
debt financing and resolving several outstanding open issues. Additionally,
contract negotiations with respect to the Competitor's bid were not complete and
were expected to continue for several weeks. Also, the Company was not precluded
from continuing negotiations with the Competitor until Purchaser completed its
due diligence and paid the Additional Deposit (as defined in "--Terms of the
Purchase and Sale Agreement--The Purchase Price").
After fully considering the matter and weighing the factors described
above, as well as certain additional considerations, including those reflected
in "Special Considerations Relating to the Asset Sale," the Board of Trustees
determined that the Purchase and Sale Agreement is advisable and fair and in the
best interests of the Company and the Beneficiaries. The Board of Trustees
determined not to retain a third party to render a fairness opinion regarding
the Asset Sale because it (i) believed the Company had ample opportunity to
determine the fair market value of the Properties by widely marketing the
Properties for several months and (ii) desired to conserve the Company's
resources.
This discussion of the information and factors considered and given
weight by the Board of Trustees is not intended to be exhaustive, but is
believed to include all material factors considered by the Board of Trustees. In
reaching the determination to approve and recommend that the Beneficiaries
consent to the Asset Sale, the Board of Trustees did not undertake a separate
analysis of each of the factors considered, nor did it find it practical to and
it did not assign any relative or specific weight to any of the factors which
were considered, and individual Trustees may have given differing weights to
different factors.
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<PAGE> 19
USE OF PROCEEDS OF THE ASSET SALE
The Company will receive approximately $188 million in aggregate
consideration for the Asset Sale after the payment of expenses, including
broker, legal and accounting fees and miscellaneous costs and adjustments, but
not including operating income and expense prorations. Of the approximately $188
million, approximately $73 million will be in cash and approximately $115
million will be from the assumption of the GMAC Mortgage. The Company expects to
use approximately $51 million of the net cash proceeds to pay off existing
mortgage debt and a prepayment penalty relating to the Park Plaza Mall in Little
Rock, Arkansas, which is cross-collateralized with the six Malls. The Company
may sell or refinance the Park Plaza Mall, in which case such portion of the net
cash proceeds or the sale or refinancing proceeds, as the case may be, would be
available to the Company for alternative uses. The Company is in the process of
exploring alternative uses for the net cash proceeds to be received, including,
without limitation:
- investing in its existing portfolio;
- implementing or continuing a share repurchase or similar program;
- distributing such net proceeds to the Beneficiaries, including,
but not necessarily limited to, amounts required to satisfy
certain REIT distribution requirements resulting from previous
asset sales and net income in 1999, if any; and
- making new investments.
PLANS FOR THE COMPANY SUBSEQUENT TO THE ASSET SALE
The Company's long-term economic goal is to increase the per share net
asset value of the Company at the highest possible rate, without undue risk,
over multi-year periods. The Company perceives itself as a publicly-traded
investment vehicle with REIT status, rather than as a shopping center or other
property-specific REIT. The Company continues to monitor the benefits of, and
the restrictions imposed by, maintaining its REIT status. The Company presently
desires and intends to maintain its status as a REIT for federal income tax
purposes, but is considering other formats. There can be no assurance that,
following the closing, the Company will be able to maintain its REIT status. See
"Special Considerations Relating to the Asset Sale--The Asset Sale may cause
First Union to fail to qualify as a REIT for federal income tax purposes."
The Company is in the process of soliciting or evaluating proposals
with respect to the sale of Pecanland Mall in Monroe, Louisiana; Park Plaza Mall
in Little Rock, Arkansas; Crossroads Center in St. Cloud, Minnesota; and its 50%
interest in Temple Mall in Temple, Texas. The Company may sell these properties
if it receives offers which it believes are advantageous to the Company and the
Beneficiaries. The Company is also evaluating possible alternative investment
opportunities. Furthermore, the Company is currently exploring refinancing
alternatives with respect to Park Plaza Mall and Crossroads Center.
Additionally, the Company is exploring the possibility of distributing to the
Beneficiaries interests in a company that would own most of the Company's
remaining assets and then selling the remaining public company and assets,
including some of its cash, to a third party. The Company is in the initial
stages of examining such a transaction, has engaged a financial advisor to
assist it in such examinations, and cannot determine whether such a transaction
is reasonably likely to be consummated.
The Trustees have recently approved the purchase of up to $20 million
of the Company's Shares in open market, privately negotiated or other types of
transactions, from time-to-time as market conditions warrant. The Company
commenced this repurchase program on August 23, 1999 and has so far repurchased
1,465,922 Shares for an aggregate price of $7,756,103.
-14-
<PAGE> 20
THE PARTIES
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
First Union is a REIT whose primary business has been to buy, manage,
improve cash flow of and own retail, apartment, office and parking properties
throughout the United States and Canada. First Union and FUMI have an
organizational structure commonly referred to as "stapled," where the Shares are
"stapled to" a proportionately equal interest in the common stock of FUMI, with
some exceptions. The Shares may not be issued or transferred without their
"stapled" counterparts in FUMI. The common stock of FUMI is held in trust for
the benefit of the Beneficiaries. FUMI owns a controlling interest in Impark, a
Canadian parking and management services company.
As of September 30, 1999, First Union owned, including under long-term
ground leases, 11 shopping centers (including the six Malls, which are under
contract to be sold), three office properties and seven parking facilities in
the United States, and 14 Canadian real estate assets. First Union also owns 50%
of an additional mall in a joint venture with an unrelated party. Since the
beginning of 1999, First Union has sold ten shopping centers, eight apartment
complexes, two office properties and a parking facility and is in the process of
selling the six Malls pursuant to the Purchase and Sale Agreement and evaluating
a number of proposals for other asset sales.
First Union's principal offices are located at 55 Public Square, Suite
1900, Cleveland, Ohio 44113-1937 (telephone number (216) 781-4030) and 551 Fifth
Avenue, Suite 1416, New York, New York 10176 (telephone number (212) 905-1100).
SELLER
Southwest is a Delaware limited liability company and an indirect
wholly-owned subsidiary of First Union.
PURCHASER
Whitehall/Zamias is a joint venture of Whitehall Street Real Estate
Limited Partnership XI, a real estate fund sponsored by Goldman, Sachs & Co.,
and Zamias Services Inc.
TERMS OF THE PURCHASE AND SALE AGREEMENT
The terms and conditions of the Asset Sale are contained in the
Purchase and Sale Agreement, a copy of which is attached to this Proxy Statement
as Appendices A-D and is incorporated herein by reference. The description in
this Proxy Statement of the terms and conditions of the Asset Sale is qualified
in its entirety by, and made subject to, the more complete information set forth
in the Purchase and Sale Agreement. THE BENEFICIARIES ARE URGED TO READ THE
PURCHASE AND SALE AGREEMENT CAREFULLY IN ITS ENTIRETY.
THE PURCHASE PRICE
The purchase price is $191.5 million payable as follows: (i) $1 million
(the "Initial Deposit"), upon the execution of the Purchase and Sale Agreement,
(ii) $9 million (the "Additional Deposit" and, together with the Initial
Deposit, the "Deposit"), after Purchaser completes its due diligence and (iii)
the balance, which includes the assumption of the GMAC Mortgage (as described
below), at the closing. Purchaser has completed its due diligence and has paid
to Seller the Deposit.
ASSETS TO BE TRANSFERRED
The Properties proposed to be sold in the Asset Sale are six malls of
the nine-mall Marathon portfolio that First Union acquired in 1996, namely
Alexandria Mall in Alexandria, Louisiana; Brazos Mall in Lake Jackson,
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<PAGE> 21
Texas; Killeen Mall in Killeen, Texas; Mesilla Valley Mall in Las Cruces, New
Mexico; Shawnee Mall in Shawnee, Oklahoma; and Villa Linda Mall in Santa Fe, New
Mexico.
LIABILITIES TO BE ASSUMED BY PURCHASER
The six Malls, together with the Park Plaza Mall, secure a promissory
note held by GMAC, as Servicing Agent, on which there is a present principal
balance of approximately $161.4 million (the "GMAC Mortgage"). Purchaser is
required to assume the GMAC Mortgage, provided that Seller causes the release of
the Park Plaza Mall, which is not included in the Asset Sale, from the GMAC
Mortgage, for a release price of approximately $46 million, and pays any
assumption and transfer fee imposed by GMAC up to 1% of the outstanding
principal balance of the GMAC Mortgage to be assumed by Purchaser. To the extent
that the assumption and transfer fee is less than 1% of the outstanding
principal balance, Seller will pay Purchaser 50% of the difference between 1% of
the outstanding principal balance and the amount of the assumption and transfer
fee. Purchaser is required to pay all other costs in connection with the
assumption, including legal fees and rating agency fees. Additionally, Purchaser
will pay or reimburse Seller for certain transaction costs, which total
approximately $400,000.
MEZZANINE FINANCING
Purchaser must use its reasonable good faith efforts to obtain the
consent of GMAC and the rating agency to any mezzanine financing that it may
obtain in connection with the transaction (the "Mezzanine Financing"). If either
GMAC or the rating agency does not consent to the Mezzanine Financing, the
Purchase and Sale Agreement will terminate, unless either GMAC or the rating
agency, as the case may be, does not consent to the Mezzanine Financing because
the proposed lender is not satisfactory to GMAC or the rating agency, as the
case may be, and such proposed lender is not one of the lenders that Purchaser
and Seller have pre-approved. On October 7, 1999, GMAC consented to the
Mezzanine Financing.
REPRESENTATIONS AND WARRANTIES
The Purchase and Sale Agreement contains various representations and
warranties of Seller and Purchaser. The respective representations and
warranties of Seller and Purchaser will survive the closing for six months.
The representations of Seller relate generally to: corporate
organization, qualification and good standing; authorization, enforceability and
related matters; conflicts and requisite consents; solvency; anchor agreements,
leases and specialty license agreements; condemnation; litigation; compliance
with applicable laws; licenses and permits; security deposits; rights of first
offer and first refusal; employees; and environmental matters.
The representations of Purchaser relate generally to: corporate
organization, qualification and good standing; authorization, enforceability and
related matters; conflicts and requisite consents; and solvency.
INDEMNIFICATION
If the closing occurs, Seller and the Company have agreed to jointly
and severally indemnify and hold harmless Purchaser and Purchaser's affiliates
from and against any and all losses, claims, damages, liabilities, costs and
expenses, including reasonable attorney's fees and expenses (collectively,
"Losses") arising out of or due to, directly or indirectly, any breach of any of
the representations, warranties, covenants, or obligations of Seller contained
in the Purchase and Sale Agreement.
Notwithstanding the foregoing, the parties have agreed that Seller and
the Company are not required to indemnify Purchaser for any Losses unless and
until Purchaser has incurred Losses aggregating in excess of $500,000, in which
case Purchaser and its affiliates will be entitled to indemnification for such
Losses in excess of $500,000, but Seller and the Company's indemnification
obligations will not exceed $5 million.
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<PAGE> 22
CONDUCT PENDING CLOSING
Seller is generally required to continue to manage the Properties
consistent with Seller's normal and customary practice. However, Purchaser may
require Seller to enter into leases with The Gap and Old Navy and other parties
that are reasonably acceptable to Seller. The terms, conditions and lease
documents with respect to these leases will be commercially reasonable as
determined by Purchaser, provided that, with respect to tenants other than The
Gap or Old Navy, the terms, conditions and lease documents must also be
reasonably acceptable to Seller. In the event that Seller does not execute such
a lease requested by Purchaser within five business days, Purchaser may execute
the lease on behalf of Seller. Purchaser is required to deposit in escrow
certain out-of-pocket costs in connection with such leases ("Tenant Costs"), to
be used by Seller to pay such costs. Seller may not enter into or modify any
lease, anchor agreement, license or occupancy agreement with respect to the
Properties without the consent of Purchaser.
EXCLUSIVITY
From and after the date that Purchaser makes the Additional Deposit,
neither Seller nor the Company may, directly or indirectly, solicit, pursue,
entertain, negotiate, enter into or attempt to engage in, any discussions with
any person or entity other than Purchaser with a view toward the sale of all or
any portion of the Malls. The Company may, however, respond to a bona fide
proposal, which is neither solicited nor encouraged by Seller or the Company, to
buy all of the Malls (but not less than all) if the Board of Trustees has
determined that (a) the alternative proposal is more favorable from a financial
point of view; (b) the proposal is reasonably capable of being consummated; and
(c) based on the advice of outside legal counsel, the Company has the fiduciary
duty under applicable law or its organizational documents to the Beneficiaries
to respond to and pursue the alternative proposal.
CONDITIONS TO THE CLOSING
The closing is conditioned upon Purchaser obtaining the consent of GMAC
(the "GMAC Consent") and the rating agency (the "Rating Agency Consent") to
Purchaser's assumption of the GMAC Mortgage and to the Mezzanine Financing. On
October 7, 1999, Purchaser obtained the GMAC Consent.
The closing is also conditioned upon consent to the Asset Sale by the
Beneficiaries on or prior to November 30, 1999, subject to extension in certain
circumstances at the election of Purchaser, but in no event later than February
28, 2000 (such date, the "Beneficiary Approval Deadline").
Additionally, the closing is conditioned upon Seller delivering to
Purchaser estoppel certificates in a specified form from certain Mall anchors as
well as a certain portion of non-anchor mall tenants. Regarding each Mall anchor
for which Seller is not required to obtain an estoppel certificate, Seller must
provide Purchaser with a certificate from Seller substantially similar to the
form of the estoppel certificate. Seller is also required to deliver at closing
an estoppel certificate from GMAC certifying, among other things, that all
payments due to GMAC have been made and that GMAC has not provided Seller with
written notice of and has no knowledge of any default by Seller under any of the
GMAC loan documents. Finally, Seller is required to use its best efforts to
deliver an estoppel certificate from each lessor under the two ground leases at
Alexandria Mall; provided that, if either estoppel certificate is not obtained,
Seller must provide Purchaser with a certificate from Seller substantially
similar to such estoppel certificate.
The closing is also conditioned on the clearance of certain title
objections.
THE CLOSING
The closing will occur on a date (the "Closing Date") within ten
business days after the consent by the Beneficiaries, subject to certain
permitted adjournments, but in no event later than December 20, 1999; however,
such date will be extended by the number of days that Purchaser extends the
Beneficiary Approval Deadline.
-17-
<PAGE> 23
TERMINATION
Either party may terminate the Purchase and Sale Agreement if any
condition to that party's obligation to close is not met on or before the
Closing Date or if the other party defaults under the Purchase and Sale
Agreement. Additionally, Purchaser may terminate the Purchase and Sale Agreement
in the event of damage, destruction or condemnation resulting in a loss or a
reasonably expected condemnation award, as the case may be, in excess of $2.5
million with respect to any Mall. Furthermore, the Purchase and Sale Agreement
will terminate if (A) Beneficiary consent to the Asset Sale is not received by
the Beneficiary Approval Deadline, (B) the Board of Trustees withdraws or fails
to reaffirm its recommendation that the Beneficiaries consent to the Asset Sale,
(C) the Board of Trustees or the Beneficiaries vote to approve a proposal to
sell all or any of the Malls to a party other than Purchaser or the Company
signs an agreement to sell all or any of the Malls to a party other than
Purchaser or (D) Seller breaches the exclusivity provision described above under
"--Exclusivity" (each of (A)-(D), a "Termination Provision").
EFFECT OF TERMINATION
If Seller terminates the Purchase and Sale Agreement because Purchaser
has defaulted under the Purchase and Sale Agreement, then, as a sole remedy,
Seller may retain the Deposit and all Tenant Costs advanced by Purchaser not
previously expended ("Escrowed Tenant Costs"). If Purchaser terminates the
Purchase and Sale Agreement because Seller has defaulted under the Purchase and
Sale Agreement, then Seller must return to Purchaser the Deposit and all
Escrowed Tenant Costs and reimburse Purchaser for its out-of-pocket expenses.
Alternatively, if Seller obtains Beneficiary consent to the Asset Sale and
Seller defaults under the Purchase and Sale Agreement, then, in lieu of its
other remedies, Purchaser may obtain specific performance of the Purchase and
Sale Agreement.
If the Purchase and Sale Agreement terminates because the Rating Agency
Consent is not received, then Seller may retain the Initial Deposit, but Seller
must return to Purchaser the Additional Deposit and all Escrowed Tenant Costs.
If the Purchase and Sale Agreement terminates pursuant to any other
Termination Provision, other than because Beneficiary consent to the Asset Sale
has not been received by the Beneficiary Approval Deadline as a result of (a)
Seller's inability to timely clear with the Securities and Exchange Commission
(the "Commission") a definitive proxy statement, inclement weather or matters of
a similar type which are beyond the control of Seller (each such circumstance,
an "Unavoidable Delay") or (b) the Beneficiaries voting against the Asset Sale,
then, as a sole remedy, Seller must return to Purchaser the Deposit and all
Escrowed Tenant Costs and pay Purchaser an additional $10 million.
If the Purchase and Sale Agreement terminates because Beneficiary
consent to the Asset Sale has not been received by the Beneficiary Approval
Deadline as a result of an Unavoidable Delay or the Beneficiaries voting against
the Asset Sale, then, as a sole remedy, Seller must return to Purchaser the
Deposit and all Escrowed Tenant Costs and pay to Purchaser $1.5 million,
provided that, if Seller enters into an agreement to sell all or any of the
Malls during the succeeding twelve-month period, Seller must pay to Purchaser an
additional $8.5 million, for a total of $10 million.
TERMS OF THE VOTING AGREEMENTS
In connection with the Purchase and Sale Agreement, each of Gotham and
Apollo, in its capacity as a Beneficiary, has signed a Voting Agreement to vote
all of its Shares held as of the Record Date, which Shares, in the aggregate,
represent approximately 20.79% of the Company's Shares, to consent to the Asset
Sale. Gotham and Apollo each agreed to vote all of its Shares (i) to consent to
the Asset Sale, (ii) against any action that would result in a breach of the
Purchase and Sale Agreement or its Voting Agreement and (iii) against any sale
of the Properties to any party other than Purchaser. Additionally, each of
Gotham and Apollo agreed to appoint Purchaser as its proxy to vote all of its
Shares with respect to the sale of the Properties at any meeting of the
Beneficiaries called to consider the Asset Sale. Each Voting Agreement will
terminate upon the termination of the
-18-
<PAGE> 24
Purchase and Sale Agreement in accordance with its terms or upon certain
amendments, modifications or waivers of the Purchase and Sale Agreement.
The above summary of each Voting Agreement does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
text of each Voting Agreement, which are attached as Exhibits 99.6 and 99.7,
respectively, to the Company's Current Report on Form 8-K, filed with the
Commission on August 16, 1999, and which are incorporated herein by reference.
-19-
<PAGE> 25
SECURITY OWNERSHIP OF TRUSTEES AND OFFICERS AND CERTAIN BENEFICIAL OWNERS
The table below sets forth, with respect to each member of the Board of
Trustees, the executive officers, and all Trustees and executive officers as a
group, information relating to their beneficial ownership of Shares as of
September 27, 1999:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP1 PERCENT
------------------------ --------------------- -------
TRUSTEES
<S> <C> <C>
William A. Ackman(2)....................................... 5,841,233 13.75%
Daniel J. Altobello(3)..................................... 4,500 *
David P. Berkowitz(2)...................................... 5,841,233 13.75%
Daniel P. Friedman (also an Executive Officer)(4).......... 399,120 *
Stephen J. Garchik(3)...................................... 7,500 *
David S. Klafter(5, 6)..................................... 0 --
William A. Scully(7)....................................... 0 --
Daniel Shuchman(5, 6)...................................... 0 --
Steven S. Snider(3)........................................ 5,000 *
Mary Ann Tighe(3, 6)....................................... 7,500 *
James A. Williams(3, 6).................................... 21,500 *
EXECUTIVE OFFICERS
John J. Dee(8)............................................. 82,995 *
Paul F. Levin(9)........................................... 53,050 *
Brenda Mixson.............................................. 0 --
David Schonberger(10)...................................... 121,374 *
Anne N. Zahner(10)......................................... 121,374 *
All Trustees and executive officers (16) as a group(11)........ 6,658,146 15.42%
<FN>
- --------------
* Beneficial ownership does not exceed 1%.
1 Pursuant to Rule 13d-3 of the Exchange Act, 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. ("Section H") and Mr. Berkowitz is the President of DPB
Corporation ("DPB"), a general partner of Section H. Section H is the sole
general partner of Gotham LP and Gotham Partners III, L.P. ("Gotham III LP").
Accordingly, Mr. Ackman, Mr. Berkowitz, Karenina Corporation, DPB and Section H
may be deemed beneficial owners of Shares owned by Gotham LP and Gotham III LP.
Gotham International Advisors, LLC, a Delaware limited liability company
("GIA"), has the power to vote and dispose of the Shares held for the account of
Gotham Partners International, Ltd., a Cayman exempted company ("Gotham
International"), and accordingly, may be deemed the beneficial owner of such
shares. Mr. Ackman and Mr. Berkowitz are senior managing members of GIA and may
be deemed beneficial owners of Shares owned by Gotham International. For
purposes of this table, all of such ownership is included.
3 Includes 2,500 share awards ("Share Awards") granted to each of Mr. Altobello,
Mr. Garchik, Mr. Snider, Ms. Tighe and Mr. Williams (each, a "Grantee") under
the Company's 1999 Share Option Plan for Trustees, pursuant to which such Share
Awards will generally become vested and exercisable on the day immediately prior
to the Company's annual meeting in the year 2000 if the Grantee is still a
member of the Board of Trustees at such time. Each Grantee currently has voting
and dividend rights with respect to such Share Awards.
4 Includes 364,120 Shares that Mr. Friedman has the vested right to acquire
through the exercise of options on November 2, 1999. Excludes 1,092,363 Shares
that Mr. Friedman has the vested right to acquire through the exercise of
options thereafter. Generally, 33.3% of such options to purchase 1,092,363
Shares become exercisable annually, beginning on November 2, 2000.
5 Mr. Klafter and Mr. Shuchman are limited partners of Section H and members of
GIA. As limited partners of Section H, Mr. Klafter and Mr. Shuchman have no
right to vote or dispose of any Shares held by Gotham LP or Gotham III LP and
therefore do not beneficially own any Shares held by Gotham LP or Gotham III LP.
As members of GIA, Mr. Klafter and Mr. Shuchman have no right to vote or dispose
of any Shares held by Gotham International, and therefore do not beneficially
own any Shares held by Gotham International.
6 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.
</TABLE>
-20-
<PAGE> 26
The following table sets forth, according to publicly available
information on file with 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>
AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(12) PERCENT
- ------------------------------------ ---------------------- -------
<S> <C> <C>
Gotham Partners, L.P.(13) 5,841,233 13.75%
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.(14) 2,990,379 7.04%
c/o Apollo Real Estate Advisors II, L.P.
1301 Avenue of the Americas
New York, NY 10019
Magten Asset Management Corp.(15) 6,207,290 14.62%
35 East 21st Street
New York, NY 10010
Snyder Capital Management, L.P.(16) 4,148,900 9.77%
350 California Street
Suite 1460
San Francisco, CA 94104
- -------------------
<FN>
FOOTNOTES CONTINUED FROM PREVIOUS PAGE.
7 Mr. Scully is a limited partner of Apollo LP. As a limited partner, he has
no right to vote or dispose of any Shares held by Apollo LP, and therefore
does not beneficially own any Shares held by Apollo LP.
8 Includes 45,200 Shares that Mr. Dee has the vested right to acquire through
the exercise of options, which are presently exercisable.
9 Includes 53,000 Shares that Mr. Levin has the vested right to acquire through
the exercise of options, which are presently exercisable.
10 Includes 121,374 Shares which each of Mr. Schonberger and Ms. Zahner has the
vested right to acquire through the exercise of options on November 2, 1999.
Excludes 364,120 Shares which each of Mr. Schonberger and Ms. Zahner has the
vested right to acquire through the exercise of options thereafter.
Generally, 33.3% of such options to purchase 364,120 Shares become
exercisable annually, beginning on November 2, 2000.
11 Includes a total of 98,200 Shares which are referenced in footnotes 8 and 9,
a total of 606,868 Shares which are referenced in the first sentence of
footnotes 4 and 10 and a total of 12,500 Share Awards which are referenced
in footnote 3. Excludes a total of 1,820,603 Shares which are referenced in
the second sentence of footnotes 4 and 10.
12 Pursuant to Rule 13d-3 of the Exchange Act, 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.
13 The information regarding this holder was received by First Union from a
Schedule 13D filed with the Commission on July 16, 1999. Gotham LP has sole
voting and investment power with respect to 4,331,121 Shares, GIA has shared
voting and investment power with respect to 1,431,664 Shares and Gotham III
LP has sole voting and investment power with respect to 78,448 Shares.
14 The information regarding this holder is as of September 27, 1999 and was
obtained from Apollo LP. This holder has shared voting and investment power
with respect to all of its Shares.
15 The information regarding this holder is as of September 27, 1999, and was
obtained from Magten Asset Management Corp. This holder has sole voting and
investment power with respect to 444,780 Shares, shared voting and
investment power with respect to 3,575,610 Shares, and shared investment and
no voting power with respect to 2,186,900 Shares.
16 The information regarding this holder is as of September 27, 1999 and was
obtained from Snyder Capital Management, L.P. This holder has shared voting
and investment power with respect to 3,369,340 Shares and shared investment
and no voting power with respect to 779,560 Shares.
</TABLE>
-21-
<PAGE> 27
INTERESTS OF MANAGEMENT OR TRUSTEES IN THE ASSET SALE
None of the executive officers or Trustees of the Company has been
offered an employment contract with Whitehall/Zamias, is eligible for any
compensation or benefit from Whitehall/Zamias or the Company as a result of the
proposed transaction, has any ownership interest or any other economic interest
in Whitehall/Zamias, or in any other way stands to personally benefit as a
result of the consummation of the Asset Sale.
ACCOUNTING TREATMENT OF THE ASSET SALE
The Asset Sale will be reflected on the Company's financial statements
as a sale of the assets with a loss recognized for the difference between the
total proceeds under the Purchase and Sale Agreement and the book value of the
net assets sold. The Company recorded an unrealized loss of $9 million on the
carrying value of the Malls in the quarter ended June 30, 1999.
TAX CONSEQUENCES OF THE ASSET SALE
The following summary of the material federal income tax consequences
of the Asset Sale is not intended to be tax advice to any person, nor is it
binding upon the Internal Revenue Service. In addition, no information is
provided herein with respect to the tax consequences of the Asset Sale under
applicable state, local, or foreign tax laws.
The Company will recognize gain or loss on the Asset Sale equal to the
difference between the amount realized by the Company from the Asset Sale and
the Company's adjusted tax basis in the assets sold. The amount realized by the
Company on the Asset Sale will equal the sum of the money received by the
Company, plus the amount of the liabilities assumed by Purchaser, plus the
amount of any liabilities to which the sold assets are subject. The Company will
be subject to federal income taxation on any gain it recognizes on the Asset
Sale unless the Company distributes to its Beneficiaries an amount equal to the
amount of the gain. At this time, the Company anticipates recognizing a loss of
approximately $9 million on the Asset Sale.
If contrary to its current expectations, the Company recognizes a gain
on the Asset Sale, the Company intends to distribute to the Beneficiaries, as a
capital gain distribution, an amount equal to any gain it recognizes on the
Asset Sale. If the Company makes such a distribution, the Company generally will
not be taxed on the gain, but instead the Beneficiaries will recognize a
long-term capital gain in the amount of such distribution. For individuals,
long-term capital gains are taxed at rates lower than ordinary income, generally
at 20% or 25% depending on the nature of the capital gain.
However, there can be no assurance that the Company will have
sufficient available cash or borrowing capacity to make a capital gain
distribution equal to any gain it recognizes on the Asset Sale. If the Company
fails to make such a distribution, then the following tax results will occur.
The Company will be taxed on the undistributed capital gain. Pursuant to an
election the Company anticipates it would make, the Beneficiaries: (i) would
recognize a long-term capital gain in the amount of the Company's undistributed
capital gain; (ii) would be given a tax credit equal to the tax paid by the
Company on the undistributed capital gain (which credit generally should
eliminate any tax on the gain referred to in clause (i) and, in the case of the
Beneficiaries who are individuals, result in an excess credit that either can be
used to shelter capital gains from other sources or can result in a tax refund),
and (iii) would increase their basis in the Shares by the excess of the amount
of capital gain referred to in clause (i) over the amount of the tax credit
referred to in clause (ii).
The Company urges each of the Beneficiaries to consult its tax advisor
regarding the specific tax consequences to the Beneficiary of a capital gain
distribution by the Company or, as discussed in the immediately preceding
paragraph, if the Company recognizes a capital gain on the Asset Sale and does
not make a capital gain distribution.
-22-
<PAGE> 28
GOVERNMENT AND REGULATORY APPROVALS
To the Company's knowledge, consummation of the Asset Sale does not
require any regulatory approvals other than the federal filings required under
applicable United States securities laws in connection with this Proxy
Statement.
NO DISSENTERS' RIGHTS
Under Ohio law, the Beneficiaries do not have dissenters' rights to
receive payment for their Shares as a result of the Asset Sale.
REQUIRED VOTE FOR PROPOSAL
In accordance with the provisions of Article X of the Declaration of
Trust, the affirmative vote of a majority of the outstanding Shares as of the
Record Date is required to consent to the Asset Sale.
RECOMMENDATION OF THE BOARD OF TRUSTEES
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR THE ASSET SALE.
-23-
<PAGE> 29
PRO FORMA FINANCIAL DATA OF FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
The Pro Forma Combined Balance Sheet of the Company as of June 30,
1999, reflects three adjustment columns: the sale of Mountaineer and Fairgrounds
Malls in July 1999, the proposed sale of the six Malls and the repayment of
mortgage debt at Park Plaza Mall. The Pro Forma Combined Statement of Operations
for the six months ended June 30, 1999 and twelve months ended December 31, 1998
reflect three adjustment columns: the properties sold by the Company during the
first six months of 1999, the sale of Mountaineer and Fairgrounds Malls in July
1999 and the proposed sale of the six Malls. In the aggregate, the adjustments
reflect the sale of 16 shopping malls, eight apartment complexes, two office
properties and a parking facility.
The Pro Forma Combined Balance Sheet of the Company assumes that the
sales and repayment of the mortgage debt at the Park Plaza Mall occurred at the
end of the balance sheet period and the Pro Forma Combined Statements of
Operations assume that the sales occurred on the first day of the respective
periods. The Pro Forma Combined Statement of Operations for the twelve months
ended December 31, 1998 and for the six months ended June 30, 1999 are not
necessarily indicative of the actual results that would have occurred had the
property sales been consummated on the first day of the respective periods or of
future operations of the Company. The Pro Forma financial statements do not take
into consideration the increase in the Company's liquidity or possible uses of
those funds.
The Pro Forma Combined Balance Sheet and Pro Forma Combined Statement
of Operations should be read in conjunction with the Notes to Pro Forma Combined
Financial Statements.
-24-
<PAGE> 30
<TABLE>
<CAPTION>
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1999
(In thousands, except share descriptions)
Pro Forma Adjustments
------------------------------------------
Repayment
Mountaineer of Park
and Plaza
Fairgrounds Sale of Six Mortgage Pro Forma
June 30, 1999 Mall Sales Malls Debt June 30, 1999
------------- ---------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
ASSETS
Investments in real estate
Land $ 101,800 $ (3,984) $ (38,069) $ 59,747
Buildings and improvements 482,717 (58,345) (156,025) 268,347
--------- --------- --------- --------- ---------
584,517 (62,329) (194,094) -- 328,094
Less - Accumulated depreciation (105,632) 27,492 8,142 (69,998)
--------- --------- --------- --------- ---------
Total investments in real estate 478,885 (34,837) (185,952) -- 258,096
Investment in joint venture 1,749 1,749
Mortgage loans and notes receivable 8,428 8,428
Other assets
Cash and cash equivalents - unrestricted 19,912 18,147 83,047 $ (51,151) 69,955
- restricted 16,138 (11,821) 4,317
Accounts receivable and prepayments 8,872 (142) (162) 8,568
Inventory 2,513 2,513
Goodwill, net 43,852 43,852
Management and lease agreements, net 706 706
Deferred charges and other, net 5,986 (93) 5,893
Unamortized debt issue costs 4,142 (97) (2,048) (607) 1,390
Other 6,641 -- 6,641
--------- --------- --------- --------- ---------
Total assets $ 597,824 $ (17,022) $(116,936) $ (51,758) $ 412,108
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans $ 294,148 $ (3,619) $(115,225) $ (46,151) $ 129,153
Notes payable 12,308 (12,181) 127
Senior notes 12,538 12,538
Bank loans 22,650 -- 22,650
Accounts payable and accrued liabilities 35,519 (1,222) (1,711) 32,586
Deferred obligations 10,591 10,591
Deferred capital gains and other deferred income 2,285 2,285
--------- --------- --------- --------- ---------
Total liabilities 390,039 (17,022) (116,936) (46,151) 209,930
--------- --------- --------- --------- ---------
Minority interest 460 460
Shareholders' equity
Preferred shares of beneficial interest,
$25 liquidation preference, 2,300,000
shares authorized and 1,349,000 outstanding 31,737 31,737
Shares of beneficial interest, $1 par,
unlimited authorization, outstanding 43,943 43,943
Paid-in capital 133,631 (5,607) 128,024
Foreign currency translation adjustment (1,986) -- -- (1,986)
--------- --------- --------- --------- ---------
Total shareholders' equity 207,325 -- -- (5,607) 201,718
--------- --------- --------- --------- ---------
$ 597,824 $ (17,022) $(116,936) $ (51,758) $ 412,108
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
-25-
<PAGE> 31
<TABLE>
<CAPTION>
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999
(In thousands, except per share data)
Pro Forma Adjustments
-------------------------------------------------
Properties
Sold
During the Mountaineer Pro Forma
Six Months Six Months and Six Months
ended Ended Fairgrounds Sale of Six ended
June 30, 1999 June 30, 1999 Mall Sales Malls June 30, 1999
--------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rents $ 156,593 $ 12,835 $ 4,839 $ 17,841 $ 121,078
Interest- Mortgage loans 230 230
- Short-term investments 601 601
- Investments -- --
Joint venture income and fees 189 189
Other 148 148
--------- --------- --------- --------- ---------
157,761 12,835 4,839 17,841 122,246
--------- --------- --------- --------- ---------
EXPENSES
Property operating 110,166 5,415 1,262 5,275 98,214
Real estate taxes 6,046 1,245 659 987 3,155
Depreciation and amortization 17,798 4,990 1,320 2,347 9,141
Interest- Mortgages 14,003 1,119 152 6,820 5,912
- Senior notes 556 556
- Bank loans 4,985 2,731 2,254
- Notes payable 4,132 3,573 559 --
General and administrative 8,126 171 7,955
Foreign currency gain (738) (738)
Unrealized loss on carrying value of assets
identified for disposition 9,000 9,000
--------- --------- --------- --------- ---------
174,074 19,244 3,952 15,429 135,449
--------- --------- --------- --------- ---------
NET LOSS BEFORE PREFERRED DIVIDEND
AND CAPITAL GAINS $ (16,313) $ 6,409 $ (887) $ (2,412) $ (13,203)
Preferred dividend (1,416) (1,416)
--------- ---------
Net loss applicable to shares of beneficial
interest before capital gains $ (17,729) $ (14,619)
========= =========
Per share data
NET LOSS APPLICABLE TO SHARES OF BENEFICIAL
INTEREST BEFORE CAPITAL GAINS, BASIC AND DILUTED $ (0.51) $ (0.42)
========= =========
Adjusted shares of beneficial interest, basic 34,536 34,536
Adjusted shares of beneficial interest, diluted 34,536 34,536
</TABLE>
The accompanying notes are an integral part of these statements.
-26-
<PAGE> 32
<TABLE>
<CAPTION>
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Twelve Months Ended December 31, 1998
(In thousands, except per share data)
Pro Forma Adjustments
----------------------------------------------
Properties
Sold
During the Mountaineer
Six Months and
Ended Fairgrounds Sale of Six Pro Forma
1998 June 30, 1999 Mall Sales Malls 1998
--------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
REVENUES
Rents $ 320,592 $ 37,951 $ 9,980 $ 37,094 $ 235,567
Interest- Mortgage loans 1,211 1,211
- Short-term investments 1,337 1,337
- Investments 302 302
Joint venture income and fees 501 501
Other 583 583
--------- --------- --------- --------- ---------
324,526 37,951 9,980 37,094 239,501
--------- --------- --------- --------- ---------
EXPENSES
Property operating 223,667 13,746 2,775 11,434 195,712
Real estate taxes 12,453 3,458 1,376 1,965 5,654
Depreciation and amortization 33,389 9,163 2,597 4,374 17,255
Interest- Mortgages 29,032 3,719 318 13,732 11,263
- Senior notes 5,856 4,765 1,091
- Bank loans 12,214 6,696 5,518
- Notes payable 3,757 3,249 508 --
General and administrative 37,577 561 37,016
Litigation and proxy expenses 4,848 4,848
Foreign currency loss 2,198 2,198
Unrealized loss on carrying value of assets
identified for disposition and impaired 51,000 (9,000) 60,000
assets --------- --------- --------- --------- ---------
415,991 45,357 7,574 22,505 340,555
--------- --------- --------- --------- ---------
NET LOSS BEFORE PREFERRED DIVIDEND,
EXTRAORDINARY LOSS AND CAPITAL GAINS (91,465) $ 7,406 $ (2,406) $ (14,589) (101,054)
Preferred dividend (2,999) (2,999)
--------- ---------
Net loss applicable to shares of beneficial
interest before extraordinary loss and capital
gains $ (94,464) $(104,053)
========= =========
Per share data
NET LOSS APPLICABLE TO SHARES OF BENEFICIAL
INTEREST BEFORE EXTRAORDINARY LOSS AND CAPITAL
GAINS, BASIC AND DILUTED $ (3.07) $ (3.38)
========= =========
Adjusted shares of beneficial interest, basic 30,772 30,772
Adjusted shares of beneficial interest, diluted 31,015 31,015
</TABLE>
The accompanying notes are an integral part of these statements.
-27-
<PAGE> 33
<TABLE>
<CAPTION>
Notes to Pro Forma Combined Financial Statements
1) Proceeds from Property Sales (In thousands)
USE OF PROCEEDS
----------------------------------
NET PROCEEDS MORTGAGE NET PROCEEDS BANK
AFTER COSTS DEBT ASSUMED AFTER DEBT NOTE CREDIT
DATE SOLD AND PRORATIONS OR REPAID ASSUMPTION PAYABLE FACILITY CASH
----------- -------------- ------------ ---------- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTY
Offices
Beck (a) March 23, 1999 $ 1,772 $ 1,772 $ 1,772
Sutter Buttes(a) April 1, 1999 3,627 3,627 3,627
Apartments (a),(b) May 12, 1999 83,523 $ 37,520 46,688 15,703 $30,985
Parking Facility
Magic Mile (a) May 17, 1999 1,894 1,894 1,894
Retail
Woodland Commons (a) February 17, 20,789 11,469 9,320 9,320
1999
Northwest properties May 5, 1999 36,075 36,075 2,675 33,400
(a),(c)
Fingerlakes Mall (a) June 1, 1999 2,168 2,168 2,168
Ft. Dodge and Kandi June 10, 1999 21,722 21,722 122 21,600
Malls(a),(d)
Mountaineer Mall July 1, 1999 9,928 3,619 6,309 6,309
Fairgrounds Mall July 28, 1999 24,019 24,019 5,872 18,147
Southwestern Shopping 181,451 161,376 20,075 20,075
Malls(e)
<FN>
(a) Properties were sold during the first six months of 1999 and the
transactions have been recorded in the June 30, 1999 Combined Balance
Sheet. For purposes of the Pro Forma Combined Statements of Operations,
the transactions are assumed to have occurred on the first day of each
period.
(b) The apartment portfolio, which was sold to one purchaser, consisted
of the following properties: Somerset Lakes in Indianapolis, IN;
Steeplechase and Hunter's Creek, both in Cincinnati, OH; Beech Lake in
Durham, NC; Walden Village in Atlanta, GA; Briarwood in Fayetteville,
NC; and Windgate Place and Woodfield Gardens, both in Charlotte, NC.
(c) The Northwest Malls, which were sold to one purchaser, consisted of
the following properties: Valley Mall in Yakima, WA; Valley North Mall
in Wenatchee WA; and Mall 205 and Plaza 205, both in Portland, OR.
(d) Both malls were sold to one purchaser.
(e) The Southwestern Shopping Malls, which will be sold to one
purchaser, consist of the following properties: Alexandria Mall in
Alexandria, LA; Brazos Mall in Lake Jackson; TX, Killeen Mall in
Killeen, TX; Mesilla Valley Mall in Las Cruces, NM; Shawnee Mall in
Shawnee, OK; and Villa Linda Mall in Santa Fe, NM. Net proceeds reflect
an estimate of approximately a $5 million prepayment penalty for the
Park Plaza Mall in Little Rock, AR, which will not be sold in this
transaction but is cross collateralized with the aforementioned malls.
The Pro Forma Financial Statements also assume that the debt associated
with Park Plaza of approximately $36.9 million will be repaid with net
proceeds from the sale of the Southwestern Shopping Malls at 1.25 times
the balance outstanding (approximately $46 million). The amount of the
repayment of the Park Plaza debt in excess of the balance outstanding
at June 30, 1999 (approximately $9.2 million) is used to reduce the
mortgage balances assumed on the six Southwestern Shopping Malls.
Consequently, the debt assumed by the purchaser is approximately $115
million. Additionally, approximately $11.8 million of cash as of June
30, 1999, which is additional collateral for the mortgages securing
these malls, will be reclassified from restricted to unrestricted cash
upon the sale.
</TABLE>
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<PAGE> 34
<TABLE>
<CAPTION>
MORTGAGE DEBT AT JUNE 30, 1999
------------------------------------
SIX MALLS PARK PLAZA TOTAL TO
PROPERTY TO BE SOLD TO BE REPAID BE REPAID
---------------------------- -------------- ---------------- -----------
<S> <C> <C> <C>
Alexandria $ 21,126
Brazos 15,502
Killeen 27,874
Mesilla Valley 24,255
Shawnee 11,394
Park Plaza $36,921
Villa Linda 24,304
---------
$ 124,455
Required repayment of Park
Plaza Mortgage at 1.25 times
outstanding balance at payoff (9,230) 9,230
-------- ------- --------
$115,255 $46,151 $161,376
======== ======= ========
<FN>
2) For purposes of the December 31, 1998 Pro Forma Combined Statement of
Operations, $87.5 million of Senior Notes are assumed repaid on January
1, 1998 as the Company in August 1998 issued a $90 million note payable
to repay $87.5 million of the Senior Notes. For purposes of the June
30, 1999 Pro Forma Combined Balance Sheet, $37.2 million repayment of
the note payable and $85.9 million repayment of the bank credit
facility was reflected in the June 30, 1999 historical Combined Balance
Sheet as the transactions occurred prior to June 30, 1999.
3) The apartment division general and administrative expenses are
eliminated on the first day of each period for the Pro Forma Combined
Statement of Operations, as the entire portfolio was sold. The retail
division general and administrative expenses are reduced on the first
day of each period for the Pro Forma Combined Statements of Operations.
The reduction represents the closure of a regional office which will no
longer be necessary pending the property sales.
4) As the purchase price for the six Southwestern Shopping Malls was below
net book value of these malls at June 30, 1999, a $9 million impairment
loss was recorded as of June 30, 1999. The $9 million impairment loss
also is included in the 1998 Pro Forma Combined Statement of
Operations.
</TABLE>
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<PAGE> 35
SELECTED COMBINED FINANCIAL DATA OF FIRST UNION REAL ESTATE EQUITY AND MORTGAGE
INVESTMENTS
Set forth below is selected combined financial data of First Union for
the six months ended June 30, 1999 and 1998 and for the years ended December 31,
1998, 1997, 1996, 1995 and 1994. The selected combined financial data for the
six-month periods has been derived from, should be read in conjunction with, and
is qualified in its entirety by reference to, the unaudited combined financial
statements, accompanying notes and the management's discussion and analysis
section included in First Union's quarterly reports on Form 10-Q for the periods
ended June 30, 1999 and 1998. The selected combined financial data for the
twelve-month periods has been derived from, should be read in conjunction with,
and is qualified in its entirety by reference to, the audited combined financial
statements, accompanying notes and management's discussion and analysis section
included in First Union's Annual Reports on Form 10-K/A for the years ended
December 31, 1998, 1997 and 1995 and Form 10-K for the years ended December 31,
1996 and 1994.
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<PAGE> 36
<TABLE>
<CAPTION>
(UNAUDITED)
6 MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
----------------------- ----------------------------------------------------------------
1999 1998 (1) 1998 1997(1) 1996(1) 1995(1) 1994(1)
---- -------- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Revenues (2) ......................... $ 157,761 $ 162,201 $ 324,526 $ 235,544 $ 81,867 $ 79,205 $ 76,339
Interest expense (2) ................. 23,676 25,249 50,859 29,864 23,426 22,397 21,280
Depreciation and amortization (2)(3) . 17,798 15,220 33,389 22,892 15,890 14,276 12,779
Income (loss) before capital
gain or loss, extraordinary
loss, cumulative effect of
accounting change and minority
interest (2)(4)(5) ................ (16,313) (24,873) (91,465) 3,490 1,681 881 4,261
Unrealized loss on carrying
value of assets identified
for disposition ................... -- -- -- -- -- (14,000) --
Capital gains, net ................... 27,788 10,218 10,346 1,468 -- 31,577 --
Extraordinary loss from early
extinguishment of debt (6) ........ -- -- (2,399) (226) (286) (910) --
Cumulative effect of change
in accounting for internal
lease costs (3) ................... -- -- -- -- -- (4,325) --
Allocation of minority interest ...... -- -- -- 944 -- -- --
Net income (loss) before preferred
dividend (4)(5) ................... 11,475 (14,655) (83,518) 5,676 1,395 13,223 4,261
Preferred dividend ................... (1,416) (1,583) (2,999) (4,831) (845) -- --
Net income (loss) applicable to shares
of beneficial interest (4)(5) .... 10,059 (16,238) (86,517) 845 550 13,223 4,261
Net income (loss) applicable
to shares of beneficial
interest, basic and diluted ....... $ 0.29 $ (0.54) $ (2.81) $ 0.03 $ 0.03 $ 0.73 $ 0.24
Basic weighted average shares ........ 34,536 30,128 30,772 24,537 17,172 18,059 18,105
Stock options, treasury method ....... -- 1 243 571 367 -- --
Restricted shares, treasury method ... -- 95 -- 307 167 58 15
Diluted weighted average shares ...... 34,536 30,224 31,015 25,415 17,706 18,117 18,120
FINANCIAL POSITION AT END OF
PERIOD (2)
Gross investment in real
estate assets ..................... $ 584,517 $ 820,522 $ 806,859 $ 756,308 $ 458,963 $ 449,080 $ 436,394
Total assets ...................... 597,823 814,794 786,684 790,226 413,054 376,144 352,005
Total debt ........................ 341,644 538,501 578,397 483,459 254,868 258,454 238,296
Shareholders' equity .............. 207,324 221,773 150,696 235,310 124,957 77,500 78,756
OTHER DATA
Net cash provided by (used for)
Operations ........................ $ 12,007 $ 5,561 $ 6,413 $ 15,740 $ 11,085 $ 12,989 $ 19,053
Investing ......................... 119,600 (44,028) (52,429) (112,233) (47,002) (28,345) (26,507)
Financing ......................... (140,732) 45,982 74,327 110,406 35,466 15,783 (28,094)
Property net operating income (2)(7) . 40,381 40,424 86,184 64,428 47,349 44,086 41,759
EBITDA (7) ........................... 32,745 14,013 40,784 51,415 40,152 37,554 38,320
Funds from (used in) operations
after preferred dividends (3)(7) .. 5,909 (12,161) (12,469) 21,150 16,010 14,291 16,472
Preferred dividend accrued ........... 1,416 1,916 2,999 4,831 845 -- --
Dividends declared ................... -- 3,478 3,478 11,651 7,684 7,542 7,273
Dividends declared per share ......... -- $ 0.11 $ 0.11 $ 0.44 $ 0.44 $ 0.41 $ 0.40
Dividends payout as a percent
of funds from operations (3)(4)(7) --(8) --(8) --(8) 55% 48% 53% 44%
- ----------------------
(1) As a result of First Union's review of lives assigned to real estate
assets for calculation of depreciation expense during the fourth
quarter of 1998, reduced asset lives have been assigned effective
January 1, 1998. Consequently, First Union has restated its Combined
Financial Statements for the years ended December 31, 1994 through 1998
and for the six months ended June 30, 1998. Shareholders' equity at
December 31, 1993 was restated from $103,766,000 to $81,806,000.
(2) In September 1997, First Union acquired the interests of its joint
venture partners in eight shopping malls and 50% of another mall for
$88 million in cash and the assumption of $203 million of mortgage
debt. FUMI acquired voting control of Impark in April 1997 for $36.6
million in cash, the assumption of $26 million in debt and the issuance
of $12.4 million of stock in Impark to Impark employees and to its
former owner.
</TABLE>
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<PAGE> 37
<TABLE>
<S> <C>
(3) In December 1995, First Union changed its method to directly expense
internal leasing costs and recorded a $4.3 million noncash charge for
the cumulative effect of the accounting change as of the beginning of
1995. Funds from operations and depreciation and amortization for
previous years have been restated for the change in accounting method
on a basis comparable to 1995.
(4) First Union recognized $20.5 million and $15.0 million for the twelve
months ended December 31, 1998 and the six months ended June 30, 1998,
respectively, of expenses primarily in connection with the proxy
contest waged by Gotham in the first half of 1998 and the resulting
change in the composition of First Union's Board of Trustees. These
expenses included:
<CAPTION>
December 31, 1998 June 30, 1998
----------------- -------------
<S> <C> <C>
First Union's proxy and legal fees $ 1.7 million $1.7 million
Gotham's proxy and legal fees 3.1 million 3.1 million
Other professional fees to avoid change in
the composition of the Board 1.5 million 1.5 million
Expenses associated with termination of
First Union's Chairman, President and
Chief Executive Officer 3.4 million 3.4 million
Vesting of restricted stock upon the change
in a majority of the Board of Trustees 4.7 million 5.3 million
Severance expenses for employee change in
control agreements 6.1 million --
<FN>
First Union also recognized in June 1998 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 a change 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.
The above expenses also negatively affected net income and funds from
operations.
In 1995, First Union recognized $1.6 million of litigation and proxy
expenses related to a minority-shareholder lawsuit and proxy contest.
(5) In June 1999, First Union recognized $9 million in unrealized losses on
the carrying value of properties identified for disposition. In
December 1998, First Union recognized $36 million in unrealized losses
on the carrying value of properties identified for disposition and
Impark recognized a $15 million reduction of goodwill. In December
1995, First Union recognized $14 million in unrealized losses on the
carrying value of properties identified for disposition.
(6) In August 1998, $87.5 million of the Senior Notes were repaid,
resulting in $1.6 million of issuance costs and solicitation fees being
expensed. Additionally, in the fourth quarter of 1998, First Union
renegotiated the terms of its senior credit facility and the bridge
loan resulting in $0.8 million of deferred costs being expensed. In
1997 and 1996, First Union renegotiated its bank credit agreements,
resulting in a $226,000 and $286,000 charge, respectively, related to
the write-off of unamortized costs.
In November 1995, First Union paid approximately $36 million of
mortgage debt resulting in a $910,000 charge for the write-off of
unamortized costs and prepayment premiums.
(7) In addition to net income, First Union believes that three additional
measures of operating performance -- property net operating income,
EBIDA (as defined below) and funds from operations -- are helpful in
understanding First Union's financial performance. Property net
operating income (as defined below) measures the performance of First
Union's real estate assets and is often used by investors and others in
valuing real estate assets. EBIDA is used by lenders and others as an
indication of an entity's ability to incur and service debt, to make
capital expenditures and to fund other cash needs. Funds from
operations (as defined below) is widely used by industry analysts as
the appropriate measure of the performance of an equity REIT and
provides a relevant basis for comparison among REITs. None of property
net operating income, EBIDA or funds from operations (1) represent net
income or cash flow from operations as defined by generally accepted
accounting principles, (2) should be considered as an alternative to
net income as a measure of operating performance or cash flows from
operating, investing and financing activities, or (3) should be
considered as an alternative to cash flows as a measure of liquidity.
First Union's calculations of property net operating income, EBIDA and
funds from operations may not be comparable to similarly titled
measures of other REITs. In addition, all of these measures of
operating performance exclude depreciation and amortization expenses
and property net operating income and EBIDA also exclude interest
expense. These excluded items are significant components in
understanding and assessing First Union's financial performance.
- Property net operating income is property revenue, equity in
income of joint venture, management fees and mortgage
investment income, less property operating expenses and real
estate taxes. This supplemental measure is determined before
debt service and depreciation and amortization expense.
- EBIDA is calculated by starting with the line that appears on
the income statement for income (loss) before capital gain or
loss, extraordinary loss, cumulative effect of accounting
change and minority interest. Interest expense and the noncash
charges for depreciation and amortization are added back and
the preferred dividend is deducted. For the six months ended
June 30, 1999 and the year ended December 31, 1998, EBIDA is
calculated before the $9
</TABLE>
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<PAGE> 38
million and $51 million unrealized loss on the carrying
value of assets identified for disposition and impaired
assets, respectively.
- Funds from operations is a multi-step calculation:
Income (loss) before capital gain or loss, extraordinary
loss, cumulative effect of accounting changes and after
minority interest, plus
Noncash charges for depreciation and amortization of First
Union and the joint venture interest, plus
Amortization of intangible assets from the Impark
acquisition, less
Amortization allocated to the minority interest and
depreciation and amortization of debt issuance costs and
other corporate assets, less
Preferred dividend.
Funds from operations is calculated before the $51 million
unrealized loss on the carrying value of assets identified for
disposition and impaired assets at December 31, 1998 and
before the $9 million unrealized loss on the carrying value of
assets identified for disposition at June 30, 1999.
First Union adopted this definition of funds from operations
in 1997 as recommended by the National Association of Real
Estate Investment Trusts (NAREIT), which does not add back
depreciation and amortization of debt issuance costs and other
corporate assets. Previously, First Union added back all
depreciation and amortization. Accordingly, funds from
operations and dividend payout as a percentage of funds from
operations for the years 1994 through 1996 have been restated
to conform to the NAREIT definition.
(8) Not meaningful.
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<PAGE> 39
PROPOSALS RELATING TO AMENDMENTS TO THE COMPANY'S DECLARATION OF TRUST
PROPOSAL TWO: APPROVAL OF THE INVESTMENT AMENDMENT
The Beneficiaries are being asked to approve an amendment to the
Declaration of Trust enabling the Board of Trustees to authorize certain
activities in connection with the investment and financing of Company assets and
related matters.
The Board of Trustees unanimously recommends that the Declaration of
Trust be amended by adding a new Section 11.27 to Article XI of the Declaration
of Trust, which Section 11.27 is attached hereto as a part of Appendix E.
The following information describes: (i) the purpose of the Investment
Amendment, (ii) the existing guidelines and limitations for investment and
financing of Company assets and (iii) the effects of the Investment Amendment.
PURPOSE OF INVESTMENT AMENDMENT
Article II of the Declaration of Trust, entitled "Powers and Authority
of Trustees," provides broad powers to the Trustees, subject to and limited by
the provisions of Article XI of the Declaration of Trust. Article XI of the
Declaration of Trust, entitled "Miscellaneous," provides for various guidelines,
limitations and requirements with respect to the investment and financing of
Company assets. Management of the Company has recommended that the Board of
Trustees approve amending Article XI of the Declaration of Trust by adding a new
Section 11.27 that would enable the Board of Trustees to authorize certain
activities with respect to the financing and investment of Company assets
notwithstanding certain guidelines, limitations and requirements set forth in
Article XI.
The Company was formed for the purpose of operating as a REIT. Since
the formation of the Company in 1961, Article XI of the Declaration of Trust has
been amended, from time to time, through May, 1981, to provide for certain
guidelines, limitations and requirements, then deemed prudent, with respect to
the investment and financing activities of the Company. From time to time, the
Board of Trustees has proposed, and the Beneficiaries of the Company have
approved, amending the Declaration of Trust to provide broader discretion to the
Board of Trustees with respect to the previously effective limitations and
restrictions on investment and financing of Company assets. For example,
although Section 11.11 of the Declaration of Trust prohibits the Company from
investing in real estate mortgages, Section 11.24 was later added to the
Declaration of Trust by amendment to provide that, notwithstanding anything to
the contrary contained in the Declaration of Trust, the Trustees have the power
to invest Company assets in real estate mortgages with maturities of not more
than two years. The investment and financing guidelines, limitations and
restrictions set forth in the Declaration of Trust have not been substantially
revised since the early 1980s.
The Board of Trustees believes that the Investment Amendment will
enhance management's flexibility in selecting appropriate investments for
Company assets, and will not impair the REIT status of the Company. Furthermore,
as the Company completes its current asset sales program, it may reinvest the
funds raised through the sales program and, thus, will need the flexibility
provided by the proposed Investment Amendment. The Trustees believe that the
authority granted to the Board of Trustees by the proposed Investment Amendment
will better enable it to fulfill its obligations to the Beneficiaries and to
enhance shareholder value. An additional purpose of the Investment Amendment is
to enable the Company to compete more effectively in the current real estate
marketplace. The proposed Investment Amendment is intended to enable the Board
of Trustees to fulfill its responsibilities in overseeing the investment and
financing of Company assets in a manner which is in the best interests of the
Beneficiaries.
The Company's existing internal approval process for investment and
financing transactions ensures that the Board of Trustees reviews and approves,
on a case-by-case basis, management proposals with respect to significant
transactions. The Board of Trustees believes that the Company's internal
approval process for asset acquisition and financing transactions provides
appropriate safeguards with respect to the investment of Company assets and that
prudent judgments with respect to investments and financings can be made by the
Board and
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<PAGE> 40
management without the necessity of compliance with those guidelines,
limitations and requirements set forth in Article XI that are eliminated by the
Investment Amendment.
EXISTING GUIDELINES AND LIMITATIONS FOR INVESTMENT AND FINANCING OF COMPANY
ASSETS
The following are the provisions of Article XI that the Trustees desire
to change by the proposed Investment Amendment and the citation to the Section
in Article XI of each such provision:
1. The Company shall not make loans to other persons. (Section
11.11);
2. The Company shall not invest in real estate mortgages with
stated maturities in excess of two years. (Sections 11.11
and 11.24);
3. The Company shall not invest in excess of 10% of its assets
in assets other than real estate. (Section 11.11);
4. The Company shall purchase assets only upon determination of
the value of the property by the Company on the basis of a
real estate appraisal prepared by a qualified,
disinterested, independent appraiser. (Section 11.16);
5. The Company shall not invest in mortgages, land contracts or
unimproved property which in the aggregate exceed 5% of its
assets. (Section 11.17);
6. The Company shall not invest in real property subject to a
mortgage, other than a mortgage held by an insurance
company, bank or institutional lender and then only if, on
the basis of an independent appraisal, the unpaid balance of
such mortgage does not exceed two-thirds of the fair market
value of the property. (Section 11.17);
7. The Company shall not effectuate a short sale of securities.
(Section 11.18);
8. The Company shall not borrow unsecured more than 8% of its
net worth or encumber any of its real property for more than
two-thirds of the fair market value of such property as
shown by independent appraisal. (Section 11.18);
9. The Company shall not issue securities evidencing borrowings
secured by real estate in excess of two-thirds of the value
of such security. (Section 11.18); and
10. The Company shall have no power to make an investment in
unimproved property or in a partnership, joint venture,
corporation or other association owning unimproved property,
unless the Company shall have received an opinion of counsel
to the effect that the Company will not be liable for the
obligations or liabilities of the partnership, joint venture
or similar association and the investment will not result in
disqualification of the Company as a real estate investment
trust under the Internal Revenue Code. (Section 11.23).
For the reasons described under "-- Purpose of Investment Amendment,"
the Trustees believe that the Company should have the ability to conduct the
activities restricted by these provisions of Article XI. With respect to Section
11.16 described above, the Trustees also believe that the Company has available
to it sufficient resources, including the expertise of management and the
Trustees, such that it is capable of assessing asset values without being
required to obtain the assistance of, or incur the added cost of, an independent
appraiser. With respect to Section 11.23 described above concerning investments
in unimproved property, the Trustees and management are mindful of the
importance of compliance with the REIT requirements and the avoidance of undue
liability and will, as has been the practice of current management, consult with
counsel as appropriate with respect to such matters, but would not be required
to and may not incur the added expense of a formal opinion of counsel.
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<PAGE> 41
For a discussion of the Company's current plans and strategies regarding
financing and investment activities, see "Proposal One: Consent to the Asset
Sale -- Plans for the Company Subsequent to the Asset Sale."
EFFECTS OF INVESTMENT AMENDMENT
The proposed Investment Amendment would authorize the Trustees to make
determinations with respect to asset investment and financing, and related
matters, without regard to certain of the current guidelines, limitations and
requirements set forth in Article XI. The provisions of the Declaration of Trust
that prohibit actions preventing the Company from qualifying or continuing to
qualify as a REIT would continue in effect. The proposed Investment Amendment
would authorize the Company, on a case-by-case basis as determined by the Board
of Trustees, to: make loans; invest in real estate mortgages with maturities in
excess of two years; invest in excess of 10% of its assets in assets other than
real estate; acquire an asset without first obtaining an appraisal prepared by a
disinterested and independent appraiser; invest in excess of 5% of its assets in
mortgages, land contracts and unimproved real property; acquire real property
subject to a mortgage which exceeds two-thirds of its fair market value; engage
in short sales; borrow unsecured more than 8% of its net worth; encumber any of
its real property for more than two-thirds of its fair market value; issue
securities evidencing borrowings, secured by real estate, in excess of
two-thirds of the value of such security; and invest in unimproved property or
in a partnership, joint venture, corporation or other association owning
unimproved property without first receiving an opinion of counsel to the effect
that the Company would not be liable for the obligations or liabilities of the
partnership, joint venture or similar association and that the investment would
not result in disqualification of the Company as a REIT under the Internal
Revenue Code of 1986 (the "Code").
REQUIRED VOTE FOR PROPOSAL
In accordance with the provisions of Article X of the Declaration of
Trust, the affirmative vote of a majority of the outstanding Shares as of the
Record Date is required for the adoption of the proposed Investment Amendment.
RECOMMENDATION OF THE BOARD OF TRUSTEES
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION OF
THE PROPOSED INVESTMENT AMENDMENT.
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<PAGE> 42
PROPOSAL THREE: APPROVAL OF THE SHARE SPLIT AMENDMENT
The Beneficiaries are being asked to approve an amendment to Article IV
of the Declaration of Trust providing authority to the Board of Trustees to
effectuate, from time to time, reverse and forward splits of Shares.
The Board of Trustees unanimously recommends that the Declaration of
Trust be amended by adding a new Section 4.6 to Article IV of the Declaration of
Trust, which Section 4.6 is attached hereto as part of Appendix E.
The following information describes: (i) the purpose of the Share Split
Amendment, (ii) the Company's plans with respect to a share split and (iii) the
effects of the Share Split Amendment.
PURPOSE OF SHARE SPLIT AMENDMENT
The Declaration of Trust does not specifically authorize the Trustees
to effectuate a share combination or reverse split of the Shares. In a share
combination or reverse split, two or more of the outstanding Shares are changed
into one Share, thus resulting in fewer outstanding Shares. In addition, the
Declaration of Trust does not specifically authorize the Trustees to effectuate
a forward or regular split of the Shares. In this connection, however, it should
be noted that the Trustees have the authority to declare and cause the Company
to pay a share distribution, which could be structured as the functional
equivalent of a forward or regular share split. Management of the Company has
recommended that the Board of Trustees approve amending the Declaration of Trust
by adding a new Section 4.6 that would provide authority to the Board of
Trustees to effectuate, from time to time, reverse and forward splits of Shares.
The purpose of the Share Split Amendment is to enhance the ability of
the Board of Trustees to modify the number of Shares outstanding from time to
time without directly affecting the Company's shareholders' equity. While the
Board is seeking authority to effectuate reverse and forward splits, it
currently intends to effect a reverse split and does not currently intend to
conduct a forward split. The Board believes that a reverse split at this time
would be beneficial to the Company and the Beneficiaries. By decreasing the
outstanding number of Shares, the Board of Trustees believes that the market
price for each resulting Share may achieve a price level that may broaden the
effective marketability of the Shares. A reverse share split may also enhance
investor interest in, and consequently increase the liquidity of, the Shares.
Among the factors considered by the Board in recommending the Share Split
Amendment to Beneficiaries for approval were the following:
- The structure of trading commissions tends to have an adverse
impact upon holders of low-priced stocks because a broker's
commission on a sale of a low-priced stock generally represents a
higher percentage of the sale's price than the commission on a
relatively higher-priced stock.
- The spread between the bid and ask prices of a price of a
low-priced stock generally represents a higher percentage of that
price than the spread between the bid and ask prices on a
relatively higher-priced stock.
- The Shares are listed on the New York Stock Exchange. The fee for
listing of the Shares is based on the number of Shares
outstanding.
- Certain low-priced stocks do not qualify as collateral for margin
loans under applicable securities rules.
- Certain institutional investors have internal policies and
practices which tend to discourage individual brokers within
those firms from dealing in low-priced stocks. Some of those
policies and practices pertain to the payment of broker's
commissions and to time-consuming procedures that function to
make the handling of low-priced stocks unattractive to brokers
from an economic standpoint.
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<PAGE> 43
- Many institutional investors are reluctant to invest in
low-priced stocks and brokerage firms often fail to recommend
low-priced stocks to their clients.
From January 1, 1999 through September 27, 1999, the market price for a
Share ranged from a high of $5.9375 to a low of $3.9375. The Board of Trustees
anticipates that the decrease in the number of Shares outstanding caused by any
proposed share combination or reverse split effectuated by the Trustees
subsequent to the approval of the Share Split Amendment will result in a market
price of the Shares at a level which the Board believes is a more readily
accepted trading price in the capital markets. There can be no assurance,
however, that any increase in the market price of the Shares would be in
proportion to the actual reverse stock split ratio implemented, or that the per
share price level of the Shares immediately after any proposed reverse split
would be maintained for any period of time.
PLANS OF THE COMPANY WITH RESPECT TO A SHARE SPLIT
At its August 10, 1999 regular meeting, the Board of Trustees
preliminarily and conditionally approved a one-for-ten share combination or
reverse split of the Shares, whereby Beneficiaries would receive one Share for
every ten Shares owned. In the event a reverse share split of this type were
implemented, the outstanding number of Shares would be reduced to an amount
equal to one-tenth of the outstanding number of Shares immediately prior to the
reverse share split, without giving effect to fractional share interests. The
Board of Trustees has determined, on a preliminary basis, that a reverse share
split of this type would be appropriate. In this connection, the Board has
determined to seek approval by the Beneficiaries of the Share Split Amendment in
order to obtain the authority to implement a reverse split. Accordingly, the
Board of Trustees has decided to defer final action with respect to effectuating
a specific reverse split affecting the Shares pending approval by Beneficiaries
of the Share Split Amendment.
In the event that the proposed Share Split Amendment is approved by the
Beneficiaries, the Board of Trustees may or may not, in its sole discretion,
determine to effectuate a reverse split with respect to the Shares and shall, in
its discretion, determine the precise terms and conditions, including the
applicable ratio, of any reverse split that it determines to effectuate.
EFFECTS OF SHARE SPLIT AMENDMENT
For purposes of illustration, in the event the Board of Trustees
effectuated a one-for-ten reverse split effective as of September 27, 1999, the
number of Shares issued and outstanding would, as of such date, decrease from
42,459,604 Shares to 4,245,960 Shares, without giving effect to fractional share
interests. Each Beneficiary would own one-tenth of the number of Shares
previously owned. The Declaration of Trust provides that the Company can issue
an unlimited number of Shares. Thus, the number of Shares that the Company is
authorized to issue will not change as a result of a reverse or forward split.
The par value of the Shares may be changed or may remain the same after giving
effect to a reverse or forward split, as the Board may determine.
A reverse or forward split will not affect any Beneficiary's
proportionate equity interest in the Company, other than as a result of the
treatment of fractional interests, or the rights, preferences, privileges or
priorities of the Shares. Furthermore, a reverse or forward split will not
affect the total shareholders' equity of the Company as reflected in the
financial statements of the Company, except to change the number of issued and
outstanding Shares. In connection with a reverse or forward split, appropriate
adjustments will be made in the exercise price of, and number of Shares issuable
under, the Company's outstanding share options and warrants. Similar adjustments
will be made with respect to the conversion rights relating to the Company's
Preferred Shares. Shares issued and outstanding pursuant to the Company's 1999
Amended and Restated Long-Term Incentive Performance Plan and 1999 Share Option
Plan for Trustees will be treated the same as all other outstanding Shares.
If the Share Split Amendment is approved and the Board subsequently
authorizes a reverse or forward split, the Company would notify Beneficiaries of
the effective time of the reverse or forward split, as the case may be. Any
reverse or forward split would be effective as to all holders of Shares, whether
or not they vote in favor of
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<PAGE> 44
or against, or abstain from voting on, the Share Split Amendment. No scrip or
fractional share certificates representing new Shares would be issued in
connection with a reverse or forward split, but cash would be paid in lieu
thereof.
Federal Income Tax Consequences. The following is a summary of the
material federal income tax consequences of a reverse or forward split to the
Company and its Beneficiaries. This summary is based upon the laws, regulations,
rulings and decisions now in effect, all of which are subject to change. The
Company has not sought and will not seek an opinion of counsel or a ruling from
the Internal Revenue Service regarding the federal income tax consequences of a
reverse or forward split. This summary does not discuss all aspects of federal
income taxation that may be relevant to a particular Beneficiary in light of
his, her or its personal investment circumstances or to certain types of
Beneficiaries subject to special treatment under federal income tax laws.
Furthermore, this summary does not discuss any aspect of state, local or foreign
tax laws. The discussion with respect to exchanging Beneficiaries is limited to
those who have held prior to the reverse or forward split, and will hold
immediately following such split, shares of beneficial interest as "capital
assets" within the meaning of Section 1221 of the Code. Each Beneficiary should
consult with his, her or its own tax advisor as to the specific tax consequences
of a reverse or forward split to such Beneficiary, including the application and
effect of state, local and foreign income tax laws.
The Company believes that neither the Company nor its Beneficiaries
will recognize any gain or loss by reason of a reverse or forward split except
that Beneficiaries will recognize gain or loss upon the receipt of cash in lieu
of fractional Shares as described below. The new Shares issued as a result of a
reverse or forward split in the hands of a Beneficiary will have an aggregate
basis for computing gain or loss equal to the aggregate basis of the Shares,
less that portion, if any, allocable to fractional Shares held by the
Beneficiaries immediately prior to such reverse or forward split. The holding
period of the new Shares issued as a result of a reverse or forward split in the
hands of a Beneficiary will include the period during which the Beneficiary held
the old Shares.
A Beneficiary receiving cash in lieu of a fractional Share will be
treated as receiving the payment in connection with a redemption of the
fractional Share, with the tax consequences of the redemption determined under
Section 302 of the Code. Such a Beneficiary will generally recognize gain or
loss upon such payment equal to the difference, if any, between such
Beneficiary's basis in the fractional Share and the amount of cash received.
Such gain or loss will be capital gain or loss and will be long-term capital
gain or loss if the Beneficiary's holding period exceeds one year. A Beneficiary
receiving cash in lieu of a fractional Share may be subject to dividend
treatment on such payment if the redemption of the fractional Share is
"essentially equivalent to a dividend" under Section 302 of the Code. Based on a
published Internal Revenue Service ruling, dividend treatment will likely not
apply if, taking into account the constructive ownership rules set forth in
Section 318 of the Code, (a) the Beneficiary's relative stock interest in the
Company is minimal, (b) the Beneficiary exercises no control over the Company's
affairs and (c) there is a reduction in the Beneficiary's proportionate interest
in the Company.
Other Effects of Share Split Amendment. The Company currently has
various share options, share purchase warrants and convertible preferred shares
(collectively, "Stock Rights") outstanding that, if exercised or converted in
accordance with their respective terms, may result in the issuance of additional
Shares. In the event that the proposed Share Split Amendment is approved and the
Board, for example, authorizes a one-for-ten reverse split, the number of Shares
that could be acquired pursuant to each of the Stock Rights would be reduced by
approximately 90%. In addition, in such case, the exercise or conversion price
of each of the Stock Rights would be multiplied by ten. The Company currently
has issued and outstanding Preferred Shares. Pursuant to the Certificate of
Designations dated October 23, 1996, relating to the Preferred Shares, in the
event of a reverse split, the conversion price of the Preferred Shares will be
adjusted, as of the effective date of the combination, so that the holder of any
Preferred Shares thereafter surrendered for conversion shall be entitled to
receive the number of Shares such holder would have owned or been entitled to
receive if the Preferred Shares had been converted immediately prior to the
combination. The current conversion rate for the Preferred Shares is 3.31 Shares
for each Preferred Share. In the event the proposed Share Split Amendment is
approved and the Board, for example, authorizes a one-for-ten reverse split, the
conversion rate after the reverse split would be .331 Shares for every Preferred
Share.
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<PAGE> 45
REQUIRED VOTE FOR PROPOSAL
In accordance with the provisions of Article X of the Declaration of
Trust, the affirmative vote of a majority of the outstanding Shares as of the
Record Date is required for the adoption of the proposed Share Split Amendment.
RECOMMENDATION OF THE BOARD OF TRUSTEES
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR THE ADOPTION OF
THE PROPOSED SHARE SPLIT AMENDMENT.
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<PAGE> 46
MARKET FOR THE SHARES
The Company's Shares are traded on the New York Stock Exchange (the
"NYSE") under the symbol "FUR." On July 15, 1999, the trading date preceding the
public announcement of the proposed Asset Sale, the high and low sale prices per
share for the Company's Shares, as reported by the NYSE, were $5.0625 and
$4.8125, respectively.
FEES AND EXPENSES
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 it in the
search for the Beneficiaries and solicitation and distribution of proxies, at a
fee of $2,500 plus reimbursement of 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, the 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.
EXPERTS
The Company's balance sheets as of December 31, 1998 and 1997, and the
Company's statements of income and comprehensive income, statements of changes
in cash and statements of shareholders' equity for the years ended December 31,
1998, 1997 and 1996 appearing in the Company's Annual Report on Form 10-K/A for
the year ended December 31, 1998, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are incorporated herein by reference in reliance upon the authority
of said firm as experts in giving said reports. A representative of Arthur
Andersen LLP is expected to be present at the Special Meeting and will have the
opportunity to make a statement if he or she desires to do so and is expected to
be available to respond to appropriate questions.
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, the Beneficiaries
must comply with specified procedures to nominate Trustees or introduce an item
of 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 90 days nor more than 120 days in advance of
an annual meeting. To be in proper written form, a Beneficiary'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.
AVAILABLE INFORMATION
First Union is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports and other information
with the Commission. Reports, proxy material and other information concerning
First Union can be inspected and copied at the offices of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 or at its regional offices, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661-2511 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Information regarding the operation of the Public Reference Section of the
Commission may be obtained by calling the Commission at 1 (800) SEC-0330. In
addition, the Commission maintains a Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements
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<PAGE> 47
and other information regarding registrants that file electronically with the
Commission, including First Union. First Union's outstanding Shares and
outstanding Series A Cumulative Redeemable Preferred Shares of Beneficial
Interest, $1.00 par value per share, are listed on the NYSE under the symbols,
"FUR" and "FURPrA," respectively, and all such reports, proxy material and other
information filed by First Union with the NYSE may be inspected at the offices
of the NYSE at 20 Broad Street, New York, New York 10005.
No person is authorized to give any information or make any
representation about the proposals contained in this Proxy Statement that is
different from or in addition to the information contained in this Proxy
Statement or any of the attached or incorporated documents. The information
contained in this document speaks only as of the date of this document unless
the information specifically indicates that another date applies.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by First Union with the Commission (File
No. 1-6249) pursuant to the Exchange Act are incorporated by reference into this
Proxy Statement:
(1) First Union's Amendment to the Annual Report on Form 10-K/A
for the fiscal year ended December 31, 1998, filed April 13,
1999;
(2) First Union's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, filed May 14, 1999;
(3) First Union's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, filed August 13, 1999;
(4) First Union's Current Report on Form 8-K filed April 15, 1999;
(5) First Union's Current Report on Form 8-K filed April 29, 1999;
(6) First Union's Current Report on Form 8-K/A filed April 30,
1999;
(7) First Union's Current Report on Form 8-K filed May 27, 1999;
and
(8) First Union's Current Report on Form 8-K filed August 16,
1999.
All documents filed by First Union pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference into this Proxy Statement and to be a part hereof from the date of the
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein, or in any other subsequently filed document which is or is
deemed to be incorporated by reference herein, modifies or supersedes any such
statement. Any such statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
First Union will provide without charge to each person, including any
beneficial owner, to whom this Proxy Statement is delivered, on the oral or
written request of such person, a copy of any of the foregoing documents
incorporated herein by reference (other than the exhibits to such documents
unless such exhibits are specifically incorporated by reference into such
documents). Requests should be directed to First Union Real Estate Equity and
Mortgage Investments, 55 Public Square, Suite 1900, Cleveland, Ohio 44113-1937,
Attention: John J. Dee, Senior Vice President, telephone (216) 781-4030.
By Order of the Board of Trustees
William A. Ackman
Chairman of the Board of Trustees
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APPENDIX A - PURCHASE AND SALE AGREEMENT
PURCHASE AND SALE AGREEMENT
by and among
SOUTHWEST SHOPPING CENTERS, CO. II, L.L.C.,
a Delaware limited liability company,
as Seller,
and
WXI/Z SOUTHWEST MALLS REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership,
as Purchaser,
and,
only for purposes of Section 8.8, Section 9.8 and Section 14.2 herein,
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS,
an Ohio unincorporated association in the form of a business trust,
and,
only for purposes of Section 12.1 herein,
FIRST UNION MANAGEMENT, INC.
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PURCHASE AND SALE AGREEMENT
---------------------------
This PURCHASE AND SALE AGREEMENT (this "AGREEMENT") is made and entered
into to be effective and binding as of the 14th day of July, 1999 (the
"EFFECTIVE DATE"), by and among SOUTHWEST SHOPPING CENTERS CO. II, L.L.C., a
Delaware limited liability company ("SELLER"), and WXI/Z SOUTHWEST MALLS REAL
ESTATE LIMITED PARTNERSHIP, a Delaware limited partnership ("PURCHASER"), and,
only for purposes of SECTION 8.8, SECTION 9.8 and SECTION 14.2 herein, FIRST
UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS, an Ohio unincorporated
association in the form of a business trust ("FUR"), and, only for purposes of
SECTION 12.1 herein, FIRST UNION MANAGEMENT, INC. ("FUM")
W I T N E S S E T H:
--------------------
In consideration of and in reliance upon the covenants herein
contained, and for ten dollars and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
ARTICLE 1
---------
DEFINITIONS
-----------
As used herein, the following words and phrases shall have the meanings
set forth below:
1.1 "ADDITIONAL DEPOSIT" has the meaning ascribed such term in SECTION
2.2.
1.2 "ADJOURNED DATE" has the meaning ascribed such term in SECTION 5.3.
1.3 "ADJUSTED PURCHASE PRICE" has the meaning ascribed such term in
SECTION 6.3.
1.4 "ALEXANDRIA GROUND LEASES" means those leases identified on
SCHEDULE 1.4 annexed hereto.
1.5 "ALEXANDRIA GROUND LEASE ASSIGNMENTS" shall mean separate
assignments by Seller to Purchaser of Seller's interest under each of the
Alexandria Ground Leases and the assumption by Purchaser of the Alexandria
Ground Leases, in the form annexed hereto as EXHIBIT A.
1.6 "ANCHOR(S)" has the meaning ascribed such term in SECTION 5.4(a).
1.7 "ANCHOR AGREEMENTS" means the agreements listed on SCHEDULE 1.7,
and such other similar reciprocal easement agreements and leases covering over
25,000 square feet of space at any Real Property which may be entered into by
Seller after the date hereof and prior to Closing in accordance with the terms
of this Agreement.
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<PAGE> 50
1.8 "ANCHOR ESTOPPEL CERTIFICATES" has the meaning ascribed such term
in SECTION 5.4(a).
1.9 "APPROVED LEASE" has the meaning ascribed such term in SECTION
8.1(d).
1.10 "ASSIGNMENT OF ANCHOR AGREEMENTS" means an assignment in the form
of EXHIBIT B attached hereto.
1.11 "ASSIGNMENT OF CONTRACTS" means an assignment in the form of
EXHIBIT C attached hereto.
1.12 "ASSIGNMENT OF LEASES AND SPECIALTY LICENSE AGREEMENTS" means an
assignment in the form of EXHIBIT D attached hereto.
1.13 "BILL OF SALE AND BLANKET CONVEYANCE" means a blanket conveyance,
bill of sale and assignment in the form of EXHIBIT E attached hereto.
1.14 "BOARD RESOLUTION" has the meaning ascribed such term in SECTION
2.3.
1.15 "BROKER" means Granite Partners.
1.16 "BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which banks in New York City are authorized or obligated by law or
executive order to close.
1.17 "CLOSING" means the closing of the Escrow, disbursement of the
Purchase Price and consummation of the transaction contemplated herein, which
shall occur in accordance with ARTICLE 6.
1.18 "CLOSING DATE" means the date which is ten (10) Business Days
after the Seller Ratification is obtained, subject to adjournment as provided
herein, but in any event not later than the Closing Deadline.
1.19 "CLOSING DEADLINE" means December 20, 1999 with time being of the
essence, unless the Purchaser and Seller mutually agree to extend the deadline
for Closing; PROVIDED that, if the Shareholder Approval Deadline is extended
pursuant to SECTION 14.2(e), the Closing Deadline shall likewise be extended by
one day for each day that the Shareholder Approval Deadline is so extended.
1.20 "CONFIDENTIAL INFORMATION" has the meaning ascribed such term in
SECTION 8.3.
1.21 "CONTRACTS" means all of the following to the extent they pertain
to the Property: (a) management, leasing, service, supplier, maintenance,
operating and repair contracts and similar agreements to which Seller is a party
(excluding the Leases, the Specialty License Agreements, the Anchor Agreements
and recorded documents evidencing the Permitted Exceptions), (b) equipment
leases to which Seller is a party, including rights, if any, to renew or extend
the term or purchase the leased equipment, (c) construction contracts with third
parties hired to perform tenant work and Mall improvements, if any, to which
Seller is a party and (d) all rights and options of Seller under the foregoing
items (a) through (c).
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<PAGE> 51
1.22 "CUTOFF DATE" has the meaning ascribed such term in SECTION 7.1.
1.23 "DEED" has the meaning ascribed such term in SECTION 6.3.
1.24 "DEFECT" or "DEFECTS" means (a) any exception, condition,
limitation, qualification, exclusion or other title matter, other than a
Permitted Exception, noted in or shown by the Title Commitments or the Surveys
or (b) a lien, security interest or other encumbrance, other than a Permitted
Exception or any Lease, Specialty License Agreement or Anchor Agreement.
Notwithstanding anything to the contrary herein, any purchase option, right of
first refusal, right of first offer or similar right to purchase or any right to
participate in the gross or net profits or revenues or proceeds from any
Property (other than any right of GMAC under the GMAC Loan Documents and other
than as set forth in Seller's Files) shall be deemed to be a Defect and shall
not be a Permitted Exception to the extent that any such right would be binding
on Purchaser or its successors and assigns.
1.25 "DELINQUENT" has the meaning ascribed such term in SECTION 7.1.
1.26 "DEPOSIT" has the meaning ascribed such term in SECTION 2.2.
1.27 "DUE DILIGENCE TERMINATION DEADLINE" has the meaning ascribed such
term in SECTION 4.1; provided that the Due Diligence Termination Deadline may be
extended from time to time by Seller to a date which is five (5) Business Days
after the date on which Seller or the Title Insurer provides Purchaser with
copies of all (i) underlying documents referred to in Seller's Title Insurance
Policies and (ii) surveys of the Real Property. If Purchaser waives, in writing,
receipt of any such underlying documents or surveys, the matters with respect to
which receipt of such documents or surveys has been waived shall constitute
Permitted Exceptions. Purchaser agrees to advise Seller prior to the initial Due
Diligence Termination Deadline (but not any extensions thereof) of any such
underlying documents or surveys which have not been received by Purchaser.
1.28 "DUE DILIGENCE TERMINATION NOTICE" has the meaning ascribed such
term in SECTION 4.1.
1.29 "EFFECTIVE DATE" has the meaning ascribed such term in the
Preamble.
1.30 "ENVIRONMENTAL LAWS" has the meaning ascribed such term in SECTION
9.3.
1.31 "ESCROW" means the escrow created pursuant to the Escrow Agreement
with respect to the Deposit and the closing documents and other closing
deliveries pursuant to ARTICLE 6.
1.32 "ESCROW AGREEMENT" means the Escrow Agreement among Purchaser,
Seller and Escrowee as shall be agreed upon by the parties hereto and the
Escrowee.
1.33 "ESCROWEE" means the First American Title Insurance Company.
1.34 "ESCROWEE WIRING INSTRUCTIONS" has the meaning ascribed such term
in SECTION 2.2.
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<PAGE> 52
1.35 "EVALUATION MATERIAL" means any information and materials relating
to the Property or the operation, leasing, management or maintenance thereof
reasonably requested or received by Purchaser for examination with respect to
the conduct of its due diligence pursuant to ARTICLE 4, including, without
limitation, all (i) Leases, Contracts, Specialty License Agreements and Anchor
Agreements and (ii) books, records, documents, files and computer files and
databases.
1.36 "EXCHANGE" has the meaning ascribed such term in SECTION 14.17.
1.37 "EXCLUDED ANCHOR AGREEMENTS" has the meaning ascribed such term in
SECTION 5.4(a).
1.38 "EXCUSABLE DELAY" means an SEC Delay, a preliminary or permanent
injunction, a temporary restraining order, inclement weather or matters of a
similar type which are beyond the control of Seller, in each case, which
prohibits or prevents the holding of a meeting of the shareholders of FUR.
1.39 "FUM" has the meaning ascribed such term in the Preamble.
1.40 "FUR" has the meaning ascribed such term in the Preamble.
1.41 "GMAC" has the meaning ascribed such term in SECTION 3.1.
1.42 "GMAC ASBESTOS MAINTENANCE AGREEMENT" has the meaning ascribed
such term on SCHEDULE 3.2(b).
1.43 "GMAC ASSUMPTION FEES" has the meaning ascribed to such term in
SECTION 3.3.
1.44 "GMAC CHARGES" has the meaning ascribed such term in SECTION 3.3.
1.45 "GMAC COMMITMENT" has the meaning ascribed such term on SCHEDULE
3.2(b).
1.46 "GMAC CONSENT" means (a) the consent of GMAC to the transfer of
the Real Property to Purchaser and the substitution of Purchaser for Seller as
the borrower under the GMAC Loan Documents and (b) the agreement of GMAC to
provide Seller with the GMAC Release at Closing.
1.47 "GMAC COOPERATION AGREEMENT" has the meaning ascribed such term on
SCHEDULE 3.2(b).
1.48 "GMAC ENVIRONMENTAL AGREEMENT" has the meaning ascribed such term
on SCHEDULE 3.2(b).
1.49 "GMAC ESTOPPEL CERTIFICATE" has the meaning ascribed such term in
SECTION 5.4(d).
1.50 "GMAC FUR INDEMNITY" has the meaning ascribed such term on
SCHEDULE 3.2(b).
1.51 "GMAC GRANITE LETTER" has the meaning ascribed such term in
SECTION 3.3.
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<PAGE> 53
1.52 "GMAC LOAN AGREEMENT" shall mean the Loan Agreement dated as of
September 30, 1996 between Seller and GMAC as amended by an agreement dated
December 23, 1996.
1.53 "GMAC LOAN DOCUMENTS" shall mean the GMAC Loan Agreement, the GMAC
Mortgage, the note(s) secured thereby and all other documents, agreements and
instruments relating to the loan secured thereby, which documents are listed on
SCHEDULE 3.2(b) annexed hereto.
1.54 "GMAC LOCKBOX AGREEMENT" has the meaning ascribed such term on
SCHEDULE 3.2(b).
1.55 "GMAC MANAGEMENT FEE AGREEMENT" has the meaning ascribed such term
on SCHEDULE 3.2(b).
1.56 "GMAC MORTGAGE" has the meaning ascribed such term in SECTION 3.1.
1.57 "GMAC PARK PLAZA PREPAYMENT PENALTY" has the meaning ascribed such
term in SECTION 3.4.
1.58 "GMAC PARK PLAZA RELEASE PRICE" has the meaning ascribed such term
in SECTION 3.4.
1.59 "GMAC PREPAYMENT PENALTY" has the meaning ascribed such term in
SECTION 3.2.
1.60 "GMAC RELEASE" has the meaning ascribed such term in SECTION 3.2.
1.61 "GMAC REPAIR AGREEMENT" has the meaning ascribed such term on
SCHEDULE 3.2(b).
1.62 "GMAC RESERVE AGREEMENT" has the meaning ascribed such term on
SCHEDULE 3.2(b).
1.63 "GMAC RESERVES REIMBURSEMENT" has the meaning ascribed such term
in SECTION 7.1.
1.64 "GMAC TERMINATION DEADLINE" has the meaning ascribed such term in
SECTION 3.2(a).
1.65 "HAZARDOUS MATERIALS" has the meaning ascribed such term in
SECTION 9.3.
1.66 "INITIAL DEPOSIT" has the meaning ascribed such term in SECTION
2.2.
1.67 "INTANGIBLES" means (a) all existing warranties and guarantees
(express or implied) issued to or held by Seller or Sellers' predecessors in
title in connection with the Real Property or the Personalty, (b) the right to
the name of each Mall and (c) all trade names, trademarks, logos, copyrights and
other general intangibles relating to the Real Property and the Personalty.
1.68 "INTEREST INCOME" has the meaning ascribed such term in SECTION
5.1.
1.69 "LEASE YEAR" has the meaning ascribed such term in SECTION 7.1.
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<PAGE> 54
1.70 "LEASES" means all leases, subleases and other occupancy
agreements to which Seller is a party for any portion of, or interest in, the
Real Property, other than the Specialty License Agreements and the Anchor
Agreements, including all such occupancy agreements which may be made by Seller
after the date hereof and prior to Closing in accordance with the terms of this
Agreement.
1.71 "LOSSES" means all losses, claims, damages, liabilities, costs and
expenses, including reasonable attorney's fees and expenses.
1.72 "LOSSES THRESHOLD" has the meaning ascribed such term in SECTION
9.8(b).
1.73 "MALL" means that portion of the Property located at a particular
shopping center. The Malls are listed on SCHEDULE 1.73 attached hereto.
1.74 "MARKETING FUND BALANCE" means the fund or funds held by Seller on
behalf of tenants at a Mall or the Malls for marketing and promotional
activities.
1.75 "PARK PLAZA PREMISES" has the meaning ascribed such term in
SECTION 3.2.
1.76 "PCBS" has the meaning ascribed such term in SECTION 9.3.
1.77 "PERMITTED EXCEPTIONS" means collectively the exceptions to title
to the Real Property listed on SCHEDULE 1.77 attached hereto, and such other
exceptions to title as are approved (or deemed approved hereunder) or waived (or
deemed waived hereunder) by Purchaser.
1.78 "PERSONALTY" means all movable equipment, furniture, furnishings,
supplies and other personal property owned by Seller, which are now or may
hereafter be located on the Property or used in connection with the operation,
ownership, leasing, management or maintenance of the Property other than the
items, if any, listed on SCHEDULE 1.78.
1.79 "PREPAYMENT CONSIDERATION" has the meaning ascribed such term in
SECTION 3.2.
1.80 "PROPERTY" means collectively, the Real Property, the Personalty,
the Records, the Leases, the Specialty License Agreements, the Anchor
Agreements, the Contracts and the Intangibles.
1.81 "PRORATION DATE" has the meaning ascribed to such term in SECTION
7.1.
1.82 "PURCHASE PRICE" has the meaning ascribed to such term in SECTION
2.2.
1.83 "PURCHASER" means WXI/Z Southwest Malls Real Estate Limited
Partnership, a Delaware limited partnership, having business offices c/o Zamias
Services Inc, 300 Market Street, Johnstown, PA 15901.
1.84 "PURCHASER'S AGENTS" has the meaning ascribed such term in SECTION
4.1.
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1.85 "RATING AGENCIES" means the rating agencies which assigned a
rating to the debt evidenced or secured by the GMAC Loan Documents.
1.86 "RATING AGENCY CONSENT" means the consent or approval of each
Rating Agency to the transfer of the Real Property to Purchaser and the
substitution of Purchaser for Seller as the borrower under the GMAC Loan
Documents, to the extent such consent or approval is required by GMAC or the
GMAC Loan Documents as a condition to the granting or effectiveness of the GMAC
Consent or the assumption by Purchaser of the GMAC Loan Documents.
1.87 "RCRA" has the meaning ascribed such term in SECTION 9.3.
1.88 "REAL PROPERTY" means (a) all of that certain land more
particularly described in SCHEDULE 1.88 attached hereto, including the buildings
and all other improvements, structures, fixtures, facilities and installations
located thereon, including all building systems and equipment relating thereto
(except trade fixtures, equipment and other items owned by tenants or other
third parties under the Leases, the Specialty License Agreements, the Anchor
Agreements or otherwise listed on SCHEDULE 1.88), together with all easements,
covenants, rights, tenements, hereditaments and appurtenances thereunto
belonging or appertaining and (b) the interest of Seller under the Alexandria
Ground Leases.
1.89 "RECORDS" means all permits, licenses, certificates of occupancy,
approvals, authorizations, plats, plans and surveys relating to the ownership or
operation of the Property or any part thereof or interest therein, to the extent
in Seller's possession or control.
1.90 "REMAINING SELLER GMAC LOAN" has the meaning ascribed such term in
SECTION 3.4.
1.91 "RENTALS" has the meaning ascribed such term in SECTION 7.1.
1.92 "SATISFACTORY ESTOPPEL CERTIFICATE" has the meaning ascribed such
term in SECTION 5.4(c).
1.93 "SELLER" means Southwest Shopping Centers, Co. II, L.L.C., a
Delaware limited liability company, having its business offices at 551 Fifth
Avenue (Suite 1416) New York, New York 10177-1499.
1.94 "SEC DELAY" means FUR's inability to clear with the Securities and
Exchange Commission a definitive proxy statement with sufficient time to declare
a record date, mail proxy statements, solicit proxies and conduct a duly called
meeting in accordance with all applicable laws, rules and regulations and FUR's
organizational documents by the Shareholder Approval Deadline.
1.95 "SELLER RATIFICATION" has the meaning ascribed such term in
SECTION 14.2.
1.96 "SELLER'S CASUALTY NOTICE" has the meaning ascribed such term in
SECTION 10.1.
1.97 "SELLER'S CONDEMNATION NOTICE" has the meaning ascribed such term
in SECTION 10.2.
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1.98 "SELLER'S FILES" means the written documentation made available to
Purchaser or Purchaser's Agents prior to the Due Diligence Termination Deadline
at the offices of Seller or FUR in Cleveland or Dallas or the on-site management
office at each Mall or otherwise delivered to Purchaser or Purchaser's Agents
prior to the Due Diligence Termination Deadline, it being understood and agreed
that Seller's Files shall only be deemed to include such documentation made
available in such Cleveland or Dallas or on-site management offices or delivered
to Purchaser prior to the Due Diligence Deadline and shall not be deemed to
include any additional, amended or different documentation made available in
such Cleveland or Dallas or on-site management offices (or anywhere else) or
delivered to Purchaser or included in Seller's books, records, or files after
the Due Diligence Termination Deadline.
1.99 "SELLER'S TITLE INSURANCE POLICIES" means the title insurance
policies insuring Seller with respect to the Real Property which are set forth
on SCHEDULE 1.99.
1.100 "SHAREHOLDER APPROVAL DEADLINE" means November 30, 1999, as the
same may be extended pursuant to SECTION 14.2(e).
1.101 "SPECIALTY LICENSE AGREEMENTS" means all agreements or licenses
for a term of one year or less for occupancy of space within the Real Property
including license agreements which may be entered into after the date hereof and
prior to Closing in accordance with the terms of this Agreement. A schedule of
the Specialty License Agreements existing as of the date hereof is attached as
SCHEDULE 1.101.
1.102 "SURVEY" means a survey of each parcel of the Real Property dated
on or after June 1, 1999, made by a surveyor or civil engineer duly licensed in
the state in which such parcel is located.
1.103 "TAXES" has the meaning ascribed such term in SECTION 5.2(a).
1.104 "TENANT" shall mean a tenant under a Lease.
1.105 "TENANT COSTS" has the meaning ascribed such term in SECTION
8.1(d).
1.106 "TENANT COSTS ESCROW ACCOUNT" has the meaning ascribed such term
in SECTION 8.1(d).
1.107 "TENANT ESTOPPEL CERTIFICATE" has the meaning ascribed such term
in SECTION 5.4(b).
1.108 "TENANT LITIGATION SPACE" has the meaning ascribed such term in
SECTION 5.4(b).
1.109 "TESTING" has the meaning ascribed such term in SECTION 4.2.
1.110 "TITLE COMMITMENT" means a binder or commitment to be issued by
Title Insurer to Purchaser, providing for the issuance at the Closing to
Purchaser of the Title Policy.
1.111 "TITLE INSURER" means First American Title Insurance Company
(through its offices located in New York, New York and Santa Ana, Texas).
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1.112 "TITLE OBJECTIONS STATEMENT" has the meaning ascribed such term
in SECTION 5.3.
1.113 "TITLE POLICY" means an Owner's Policy of Title Insurance issued
by the Title Insurer dated the date and time of Closing insuring Purchaser's fee
simple title to the Real Property (or with respect to the portions of the Real
Property that are subject to the Alexandria Ground Leases, Purchaser's leasehold
interests in such Real Property), free and clear of all liens, claims,
covenants, restrictions, exceptions, exclusions and other encumbrances other
than the Permitted Exceptions; PROVIDED that, at Purchaser's election, Chicago
Title Insurance Company may act as co-insurer or reinsurer with respect to the
Title Policy without creating any further liability or obligation on the part of
Seller.
1.114 "VALID TITLE OBJECTIONS" has the meaning ascribed such term in
SECTION 5.3.
1.115 "VOLUNTARY ENCUMBRANCES" has the meaning ascribed to such term in
SECTION 5.3.
1.116 "VOTING AGREEMENTS" has the meaning ascribed such term in SECTION
2.3.
ARTICLE 2
---------
AGREEMENT TO SELL
-----------------
2.1 AGREEMENT. Upon and subject to the terms and conditions contained
in this Agreement, Seller agrees to sell, convey, transfer and assign to
Purchaser, and Purchaser agrees to purchase from Seller, all of Seller's right,
title and interest in and to the Property; it being understood that Seller's
right, title and interest in the Intangibles shall be assigned to Purchaser to
the extent such Intangibles are owned and assignable by Seller.
2.2 PURCHASE PRICE. The purchase price for the Property (the "PURCHASE
PRICE") shall be ONE HUNDRED NINETY-ONE MILLION FIVE HUNDRED THOUSAND AND 00/100
DOLLARS ($191,500,000), allocated to the respective Malls as provided in Section
2.4 and adjusted as set forth herein and reflected on the closing statements to
be delivered at Closing, payable as follows:
(a) Simultaneously with the execution and delivery of this
Agreement, Purchaser shall deposit with Escrowee the sum of ONE MILLION AND
00/100 DOLLARS ($1,000,000) (the "INITIAL DEPOSIT"; together with the Additional
Deposit, the "DEPOSIT") by wire transfer of immediately available funds in
accordance with Escrowee's wiring instructions as set forth on SCHEDULE 2.2(a)
annexed hereto (the "ESCROWEE WIRING INSTRUCTIONS"), which constitutes an
initial downpayment on account of the Purchase Price. The Deposit shall be held
and disbursed by Escrowee in accordance with the terms and conditions of the
Escrow Agreement;
(b) On or before the Due Diligence Termination Deadline,
Purchaser shall deposit with Escrowee the additional sum of NINE MILLION AND
00/100 DOLLARS ($9,000,000) as an additional
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downpayment on account of the Purchase Price (the "ADDITIONAL DEPOSIT"), by wire
transfer of immediately available funds to Escrowee in accordance with the
Escrowee Wiring Instructions;
(c) The outstanding principal amount of the GMAC Mortgage on
the date of Closing (after payment of the GMAC Park Plaza Release Price in
accordance with this Agreement) as certified by GMAC in the GMAC Estoppel
Certificate, by Purchaser assuming the GMAC Mortgage and the GMAC Loan Documents
at the Closing as provided in this Agreement; PROVIDED that if Purchaser
receives the GMAC Consent and the GMAC Estoppel Certificate and nonetheless
elects at Closing, in its sole discretion, to proceed with the Closing and not
to assume the GMAC Mortgage and GMAC Loan Documents, Purchaser shall, in
addition to payment of the Purchase Price, pay in full the GMAC Prepayment
Penalty at Closing, in which event the foregoing portion of the Purchase Price
shall be payable in cash and shall be added to the cash payment required to be
paid under subparagraph "(d)" below; and
(d) At the Closing, Purchaser shall deposit with Escrowee, by
wire transfer of immediately available funds in accordance with the Escrowee
Wiring Instructions, the balance of the Purchase Price, subject to prorations as
provided in ARTICLE 7 hereof.
2.3 APPROVALS. The parties hereto agree that this Agreement shall
automatically terminate (in which case the Initial Deposit shall promptly be
returned to Purchaser and neither party to this Agreement shall have any further
obligation or liability to the other party under this Agreement except for those
provisions which are expressly stated herein to survive termination of this
Agreement) if (a) Purchaser does not receive a copy of a resolution of the Board
of Trustees of FUR, certified by an officer of FUR as true and correct,
approving this Agreement and the transactions contemplated hereby and
recommending that the shareholders of FUR consent to and approve the
transactions contemplated hereby (the "BOARD RESOLUTION") and (b) Purchaser does
not receive, in the form heretofore agreed upon by Seller and Purchaser, a
voting agreement and irrevocable proxy executed by (i) Gotham Partners, L.P.,
Gotham Partners III, L.P. and Gotham Partners International Ltd. and (ii) Apollo
Real Estate Investment Fund II, L.P., each a shareholder of FUR, pursuant to
which such shareholders shall agree to vote to approve the transactions
contemplated hereby (the "VOTING AGREEMENTS"), in each case on or prior to July
16, 1999.
2.4 PURCHASE PRICE ALLOCATION. Seller and Purchaser agree that the
Purchase Price, subject to adjustment as set forth in this Agreement, shall be
allocated among the Malls as agreed upon by Seller and Purchaser after the
Effective Date. Seller and Purchaser shall reasonably cooperate from and after
the Effective Date in determining such allocation and the allocation of any
adjustments to the Purchase Price.
No part of the Purchase Price shall be allocated to the Personalty.
ARTICLE 3
---------
GMAC MORTGAGES
--------------
3.1 DESCRIPTION OF GMAC MORTGAGES. The Property is subject to the
mortgages and deeds of trust described on SCHEDULE 3.2(b) attached hereto
(collectively, the "GMAC MORTGAGE"), which secure a
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promissory note in the original principal amount of $165,000,000.00 payable to
GMAC Commercial Mortgage Corporation (together with any successor to GMAC
Commercial Mortgage Corporation under the GMAC Loan Documents, "GMAC"). The GMAC
Mortgage and the GMAC Loan Documents shall constitute Permitted Exceptions.
3.2 ASSUMPTION OF GMAC MORTGAGE; GMAC PREPAYMENT PENALTY; GMAC RELEASE.
(a) Purchaser acknowledges that there is a substantial
prepayment penalty applicable to the GMAC Loan Documents and that Seller shall
not be obligated to bear the cost of such prepayment penalty (other than the
GMAC Park Plaza Prepayment Penalty) or to pay-off the GMAC Mortgage at Closing.
Accordingly, if Purchaser and Seller have not received the GMAC Consent and the
Rating Agency Consent by the date that is seventy (70) days after the date on
which Purchaser receives the Board Resolution and the Voting Agreements (the
"GMAC TERMINATION DEADLINE"), this Agreement will automatically terminate (in
which case the Additional Deposit shall promptly be returned to Purchaser and
the Initial Deposit shall be promptly paid to Seller and neither party to this
Agreement shall have any further obligation or liability to the other party
under this Agreement except for those provisions which are expressly stated
herein to survive termination of this Agreement). Notwithstanding anything to
the contrary contained in this Agreement, if the GMAC Consent and the Rating
Agency Consent are received by Seller and Purchaser prior to the GMAC
Termination Deadline (as the same may be extended) and nonetheless GMAC does not
permit the assumption of the GMAC Mortgage by Purchaser, then either Purchaser
or Seller shall have the right to terminate this Agreement by written notice
delivered to the other on or prior to Closing, in which case the Deposit shall
be promptly returned to Purchaser and neither party to this Agreement shall have
any further obligation or liability to the other party under this Agreement
except for those provisions which are expressly stated herein to survive
termination of this Agreement; PROVIDED that Purchaser shall not be entitled to
the return of the Deposit, and the Deposit shall be paid to Seller, in the event
that the sole reason GMAC does not permit the assumption of the GMAC Mortgage by
Purchaser (even though the GMAC Consent and the Rating Agency Consent are
received by Seller and Purchaser prior to the GMAC Termination Deadline) is
because of the fault of Purchaser. As used herein, the "GMAC PREPAYMENT PENALTY"
shall mean the entire prepayment penalty applicable to payment in full of the
GMAC Mortgage including, without limitation, the "PREPAYMENT CONSIDERATION," as
defined in the Promissory Note dated as of September 30,1996, in the original
principal amount of $165,000,000.00 made by Seller in favor of GMAC, as
applicable to the payment in full of the GMAC Mortgage.
(b) Purchaser and Seller shall use best efforts, including by
executing splitter and other documents reasonably required by GMAC which are not
adverse to either such party but without being required to expend any sums other
than the GMAC Charges and the GMAC Assumption Fees which are payable as
hereinafter provided, to cause (i) GMAC to deliver to Purchaser and Seller the
GMAC Consent by the GMAC Termination Deadline, (ii) the Rating Agencies to
deliver to Purchaser and Seller the Rating Agency Consent by the GMAC
Termination Deadline and (iii) GMAC to deliver to Seller at Closing a (A) full
and complete unconditional release of Seller, each guarantor and indemnitor and
all principals and affiliates of Seller (including, without limitation, FUR and
FUM) with respect to all of their respective obligations and liabilities under
the GMAC Loan Documents, including, without limitation (1) all guarantees and
indemnities and (2) the documents listed on SCHEDULE 3.2(b) annexed hereto and
made a part hereof and
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(B) an unconditional release from the GMAC Mortgage (and all other GMAC Loan
Documents) of the premises commonly known as the Park Plaza Mall, Little Rock,
Arkansas ("PARK PLAZA PREMISES"), each in form and substance satisfactory to
Seller (the releases described in clauses "(i)" and "(ii)" above, collectively,
the "GMAC RELEASE.")
3.3 GMAC ASSUMPTION FEES AND CHARGES. Seller shall pay at Closing an
assumption or transfer fee of up to 1.0% of the outstanding principal balance of
the GMAC Mortgage as set forth in the GMAC/Granite Letter (the "GMAC ASSUMPTION
FEES"). Purchaser shall pay all other fees (unrelated to the Park Plaza
Premises) in connection with the assumption of the GMAC Loan Documents by
Purchaser (other than any assumption or transfer fees charged by GMAC in
connection with the assumption by Purchaser of the GMAC Loan Documents),
including title insurance endorsements, any mortgage tax applicable to the
assumption of the GMAC Loan Documents by Purchaser or transactions consummated
in connection therewith and all expenses of GMAC and its attorneys and the
Rating Agencies and their attorneys (collectively, the "GMAC CHARGES"). As used
herein, the term "GMAC GRANITE LETTER" shall mean that certain letter dated
December 2, 1998 from GMAC Commercial Mortgage to Robert Williams of Granite
Partners LLC, a copy of which Purchaser hereby acknowledges receipt.
3.4 Notwithstanding anything to the contrary contained in this
Agreement, Seller shall have the sole right to negotiate for and attempt to
obtain GMAC's agreement (i) to the reduction or elimination of the GMAC Park
Plaza Release Price and/or the GMAC Park Plaza Prepayment Penalty and/or (ii) to
keep Seller or an affiliate of Seller as the borrower with respect to a portion
of the GMAC Mortgage (or to make a new mortgage loan to Seller or affiliate)
equal to the Allocated Loan Amount (as defined in the GMAC Loan Agreement) with
respect to the Park Plaza Premises or such other amount as GMAC may agree to or
require (the "REMAINING SELLER GMAC LOAN"), which Remaining Seller GMAC Loan may
encumber the Park Plaza Premises and/or other properties other than the
Property; PROVIDED that in no event shall any agreement between Seller and GMAC
relating to clauses (i) or (ii) above result in any modification to the GMAC
Loan Documents without the consent of Purchaser, except that the GMAC Loan
Documents may be modified without Purchaser's consent to release the Park Plaza
Premises and to reduce the outstanding principal amount of the GMAC Mortgage by
an amount up to the Allocated Loan Amount (as defined in the GMAC Loan
Agreement) with respect to the Park Plaza Premises and as otherwise reasonably
required solely to accomplish such release and reduction. Any Remaining Seller
GMAC Loan shall not be cross-defaulted or cross-collateralized (or otherwise
dependent or related in any manner on or to) with the GMAC Mortgage assumed by
Purchaser and the GMAC Mortgage as assumed by Purchaser at Closing shall not
provide that it is cross-defaulted or cross-collateralized (or otherwise
dependent or related in any manner on or to) with the Remaining Seller GMAC
Loan. As used herein, the term "GMAC PARK PLAZA RELEASE PRICE" shall mean the
payment required under Section 4.(a) (A.) of the GMAC Loan Agreement as
applicable to a release of the Park Plaza Premises from the GMAC Mortgage, as
same may be reduced, adjusted or waived as a result of negotiation or as
otherwise may be agreed to by GMAC. As used herein, the "GMAC PARK PLAZA
PREPAYMENT PENALTY" shall mean the "applicable Prepayment Consideration," as
used in Section 4.(a)(B) of the GMAC Loan Agreement, as applicable to the
prepayment attributable to the payment of the GMAC Park Plaza Release Price, as
same may be reduced, adjusted or waived as a result of negotiation or as
otherwise may be agreed to by GMAC.
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ARTICLE 4
---------
DUE DILIGENCE
-------------
4.1 DUE DILIGENCE REVIEWS.
(a) At Purchaser's sole cost and expense, Purchaser and its
employees, consultants, engineers, licensees, contractors, surveyors,
appraisers, attorneys, auditors and other agents or representatives
(collectively, "PURCHASER'S AGENTS") shall have the right, subject to the
provisions of SECTION 4.2(a), prior to the date that is twenty-five (25) days
after the date on which Purchaser receives the Board Resolution and the Voting
Agreements (the "DUE DILIGENCE TERMINATION DEADLINE") to inspect, examine,
survey, obtain engineering inspections, conduct soil tests, environmental tests
and inspections of the Real Property, examine and review all Evaluation
Material, and conduct such other tests, studies, reviews and inspections as
Purchaser may reasonably elect (including the testing and review of computer
files and databases containing information on tenants); PROVIDED that the same
is permitted under the terms of the applicable Anchor Agreement, Lease or
Specialty License Agreement, as the case may be. Purchaser may, by written
notice to Seller, extend the Due Diligence Termination Deadline by one day for
each day prior to the Due Diligence Termination Deadline (as the same may be
extended) on which Seller's Files are not made available to Purchaser for at
least nine (9) hours, if such day is a Business Day, or eight (8) hours, if such
day is not a Business Day. Seller shall reasonably cooperate with Purchaser in
conducting the foregoing inspections and Seller shall make available to
Purchaser wherever located all Evaluation Material in the possession or under
the control of Seller. Upon not less than one (1) Business Day's prior written
notice to Seller, Purchaser shall have reasonable access to the Real Property
and the Evaluation Material wherever located, subject to the terms of the
applicable Anchor Agreements Leases and Specialty License Agreements; PROVIDED
that a representative of Seller may accompany Purchaser and Purchaser's Agents;
PROVIDED FURTHER that the unavailability or failure of a representative of
Seller to accompany Purchaser and Purchaser's Agents shall not limit the access
of Purchaser and Purchaser's Agents to the Real Property and the Evaluation
Material. Purchaser shall, subject to the terms of SECTION 8.3, be permitted to
duplicate all or so much of the Evaluation Material as Purchaser and Seller deem
appropriate. Purchaser shall reimburse Seller for any reasonable out-of-pocket
expenses incurred by Seller, at Purchaser's or Purchaser's Agents' request, in
connection with Purchaser's due diligence and other investigations pursuant to
this ARTICLE 4. Purchaser shall cause Purchaser's Agents to comply with their
obligations under SECTION 8.3.
(b) Purchaser shall have the right to terminate this
Agreement; PROVIDED that Seller shall have received from Purchaser written
notice of such election to terminate (the "DUE DILIGENCE TERMINATION NOTICE") no
later than the Due Diligence Termination Deadline. If Seller shall have received
the Due Diligence Termination Notice by the Due Diligence Termination Deadline,
then this Agreement shall be terminated and the Deposit (or so much thereof as
shall have been paid by Purchaser) and any Interest Income shall be retained by
Seller and, thereupon, neither party to this Agreement shall have any further
obligation or liability to the other party under this Agreement except for those
provisions which are expressly stated herein to survive termination of this
Agreement. If Seller shall not receive the Due Diligence Termination Notice by
the Due Diligence Deadline, Purchaser shall have no right to terminate this
Agreement except as may be expressly provided elsewhere in this Agreement.
Notwithstanding anything
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to the contrary contained in this Agreement (including any limitations on
remedies provided elsewhere in this Agreement), in the event that (i) Purchaser
terminates this Agreement by delivery of a Due Diligence Termination Notice in
accordance with this SECTION 4.1(b) and (ii) Seller enters into a written
agreement with any person or entity other than Purchaser to sell all or any
portion of the Real Property within six (6) months after the date on which this
Agreement is so terminated, then Seller shall pay to Purchaser the amount, if
any, by which the purchase price to be paid for the Real Property (or portion
thereof) under such other written agreement exceeds the amount of the Purchase
Price allocable to such Real Property (or portion thereof) hereunder; PROVIDED
that the amount required to be paid by Seller shall not exceed the amount of the
Initial Deposit. The obligations of Seller in the preceding sentence shall
survive the termination of this Agreement pursuant to this SECTION 4.1(b) for
seven (7) months.
4.2 (a) Without limiting Purchaser's obligations in the conduct of its
due diligence as provided in SECTION 4.1 above or its obligations (or that of
its affiliates) under SECTION 8.3, (i) Purchaser shall not, and shall cause
Purchaser's Agents not to, conduct any site inspection without first contacting
and making arrangements for an inspection with Earl Dorsett (telephone no. (216)
781-4030) or Larry Cocks (telephone no. (972) 448-2025) and (ii) Purchaser shall
not, and shall cause Purchaser's Agents not to, conduct any soil test or
sampling or any boring, digging, drilling or other physical intrusion of the
Properties and/or the improvements thereon other than Phase I environmental site
assessments (collectively, "TESTING") without the prior written consent of
Seller, which consent shall not be unreasonably withheld or delayed unless the
same is prohibited by the terms of the applicable Anchor Agreement, Lease or
Specialty License Agreement, as the case may be; it being understood that Seller
may withhold its consent with respect to Phase II environmental site assessments
for any reason or for no reason.
(b) If Seller consents to any Testing (i) Purchaser and
Purchaser's Agents shall maintain property damage and liability insurance
policies in form and amounts acceptable to Seller (and naming, as additional
insureds, Seller and all mortgage lenders with respect to the Real Property as
may be required by Seller) prior to commencing any such Testing, (ii) at the
request of Seller, Purchaser and Purchaser's Agents shall provide Seller with
certificates of insurance and insurance binders evidencing the maintenance of
such insurance and (iii) upon completion of Testing at any particular Mall,
Purchaser and Purchaser's Agents shall restore promptly, at Purchaser's sole
cost and expense, the Mall to its condition existing prior to such Testing. In
performing any site inspection, Testing or due diligence with respect to a Mall,
Purchaser agrees and shall cause Purchaser's Agents to not unreasonably
interfere with the operation of such Mall or unreasonably disturb the occupancy
of any tenant at such Mall. A representative of Seller may accompany Purchaser
and Purchaser's Agents in connection with the performance of any site
inspection, Testing or due diligence with respect to any Mall; PROVIDED that the
unavailability or failure of a representative of Seller to accompany Purchaser
and Purchaser's Agents shall not limit the ability of Purchaser and Purchaser's
Agents to conduct any such site inspections, Testing or due diligence. Purchaser
hereby indemnifies and holds harmless Seller and all of its principals and
affiliates from and against any and all Losses that may arise in connection with
any and all claims arising out of the acts or alleged acts of Purchaser or any
of Purchaser's Agents with respect to any site inspection or Testing or other
act pursuant to or in violation of the provisions of this ARTICLE 4, except to
the extent caused by the negligence or willful acts of Seller, its employees or
representatives.
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(c) The results of all Testing shall be promptly shared with
Seller and copies of all written reports of the results of all Testing shall be
delivered to Seller, in each case, only if Purchaser delivers a Due Diligence
Termination Notice to Seller or otherwise terminates this Agreement. The
obligations of Purchaser under this ARTICLE 4 shall survive the termination of
this Agreement.
ARTICLE 5
---------
ESCROW, TITLE, SURVEY AND ESTOPPEL CERTIFICATES
-----------------------------------------------
5.1 ESCROW; DISPOSITION OF DEPOSIT.
(a) The Closing of the transaction contemplated hereby shall
be through the Escrow pursuant to the provisions of this ARTICLE 5. The Deposit
(or so much thereof as shall have been paid by Purchaser) shall be paid (i) to
Seller at and upon the Closing or in accordance with the provisions of SECTION
11.2 or as provided in the proviso to the third sentence of SECTION 3.2(a), (ii)
to Seller immediately upon a termination by Purchaser of this Agreement in
accordance with the provisions of SECTION 4.1(b) or (iii) to Purchaser
immediately upon any other termination of this Agreement (by Purchaser or Seller
or otherwise) in accordance with the provisions of this Agreement; PROVIDED
that, in the event this Agreement terminates pursuant to the second sentence of
SECTION 3.2(a) as a result of the GMAC Consent and the Rating Agency Consent not
being timely obtained, the Initial Deposit shall be paid to Seller and the
Additional Deposit shall be paid to Purchaser. All interest and income earned on
the Initial Deposit and the Additional Deposit (the "INTEREST INCOME") shall be
paid to Purchaser unless the Closing does not occur and, as a result, the
Deposit (or the Initial Deposit) is forfeited to Seller pursuant to Section
3.2(a), SECTION 4.1(b) or SECTION 11.2, in which case the Interest Income on the
Deposit (or portion thereof) which is forfeited to Seller shall be paid to
Seller. This Agreement shall not be merged into the Escrow Agreement, but the
Escrow Agreement shall be deemed auxiliary to this Agreement and, as between the
parties hereto, the provisions of this Agreement shall govern and control. If
there is any conflict between the Escrow Agreement and this Agreement, this
Agreement shall control.
(b) In the event that any amounts which have been deposited
with Escrowee pursuant to this Agreement are required to be paid or delivered
pursuant to the terms of this Agreement, Seller and Purchaser each agree that it
will promptly instruct Escrowee (in writing with a copy to the other party) to
promptly pay or deliver the same to the party entitled thereto. The provisions
of this Section 5.2(b) shall survive the termination of this Agreement until all
amounts required to be paid under this Agreement have been paid.
5.2 ESCROW, TITLE COSTS AND TRANSFER TAXES. Title insurance, escrow
charges and other costs shall be arranged and paid as follows:
(a) Seller and Purchaser shall each pay 50% of the cost of (i)
the Escrow, (ii) obtaining the Title Commitments, Title Policies and title
abstracts and examinations, (iii) obtaining the Surveys, (iv) recording the
Deeds from Seller to Purchaser and any other documents and (v) the aggregate of
any and
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all real property transfer tax, deed tax, sales tax and other similar taxes
applicable to the conveyance and transfer of the Real Property and Personalty
pursuant to this Agreement (collectively, the "TAXES").
(b) Purchaser shall pay the cost of obtaining any endorsements
to the Title Policies.
(c) Seller shall pay the cost of and have the responsibility
for recording any documents required to satisfy or release Defects or to insure
over the same to the extent Seller is obligated or elects to cure such Defects
in accordance with SECTION 5.3.
(d) The obligations of Seller and Purchaser pursuant to this
SECTION 5.2 shall survive the Closing.
5.3 DEFECTS IN TITLE COMMITMENTS OR SURVEYS.
(a) Seller shall promptly after executing this Agreement order
from the Title Insurer the Title Commitments and Surveys with respect to each
Mall and shall cause a copy thereof to be delivered to Purchaser and its
attorneys concurrently with the delivery thereof to Seller or Seller's
attorneys. By the later of (i) ten (10) days after receipt of a Title Commitment
or Survey, as the case may be, with respect to a Mall or (ii) the Due Diligence
Termination Deadline, Purchaser's attorneys shall send to Seller's attorneys a
written statement (each a "TITLE OBJECTIONS STATEMENT") setting forth any matter
noted in or shown by such Title Commitment or Survey, as the case may be, which
Purchaser deems to be a Defect in accordance with the provisions of this
Agreement. If the Title Objections Statement provided above shall not be timely
delivered, as provided above, then any title exceptions or state of facts noted
in or shown by such Title Commitment or Survey shall be deemed waived by
Purchaser and shall constitute Permitted Exceptions. Any title exceptions or
state of facts noted in or shown by such Title Commitment or Survey which are
not set forth in the Title Objections Statement shall likewise be deemed waived
by Purchaser and shall constitute Permitted Exceptions.
(b) Seller shall have the right but not the obligation to cure
the Defects that have not been waived (or deemed waived) by Purchaser in
accordance with the provisions of SECTION 5.3(a) (collectively "VALID TITLE
OBJECTIONS" and, individually, "VALID TITLE OBJECTION"); PROVIDED that Seller
shall be obligated to cure or remove from or against the Property any mortgages
created by or in favor of Seller or its affiliates (other than the GMAC Mortgage
and GMAC Loan Documents) and any liens and encumbrances voluntarily created by
Seller or its affiliates other than Permitted Exceptions (collectively,
"VOLUNTARY ENCUMBRANCES") and Purchaser's remedies with respect to a failure to
cure such Voluntary Encumbrances shall not be limited as described in SECTION
5.3(c). In order to cure any Valid Title Objections, Seller shall be entitled
(provided that Seller shall provide such notice to Purchaser (i) at least two
(2) Business Days before the Closing Date (or, if the Closing has previously
been adjourned, the then current Adjourned Date) or (ii) on the Closing Date or
such then current Adjourned Date if Seller receives the applicable Title
Objections Statement after the date which is two (2) Business Days prior to the
Closing Date or such then current Adjourned Date) to adjourn the Closing from
time to time to a date ("ADJOURNED DATE") specified by Seller upon five (5)
days' notice to Purchaser but not beyond a date which is more than sixty (60)
days after the Closing Date and in no event is later than the Closing Deadline.
If Seller elects to adjourn the
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Closing, and cures the Valid Title Objections on or before the Adjourned Date,
then the Closing shall occur on such Adjourned Date specified by Seller in
accordance with the provisions of this Agreement without any reduction in the
Purchase Price hereunder.
(c) If Seller elects by notice at any time not to cure any
Valid Title Objection other than a Voluntary Encumbrance or Seller fails to cure
a Valid Title Objection other than a Voluntary encumbrance on or before the
Adjourned Date, then Purchaser's sole right and remedy shall be, on the terms
and conditions set forth below, either: (A) to terminate this Agreement; or (b)
to complete the purchase in accordance with this Agreement without reduction or
abatement in the Purchase Price. Purchaser shall exercise its option pursuant to
clause (A) above by notice given to and received by Seller on the earlier of (i)
within five (5) days after the giving of Seller's notice to Purchaser that
Seller will not cure all the Valid Title Objections and (ii) the Adjourned Date.
If Purchaser exercises its option pursuant to clause (A) above, then Purchaser
shall be entitled to receive a refund of the Deposit. Upon such termination,
except as set forth in the preceding sentence, neither party shall have any
further liability or obligation to the other party under this Agreement except
for those provisions which are expressly stated herein to survive termination of
this Agreement. If Purchaser shall fail to send a written notice to Seller
exercising Purchaser's option set forth under clause (A) above within the
applicable period, then it shall be deemed that Purchaser exercised the option
set forth in clause (B) above.
(d) Purchaser may notify Seller in writing of any Defect with
respect to a Mall (i) raised by the Title Insurer or the surveyors between the
deadline for providing Seller with a Title Objection Statement with respect to
such Mall and the Closing and (ii) not disclosed by the Title Insurer prior to
the deadline for providing Seller with a Title Objection Statement with respect
to such Mall. If Purchaser provides such notice to Seller by delivery of a Title
Objections Statement by the earlier of (x) within ten (10) days after Purchaser
receives notice of such Defect from the Title Insurer or receives an update to
the Survey showing such Defect, (y) the Closing Date, or if the Closing has
previously been adjourned, the Adjourned Date, then such Defect will be deemed
to be a Valid Title Objection and Purchaser and Seller shall have the same
rights and obligations with respect to such Valid Title Objection as apply under
SECTIONS 5.3(a), (b) AND (c) as if such Valid Title Objection had been shown in
a Title Objections Statement that had been timely delivered in accordance with
SECTION 5.3(a). If Purchaser fails to timely provide such notice, then such
Defect shall be deemed waived by Purchaser and shall constitute a Permitted
Exception. Any such Defect which is not set forth in the Title Objection
Statement shall likewise be deemed waived by Purchaser and shall constitute a
Permitted Exception.
(e) Nothing contained in this Agreement shall be construed as
a representation of the state of title to the Property or to require Seller to
bring any action or proceeding or otherwise to incur any expenses to render
title to the Property insurable or marketable or to cure any Valid Title
Objections other than Voluntary Encumbrances. Any attempt by Seller to cure a
title objection shall not be construed as an admission by Seller that such
objection is a Valid Title Objection under this Agreement.
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5.4 ESTOPPEL CERTIFICATES.
(a) Seller shall request from each party (other than Seller,
any affiliate or any of their respective predecessors in interest) to an Anchor
Agreement that is in effect on the Due Diligence Termination Deadline (each, an
"ANCHOR" and, collectively, the "ANCHORS"), other than those Anchor Agreements
specified on SCHEDULE 5.4(a) annexed hereto and other than an Anchor Agreement
under which the Anchor has vacated the leased premises due to the expiration of
the lease term or the default of the Anchor (in each case as certified by
Seller) (collectively, the "EXCLUDED ANCHOR AGREEMENTS"), an estoppel
certificate in any one of the following forms: (x) in the form required to be
delivered by the respective Anchor as set forth in the applicable Anchor
Agreement, (y) an estoppel certificate substantially in the form of EXHIBIT F
attached hereto or (z) an estoppel certificate substantially in the form of the
standard form of tenant estoppel certificate (or reciprocal easement agreement
estoppel certificate, as the case may be) customarily given by the respective
Anchor (as applicable, each, an "ANCHOR ESTOPPEL CERTIFICATE"); PROVIDED,
HOWEVER, that Seller shall deliver certificates to the Purchaser with respect to
the Excluded Anchor Agreements containing the form and substance of the
applicable Anchor Estoppel Certificates. All certificates delivered by Seller
shall survive the Closing for six (6) months and inure to the benefit of
Purchaser, its successors and assigns and any lender providing financing to
Purchaser.
(b) Seller shall request from each Tenant occupying any space
at the Real Property on the Due Diligence Termination Deadline estoppel
certificates in form required to be delivered by such Tenant as set forth in the
applicable Lease, or, if no such form shall be provided therein, then
substantially in the form of EXHIBIT G attached hereto (as applicable, each, a
"TENANT ESTOPPEL CERTIFICATE") exclusive of (1) space covered by the leases
listed on SCHEDULE 5.4(b) ("TENANT LITIGATION SPACE"), (2) space covered by any
lease with Tandy or Radio Shack and (3) space which is the subject of (i) a
Lease under which the Tenant has vacated the leased premises due to the
expiration of the lease term or the default of the Tenant (in each case as
certified by Seller), (ii) an Anchor Agreement or (iii) a Specialty License
Agreement.
(c) An Anchor Estoppel Certificate or a certificate delivered
by Seller with respect to an Excluded Anchor Agreement or a Tenant Estoppel
Certificate shall be deemed to be satisfactory (a "SATISFACTORY ESTOPPEL
CERTIFICATE") only if it satisfies each of the following conditions: (i) it is
executed by the applicable Anchor, Tenant or Seller, as applicable, and is (A)
substantially in the form of EXHIBIT F OR EXHIBIT G, as the case may be, (B) in
the form provided for in the applicable Anchor Agreement or Lease with the
information specifically required by the respective Lease or Anchor Agreement,
or (c) in the form customarily given by the applicable Anchor, (ii) it does not
contradict Seller's representation and warranty in SECTION 9.2(d) that Seller's
Files contain a true and correct copy of any and all leases, reciprocal easement
agreements, subleases, licenses or other occupancy agreements affecting all or
any portion of the Real Property (except for modifications after the Effective
Date in accordance with SECTION 8.1(b)(ii)) and (iii) it is consistent with the
applicable Anchor Agreement or Lease set forth in Seller's Files. If at any time
whether before, at or after the Closing, Seller shall deliver to Purchaser an
Anchor Estoppel Certificate with respect to an Excluded Anchor Agreement, (1)
any previously delivered certificate of Seller shall be deemed of no further
force and effect and (2) Seller shall no longer be obligated to deliver a
certificate of Seller with respect to such affected Excluded Anchor Agreement.
Purchaser shall not be entitled to require Seller to
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procure a later dated Anchor Estoppel Certificate or Tenant Estoppel Certificate
on account of any adjournment of the Closing.
(d) Seller shall request an estoppel certificate from GMAC
(the "GMAC Estoppel Certificate") pursuant to which GMAC shall certify (1) the
outstanding principal amount of the GMAC Mortgage (and accrued and unpaid
interest thereon) as of the Closing (after payment of the GMAC Park Plaza
Release Price), (2) as true, correct and complete, copies of all of the GMAC
Loan Documents and that the documents listed in SCHEDULE 3.2(b) are all of the
substantive or operative documents (or modifications thereof) relating to the
loan secured by the GMAC Mortgage, (3) that all payments due to GMAC or its
attorneys or agents under the GMAC Loan Documents prior to the Closing have been
made and (4) that GMAC has not provided Seller with written notice of, and has
no knowledge of, any default by Seller under any of the GMAC Loan Documents. In
the case of clauses (3) and (4), if GMAC certifies the information described in
such clauses but dos not use the exact wording set forth above, such
certification shall be deemed acceptable if it otherwise complies in substance
with the definition of GMAC Estoppel Certificate.
ARTICLE 6
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CLOSING
-------
6.1 CLOSING DATE. The Closing shall take place at 10:00 a.m. New York,
New York time on the Closing Date at the office of Seller or its attorneys in
New York, New York. Time shall be of the essence with respect to the obligation
of the parties to close on the transactions contemplated by this Agreement by
the Closing Date, subject to adjournment as may be expressly provided for in
this Agreement.
6.2 ESCROW. The purchase and sale shall be closed through the Escrow
which shall be created by Seller, Purchaser and Escrowee pursuant to the Escrow
Agreement.
6.3 DELIVERIES.
(a) On or before the Closing Date, Seller shall deposit or
cause to be deposited into the Escrow the following:
(i) recordable deeds in the forms annexed hereto as
EXHIBIT H (each, a "DEED" and, collectively, the "DEEDS") transferring to
Purchaser fee simple title to each parcel of the Real Property, subject only to
the Permitted Exceptions;
(ii) the original executed copies of all Leases,
Specialty License Agreements, Anchor Agreements and Contracts or copies
certified to be true and correct, if the executed copies are not available;
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(iii) the original executed copies of (a) all Anchor
Estoppel Certificates and Tenant Estoppel Certificates obtained by Seller, (b)
all certificates delivered by Seller pursuant to SECTION 5.4 and (c) the GMAC
Estoppel Certificate;
(iv) copies of all warranties, guarantees, service
manuals and other documentation in the possession of or under the control of
Seller, its agents or any affiliate of Seller pertaining to building systems and
equipment;
(v) all keys and combinations to locks relating to
the Property that are in the possession of or under the control of Seller, its
agents or any affiliate of Seller;
(vi) any documentation required to be executed by
Seller with respect to any state, county, or local sales or transfer taxes
applicable to the conveyance or transfer of the Real Property or Personalty
pursuant to this Agreement;
(vii) a rent roll as of the Closing Date certified to
Purchaser and the Title Insurer by Seller;
(viii) notices to Tenants and Anchors regarding the
consummation of the sale and assignment of Leases and Anchor Agreements pursuant
to this Agreement and the transfer to Purchaser of all security deposits under
their respective Leases and Anchor Agreements;
(ix) a FIRPTA Affidavit executed by Seller;
(x) the GMAC Assumption Fees; and
(xi) any additional documents required hereunder to
be executed by Seller or that Purchaser reasonably determines to be necessary to
the proper consummation of the transaction contemplated by this Agreement
(provided the same do not materially increase the costs to, or liability or
obligations of, the party delivering the same hereunder in a manner not
otherwise provided for herein).
(b) On or before the Closing Date, Purchaser shall deposit
into the Escrow the following:
(i) the Purchase Price, adjusted as set forth herein
and reflected on the closing statement described in SECTION 6.3(c)(i) (the
"ADJUSTED PURCHASE PRICE");
(ii) the GMAC Reserves Reimbursement;
(iii) the GMAC Park Plaza Release Price;
(iv) the GMAC Park Plaza Prepayment Penalty;
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(v) the GMAC Charges;
(vi) any documentation required to be executed by
Purchaser with respect to any state, county, or local sales and transfer taxes
applicable to the conveyance or transfer of the Real Property and Personalty
pursuant to this Agreement; and
(vii) any additional documents required hereunder to
be executed by Purchaser or that Seller reasonably determines to be necessary to
the proper consummation of the transaction contemplated by this Agreement
(provided the same do not materially increase the costs to, or liability or
obligations of, the party delivering the same hereunder in a manner not
otherwise provided for herein).
(c) On or before the Closing, Seller and Purchaser shall
jointly deposit into the Escrow the following:
(i) a closing statement in quadruplicate prepared in
accordance with the provisions of this Agreement and otherwise in form and
substance reasonably satisfactory to the parties hereto;
(ii) the Assignment of Leases and Specialty License
Agreements;
(iii) the Assignment of Contracts;
(iv) the Bill of Sale and Blanket Conveyance;
(v) the Assignment of Anchor Agreements;
(vi) the Alexandria Ground Lease Assignments; and
(vii) the aggregate of any and all costs specified in
SECTION 5.2(a) (to be funded 50% by each of Seller and Purchaser with
appropriate adjustment for amounts previously paid by either party).
(d) At least seven (7) days prior to the Closing, Seller shall
deliver to Purchaser electronic copies of all computer files and databases
containing information on tenants.
(e) Provided that Seller has satisfied the other conditions to
Purchaser's obligation to effect the Closing set forth in SECTION 6.5, at the
written direction of Seller, Purchaser will cause any part of the Purchase Price
that Purchaser is required to pay pursuant to SECTION 2.2(d) to be applied to
one or more items that Seller is required to pay under SECTION 6.3, and Seller
shall not be deemed in default (or be deemed to have failed to satisfy a payment
obligation required to be satisfied by Seller as a condition to the Closing)
with respect to its obligation to pay such amounts to the extent it so directs
Purchaser to pay.
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(f) The provisions of this SECTION 6.3 shall survive the
Closing for a period of three (3) months.
6.4 CLOSING.
(a) At Closing, Escrowee shall:
(i) record or cause the recordation or file or cause
to be filed, as appropriate, the following documents in the appropriate
recording and filing offices of the appropriate jurisdictions:
(A) the Deed;
(B) the Alexandria Ground Leases
Assignments;
(C) the Assignment of Leases and Specialty
License Agreements;
(D) the Assignment of Anchor Agreements;
(E) the documentation, if applicable, with
respect to any state, county, or local sales and transfer taxes applicable to
the conveyance or transfer of the Real Property and Personalty pursuant to this
Agreement;
(ii) pay the Adjusted Purchase Price to Seller;
(iii) pay the Interest Income to Purchaser;
(iv) pay the Taxes to the appropriate governmental
authorities;
(v) pay the GMAC Charges and GMAC Assumption Fees to
GMAC or its designee;
(vi) pay the GMAC Park Plaza Release Price and the
GMAC Park Plaza Prepayment Penalty to GMAC or its designee;
(vii) pay the GMAC Reserves Reimbursement to Seller;
(viii) deliver to Seller duplicate originals of all
documents described in SUBSECTIONS 6.3(b) (VI) AND (VII) and SUBSECTION 6.3(c)
above;
(ix) deliver to Purchaser duplicate originals of the
documents described in SECTIONS 6.3 (a) and 6.3(c) above; and the Title Policy;
and
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(x) deliver as directed by Seller or Purchaser such
other documents as may be deposited with Escrowee.
(b) At Closing, Seller shall deliver to Purchaser possession
and occupancy of the Properties, subject to the Permitted Exceptions.
(c) At Closing, Seller shall deliver to Purchaser, or shall
otherwise leave at the Property, all Records.
(d) On the Closing Date, Seller shall file the 1099-S Form
required by the Internal Revenue Service.
(e) On the Closing Date, (i) Seller shall deliver to Title
Insurer an affidavit in the form of Exhibit I attached hereto and (ii) Seller
and Purchaser shall each deliver to Title Insurer such evidence as the Title
Insurer may require as to the authorization of Seller or Purchaser, as the case
may be, to consummate the transactions contemplated by this Agreement and the
authority and incumbency of the person or persons executing documents on behalf
of Seller or Purchaser, as the case may be.
6.5 CONDITIONS PRECEDENT TO OBLIGATION OF PURCHASER. The obligation of
Purchaser to effect the Closing shall be subject to the fulfillment or written
waiver on or before the date of Closing of all of the following conditions:
(a) Each of the documents and amounts required to be delivered
by Seller pursuant to SECTION 6.3 shall have been delivered as provided therein.
(b) All of the representations and warranties of Seller
contained in SECTION 9.2 shall be true and correct in all respects as of the
date hereof and as of the date of the Closing as though made at and as of the
date of the Closing (PROVIDED THAT representations and warranties which are
stated to be made as of the Effective Date need be true and correct only as of
the Effective Date); provided that, if the failure of Seller's representations
and warranties to be true and correct in all respects would result in aggregate
Losses to Purchaser of less than five million dollars ($5,000,000), this
condition shall be deemed satisfied provided that Seller pays to Purchaser, or
adjusts the Purchase Price for, such Losses pursuant to SECTION 9.8.
(c) Seller shall have performed, in all material respects, all
obligations required to be performed by it under this Agreement on and prior to
the Closing Date.
(d) At least ten (10) days prior to the Closing, Seller shall
have delivered to Purchaser Satisfactory Estoppel Certificates from (i) one
hundred percent (100%) of the Anchors other than (a) Anchors not required to
deliver an estoppel under the terms of their respective Anchor Agreements and
(b) Anchors under the Excluded Anchor Agreements, (ii) Seller with respect to
one hundred percent (100%) of the Excluded Anchor Agreements and (iii) Tenants
occupying at least seventy-eight percent (78%) of the space currently occupied
at the Real Property by Tenants from which Seller is required to request
estoppel certificates in accordance with SECTION 5.4(b).
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(e) Seller shall have delivered to Purchaser the original of
the GMAC Estoppel Certificate.
(f) Purchaser shall have received (or shall be able upon
payment of customary premiums to receive) the Title Policy.
(g) Seller shall have terminated all management agreements
relating to the Property, including any management agreements with FUM.
(h) Seller shall deliver to Purchaser, in a form reasonably
acceptable to Purchaser, a certificate from the lessor under each Alexandria
Ground Lease, pursuant to which such lessor shall certify (1) that the
applicable Alexandria Ground Lease is in full force and effect, (2) as true,
correct and complete, a copy of the applicable Alexandria Ground Lease and that
the documents listed in SCHEDULE 1.4 are all of the documents (or modifications
thereof) relating to such Alexandria Ground Lease and (3) that such lessor has
not provided Seller with written notice of, and has no knowledge of, any default
by Seller under the applicable Alexandria Ground Lease. If Seller is unable to
deliver such a certificate from the lessor under an Alexandria Ground Lease
despite Seller's best efforts to do so in accordance with its obligations under
SECTION 8.9, then Seller and Purchaser agree that the foregoing condition shall
be deemed satisfied with respect to such Alexandria Ground Lease provided that
Seller delivers to Purchaser a certificate of Seller with respect to the matters
set forth in clauses (1), (2) and (3) above. Any such certificates of Seller
shall survive the Closing for six (6) months and inure to the benefit of
Purchaser, its successors and assigns and any lender providing financing to
Purchaser.
(i) GMAC shall permit the assumption of the GMAC Mortgage by
Purchaser.
6.6 CONDITIONS PRECEDENT TO OBLIGATION OF SELLER. The obligation of
Seller to effect the Closing shall be subject to the fulfillment or written
waiver on or before the date of Closing of all of the following conditions:
(a) Each of the documents or amounts required to be delivered
by Purchaser pursuant to SECTION 6.3 shall have been delivered as provided
therein.
(b) All of the representations and warranties of Purchaser
contained in this Agreement shall be true and correct in all material respects
as of the date hereof and as of the date of the Closing as though made at and as
of the date of the Closing.
(c) Purchaser shall have paid the Adjusted Purchase Price and
all other amounts required to be paid by Purchaser under this Agreement and
shall have performed, in all material respects, all of its obligations required
to be performed by it under this Agreement on and prior to the Closing Date.
(d) Seller shall have received the GMAC Release.
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6.7 FAILURE OF CONDITIONS.
(a) In the event the conditions in SECTION 6.5 are not
satisfied (other than the condition in SECTION 6.5(i) with respect to which the
sole remedy of Purchaser is as set forth in the third sentence of SECTION
3.2(a)), Seller shall be deemed unable to perform and Purchaser shall have the
option to (i) waive such conditions and close (subject to its rights and
remedies as provided herein) or (ii) terminate this Agreement and have the
remedies set forth in SECTION 11.1.
(b) In the event the conditions in SECTION 6.6 are not
satisfied, Purchaser shall be deemed unable to perform and Seller shall have the
option to (i) waive such conditions and close (subject to its rights and
remedies as provided herein) or (ii) terminate this Agreement and have the
remedies set forth in SECTION 11.2.
(c) In the event that Purchaser or Seller terminates this
Agreement under this SECTION 6.7, neither party to this Agreement shall have any
further obligation or liability to the other party under this Agreement except
pursuant to ARTICLE 11 and except for those provisions which are expressly
stated herein to survive termination of this Agreement.
ARTICLE 7
---------
PRORATIONS BETWEEN PURCHASER AND SELLER;
----------------------------------------
TRANSFER OF ACCOUNTS
--------------------
7.1 PRORATIONS.
(a) GENERAL. For purposes of this SECTION 7.1, the "PRORATION
DATE" shall be deemed to be 11:59 p.m. New York time on the day immediately
preceding the Closing Date, so that Purchaser shall be deemed to be in title to
the Real Property and therefore entitled to the income and responsible for the
expenses for the entire day of the Closing Date. Seller agrees to prepare and
deliver to Purchaser at least two (2) Business Days prior to Closing a schedule
of tentative adjustments. Such adjustments, if and to the extent known and/or
estimated as of the Closing, shall be paid by Purchaser to Seller (if the
prorations result in a net credit to Seller) or by Seller to Purchaser (if the
prorations result in a net credit to Purchaser), by increasing or reducing the
cash to be paid by Purchaser at the Closing. On the date which is six months
after the date of Closing, any such adjustments not determined as of the Closing
or later determined to have been inaccurate, shall be paid by Purchaser to
Seller, or by Seller to Purchaser, as the case may be, in cash.
(b) PERCENTAGE RENTAL. Percentage rentals, to the extent
applicable (including, without limitation, percentage rent provided for in
agreements providing for the payment of base rent and percentage rent provided
for in agreements which do not provide for payment of base rent), payable under
the Leases, the Anchor Agreements and Specialty License Agreements shall be
prorated as of the date (the "CUTOFF DATE"), which is identical to the
"PRORATION DATE," as follows:
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(i) Any percentage rental which is attributable to a
lease year as defined in each Lease, Anchor Agreement or Specialty License
Agreement (each, a "LEASE YEAR") ending before the Cutoff Date shall be retained
by Seller or promptly paid over to Seller if received by Purchaser.
(ii) Any percentage rental which is attributable to a
Lease Year which includes the Cutoff Date and which has been collected by Seller
as of the Closing shall be retained by Seller, subject to adjustment after the
Closing as hereinafter provided.
(iii) The final apportionment with respect to
percentage rent on a Lease, Anchor Agreement or Speciality License Agreement, as
the case may be, shall be computed as follows: Seller shall be entitled to
percentage rent determined by multiplying the total percentage rent for the
Lease Year which includes the Cutoff Date by a fraction, the numerator of which
shall be the total number of days in such Lease Year through and including the
Cutoff Date, and the denominator of which shall be the number of days in such
Lease Year. Purchaser shall be entitled to the remainder of such percentage
rent. Within forty-five (45) days after the end of the applicable Lease Year of
a Lease, Anchor Agreement or Speciality License Agreement, as the case may be,
Purchaser shall send to Seller a report showing the final apportionment for
percentage rent with respect to such Lease or other agreement, computed in the
manner set forth above, which report shall be accompanied by (1) all those
statements of gross sales received from Tenants or Anchors under Anchor
Agreements or parties to Specialty License Agreements with respect to any Lease
Year in which the Cutoff Date occurs, together with all such other documentation
as may be reasonably required or which may be reasonably requested by Seller to
confirm the accuracy of the apportionment on percentage rent and (2) payment by
Purchaser to Seller or Seller to Purchaser, as the case may be, of such monies,
if any, that shall be due to Seller to Purchaser, as applicable, as shown on
such report or otherwise due under this subparagraph "(b)."
(c) RENTALS. Subject to the provisions of SECTIONS 7.1(b),
(d), (e) AND (f), Rentals which have been collected shall be prorated as of the
Proration Date. "RENTALS" includes fixed monthly rentals, additional rentals ,
percentage rentals, escalation rentals, retroactive rentals, operating cost
pass-throughs (including, without limitation, pass-throughs with respect to real
estate taxes, operating costs and labor costs) and expense reimbursements,
common area maintenance charges, other charges, fees and sums payable as
referred to in subparagraph "(e)" below, utility charges, sprinkler head
rentals, storage rentals, special event proceeds, temporary rents, telephone
receipts, locker rentals, vending machine receipts and other sums and charges
payable by Tenants under the Leases, Anchors under Anchor Agreements or parties
under Specialty License Agreements or from other occupants or users of the Real
Property.
(d) DELINQUENT RENTALS. Subject to the provisions of SECTION
7.1(b), Delinquent Rentals shall be prorated between Purchaser and Seller as of
the Proration Date but not until they are actually collected by Purchaser.
Rentals are "DELINQUENT" when payment thereof is due on or before the Proration
Date but has not been made by the Proration Date. Purchaser shall use
Purchaser's good faith efforts to collect any Delinquent Rentals. After the
Closing, Seller shall be permitted to maintain or institute any legal
proceedings against Tenants, Anchors, parties to Specialty License Agreements
and occupants of the Real Property to collect such Delinquent Rentals, PROVIDED
that Seller shall not take any action after the Closing against any occupant of
any portion of the Real Property which would affect such occupant's right to
occupy
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its owned, leased or licensed premises or take any action (other than by
maintaining or instituting such legal proceedings) that would otherwise
adversely affect the Purchaser. Rentals actually collected by Purchaser shall be
applied first to Rentals accruing for the month in which the Closing occurs,
then to Delinquent Rentals accruing for the month prior to the month in which
the Closing occurs, then to Rentals accruing for any period following the month
of the Closing and owing as of the date of collection until such Rentals are
current and then to all other Delinquent Rentals. Purchaser shall be entitled to
retain 2% of all Delinquent Rentals accruing before the month prior to the month
in which the Closing occurs which Purchaser collects after the Closing on behalf
of Seller and pays to Seller. Any amounts due Seller under this SECTION 7.1(d)
shall be remitted to Seller not later than forty-five (45) days following the
end of the month in which such Delinquent Rentals are collected. After the
Closing, Purchaser shall provide Seller with a monthly accounting of any
Delinquent Rentals and collections thereof and Seller shall have a reasonable
opportunity to inspect Purchaser's books relating to such Delinquent Rentals and
collection thereof.
(e) OPERATING COST PASS-THROUGHS, ETC. Operating cost
pass-throughs (including, without limitation, pass-throughs with respect to real
estate taxes, operating costs and labor costs), expense reimbursements, utility
charges, common area maintenance charges, joint use area charges, HVAC,
advertising and promotional fees, marketing service fees, merchants' association
fees, trash collection charges, additional rentals, rental escalations and other
similar sums or charges payable by the Tenants, Anchors, parties to Speciality
License Agreements or occupants of the Real Property, which accrue as of the
Proration Date but are not then due and payable, shall be prorated as of the
Proration Date; PROVIDED, HOWEVER, no payment thereof shall be made to Seller
unless and until Purchaser actually collects same from such parties. Purchaser
shall use Purchaser's good faith efforts to collect such amounts as are
allocable to Seller. After the Closing, Seller shall be permitted to institute
any legal proceedings against any occupant of the Real Property owing any amount
described in this SECTION 7.1 (e) to collect such amounts, PROVIDED that Seller
shall not take any action after the Closing against any occupant of any portion
of the Real Property which would affect such occupant's right to occupy its
owned, leased or licensed premises. Notwithstanding the above, with respect to
amounts as described in this SECTION 7.1(e) which are owed by tenants who are no
longer tenants of the Property as of the Closing Date, Seller shall retain all
rights relating thereto. When and if Purchaser actually collects any amount
described in this SECTION 7.1(e), such amounts shall be applied first to
payment(s) accruing for the month in which the Closing occurs, then to
payment(s) accruing for the month prior to the month in which the Closing
occurs, then to payment(s) accruing for any period following the month of the
Closing and owing as of the date of collection until such payments are current
and then to all other past due payment(s). Purchaser shall be entitled to retain
2% of all amounts described in this SECTION 7.1(e) which Purchaser collects
after the Closing on behalf of Seller and pays to Seller and which are
attributable to payment(s) accruing before the month prior to the month in which
the Closing occurs. Any amounts due Seller under this SECTION 7.1(e) shall be
remitted to Seller not later than forty-five (45) days following the end of the
month in which such sums are collected. After the Closing, Purchaser shall
provide Seller with a monthly accounting of amounts described in this SECTION
7.1(e) accruing before the Closing which remain outstanding and any collections
thereof, and Seller shall have a reasonable opportunity to inspect Purchaser's
books relating to such amounts and collection thereof.
(f) PREPAID RENTALS. Except for percentage rent and as
otherwise provided in SECTION 7.1(b), Rentals already received by Seller
attributable to periods after the Proration Date and the amount of
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any other credits due occupants of the Property, theretofore paid in cash to
Seller and applicable to any period or periods after the Closing Date, shall be
credited to Purchaser at the Closing.
(g) TAXES AND ASSESSMENTS.
(i) Any delinquent real estate taxes and any
delinquent installments of assessments (including penalties and charges) on the
Real Property shall be paid at the Closing from funds accruing to Seller. All
non-delinquent real estate taxes on the Real Property for the fiscal tax year in
which the Proration Date occurs shall be estimated based upon the most recently
available real estate tax bill and prorated as hereinafter described at the
Closing based upon such estimate. Purchaser and Seller shall re- prorate the
real estate taxes following the Closing upon receipt of the actual real estate
tax bill for the applicable fiscal tax year in which the Proration Date occurs.
Purchaser shall be credited with an amount equal to all real estate taxes for
the applicable fiscal tax year which have accrued prior to the Proration Date
and are unpaid as of the Closing. All real estate taxes for fiscal tax years
prior to the fiscal tax year in which the Proration Date occurs shall be the
obligation of Seller. Purchaser shall also be credited with an amount equal to
all real estate taxes already collected or received by Seller from Tenants and
attributable to periods after the Proration Date, so long as such amounts have
not previously been used to pay real estate taxes already due for the period
after the Proration Date. If as of the Closing Date the Real Property or any
part thereof shall be or shall have been affected by an assessment or
assessments which are or may become payable in annual installments of which the
first installment is then a charge or lien, or has been paid, then the
installment for the year in which the Closing Date occurs shall be apportioned
between Seller and Purchaser as of the Closing Date and Purchaser shall be
responsible for any installments due thereafter.
(ii) If there shall be any proceedings challenging or
protesting the assessed valuation or real estate taxes with respect to all or
any portion of the Real Property, which are now pending or pending as of the
Closing with respect to the Property as of the Closing, then, after deducting
the cost of such proceedings including attorneys' fees, all benefits obtained
including, without limitation, any tax refunds attributable to (i) any tax year
ended prior to the date of Closing shall be the property of and shall be paid to
Seller, (ii) any tax year commencing after the date of Closing shall be the
property of and may be retained by Purchaser and (iii) the tax year in which the
Closing occurs shall be the property of and shall be paid to Purchaser, subject
to apportionment between Seller and Purchaser as of the Proration Date. Seller
reserves the right to prosecute any such proceedings for tax years ended prior
to the date the Closing occurs by attorneys selected by Seller and to settle any
such proceedings with the consent of Purchaser, which consent shall not be
unreasonably withheld or delayed as long as such settlement does not affect the
amount of taxes or the assessment or assessed value in subsequent years and does
not otherwise adversely affect the Purchaser. Purchaser may join in any such
proceedings represented by counsel selected by Purchaser and reasonably approved
by Seller. Prior to Closing, but after the Due Diligence Termination Deadline,
at Purchaser's request and at Purchaser's sole cost and expense, Seller will
take reasonable steps to contest, or preserve the right to contest, the assessed
valuation of real estate taxes with respect to all or any portion of the Real
Property. Purchaser reserves the right to prosecute any such proceedings for a
tax year ending after the date the Closing occurs and to settle any such
proceedings without the consent of Seller. For any tax year ending after the
date the Closing occurs, the right to prosecute, continue and settle such
proceedings shall be deemed assigned and assumed by Purchaser at the Closing.
Purchaser shall deliver to Seller or Seller shall
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deliver to Purchaser, as the case may be, upon demand, receipted tax bills and
canceled checks used in payment of such taxes and shall execute any and all
consents or other documents and do any act or thing necessary for the collection
of such refund by Seller or Purchaser, as applicable.
(iii) If Purchaser receives any benefits to which
Seller shall be entitled under this SECTION 7.1 (g) (including, without
limitation, credits against taxes payable after the Closing on the basis of real
estate tax refunds attributable to the period prior to the Closing) or if
Purchaser shall otherwise receive any real estate tax refunds or benefits to the
extent pertaining to the period prior to the date of Closing, Purchaser shall
hold the same in trust for the benefit of Seller and promptly remit the same to
Seller.
(iv) If Seller receives any benefits to which
Purchaser shall be entitled under this SECTION 7.1 (g) (including, without
limitation, credits against taxes payable for the period commencing on the date
of Closing or real estate tax refunds attributable to the period on or after the
date of Closing) or if Seller shall otherwise receive any real estate tax
refunds or benefits to the extent pertaining to the period commencing on the
date of Closing, Seller shall hold the same in trust for the benefit of
Purchaser and promptly remit the same to Purchaser.
(h) OPERATING EXPENSES. All utility service charges for
electricity, heat and air conditioning service, other utilities, common area
maintenance, taxes other than real estate taxes such as rental taxes,
contributions to promotional organizations, other expenses incurred in operating
the Real Property, and any other costs incurred in the ordinary course of
business or the management and operation of the Real Property, shall be prorated
on an accrual basis. All such charges accruing prior to the Proration Date shall
be the obligation of Seller, and Purchaser shall be credited with an amount
equal to all such charges, taxes, expenses and costs which have accrued prior to
the Proration Date. Purchaser shall be responsible for all such charges accruing
after the Proration Date. To the extent possible, utility prorations will be
handled by final readings from utility providers on the day immediately
preceding the Closing.
(i) SECURITY DEPOSITS. Purchaser shall receive possession of,
or be credited with, an amount equal to all refundable security deposits under
all Leases, Anchor Agreements (if applicable) and Specialty License Agreements
and shall indemnify and hold Seller harmless from and against any and all Losses
with respect to all such security deposits with respect to the Leases, Anchor
Agreements and Specialty License Agreements to the extent Purchaser receives
possession of, or is credited with, such security deposits.
(j) CONTRACTS. Amounts payable under the Contracts (other than
those amounts required to be paid directly by any tenant under its Lease) shall
be prorated as of the Proration Date on an accrual basis. All amounts payable
under the Contracts accruing prior to the Proration Date shall be the obligation
of Seller, and Purchaser shall be credited with an amount equal to all amounts
payable under the Contracts which have accrued prior to the Proration Date.
Purchaser shall be responsible for all amounts payable under the Contracts
accruing after the Proration Date.
(k) FEES FOR TRANSFERRABLE LICENSES AND PERMITS. Fees for
transferrable licenses and permits with respect to the Real Property shall be
prorated as of the Proration Date.
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(l) PREPAID EXPENSES. Seller shall be credited with an amount
equal to all costs, expenses, charges and fees prepaid by Seller under any
Contracts that are assumed by Purchaser and attributable to the period after the
Closing Date.
(m) MARKETING FUND BALANCE. Purchaser shall receive possession
of, or be credited with, an amount equal to the Marketing Fund Balance for each
Mall as of the Closing Date. Seller shall fund its obligations, if any, to such
prorated Marketing Fund Balance prior to Closing and Purchaser shall assume
Seller's obligations with respect to such Marketing Fund Balance from and after
Closing.
(n) GMAC PRINCIPAL, INTEREST AND FEES.
(i) If Purchaser shall assume the GMAC Loan
Documents, then:
(A) Purchaser shall receive a credit against
the Purchase Price in the amount of the outstanding principal balance of the
GMAC Mortgage as of the Closing Date.
(B) Interest on the GMAC Mortgage shall be
prorated on an accrual basis. All interest payable under the GMAC Mortgage
accruing and not paid prior to the Proration Date shall be the obligation of
Seller, and Purchaser shall be credited with an amount equal to such accrued and
unpaid interest. Purchaser shall be responsible for all interest payable under
the GMAC Mortgage and accruing after the Proration Date.
(C) Purchaser shall pay to Seller at Closing
the monies held in the following accounts as defined in the Lockbox Agreement
dated as of September 30,1996 by and between Seller, GMAC and Harris Trust and
Savings Bank: the Restricted Subaccounts, the Main Restricted Account, the
Operating Reserve Account, the Ground Rent Reserve Account, the Taxes and
Insurance Reserve Account, the Debt Service Reserve Account, the Tenant
Improvements Reserve Account, the Lending Commission Reserve Account, the Tenant
Deposit Reserve Account, the Replacement Reserve Account, the Outside Escrow
Account and the Completion and Repair Reserve Account and any other reserves,
escrow deposits or accruals made with, or held by, GMAC, in each case to the
extent such monies will belong to Purchaser (subject to the terms of the GMAC
Loan Documents) as of the Closing (collectively, the "GMAC RESERVES
REIMBURSEMENT").
(D) Purchaser shall pay the GMAC Charges at
Closing. Purchaser shall be solely responsible for the GMAC Charges and shall
indemnify and hold Seller harmless from and against such GMAC Charges. Seller
shall pay the GMAC Assumption Fees at Closing. Seller shall be solely
responsible for the GMAC Assumption Fees and shall indemnify and hold Purchaser
harmless from and against such GMAC Assumption Fees.
(ii) Purchaser shall pay the GMAC Park Plaza Release
Price (if any) and the GMAC Park Plaza Prepayment Penalty (if any) at the
Closing and Seller shall grant to Purchaser a credit against the Purchase Price
in the aggregate amount thereof. Notwithstanding anything to the contrary
contained herein, Seller shall have the sole right to negotiate with GMAC with
respect to the amount of
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GMAC Park Plaza Release Price and the GMAC Park Plaza Prepayment Penalty and
Purchaser shall not participate in the negotiations limited exclusively to such
matters.
(o) TENANT COSTS. Amounts in the Tenant Costs Escrow Account
shall be paid or credited as described in SECTION 8.1(e).
7.2 The provisions of SECTION 7.1 shall survive the Closing for six (6)
months; PROVIDED that the provisions of SECTION 7.1(b) and (e) shall survive the
Closing until July 1, 2000.
ARTICLE 8
---------
ADDITIONAL AGREEMENTS OF SELLER AND PURCHASER
---------------------------------------------
8.1 OPERATION AND MANAGEMENT PRIOR TO CLOSING.
(a) Prior to Closing and except as otherwise contemplated or
permitted by this Agreement, Seller agrees to operate, manage, maintain, repair
and lease the Property in a prudent manner, in the ordinary course of business,
on an arm's-length basis and consistent with Seller's normal and customary
practice prior to the date hereof, PROVIDED, HOWEVER, such obligation shall not
include extraordinary capital expenditures.
(b) Prior to Closing, Seller agrees (i) to maintain customary
insurance on the Property in accordance with Seller's normal and customary
practice prior to the date hereof, (ii) not to enter into or agree to enter into
any new Anchor Agreement, Lease or Specialty License Agreement, or amend,
extend, renew, modify or, except in the case of a material default by the
applicable Anchor, Tenant or occupant thereunder, terminate any existing Anchor
Agreement, Lease or Specialty License Agreement, without the written consent of
the Purchaser, which consent shall not be unreasonably withheld; PROVIDED THAT
Purchaser's consent shall not be required for modifications of terms of Leases
and Specialty License Agreements that do not relate to rental or other payment
terms or to the expiration, cancellation or termination of such Lease or
Specialty License Agreement and that are otherwise not material, (iii) not to
amend, modify or terminate the Alexandria Ground Leases or enter into any new
ground lease without the written consent of Purchaser, (iv) not to enter into
any new Contracts which would remain in effect as of the Closing without the
written consent of the Purchaser except for Contracts which are terminable
without cause upon thirty (30) days' notice without penalty, and (v) not to
dispose of any Real Property, dispose of or remove Personalty from the Real
Property with a value of $50,000 or more in the aggregate unless such Personalty
is replaced with similar Personalty of comparable quality, or dispose of or
assign any Intangibles. Any consent of Purchaser required under this SECTION
8.1(b), (x) may be given or withheld by Purchaser in its sole discretion from
and after the Due Diligence Termination Deadline and (y) solely in the case of
amendments or modifications to Leases and Specialty License Agreements, shall be
deemed given if Purchaser does not respond to Seller's request for consent
within five (5) Business Days after such request is delivered by Seller to
Purchaser.
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(c) From and after the Due Diligence Termination Deadline and
prior to the Closing, Seller shall, at Purchaser's request and direction, enter
into leases, licenses or other occupancy agreements with the Gap, Old Navy and
such other tenants, licensees or other parties in occupancy that are reasonably
acceptable to Seller, in each case on commercially reasonable terms, conditions
and lease documents as determined by Purchaser; provided that in the case of
tenants other than Gap or Old Navy such terms, conditions and lease documents
shall also be reasonably acceptable to Seller. In the event that Purchaser
presents Seller with a lease, license or other occupancy agreement that
satisfies the provisions of this SECTION 8.1(c) and Seller does not execute such
lease, license or other occupancy agreement within five (5) Business Days after
Purchaser presents Seller with the execution copy of such lease, license or
occupancy agreement, then Seller hereby grants Purchaser the authority to enter
into, and hereby irrevocably constitutes and appoints Purchaser as its true and
lawful attorney, in the name, place and stead of Seller, to execute,
acknowledge, swear to, deliver, record and file, such lease, license or other
occupancy agreement in Seller's name and on Seller's behalf; PROVIDED that this
power shall not be invoked by Purchaser nor shall Seller be obligated to execute
any lease, license or occupancy agreement unless Purchaser has deposited with
Escrowee all Tenant Costs for such lease, license or occupancy agreement in
accordance with Section 8.1(d). The power of attorney granted by Seller to
Purchaser pursuant to this SECTION 8.1(c) is coupled with an interest and shall
be irrevocable and shall survive and not be affected by the subsequent
bankruptcy or dissolution of Seller but shall not survive the termination of
this Agreement or the Closing.
(d) From and after the Due Diligence Termination Deadline and
prior to the Closing, in connection with Seller (i) placing tenants, licensees
or other parties in occupancy pursuant to leases, licenses or other occupancy
agreements (in each case subject to first obtaining Purchaser's consent in
accordance with SECTION 8.2(b)) and (ii) entering into new leases, licenses or
other occupancy agreements at Purchaser's request in accordance with SECTION
8.2(c) (any leases, licenses or other occupancy agreements entered into with
Purchaser's approval pursuant to clause (i) or (ii) being referred to herein as
an "APPROVED LEASE"), Purchaser shall, contemporaneous with the execution of
such Approved Lease, deposit in a segregated interest-bearing escrow account
with Escrowee (the "TENANT COSTS ESCROW ACCOUNT") all of the following
out-of-pocket costs (collectively, "TENANT COSTS") imposed on the landlord
pursuant to such Approved Lease: tenant inducements, rent concessions, moving
costs, third party costs, attorneys' fees, leasing commissions, tenant
improvement costs, construction allowances and lease buy-outs. Prior to Closing,
on three (3) Business Days prior written notice to Purchaser, Seller may access
the amounts in the Tenant Costs Escrow Account to pay such Tenant Costs that are
then due. Seller shall provide an accounting to Purchaser of all amounts so
withdrawn. In the event that Seller notifies Purchaser of any shortfall with
respect to Tenant Costs for an Approved Lease and the reasons therefor,
Purchaser shall promptly deposit the same into the Tenant Costs Escrow Account
for use by Seller in accordance with this SECTION 8.1(d). Purchaser shall be
entitled to approve and monitor the contractors and architects selected to
perform tenant work under any Approved Lease and the budget for such work. Any
such approval shall be deemed given if Purchaser does not respond to Seller's
request for approval of the same within five (5) Business Days after such
request is delivered by Seller to Purchaser.
(e) All amounts in the Tenant Costs Escrow Account not
previously used to pay Tenant Costs in accordance with SECTION 8.1(d) shall be
paid (i) to Purchaser at and upon the Closing, (ii) to Seller immediately upon a
termination by Seller of this Agreement in accordance with the provisions of
SECTION
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11.2, or (iii) to Purchaser immediately upon any other termination of this
Agreement (by Seller or Purchaser or otherwise) in accordance with the
provisions of this Agreement and, in such case, Seller shall promptly pay to
Purchaser any amounts previously used to pay Tenant Costs in accordance with
SECTION 8.1(d). All interest and income earned on the Tenant Costs Escrow
Account shall be paid to Purchaser; PROVIDED that such interest and income shall
be paid to Seller if the amounts in the Tenant Costs Escrow Account are required
to be paid to Seller in accordance with clause (ii) above; PROVIDED FURTHER that
in the event the amounts in the Tenant Costs Escrow Account are paid to
Purchaser in accordance with clause (iii) above, Seller shall promptly pay to
Purchaser interest on any amounts previously used to pay Tenant Costs in
accordance with SECTION 8.1(d) (at the rate paid on funds in the Tenant Costs
Escrow Account) from the date such amounts were withdrawn from the Tenant Costs
Escrow Account to pay such Tenant Costs.
(f) The obligations of Seller under SECTION 8.1(b)(ii), (iii),
(iv) and (v) shall survive the Closing for a period of six (6) months to the
extent that Purchaser is unable to ascertain as of Closing whether such
obligations have been performed by Seller. The obligations of Seller under
SECTION 8.1(e) shall survive the termination of this Agreement until all amounts
payable pursuant to SECTION 8.1(e) are paid in full.
8.2 PURCHASER'S ASSUMPTION OF OBLIGATIONS. Purchaser shall assume and
perform all of Seller's obligations, if any, arising from and after the Closing
under the terms and conditions of all Leases, Anchor Agreements, Specialty
License Agreements and Contracts assigned at Closing under the terms of this
Agreement. The provisions of this SECTION 8.2 shall survive the Closing
hereunder.
8.3 CONFIDENTIALITY; NO RECORDING.
(a) Purchaser agrees that (i) all Evaluation Material or any
other information or documents concerning the Property and furnished to
Purchaser by Seller or FUR (collectively, "CONFIDENTIAL INFORMATION") will be
used solely for the purposes of evaluating its investment and shall be kept
confidential and (ii) it will not disclose any Confidential Information to any
persons other than Purchaser's Agents. Purchaser agrees to cause Purchaser's
Agents to keep confidential all Confidential Information to the same extent
Purchaser is required to do so under this SECTION 8.3.
(b) Purchaser agrees that, if the transactions contemplated by
this Agreement are not consummated, copies of all Confidential Information
furnished to Purchaser shall be returned to Seller or destroyed by Purchaser.
(c) For purposes of this SECTION 8.3, the term Confidential
Information shall not include information which (i) is or becomes available to
the public other than as a result of a disclosure by Purchaser or Purchaser's
Agents, (ii) presently is or hereinafter becomes available to Purchaser on a
non-confidential basis from a source other than Seller, its agents or advisors,
or (iii) is sold, conveyed, transferred or assigned to Purchaser in connection
with the consummation of the transactions contemplated by this Agreement.
(d) Under no circumstances whatsoever shall Purchaser record
this Agreement or any memorandum or notice of this Agreement in any county or
state.
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(e) The provisions of this SECTION 8.3 shall survive the
termination of this Agreement but shall terminate when the Closing occurs.
8.4 GMAC LOAN DOCUMENTS. Prior to Closing, Seller agrees (a) except as
contemplated by SECTION 3.4, not to amend, modify, supplement or terminate the
GMAC Loan Documents, (b) to perform in a timely manner all of its monetary and
other material obligations under the GMAC Loan Documents and (c) to promptly
provide Purchaser with any written notices of default or other correspondence
received from GMAC relating to the obligations of Seller under the GMAC Loan
Documents. Furthermore, Seller will promptly notify Purchaser upon Seller
becoming aware of any event or circumstance that, based on the provisions of the
GMAC Loan Documents, Seller believes would constitute a default (or would become
a default with the passage of time or the giving of notice or both) under the
GMAC Loan Documents.
8.5 DELIVERY AND ACCESS. On the Effective Date, Seller shall provide
the Purchaser and Purchaser's Agents access to all lease files, tenant
correspondence files and other files and records relating the Property. To the
extent not in Seller's Files or, with respect to litigation files relating to
Burk Interests Incorporated/Best Products Co., Inc. or H.J. Wilson Company d/b/a
Service Merchandise, contained in the offices of Seller's attorneys, not later
than five (5) Business Days before the Due Diligence Termination Deadline,
Seller shall deliver copies of all pleadings and papers relating to litigation
pertaining to Leases, Anchor Agreements or Speciality License Agreements
covering the Tenant Litigation Space. Prior to Closing, Seller shall (a)
promptly provide Purchaser with copies of monthly operating reports with respect
to the Property and all operating statements, rent rolls, receivable aging
reports, leasing reports and other similar periodic reports prepared by or
delivered to Seller with respect to the Property (in each case without
representation or warranty by Seller) and (b) to the extent permitted by the
applicable Anchor Agreements, Leases and Specialty License Agreements, provide
Purchaser with access to the Property and operating personnel of Seller and FUR
during normal business hours and upon reasonable advance notice. Prior to
Closing, Seller shall provide Purchaser with copies of all Contracts entered
into by Seller affecting the Property after the Effective Date.
8.6 COMMUNICATION WITH AUTHORITIES. Purchaser shall not have any
communication with governmental authorities regarding the Property (other than
for the purpose of obtaining customary zoning letters) unless legally required
to do so.
8.7 PUBLIC DISCLOSURE.
(a) Purchaser shall not issue any press release concerning the
existence or execution of this Agreement or the terms thereof until Seller has
issued a press release (or similar public announcement or communication)
regarding the same; PROVIDED that Seller shall not issue its press release (or
similar public announcement or communication) until such press release (or
similar public announcement or communication) has been approved by Purchaser,
which approval shall not be unreasonably withheld or delayed.
(b) Subject to Purchaser's obligations under SECTION 8.7(a),
Purchaser shall not issue any press release (or similar public announcement or
communication) concerning the existence or execution
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of this Agreement or the terms thereof until such press release (or similar
public announcement or communication) has been approved by Seller, which
approval shall not be unreasonably withheld or delayed.
(c) Any approval required under this SECTION 8.7 shall be
deemed given if the party from which approval is required does not respond to
the other party's request for such approval within one (1) Business Day after
receipt of such request.
(d) For purposes of this SECTION 8.7, Forms 8-K, proxy
statements and other filings with the Securities and Exchange Commission shall
be deemed not to be a press release (or similar public announcement or
communication).
8.8 EXCLUSIVITY; SHAREHOLDER APPROVAL.
(a) From and after the date on which Purchaser makes the
Additional Deposit, no authorized officer, trustee, manager or director of
Seller or FUR or any affiliate thereof, or any of their respective authorized
agents, shall directly or indirectly, solicit, pursue, entertain, negotiate,
enter into or attempt to engage in any discussions with, or provide any
Confidential Information to, any person or entity other than Purchaser or
Purchaser's Agents with a view toward the sale of all or any portion of the Real
Property by Seller. Notwithstanding the foregoing, Seller and FUR may respond to
and pursue (including by providing Confidential Information subject to a
customary confidentiality agreement no less favorable to Seller than the
provisions of Section 8.3; provided that a copy of such agreement is promptly
delivered to Purchaser) a bona fide proposal, which is neither solicited nor
encouraged by an authorized officer, trustee, manager or director of Seller or
FUR or any affiliate thereof, or any of their respective authorized agents, to
consummate the sale, directly or indirectly, of all of the Real Property
collectively (but not less than all of the Real Property) to any person or
entity other than Purchaser if the Board of Trustees of FUR or an appropriate
committee thereof has determined that (a) such alternate proposal is more
favorable to FUR's shareholders from a financial point of view than the
transactions contemplated by this Agreement (taking into account the fee payable
to Purchaser pursuant to Section 14.2(b)), (b) such alternative proposal is
reasonably capable of being consummated and (c) based on the advice of outside
legal counsel, it has a fiduciary duty under applicable law or its
organizational documents to the shareholders of FUR to respond to and pursue
such alternative proposal; provided that FUR shall promptly notify Purchaser of
any such alternative proposal prior to responding thereto.
(b) Each of Seller and FUR shall use its best efforts to clear
the definitive proxy statement described in SECTION 14.2 with the Securities and
Exchange Commission as promptly as practicable and, in any event, before the
date that would allow sufficient time to declare a record date, mail proxy
statements, solicit proxies and conduct a duly called meeting of FUR's
shareholders in accordance with all applicable laws, rules and regulations and
FUR's organizational documents by no later than the Shareholder Approval
Deadline.
(c) Purchaser's sole remedy in the event of the breach of this
SECTION 8.8 is as set forth in SECTION 14.2(b).
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8.9 ALEXANDRIA GROUND LEASES. Seller agrees to use its best efforts
(without being required to expend any sums) to obtain and deliver to Purchaser
the certificates from the lessors under the Alexandria Ground Leases referred to
in SECTION 6.5(h).
ARTICLE 9
---------
REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION
--------------------------------------------------
9.1 GENERAL DISCLAIMER. Except as specifically set forth in SECTION 9.2
below, the sale of the Property hereunder is and will be made on an "as is"
basis, without representations and warranties of any kind or nature, express,
implied or otherwise, including, but not limited to, any representation or
warranty concerning title to the Property, the physical condition of the
Property (including, but not limited to, the condition of the soil or the any
improvements), the environmental condition of the Property (including, but not
limited to, the presence or absence of hazardous substances on or respecting the
Property), the compliance of the Property with applicable laws and regulations
(including, but not limited to, zoning and building codes or the status of
development or use rights respecting the Property), the financial condition of
the Property or any other representation or warranty respecting any income,
expenses, charges, liens or encumbrances, rights or claims on, affecting or
pertaining to the Property or any part thereof. Purchaser acknowledges that
Purchaser has examined, reviewed and inspected all matters which in Purchaser's
judgment bear upon the Property and its value and suitability for Purchaser's
purposes. Except as to matters specifically set forth in SECTION 9.2 below,
Purchaser will acquire the Property solely on the basis of its own physical and
financial examinations, reviews and inspections and the title insurance
protection afforded by the Title Policy.
9.2 SELLER'S REPRESENTATIONS AND WARRANTIES. Seller makes the following
representations and warranties, each of which is true and correct as of the date
hereof and shall be true and correct as of the Closing Date (PROVIDED THAT
representations and warranties which are stated to be made as of the Effective
Date need be true and correct only as of the Effective Date):
(a) AUTHORITY; BINDING ON SELLER; ENFORCEABILITY. Seller is
duly organized, validly existing, in good standing in the State of Delaware and
is duly qualified to do business in all states in which the Real Property is
located. Subject to and based upon the assumption that the Seller Ratifications
shall be obtained as hereinafter provided, (i) Seller has the full right and
authority to enter into this Agreement, consummate or cause to be consummated
all transactions contemplated hereby and make or cause to be made transfers and
assignments contemplated herein, and the persons signing this Agreement on
behalf of Seller are authorized to do so and (ii) this Agreement and all of the
documents to be delivered by Seller at the Closing have been authorized and
properly executed and will constitute the valid and binding obligations of
Seller, enforceable against Seller in accordance with its terms.
(b) CONFLICT WITH EXISTING LAWS; CONSENTS. The execution and
delivery of this Agreement and all related documents and the performance of its
obligations hereunder and thereunder by Seller do not conflict with any
provision of any law or regulation to which Seller is subject, or conflict with
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or result in a breach of or constitute a default under any of the terms,
conditions or provisions of any agreement or instrument to which Seller is a
party or by which Seller is bound or any order or decree applicable to Seller,
or result in the creation or imposition of any lien on any of its assets or
property which would materially adversely affect the ability of Seller to
perform its obligations under this Agreement. Seller has obtained all consents,
approvals, authorizations or orders of any court, governmental agency or body
and all third parties, if any, required for the execution and delivery of this
Agreement. Subject to and based upon the assumption that the GMAC Consent, the
Rating Agency Consent and the Seller Ratification shall be obtained as provided
herein, Seller has obtained all consents, approvals, authorizations or orders of
any court, governmental agency or body and all third parties, if any, required
for the performance by Seller of this Agreement and the consummation of the
transactions contemplated hereby.
(c) BANKRUPTCY OR DEBT OF SELLER. Seller has not filed any
petition seeking or acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief relating to Seller or
any of its property under any law relating to bankruptcy or insolvency, nor, to
the best of Seller's knowledge, has any such petition been filed against Seller.
No general assignment of Seller's property has been made for the benefit of
creditors, and, to Seller's knowledge, no receiver, master, liquidator, or
trustee has been appointed for Seller or any material portion of its property.
Seller is not insolvent and the consummation of the transactions contemplated by
this Agreement shall not render Seller insolvent.
(d) ANCHOR AGREEMENTS, LEASES AND SPECIALTY LICENSE
AGREEMENTS. Seller will, upon execution hereof, immediately deliver to Purchaser
or make available to Purchaser in Seller's lease files at the offices of Seller
or FUR in Cleveland and Dallas, true, correct and complete copies of all Anchor
Agreements, Leases and Specialty License Agreements (including all amendments,
extensions, modifications and renewals thereof); such Anchor Agreements, Leases
and Specialty License Agreements included in such lease files are true, correct
and complete copies of any and all leases, reciprocal easement agreements,
subleases (to which Seller or its predecessors in interest are a party),
licenses or other occupancy agreements affecting any portion of any Real
Property; and (other than as permitted by the last sentence of SECTION 9.4)
there are no amendments, extensions, modifications or renewals of any such
leases, reciprocal easement agreements, licenses or other occupancy agreements
which are not included in such lease files.
(i) Except as set forth in Schedule 9.2(d)(i) and
except as disclosed in Seller's Files, Seller has not received written notice of
any insolvency or bankruptcy proceeding involving any Anchor, Tenant or occupant
under a Specialty License Agreement;
(ii) Except as disclosed in Seller's lease files at
the offices of Seller or FUR in Cleveland and Dallas, no brokerage commission or
other compensation or other Tenant Costs shall become due or payable to any
person by Purchaser with respect to any Anchor Agreement, Lease or Specialty
License Agreements executed prior to the date hereof;
(iii) Except as disclosed in Seller's Files, no
Anchor, Tenant or occupant under a Specialty License Agreement has paid fixed
rents under its Anchor Agreement, Lease or Specialty License Agreement, as the
case may be, more than 30 days in advance;
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(iv) Except as disclosed in Seller's Files, Seller
has not delivered to an Anchor, Tenant or occupant under a Specialty License
Agreement written notice of a default under its Anchor Agreement, Lease or
Specialty License Agreement, as the case may be, which remains uncured; and
(v) Except as disclosed in Seller's Files, as of the
Effective Date, Seller has not received any written notice from any Anchor,
Tenant or occupant under a Specialty License Agreement that Seller has not
performed any of its obligations under the applicable Anchor Agreement, Lease or
Specialty License Agreement, as the case may be, that are required to be
performed prior to the date hereof and there are no pending claims asserted in
writing against Seller by an Anchor, Tenant or occupant under a Specialty
License Agreement for offsets or abatements against rent or any other monetary
amount.
(e) CONDEMNATION. As of the Effective Date and except as set
forth in Seller's Files, Seller has not received written notice of any pending
or threatened condemnation proceeding or similar proceeding affecting any Real
Property except as set forth on SCHEDULE 9.2(e).
(f) LITIGATION. Except (1) as set forth on SCHEDULE 9.2(f),
(2) as set forth in Seller's Files, (3) for matters fully covered by insurance
and (4) for proceedings with Anchors, Tenants or occupants under Specialty
License Agreements in which Seller is the plaintiff and no claim or counterclaim
has been asserted against Seller, Seller has not received (i) written notice
(including a summons or complaint) of any action, suit litigation, proceeding or
governmental investigation, which remains pending, or any order, injunction or
decree which remains outstanding affecting any portion of the Property or (ii)
written notice from an Anchor, Tenant or occupant under a Specialty License
Agreement threatening suit by reason of Seller's default under an Anchor
Agreement, Lease or Specialty License Agreement, as the case may be, which
default has not been cured, in the case of both clauses (i) and (ii), which
individually or in the aggregate could, if adversely determined, result in a
judgment against the Purchaser or any Property in an amount of $500,000 or more
or otherwise have a material adverse effect on Purchaser or the use, operation
or value of or access to any Real Property.
(g) COMPLIANCE WITH LAWS; LICENSES AND PERMITS. Except as set
forth on SCHEDULE 9.2(g) and except as set forth in Seller's Files, Seller has
not received written notice (the subject of which has not been cured) from any
governmental authority or any party entitled to enforce a covenant, condition
and restriction affecting any Real Property or any other person to the effect
that (i) any federal, state or local law, ordinance, rule, order or regulation
has been violated by the maintenance, operation, occupancy or use of such Real
Property which violation would materially adversely affect the current
operation, current occupancy or current use of such Real Property, (ii) any
building, or other federal, state or municipal law, ordinance, covenant,
condition and restriction is or has been violated by the maintenance, operation,
occupancy or use of such Real Property which violation would materially
adversely affect the current operation, current occupancy or current use of such
Real Property or (iii) any licenses permits, inspections, authorizations,
certifications and approvals required by any governmental authorities having
jurisdiction over the operation of the Real Property, in its present manner,
have not been performed or issued and paid for and are not in full force and
effect, in each case, without which the maintenance, operation, occupancy or use
of such Real Property would be materially adversely affected; PROVIDED that, if
the representations and warranties of Seller in this SECTION 9.2(g) are true and
correct as of the Effective Date, then such
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representations and warranties shall also be deemed true and correct as of the
Closing Date, other than with respect to any written notices described in this
SECTION 9.2(g) the subject matter of which (x) relates to (1) a change in any
federal, state or local law, ordinance, rule, order or regulation after the Due
Diligence Termination Deadline or (2) events, circumstances or conditions which
first occurred or arose after the Due Diligence Termination Deadline and (y)
does not relate to (1) the taking of any action by Seller required by the terms
of any Approved Lease or (2) matters for which an Anchor, Tenant or occupant
under a Specialty License Agreement is solely responsible.
(h) CONTRACTS. As of the Effective Date, Seller's Files
include a true and complete copy of all Contracts to which Seller or its agent
is a party affecting the Property in effect on the date hereof (including all
amendments and modifications thereof).
(i) SECURITY DEPOSITS. Except as set forth in Seller's Files,
SCHEDULE 9.2(i) sets forth all security deposits held by or on behalf of Seller
under Anchor Agreements, Leases and Specialty License Agreements. Seller and its
agents have held all security deposits in accordance with law and the terms of
the applicable Anchor Agreements, Leases and Specialty License Agreements.
(j) RIGHTS OF OFFER AND REFUSAL. Except as set forth in
Seller's Files and other than any right of GMAC under the GMAC Loan Documents,
Seller has not granted to any person any right or option to acquire any Property
or portion thereof or any interest relating thereto, or a right of first offer
or right of first refusal to do so, or a right to receive any profit
participation or other interest with respect to the Property or any portion
thereof (whether exercisable now or upon any subsequent resale of any Property
or any portion thereof), which in any such case would be binding on Purchaser.
(k) EMPLOYEES. There are no employment, union or other similar
agreements relating to Seller's employees at the Property that will be binding
on Purchaser or the Property after Closing.
(l) ENVIRONMENTAL MATTERS. Except as disclosed in the
environmental reports listed on SCHEDULE 9.2(L) and heretofore delivered to
Purchaser (which such reports represent all of the environmental reports in the
possession or under the control of Seller or its agents) or in the environmental
reports prepared for Purchaser before the Due Diligence Termination Deadline in
connection with the transactions contemplated hereby and except as otherwise
disclosed on SCHEDULE 9.2(L), (i) Seller has not received any written notice,
demand, letter, claim or request for information (the subject of which has not
been cured) regarding the presence of Hazardous Substances or liability under
any Environmental Law with respect to such Property and (ii) Seller has not
received any written notice (the subject of which has not been fully cured) that
any Property is currently subject to any orders, decrees, injunctions or any
other proceedings or requirements imposed by any governmental authority or third
party pursuant to any Environmental Law, in the case of both clauses (i) and
(ii), the subject matter of which could result in Losses to Purchaser in an
amount equal to (x) $100,000 or more with respect to any Mall or (y) $200,000 or
more in the aggregate with respect to all of the Malls collectively. (By way of
example, if this representation is breached because Seller has received
undisclosed written notices of Hazardous Substances at three Malls and the cost
of remediation for each Mall would be $150,000, then the amount of Losses for
the purposes of SECTION 9.8 would be, in such example, $250,000 ($450,000 -
$200,000).)
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9.3 AS IS. Without limiting Seller's representations and warranties
contained in this ARTICLE 9:
(a) Except as may otherwise be expressly set forth in this
Agreement, Purchaser is expressly purchasing the Property in its existing
condition "AS IS, WHERE IS, AND WITH ALL FAULTS" with respect to all facts,
circumstances, conditions and defects. Seller has no obligation to determine or
correct any such facts, circumstances, conditions or defects or to compensate
Purchaser for same. Seller has specifically bargained for the assumption by
Purchaser of all responsibility to investigate the Property, laws and
regulations, rights, facts, Leases, Contracts, Specialty License Agreements and
Anchor Agreements and of all risk of adverse conditions and has structured the
Purchase Price and other terms of this Agreement in consideration thereof.
Purchaser will undertake or has taken all investigations and review of the
Property, laws and regulations, rights, facts, Leases, Contracts, Specialty
License Agreements and Anchor Agreements as Purchaser deems necessary or
appropriate under the circumstances as to the status of the Property and based
upon same, Purchaser is and will be relying strictly and solely upon such
inspections and examinations, the warranties and representations of Seller
specifically set forth in this Agreement, and the advice and counsel of its own
consultants, agents, legal counsel and officers and Purchaser is and will be
fully satisfied that the Purchase Price is fair and adequate consideration for
the Property, and by reason of all the foregoing, Purchaser assumes the full
risk of any loss or damage occasioned by any fact, circumstance, condition or
defect pertaining to the Property, except as expressly set forth to the contrary
in this Agreement.
(b) Except for those representations and warranties of Seller
set forth herein, Seller hereby disclaims all warranties of any kind or nature
whatsoever (including warranties of habitability and fitness for particular
purposes), whether expressed or implied, including, without limitation,
warranties with respect to the Property. Purchaser acknowledges that Purchaser
is not relying upon any representation of any kind or nature made by Seller, or
any of its employees or agents with respect to the Property other than those
representations and warranties set forth herein, and that, in fact, no such
representations or warranties were made except as expressly set forth in this
Agreement.
(c) Seller makes no representation or warranty with respect to
the presence of Hazardous Materials on, above, or beneath the Real Property (or
any parcel in proximity thereto) or in any water on or under the Real Property.
Purchaser's closing hereunder shall be deemed to constitute an express waiver of
any right on the part of Purchaser to cause Seller to be joined in any action
brought against Purchaser under any Environmental Laws or to contribute to the
cost of any remediation or clean-up of any environmental hazard or environmental
condition at the Real Property. The term "HAZARDOUS MATERIALS" shall mean (i)
those substances included within the definitions of any one or more of the terms
"HAZARDOUS MATERIALS," "HAZARDOUS WASTES," "HAZARDOUS SUBSTANCES," "INDUSTRIAL
WASTES," and "TOXIC POLLUTANTS," as such terms are defined under the
Environmental Laws, or any of them, (ii) petroleum and petroleum products,
including, without limitation, crude oil and any fractions thereof, (iii)
natural gas, synthetic gas and any mixtures thereof, (iv) asbestos and or any
material which contains any hydrated mineral silicate, including, without
limitation, chrysolite, amosite, crocidolite, tremolite, anthophyllite and/or
actinolite, whether friable or non-friable, (v) polychlorinated biphenyl
("PCBS") or PCB-containing materials or fluids, (vi) radon, (vii) any other
hazardous or radioactive substance, material, pollutant, contaminant or waste,
and (viii) any other substance with respect to which any Environmental Law or
governmental authority requires environmental investigation, monitoring or
remediation. The term "ENVIRONMENTAL LAWS" shall mean all federal, state and
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local laws, statutes, ordinances and regulations, now or hereafter in effect, in
each case as amended or supplemented from time to time, including, without
limitation, all applicable judicial or administrative orders, applicable consent
decrees and binding judgments relating to the regulation and protection of human
health, safety, the environmental and natural resources (including, without
limitation, ambient air, surface, water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation), including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (42 U.S.C. Secs. 9601, et seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Secs. 1801, et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Secs. 136,
et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S. Secs.
6901, et seq.) ("RCRA"), and Toxic Substance Control Act, as amended (42 U.S.C.
Secs. 7401, et seq.), The Clean Air Act, as amended (42 U.S.C. Secs. 7401, et
seq.), the Federal Water Pollution Control Act, as amended (33 U.S.C. Secs.
1251, et seq.), the Occupational Safety and Health Act, as amended (29 U.S.C.
Secs. 651, et seq.), the Safe Drinking Water Act, as amended (42 U.S.C. Secs.
300f, et seq.), any state or local environmental law or counterpart or
equivalent of any of the foregoing, and any Federal, state or local transfer
ownership notification or approval statutes.
9.4 MODIFICATION OF SELLER'S REPRESENTATIONS AND WARRANTIES. Seller may
replace or create new schedules to the representations and warranties in SECTION
9.2 to reflect any additional information by delivering to Purchaser replacement
schedules or new schedules, as the case may be, to such representations and
warranties at least three (3) Business Days prior to the Due Diligence
Termination Deadline. The representations and warranties of Seller shall be
deemed to be modified by such replacement or new schedules delivered to
Purchaser and shall constitute the representations and warranties of Seller for
all purposes under this Agreement. In addition, the representations in clauses
(i), (iii) and (iv) of SECTION 9.2(d) and SECTION 9.2(i) shall be deemed to be
modified as of the Closing Date by any written disclosure schedules delivered by
Seller to Purchaser at least three (3) Business Days prior to Closing. Any
Approved Leases shall be deemed permissible exceptions to the representations
and warranties set forth in the first sentence of SECTION 9.2(d) and SECTION
9.2(j).
9.5 PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser makes the
following representations and warranties, each of which is true and correct as
of the date hereof and as of the Closing Date:
(a) AUTHORITY; BINDING ON PURCHASER; ENFORCEABILITY. Purchaser
is duly organized, validly existing, in good standing in the State of Delaware.
Purchaser has the full right and authority to enter into this Agreement,
consummate or cause to be consummated all transactions contemplated hereby and
make or cause to be made transfers and assignments contemplated herein, and the
persons signing this Agreement on behalf of Purchaser are authorized to do so
and (ii) this Agreement and all of the documents to be delivered by Purchaser at
the Closing have been authorized and properly executed and will constitute the
valid and binding obligations of Purchaser, enforceable against Purchaser in
accordance with its terms.
(b) CONFLICT WITH EXISTING LAWS; CONSENTS. The execution and
delivery of this Agreement and all related documents and the performance of its
obligations hereunder and thereunder by Purchaser do not conflict with any
provision of any law or regulation to which Purchaser is subject, or conflict
with or result in a breach of or constitute a default under any of the terms,
conditions or provisions
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of any agreement or instrument to which Purchaser is a party or by which
Purchaser is bound or any order or decree applicable to Purchaser, or result in
the creation or imposition of any lien on any of its assets or property which
would materially adversely affect the ability of Purchaser to perform its
obligations under this Agreement. Purchaser has obtained all consents,
approvals, authorizations or orders of any court, governmental agency or body
and all third parties, if any, required for the execution, delivery and
performance by Purchaser of this Agreement and the consummation of the
transactions contemplated hereby.
(c) BANKRUPTCY OR DEBT OF PURCHASER. Purchaser has not filed
any petition seeking or acquiescing in any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief relating
to Purchaser or any of its property under any law relating to bankruptcy or
insolvency, nor, to the best of Purchaser's knowledge, has any such petition
been filed against Purchaser. No general assignment if Purchaser's property has
been made for the benefit of creditors, and, to the best of Purchaser's
knowledge, no receiver, master, liquidator, or trustee has been appointed for
Purchaser or any material portion of its property. Purchaser is not insolvent
and the consummation of the transactions contemplated by this Agreement shall
not render Purchaser insolvent.
9.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding
anything to the contrary contained in this Agreement, the representations and
warranties on the part of Seller and Purchaser contained in this ARTICLE 9 shall
survive the Closing for a period of six (6) months.
9.7 [Intentionally Omitted]
9.8 INDEMNIFICATION.
(a) Subject to SECTION 9.8(b), in the event that Closing
occurs, Seller and FUR shall jointly and severally indemnify and hold harmless
Purchaser and Purchaser's Agents against and in respect of any and all Losses,
resulting or arising from or otherwise relating to (i) any breaches of Seller's
representations or warranties in SECTION 9.2 for the period such representations
and warranties survive or (ii) any nonfulfillment of or failure of Seller to
comply with any covenant or obligation set forth in this Agreement for the
period such covenant or obligation survives; PROVIDED that in each case
Purchaser must notify Seller of any claim for indemnity under this SECTION 9.8
before the expiration of the applicable survival period.
(b) Seller and FUR shall not be liable under SECTION 9.8(a)(i)
until the aggregate amount of Losses theretofore incurred by Purchaser exceed
five hundred thousand dollars ($500,000) (the "LOSSES THRESHOLD"), in which case
Purchaser shall be entitled to be compensated for, and Seller shall be obligated
to pay, Losses up to a maximum aggregate amount equal to five million dollars
($5,000,000) in excess of the Losses Threshold. (By way of example, if
Purchaser's total Losses equal $501,000, Seller's liability to Purchaser under
this SECTION 9.8(b) shall be $1,000). All payments made in respect of any claim
under this SECTION 9.8 shall be treated as an adjustment to the Purchase Price
for all purposes. Any adjustments to the Purchase Price at Closing in favor of
Purchaser on account of any items set forth in SECTION 9.8(a)(i) shall count
toward the $5,000,000 maximum liability of Seller under this SECTION 9.8(b).
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(c) Notwithstanding anything to the contrary contained in this
Agreement, in the event that Purchaser is entitled to the return of the Deposit
(or any portion thereof) pursuant to the other provisions of this Agreement, the
funds in the Tenant Costs Escrow Account (or any portion thereof), any fee
payable to Purchaser if the Seller Ratification is not obtained as provided in
SECTION 14.2 or any amounts described in ARTICLE 11, Seller and FUR hereby
jointly and severally agree to cause all such amounts to be promptly delivered
to Purchaser without regard to any thresholds, limitations or survival periods.
The provisions of this SECTION 9.8(c) shall survive any termination of this
Agreement or the Closing indefinitely.
(d) The provisions of this SECTION 9.8 shall survive the
Closing.
ARTICLE 10
----------
DAMAGE OR DESTRUCTION; CONDEMNATION
-----------------------------------
10.1 DAMAGE OR DESTRUCTION. In the event of any damage to or
destruction of the Property or any portion thereof subsequent to the date hereof
and prior to, or on, the Closing Date, Seller shall provide written notice of
such damage or destruction ("SELLER'S CASUALTY NOTICE") promptly after its
occurrence, and Purchaser's rights shall be as follows:
(a) In the event that the reasonably expected cost of
restoration exceeds $2,500,000.00 at any one Mall, then Purchaser shall, within
15 days after receipt of the Seller's Casualty Notice, elect, by written notice
to Seller, either (1) to terminate this Agreement, in which event the Deposit
shall be returned immediately to Purchaser, and thereupon all obligations and
liabilities of the parties hereunder shall cease and this Agreement shall have
no further force and effect except for such provisions of this Agreement which
are expressly stated to survive termination of this Agreement or (2) to proceed
with the transaction contemplated under this Agreement (except that if the
Closing Date is less than 15 days following Purchaser's receipt of the Seller's
Casualty Notice, the Closing shall be delayed until Purchaser makes such
election, but in no event more than 30 days after the date of Purchaser's
receipt of the Seller's Casualty Notice), in which event Purchaser shall have no
right to offset or reduction or abatement of the Purchase Price and Purchaser
shall receive at Closing (i) an assignment of (A) all insurance proceeds
theretofore paid to Seller with respect to such damage, (B) all claims against
any insurer with respect to such damage and (C) all claims against third parties
with respect to such damage and (ii) the full amount of Seller's deductible, in
cash. In the event Purchaser does not give Seller timely notice of its election
under this SECTION 10.1(a), Purchaser shall be deemed to have elected to proceed
under clause "(2)" above.
(b) In the event that the reasonably expected cost of
restoration is equal to or less than $2,500,000.00 at any one Mall, Purchaser
shall be obligated to proceed with the transaction contemplated under this
Agreement, in which event Purchaser shall have no right to offset or reduction
or abatement of the Purchase Price and Purchaser shall receive at Closing (i) an
assignment of (A) all insurance proceeds theretofore paid to Seller with respect
to such damage, (B) all claims against any insurer with respect to such damage
and (C) all claims against third parties with respect to such damage and (ii)
the full amount of Seller's deductible, in cash.
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10.2 CONDEMNATION. If, subsequent to the date hereof and prior to, or
on, the Closing Date, (1) any proceeding (judicial, administrative or otherwise)
shall be commenced for the proposed taking of any portion of, or interest in,
the Property by condemnation or eminent domain or any action in the nature of
eminent domain, or (2) Seller shall receive notice of any such proposed taking,
Seller shall provide written notice to Purchaser of such proceeding or proposed
taking ("SELLER'S CONDEMNATION NOTICE") promptly after notification to Seller of
such proceeding or proposed taking and Purchaser's rights shall be as follows:
(a) In the event that the reasonably expected condemnation
award exceeds $2,500,000.00 at any one Mall, then Purchaser shall, within 15
days after receipt of the Seller's Condemnation Notice, elect, by written notice
to Seller, either (1) to terminate this Agreement, in which event the Deposit
shall be returned immediately to Purchaser, and thereupon all obligations and
liabilities of the parties hereunder shall cease and this Agreement shall have
no further force and effect except for such provisions of this Agreement which
are expressly stated to survive termination of this Agreement or (2) to proceed
with the transaction contemplated under this Agreement (except that if the
Closing Date is less than 15 days following Purchaser's receipt of the Seller's
Condemnation Notice, the Closing shall be delayed until Purchaser makes such
election, but in no event more than 30 days after the date of Purchaser's
receipt of the Seller's Condemnation Notice), in which event Purchaser shall
have no right to offset or reduction or abatement of the Purchase Price and
Purchaser shall receive at Closing an assignment of all of Seller's rights to
any proceeds from such taking or condemnation. In the event Purchaser does not
give Seller timely notice of its election under this SECTION 10.2(a), Purchaser
shall be deemed to have elected to proceed under clause "(2)" above.
(b) In the event that the reasonably expected condemnation
award is equal to or less than $2,500,000.00 at any one Mall, Purchaser shall be
obligated to proceed with the transaction contemplated under this Agreement, in
which event Purchaser shall have no right to offset or reduction of the Purchase
Price and Purchaser shall receive at Closing an assignment of all of Seller's
rights to any proceeds from such taking or condemnation.
10.3 SURVIVAL. The provisions of this ARTICLE 10 shall survive the
Closing.
ARTICLE 11
----------
DEFAULT
-------
11.1 SELLER'S INABILITY TO PERFORM OR DEFAULT. Except as provided in
SECTION 14.2, if Seller shall be unable to perform or shall default in the
performance of any of its obligations hereunder, the sole and exclusive remedy
of Purchaser (unless otherwise provided in this Agreement) shall be to terminate
this Agreement, in which event (i) the Deposit and any amounts in the Tenant
Costs Escrow Account shall be promptly returned to Purchaser and Seller
covenants to cause the same, (ii) Seller shall reimburse Purchaser for the
actual out-of-pocket third party costs incurred by Purchaser in connection with
the proposed purchase of the Property and (iii) thereupon, neither party shall
have any liability or obligation to the other party under this Agreement except
for those provisions of this Agreement which are expressly stated to survive the
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termination of this Agreement; PROVIDED, HOWEVER, that if the Seller
Ratification shall have been obtained and Seller shall default in the
performance of any of its obligations hereunder, then Purchaser shall be
entitled, in lieu of the remedies set forth in clauses (i) through (iii) above,
to enforce specific performance of this Agreement. Purchaser shall not have the
right to seek, pursue or obtain any other remedy at law, in equity or otherwise
on account of or in connection with any such default by Seller, including,
without limitation, any right to collect damages, except as otherwise provided
in this Agreement. If Purchaser elects to terminate this Agreement pursuant to
this SECTION 11.1, Purchaser shall not be entitled to pursue the remedies set
forth in SECTION 14.2. If Purchaser has available the remedies set forth in
SECTION 14.2, Purchaser shall not be entitled to pursue the remedies set forth
in this SECTION 11.1.
11.2 PURCHASER'S DEFAULT. If Purchaser shall default in the performance
of any of its obligations hereunder, including, but not limited to, the payment
of the Additional Deposit, the sole and exclusive remedy of Seller
(notwithstanding any provision hereof to the contrary) shall be the right to
terminate this Agreement in which event the Deposit and all amounts in the
Tenant Costs Escrow Account shall be promptly paid to Seller as full and
complete liquidated damages (and not as a penalty or forfeiture) and, thereupon,
neither party shall have any liability or obligation to the other party under
this Agreement except for those provisions of this Agreement which are expressly
stated to survive the termination of this Agreement.
11.3 RECOVERABLE DAMAGES. In no event shall the provisions of SECTIONS
11.1 and 11.2 limit the damages recoverable by either party against the other
party due to the other party's obligation to indemnify such party in accordance
with this Agreement.
11.4 SURVIVAL. The provisions of this ARTICLE 11 shall survive the
termination of this Agreement until all amounts payable pursuant to this ARTICLE
11 are paid in full.
ARTICLE 12
----------
EMPLOYEES
---------
12.1 EMPLOYEES. As of 11:59 p.m. on the date prior to the Closing,
Seller shall terminate or cause to be terminated the employment of all then
existing employees of Seller, FUR and/or FUM at the Malls. Purchaser shall have
no obligation with respect to such employees except as expressly set forth in
this SECTION 12.1, and Seller and FUM shall jointly and severally indemnify and
hold harmless Purchaser and Purchaser's Agents against and in respect of any and
all Losses resulting or arising from or otherwise relating to such employees,
including, without limitation, Seller's termination thereof, in each case
pertaining only to the period of Seller's employment thereof. Purchaser agrees
to rehire the employees who are employed on-site at any Mall for a six (6) month
probationary period on Purchaser's standard terms of employment.
Such employment shall commence as of the Closing Date.
12.2 NO TRANSFER OF PENSION ASSETS AND LIABILITIES. There shall be no
transfer hereunder of assets or liabilities under any pension plan maintained or
contributed to by Seller, FUR or FUM.
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12.3 NO THIRD-PARTY BENEFICIARIES. No provision of this Agreement shall
create any third party beneficiary rights in any employee or any beneficiary or
dependents thereof, with respect to the compensation, terms and conditions of
employment and benefits that may be provided to any employee by Seller, FUM or
Purchaser or under any benefit plan or arrangement which Seller, FUM or
Purchaser may maintain.
12.4 SURVIVAL. The provisions of this Article 12 shall survive the
Closing for six (6) months.
ARTICLE 13
----------
NOTICES
-------
13.1 NOTICES. Any notice, request, demand, instruction or other
document to be given or served hereunder or under any document or instrument
executed pursuant hereto shall be in writing and shall be deemed to be delivered
and effective upon the earlier of (a) upon personal delivery to and receipt by
the person to whom delivered, (b) three days after deposit in United States
registered or certified mail, return receipt requested, (c) one Business Day
after deposit with a nationally recognized overnight express courier for next
day delivery or (d) the Business Day of telecopy, in each case, addressed to the
parties at their respective addresses or telecopy numbers (as applicable) set
forth below:
If to Purchaser: WXI/Z SOUTHWEST MALLS REAL ESTATE LIMITED PARTNERSHIP
c/o Zamias Services Inc
300 Market Street
Johnstown, PA 15901
Attention: Damien Zamias
Telecopy No.: (814) 536-5505
with a copy to: WHITEHALL STREET REAL ESTATE LIMITED PARTNERSHIP XI
85 Broad Street
New York, NY 10004
Attention: Michael Klingher
Telecopy No.: (212) 357-5505
and a copy to: SULLIVAN & CROMWELL
125 Broad Street
New York, NY 10004
Attention: Anthony J. Colletta
Telecopy No.: (212) 558-3588
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If to Seller: SOUTHWEST SHOPPING CENTERS CO. II, L.L.C.
551 Fifth Avenue (Suite 1416)
New York, New York 10177-01499
Attention: Anne Zahner
Telecopy No.: (212) 905-1102
with a copy to: GOLDBERG WEPRIN & USTIN LLP
1501 Broadway, 22nd Floor
New York, New York 10036
Attention: Andrew Albstein
Telecopy No.: (212) 301-6914
and a copy to: HERRICK, FEINSTEIN LLP
Two Park Avenue
New York, New York 10016
Attention: Belinda G. Schwartz
Telecopy No.: (212) 889-7577
and a copy to: HUGHES & LUCE, L.L.P.
1717 Main Street (Suite 2800)
Dallas, Texas 75201
Attention: James A. Moomaw
Telecopy No.: (214) 939-5849
13.2 CHANGE OF ADDRESS. A party may change its address and telecopy
number for receipt of notices by service of a notice of such change in
accordance herewith.
ARTICLE 14
----------
MISCELLANEOUS
-------------
14.1 PARTIES BOUND. All provisions hereof, including, without
limitation, all representations and warranties made hereunder, shall extend to,
be obligatory upon and inure to the benefit of the respective heirs, devisees,
legal representatives, successors, permitted assigns and beneficiaries of the
parties hereto.
14.2 SELLER'S SHAREHOLDER APPROVAL.
(a) The obligations of Seller to transfer the Property
pursuant to this Agreement are contingent upon Seller obtaining consent to the
transactions contemplated hereby from shareholders of FUR holding the requisite
number of shares in accordance with the organizational and governing documents
of FUR (collectively, the "SELLER RATIFICATION") and, subject to the obligations
of Seller pursuant to the other provisions of this SECTION 14.2, this Agreement
shall terminate, effective on the date described in SECTION
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14.2(c), if the shareholders of FUR reject the sale contemplated by this
Agreement; and thereupon neither party shall have any further obligation to the
other party under this Agreement, other than the obligations of Seller under
this SECTION 14.2 and except for those provisions which are expressly stated
herein to survive termination of this Agreement. Seller makes no representation
or warranty herein that the Seller Ratification shall be obtained.
(b) If (i) a meeting of the shareholders of FUR called for the
purpose of voting on the transactions contemplated by this Agreement is not held
on or prior to the Shareholder Approval Deadline, other than, despite the best
efforts of FUR to hold such a meeting in accordance with its obligations under
SECTION 8.8(b), as a result of an Excusable Delay, or (ii) the Board of Trustees
of FUR has withdrawn or failed, upon Purchaser's request, to reaffirm its
recommendation that the shareholders of FUR approve the transactions
contemplated by this Agreement, or (iii) the Board of Trustees and/or
shareholders of FUR have voted to approve a proposal, other than Purchaser's, to
purchase (or Seller or FUR has entered into a written agreement for the sale of)
all or any portion of the Real Property, or (iv) Seller or FUR has breached the
provisions of SECTION 8.8, then Seller shall be deemed to be in default of its
obligations under this Agreement; PROVIDED that in lieu of the remedies set
forth in this Agreement (which Purchaser shall not be entitled to), Seller or
FUR shall, in addition to returning the Deposit and all amounts in the Tenant
Costs Escrow Account to Purchaser, immediately pay to Purchaser, as Purchaser's
sole and exclusive remedy, ten million dollars ($10,000,000) as compensation and
reimbursement to Purchaser (and not as a penalty or forfeiture) for its time and
expense and out-of-pocket costs incurred in connection with the transactions
contemplated hereby and the loss of potential profit that Purchaser would have
realized with respect to such transactions; and, upon Purchaser's receipt of
such payment, this Agreement shall terminate and neither party shall have any
further obligation to the other party under this Agreement except for those
provisions which are expressly stated herein to survive termination of this
Agreement.
(c) If (i) this Agreement is terminated pursuant to SECTION
14.2(a) or (ii) the Seller Ratification is not obtained on or prior to the
Shareholder Approval Deadline due to an Excusable Delay or for any reason other
than a reason set forth in SECTION 14.2(b), then Seller shall be deemed unable
to perform; PROVIDED that in lieu of the remedies set forth in this Agreement
(which Purchaser shall not be entitled to), Seller or FUR shall, in addition to
returning the Deposit and all amounts in the Tenant Costs Escrow Account to
Purchaser, immediately pay to Purchaser, as Purchaser's sole and exclusive
remedy (subject to the additional remedy in SECTION 14.2(d)), one million five
hundred thousand dollars ($1,500,000) as compensation and reimbursement to
Purchaser (and not as a penalty or forfeiture) for its time and expense and
out-of-pocket costs incurred in connection with the transactions contemplated
hereby; and, upon Purchaser's receipt of such payment, this Agreement shall
terminate and neither party shall have any further obligation to the other party
under this Agreement, other than the obligations of Seller under SECTION 14.2(d)
and except for those provisions which are expressly stated herein to survive
termination of this Agreement.
(d) Notwithstanding the limitation on Purchaser's remedies set
forth in SECTION 14.2(c), if this Agreement terminates pursuant to SECTION
14.2(c) and Seller enters into a written agreement with any person or entity
other than Purchaser to sell all or any portion of the Real Property within
twelve (12) months after the date on which this Agreement terminated, then
Seller or FUR shall immediately pay to Purchaser eight million five hundred
thousand dollars ($8,500,000) as compensation to Purchaser (and not as a penalty
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or forfeiture) for its time and expense in connection with the transactions
contemplated hereby and the loss of potential profit that Purchaser would have
realized with respect to such transaction; and thereupon neither party shall
have any further obligation to the other party under this Agreement except for
those provisions which are expressly stated herein to survive termination of
this Agreement.
(e) In the event that the Seller Ratification is not obtained
by the Shareholder Approval Deadline due to an Excusable Delay, Purchaser may,
in its sole discretion, extend the Shareholder Approval Deadline on one or more
occasions by written notice to Seller to a date not later than February 28,
2000.
(f) It is agreed between the parties that the actual costs and
damages to Purchaser in the event that Seller fails to timely obtain the Seller
Ratification are and will be impractical to ascertain and any amount payable by
Seller under this SECTION 14.2 is a reasonable estimate thereof. The obligation
of Seller and FUR to make any payment under this SECTION 14.2 shall be joint and
several.
(g) The provisions of this SECTION 14.2 shall not apply and
shall not be effective in the event that this Agreement is terminated pursuant
to any section of this Agreement other than this SECTION 14.2. The provisions of
this SECTION 14.2 shall survive the termination of this Agreement until all
amounts payable pursuant to this SECTION 14.2 are paid in full; PROVIDED that,
in any event, the provisions of SECTION 14.2(d) shall survive any termination of
this Agreement pursuant to SECTION 14.2(c) for thirteen (13) months.
14.3 HEADINGS. The article, section and paragraph headings of this
Agreement are for convenience only and in no way define, limit or enlarge the
scope or meaning of the language hereof.
14.4 INVALIDITY. If any term, provision or condition of this Agreement
is found to be or is rendered invalid or unenforceable, it shall not affect the
remaining terms, provisions and conditions of this Agreement, and each and every
other term, provision and condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
14.5 GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of New York.
14.6 NO THIRD PARTY BENEFICIARY. This Agreement is not intended to give
or confer any benefits, rights, privileges, claims, actions or remedies to any
person or entity as a third party beneficiary under any statutes, laws, codes,
ordinances, rules, regulations, orders, decrees or otherwise.
14.7 AMENDMENTS. This Agreement may be amended or supplemented only by
an instrument in writing executed by the party against whom enforcement is
sought.
14.8 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and all
of such counterparts shall constitute one Agreement.
14.9 FURTHER ACTS. In addition to the acts and deeds recited herein and
contemplated to be performed, executed and/or delivered by Seller to Purchaser,
Seller and Purchaser agree to perform, execute
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and/or deliver or cause to be performed, executed and/or delivered at the
Closing or after the Closing any and all further acts, deeds and assurances as
may be necessary to consummate the transactions contemplated hereby. The
provisions of this SECTION 14.9 shall survive the Closing hereunder.
14.10 EXTENSION OF PERFORMANCE. Whenever under the terms of this
Agreement the time for performance of a covenant or condition falls upon a
Saturday, Sunday or holiday, such time for performance shall be extended to the
next business day. Otherwise all references in this Agreement to days shall mean
calendar days.
14.11 TIME. Time shall be of the essence with respect to the payment of
the Deposit by Purchaser, Purchaser's election to terminate this Agreement under
SECTION 4.1(b), the provisions of SECTION 14.2 and as set forth in SECTION 6.1.
14.12 ASSIGNMENT. This Agreement and all rights hereunder may not be
assigned or transferred by Purchaser under any circumstances without the prior
written consent of Seller; PROVIDED that Purchaser may without the consent of
Seller assign this Agreement in whole but not in part to any affiliate approved
by GMAC. An assignment of any interest(s) in Purchaser entity shall constitute
an assignment of this Agreement.
14.13 ATTORNEYS' FEES. Should either party employ attorneys to enforce
any of the provisions hereof, the party losing in any final judgment agrees to
pay the prevailing party all reasonable costs, charges and expenses, including
attorneys' fees, expended or incurred in connection therewith. The provisions of
this SECTION 14.13 shall survive the Closing hereunder and the termination of
this Agreement.
14.14 CONSTRUCTION. The use of the neuter singular pronoun to refer to
Seller and Purchaser shall be deemed a proper reference, even though Seller or
Purchaser may be an individual, partnership or a group of two or more
individuals. The necessary grammatical changes required to make the provisions
of this Agreement apply in the plural sense where there is more than one seller
or purchaser and to either partnerships or individuals (male or female) shall in
all instances be assumed as though in each case fully expressed. The use of the
term "including" or derivatives thereof shall be deemed to mean "including
without limitation."
14.15 LIMITATION OF LIABILITY. Notwithstanding anything contained
herein to the contrary, no owner, shareholder member, manager, or agent of
Seller, FUR or FUM, nor any advisor, trustee, director, officer, employee,
beneficiary, shareholder, participant, representative or agent of any
corporation, trust, or other entity (other than FUR or FUM as provided below)
that is or becomes an owner, shareholder, member, or manager of Seller shall
have any liability, directly or indirectly, under or in connection with this
Agreement or any agreement made or entered into under or pursuant to the
provisions of this Agreement, or any amendment or amendments to any of the
foregoing made at any time or times, heretofore or hereafter, and Purchaser and
its successors and assigns and, without limitation, all other persons and
entities, shall look solely to Seller's interest in the Property and Seller's
other assets or, only for the purposes of SECTION 8.8, SECTION 9.8 and SECTION
14.2, FUR and, only for the purposes of SECTION 12.1, FUM for the payment and
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satisfaction of claims of any nature or for any performance arising under or in
connection with this Agreement.
14.16 JURISDICTION; VENUE. Each of Seller and Purchaser, to the full
extent permitted by law, hereby knowingly, intentionally and voluntarily, with
and upon the advice of competent counsel, (a) submits to personal jurisdiction
in the State of New York over any suit, action or proceeding by any person
arising from or relating to this Agreement, (b) agrees that any such action,
suit or proceeding may be brought in any state or federal court of competent
jurisdiction in the City of New York, New York, (c) submits to the jurisdiction
of such courts, and (d) to the fullest extent permitted by law, each of Seller
and Purchaser agrees that it will not bring any action, suit or proceeding in
any other forum. Each of Seller and Purchaser further consents and agrees to
service of any summons, complaint or other legal process in any such suite,
action or proceeding by registered or certified U.S. Mail, postage prepaid, to
the party at the address for notices described herein and consents and agrees
that such service shall constitute in every respect valid and effective service
(but nothing herein shall affect the validity or effectiveness of process served
in any other manner permitted by law). The provisions of this SECTION 14.16
shall survive the Closing hereunder and shall survive the termination of this
Agreement.
14.17 1031 EXCHANGE.
(a) Purchaser hereby acknowledges that Seller may effect an
Internal Revenue Code Section 1031 tax deferred exchange (an "EXCHANGE"). The
Seller's rights under this Agreement may be assigned to a qualified intermediary
for the purpose of completing such an exchange. Purchaser agrees to cooperate
with Seller and the qualified intermediary in a manner necessary to complete the
exchange; PROVIDED that:
(i) All documents executed by Purchaser in connection
with an Exchange shall be subject to the prior approval of Purchaser and shall
recognize that such Purchaser is accommodating Seller's request and is making no
representation or warranty that the transactions qualify as a tax-free exchange
under Section 1031 of the Internal Revenue Code or any applicable state or local
laws and shall have no liability whatsoever if any transaction fails to so
qualify.
(ii) Such Exchange shall not result in Purchaser
incurring, assuming or otherwise becoming responsible for any additional costs,
obligations or liabilities. Such Exchange shall not in any way delay the
Closing.
(iii) In no event shall Purchaser be obligated to
acquire any property (other than the Property) or otherwise be obligated to take
title, or appear in the records of title, to any property in connection with
such Exchange.
(iv) In no event shall Seller's consummation of such
Exchange constitute a condition precedent to Seller's obligations under this
Agreement, and Seller's failure or inability to consummate such Exchange for any
reason or for no reason at all shall not be deemed to excuse or release Seller
from its obligations under this Agreement.
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(v) In consideration of Purchaser's agreement to
provide to Seller the accommodation described in this SECTION 14.17, Seller
hereby agrees to indemnify Purchaser for, and hold Purchaser harmless against,
any and all Losses directly or indirectly arising out of any Exchange.
(b) The provisions of this SECTION 14.17 shall survive the
Closing hereunder.
14.18 SURVIVAL. Notwithstanding any provision of this Agreement to the
contrary, (i) in the event the Closing occurs or this Agreement is terminated,
those provisions of this Agreement which specifically provide that they survive
the Closing or the termination of this Agreement, as the case may be, will
remain in full force and effect for the period indicated in such provisions (or,
if no period is indicated, indefinitely) and (ii) no other provision of this
Agreement shall survive the Closing or the termination of this Agreement.
14.19 BROKERAGE INDEMNITY. Seller and Purchaser represent and warrant
each to the other that (except as set forth in this SECTION 14.19 they have not
dealt with any real estate broker, sales person or finder in connection with
this transaction and no person initiated or participated in the negotiation of
this Agreement or showed the Property to Purchaser, and to the knowledge of
Seller and Purchaser, there are no real estate brokerage commissions, finder's
fees, or other similar fees due any person or entity on account of or as a
result of this transaction, except as set forth herein. Seller and Purchaser
each agree to indemnify, defend and hold the other harmless from and against any
loss, cost, liability or expense suffered or incurred by the other party as a
result of a claim or claims for brokerage commissions, finder's fees or other
similar fees from any party or firm that is based on the act or omission of the
party in breach of the above warranty. Seller (but not Purchaser) is obligated
to pay a brokerage commission to Broker, pursuant to a separate written
agreement and hereby indemnifies Purchaser for any claims made by Broker. The
provisions of this SECTION 14.19 shall survive the Closing hereunder and shall
survive termination of this Agreement.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first above written.
SELLER:
-------
SOUTHWEST SHOPPING CENTERS CO. II, L.L.C., a
Delaware limited liability company,
By: FIRST SWI, L.L.C,
a Delaware limited liability company,
its manager,
By: FIRST SOUTHWEST II, INC.,
a Delaware corporation, its
manager
PURCHASER:
----------
WXI/Z SOUTHWEST MALLS REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership,
By: WXI/Z SOUTHWEST MALLS GEN-PAR, LLC, a
Delaware limited liability company,
its general partner
FUR
---
only for purposes of SECTION 8.8, SECTION 9.8
and SECTION 14.2 herein:
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE
INVESTMENTS, an Ohio unincorporated association
in the form of a business trust
FUM
---
only for purposes of SECTION 12.1 herein:
FIRST UNION MANAGEMENT, INC.
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LIST OF EXHIBITS
----------------
Exhibit A Alexandria Ground Lease Assignments
Exhibit B Assignment of Anchor Agreements
Exhibit C Assignment of Contracts
Exhibit D Assignment of Leases and Specialty License Agreements
Exhibit E Bill of Sale and Blanket Conveyance
Exhibit F Anchor Estoppel Certificate
Exhibit G Tenant Estoppel Certificate
Exhibit H Forms of Deeds
Exhibit I Form of Affidavit
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APPENDIX B - FIRST LETTER AGREEMENT TO THE PURCHASE AND SALE AGREEMENT
WXI/Z Southwest Malls Real Estate Limited Partnership
c/o Zamias Services Inc
300 Market Street
Johnstown, Pennsylvania 15901
August 11, 1999
Southwest Shopping Centers Co. II, L.L.C.
551 Fifth Avenue, Suite 1416
New York, New York 10177
Attention: Daniel Friedman
Re: Purchase and Sale Agreement (the "Purchase
Agreement"), dated as of July 14, 1999, by and among
Southwest Shopping Centers Co. II, L.L.C., a Delaware
limited liability company ("Seller"), and WXI/Z
Southwest Malls Real Estate Limited Partnership, a
Delaware limited partnership ("Purchaser"), and, only
for purposes of Section 8.8, Section 9.8, and Section
14.2 therein, First Union Real Estate Equity and
Mortgage Investments, an Ohio unincorporated
association in the form of a business trust, and,
only for purposes of Section 12.1 therein, First
Union Management, Inc.
-----------------------------------------------------
Dear Mr. Friedman:
As we have told you, we have completed our due diligence of
the Real Property and are prepared to fund the Additional Deposit provided that
you agree to the following amendments to the Purchase Agreement. In addition,
Purchaser makes the acknowledgments set forth herein.
1. The "Due Diligence Termination Deadline" under the Purchase Agreement will
mean and be extended until August 13, 1999; PROVIDED, HOWEVER, that
Purchaser shall not in any event be required to make the Additional Deposit
before the Business Day after the date on which Purchaser receives new
voting agreements in the same form as the Voting Agreements (other than
changes relating to the date and the number of shares held) and executed by
the signatories to the Voting Agreements. Purchaser shall not be entitled
to any extensions of the Due Diligence Termination Deadline by reason of
the second sentence of Section 4.1(a).
2. Purchaser will use its reasonable good faith efforts to obtain the approval
of GMAC and the Rating Agencies to mezzanine financing of the Real
Property, that is, financing in amount not exceeding 80% of all of
Purchaser's costs of the acquisition of the Property, including closing
costs, capital expenditures and reserves and tenant improvement allowances
and reserves, taking the form of either of the following as GMAC and the
Rating Agencies may require (the "Mezzanine Financing"): (i) a preferred
partnership interest structure whereby the party providing the mezzanine
financing acquires a preferred partnership interest in Purchaser and will,
in certain events, have the right to assume control of Purchaser or (ii) a
debt financing pursuant to which a holding company that owns the
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Purchaser will borrow funds and will secure such borrowing with a
foreclosable pledge of the holding company's ownership interest in
Purchaser. In either of these cases, it is anticipated that certain
customary intercreditor arrangements will have to be entered into between
GMAC and the mezzanine lender. In addition, Purchaser wishes to clarify
with Seller that GMAC and the Rating Agencies must also consent to Zamias
Services Inc serving as the property manager for the Real Property.
Therefore, the terms "GMAC Consent" and "Rating Agency Consent" shall be
amended to read as follows:
1.46 "GMAC CONSENT" means (a) the consent of GMAC to
the transfer of the Real Property to Purchaser and the
substitution of Purchaser for Seller as the borrower under the
GMAC Loan documents, (b) the agreement of GMAC to provide
Seller with the GMAC Release at closing, (c) the agreement of
GMAC to permit Zamias Services Inc to serve as the property
manager for the Real Property and (d) the agreement of GMAC to
permit the Mezzanine Financing of the Real Property as defined
in the letter agreement dated August 11, 1999 between
Purchaser and Seller (including GMAC's consent to any
intercreditor agreement customarily required), PROVIDED,
HOWEVER, that this clause (d) shall be deemed satisfied if
GMAC fails to permit such Mezzanine Financing because it
objects to the identity of the mezzanine lender and such
lender is not one of Archon Capital, General Electric Capital
Corporation, Starwood Financial Trust, CapTrust,
Citigroup/Travelers or Credit Suisse First Boston
(collectively, the "Acceptable Mezzanine Lenders").
1.86 "RATING AGENCY CONSENT" means the consent or
approval of each Rating Agency to (a) the transfer of the Real
Property to Purchaser and the substitution of Purchaser for
Seller as the borrower under the GMAC Loan Documents, (b)
permit the Mezzanine Financing of the Real Property as defined
in the letter agreement dated August 11, 1999 between
Purchaser and Seller (including any intercreditor agreement
customarily required), PROVIDED, HOWEVER, that this clause (b)
shall be deemed satisfied if the Rating Agencies fail to
permit such Mezzanine Financing because they object to the
identity of the mezzanine lender and such lender is not an
Acceptable Mezzanine Lender; and (c) the replacement of the
current property manager with Zamias Services Inc, in each
case to the extent such consent or approval is required by
GMAC or the GMAC Loan Documents as a condition to the granting
or effectiveness of the GMAC Consent or the assumption by
Purchaser of the GMAC Loan Documents.
3. Purchaser shall be entitled to assume control of the Burk Interests
Incorporated/Best Products Co., Inc. ("Burk/Best") litigation from and
after the Due Diligence Termination Deadline; PROVIDED, HOWEVER, that
Purchaser shall not settle such litigation prior to the Closing without the
consent of Seller, which consent shall not be unreasonably withheld or
delayed; PROVIDED, FURTHER, that Purchaser shall receive a credit at
Closing for any settlement proceeds received by Seller in connection with
any such settlement. Seller shall assign to Purchaser at Closing, without
representation or warranty, all of Seller's right, title and interest in
such litigation, including the right to receive any proceeds or amounts
resulting therefrom (whether by final disposition, settlement or
otherwise), and Seller shall be entitled to a credit at Closing in the
amount of $75,000 in consideration for such assignment. In the event that
Purchaser acquires fee simple title (or a minimum twenty-five (25) year
(including lessee options to extend) leasehold
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<PAGE> 105
interest) to the land and improvements at Killeen Mall currently owned by
Burk/Best after the Closing, Purchaser shall pay to Seller, no later than
forty-five (45) days after such acquisition, an additional $175,000. The
provisions of this paragraph 3 shall survive the Closing.
4. Purchaser will be entitled to a credit against (i.e., reduction to) the
Purchase Price at Closing for any rent credits or allowances, as the case
may be, with respect to tenant improvements costs which are payable to, or
are required to be credited against rent payable by, the respective Anchors
and Tenants from and after the Closing in accordance with the terms of the
respective Anchor Agreements and Leases set forth on Annex A attached
hereto as in effect on the date hereof (collectively, the "Rent Credits").
Prior to Closing, Purchaser and Seller shall reasonably agree on the amount
of Rent Credits for which Purchaser shall receive a credit as of Closing,
and Purchaser shall have a reasonable opportunity to inspect Seller's books
relating to such Rent Credits. Purchaser acknowledges that any credit
Purchaser receives at Closing pursuant to the first sentence of this
paragraph shall be in lieu of any credit against the Purchase Price that
might otherwise be due Purchaser pursuant to the Purchase Agreement for the
Rent Credits. On the date which is six (6) months after the date of
Closing, if the amount of the credit received by Purchaser pursuant to the
first sentence of this paragraph shall have been determined to have been
inaccurate, Seller and Purchaser shall make an appropriate adjustment by
payment by Purchaser to Seller, or by Seller to Purchaser, as the case may
be.
The provisions of this paragraph 4 shall survive the Closing for six (6)
months.
5. Purchaser has determined that the presence of asbestos-containing materials
(collectively, "ACMs") at Alexandria Mall, Killeen Mall, Brazos Mall and
the space occupied by Sears at Mesilla Valley Mall requires further
investigation. Therefore, Seller agrees that Purchaser shall be entitled to
conduct further surveys and assessments of ACMs in the common areas and
leased anchor spaces at each of such Malls until August 30, 1999 to the
extent such surveys or assessments are not prohibited by the terms of the
applicable Anchor Agreement. Purchaser and Seller agree that Purchaser's
performance of such surveys and assessments shall be governed by the
provisions of Section 4.2(b) of the Purchase Agreement. Seller acknowledges
that, if such surveys and assessments disclose the existence of any friable
ACMs at any of such Malls and the existence of such friable ACMs is
disclosed to Seller by delivery of reports indicating such by August 30,
1999, then, Seller shall either (a) appropriately remediate or cause to be
remediated such friable ACMs by removal, encapsulation or such other
method, in each case reasonably acceptable to Purchaser, which remediation
shall be a condition of Purchaser's obligation to close under the Purchase
Agreement, or, to the extent such remediation is not completed by the
Closing, escrow funds at Closing sufficient in Purchaser's reasonable
judgment to fully complete such remediation, which escrow funds shall be
available to be drawn upon by Purchaser to cause such remediation or (b)
terminate the Purchase Agreement, in which case the Initial Deposit shall
be retained by Seller and the Additional Deposit shall be returned to
Purchaser.
6. Purchaser acknowledges receipt of, no later than five (5) Business Days
prior to the Due Diligence Termination Deadline, all underlying documents
referred to in Seller's Title Insurance Policies. Purchaser also
acknowledges receipt of, no later than ten (10) days prior to the Due
Diligence Termination Deadline, Title Commitments with respect to each
Mall.
7. Purchaser acknowledges receipt of, no later than ten (10) days prior to the
Due Diligence Termination Deadline, surveys for each Mall as identified on
Annex B attached hereto.
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<PAGE> 106
8. Purchaser acknowledges receipt of (from Hughes & Luce, L.L.P), no later
than three (3) days prior to the Due Diligence Termination Deadline, copies
of certain pleadings and papers relating to litigation pertaining to
Leases, Anchor Agreements or Specialty License Agreements covering Tenant
Litigation Space.
9. In accordance with Section 9.4 of the Purchase Agreement, Seller has
delivered replacement Schedules 9.2(g), 9.2(i) and 9.2(l), copies of which
are attached hereto, at least three (3) Business Days prior to the Due
Diligence Termination Deadline. Purchaser acknowledges such replacement
schedules with the same force and effect as if such replacement schedules
had originally been attached to the Purchase Agreement at the time of its
execution and delivery (in lieu of the corresponding schedules so attached)
and hereby rescinds its letter to Seller, dated August 3, 1999, signed by
Brad Lebovitz.
Except as set forth in this letter, the Purchase Agreement
shall remain unmodified and in full force and effect.
Capitalized terms used but not defined herein shall have the
meaning ascribed to such terms in the Purchase Agreement. This agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original, but all of which shall be considered one and the same instrument.
Please acknowledge your agreement to the foregoing by signing
below.
PURCHASER:
WXI/Z SOUTHWEST MALLS REAL ESTATE LIMITED PARTNERSHIP,
a Delaware limited partnership,
By: WXI/Z SOUTHWEST MALLS GEN-PAR, LLC, a Delaware
limited liability company, its general partner
SELLER:
SOUTHWEST SHOPPING CENTERS CO. II, L.L.C., a Delaware
limited liability company,
By: FIRST SWI, L.L.C.,
a Delaware limited liability company,
its manager,
By: FIRST SOUTHWEST II, INC., a Delaware
corporation, its manager
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<PAGE> 107
APPENDIX C - SECOND LETTER AGREEMENT TO THE PURCHASE AND SALE AGREEMENT
WXI/Z Southwest Malls Real Estate Limited Partnership
c/o Zamias Services Inc
300 Market Street
Johnstown, Pennsylvania 15901
September 22, 1999
Southwest Shopping Centers Co. II, L.L.C.
551 Fifth Avenue, Suite 1416
New York, New York 10177
Attention: Daniel Friedman
Re: Purchase and Sale Agreement, dated as of July 14,
1999 (the "Purchase Agreement"), by and among
Southwest Shopping Centers Co. II, L.L.C. ("Seller"),
WXI/Z Southwest Malls Real Estate Limited Partnership
("Purchaser"), First Union Real Estate Equity and
Mortgage Investments and First Union Management,
Inc., as amended by the letter agreement, dated
August 11, 1999, between Seller and Purchaser (The
"Letter Agreement")
-----------------------------------------------------
As you know, despite the efforts of Purchaser and Seller, it
has become apparent that the GMAC Consent and the Rating Agency Consent will not
be obtained by the GMAC Termination Deadline. As such, in order to avoid the
termination of the Purchase Agreement on such date, the definition of GMAC
Termination Deadline set forth in Section 3.2(a) of the Purchase Agreement is
hereby amended to mean and be extended until October 7, 1999.
In addition, in lieu of Seller's obligations under paragraph 5
of the Letter Agreement, Seller shall grant to Purchaser at Closing a credit
against the Purchase Price in the total amount of one hundred twenty-five
thousand and 00/100 ($125,000.00) dollars. Accordingly, paragraph 5 of the
Letter Agreement is hereby deleted in its entirety and shall be of no further
force or effect.
This letter agreement shall be in full force and effect upon
execution hereof by Purchaser and Seller. However, in the event that Purchaser
does not receive counterparts to this letter agreement executed by the
signatories to the Voting Agreements by October 7, 1999, Purchaser shall have
the option to terminate the Purchase Agreement on five (5) days' written notice
to Seller (even if the GMAC Consent and the Rating Agency Consent have been
received by such date), in which case the Deposit and any Interest Income
thereon shall be promptly returned to Purchaser.
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<PAGE> 108
Except as set forth in this letter agreement, the Purchase
Agreement shall remain unmodified and in full force and effect.
Capitalized terms used but not defined herein shall have the
meaning ascribed to such terms in the Purchase Agreement. This letter agreement
may be executed in one or more counterparts, each of which shall be deemed to be
an original, but all of which shall be considered one and the same instrument.
Please acknowledge your agreement to the foregoing by signing
below. Please also arrange for the signatories of the Voting Agreements
previously delivered to us to sign below as required by Section 17 of such
Voting Agreements.
PURCHASER:
WXI/Z SOUTHWEST MALLS REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership,
By: WXI/Z SOUTHWEST MALLS GEN-PAR, LLC, a
Delaware limited liability company, its
general partner
SELLER:
SOUTHWEST SHOPPING CENTERS CO. II, L.L.C., a
Delaware limited liability company,
By: FIRST SWI, L.L.C.,
a Delaware limited liability company,
its manager,
By: FIRST SOUTHWEST II, INC., a
Delaware corporation, its manager
C-2
<PAGE> 109
THE BELOW SIGNATORIES TO THE VOTING AGREEMENTS PREVIOUSLY
DELIVERED TO PURCHASER HEREBY AGREE TO THE FOREGOING AMENDMENTS TO THE PURCHASE
AGREEMENT AS REQUIRED BY SECTION 17 OF SUCH VOTING AGREEMENTS:
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.
By: Karenina Corp.
GOTHAM PARTNERS III, L.P.
By: Section H Partners, L.P.
By: Karenina Corp.
GOTHAM PARTNERS INTERNATIONAL LTD.
By: Gotham International Advisors, L.L.C.,
its investment manager
APOLLO REAL ESTATE INVESTMENT FUND II, L.P.
By: Apollo Real Estate Advisors II, L.P.,
Managing Member
By: Apollo Real Estate Capital Advisors
II, Inc., General Partner
APOLLO REAL ESTATE ADVISORS II, L.P.
By: Apollo Real Estate Capital Advisors
II, Inc., General Partner
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<PAGE> 110
APPENDIX D - THIRD LETTER AGREEMENT TO THE PURCHASE AND SALE AGREEMENT
WXI/Z Southwest Malls Real Estate Limited Partnership
c/o Zamias Services Inc
300 Market Street
Johnstown, Pennsylvania 15901
October 7, 1999
Southwest Shopping Centers Co. II, L.L.C.
551 Fifth Avenue, Suite 1416
New York, New York 10177
Re: Purchase and Sale Agreement, dated as of July 14,
1999, by and among Southwest Shopping Centers Co. II,
L.L.C. ("Seller"), WXI/Z Southwest Malls Real Estate
Limited Partnership ("Purchaser"), First Union Real
Estate Equity and Mortgage Investments and First
Union Management, Inc., as amended by letter
agreements, dated August 11, 1999 and September 22,
1999 between Seller and Purchaser (collectively, the
"Purchase Agreement")
-----------------------------------------------------
Seller and Purchaser have received the attached letter from
GMAC on the date hereof. Seller and Purchaser hereby (i) accept the attached
letter as the GMAC Consent, (ii) acknowledge that Purchaser and Seller have
received the GMAC Consent by the GMAC Termination Deadline and (iii) agree that
the Purchase Agreement shall not terminate in accordance with the second
sentence of Section 3.2(a) as a result of the failure of Seller and Purchaser to
receive the Rating Agency Consent by the GMAC Termination Deadline. Furthermore,
in the event that any of the conditions set forth in the GMAC Consent are not
satisfied and, as a result, GMAC does not permit the assumption of the GMAC
Mortgage by Purchaser, then Seller and Purchaser agree that the third sentence
of Section 3.2(a) of the Purchase Agreement shall apply as if the Rating Agency
Consent had been received by the GMAC Termination Deadline; PROVIDED, HOWEVER,
if the only reason GMAC does not permit the assumption of the GMAC Mortgage by
Purchaser is because the confirmation of Standard & Poor's Rating Group referred
to in paragraph 9 of the GMAC Consent is not obtained, then, in the event the
Purchase Agreement is terminated pursuant to the third sentence of Section
3.2(a) of the Purchase Agreement, the Additional Deposit shall promptly be
returned to Purchaser and the Initial Deposit shall promptly be paid to Seller.
Purchaser acknowledges that (i) a certificate signed by GMAC
setting forth the information described in the second and third sentence of
paragraph 2 of the GMAC Consent
D-1
<PAGE> 111
shall constitute the GMAC Estoppel Certificate and (ii) any certificates
delivered by Seller to GMAC pursuant to paragraph 2 of the GMAC Consent shall
not run to the benefit of Purchaser.
Seller and Purchaser also agree that they shall each pay
$50,000 of the $100,000 deposit referred to in paragraph 11 of the GMAC Consent.
Seller acknowledges that the $50,000 paid by Purchaser shall be credited toward
Purchaser's obligation to pay the GMAC Charges at Closing. Purchaser
acknowledges that the $50,000 paid by Seller shall be credited toward Seller's
obligation to pay the GMAC Assumption Fees at Closing.
This letter agreement shall be in full force and effect upon
execution hereof by Purchaser and Seller. However, in the event that Purchaser
does not receive counterparts to this letter agreement executed by the
signatories to the Voting Agreements by October 21, 1999, Purchaser shall have
the option to terminate the Purchase Agreement on five (5) days' written notice
to Seller, in which case the Deposit and any Interest Income thereon shall be
promptly returned to Purchaser.
Except as set forth in this letter agreement, the Purchase
Agreement shall remain unmodified and in full force and effect.
Capitalized terms used but not defined herein shall have the
meaning ascribed to such terms in the Purchase Agreement. This letter agreement
may be executed in one or more counterparts, each of which shall be deemed to be
an original, but all of which shall be considered one and the same instrument.
Please acknowledge your agreement to the foregoing by signing
below. Please also arrange for the signatories of the Voting Agreements
previously delivered to us to sign below as required by Section 17 of such
Voting Agreements.
PURCHASER:
----------
WXI/Z SOUTHWEST MALLS REAL ESTATE LIMITED
PARTNERSHIP, a Delaware limited partnership,
By: WXI/Z SOUTHWEST MALLS GEN-PAR, LLC,
a Delaware limited liability company,
its general partner
SELLER:
-------
SOUTHWEST SHOPPING CENTERS CO. II, L.L.C., a
Delaware limited liability company,
By: FIRST SWI, L.L.C.,
a Delaware limited liability company,
its manager
By: FIRST SOUTHWEST II, INC., a
Delaware corporation, its
manager
D-2
<PAGE> 112
THE BELOW SIGNATORIES TO THE VOTING AGREEMENTS PREVIOUSLY
DELIVERED TO PURCHASER HEREBY AGREE TO THE FOREGOING AMENDMENTS TO THE PURCHASE
AGREEMENT AS REQUIRED BY SECTION 17 OF SUCH VOTING AGREEMENTS:
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.
By: Karenina Corp.
GOTHAM PARTNERS III, L.P.
By: Section H Partners, L.P.
By: Karenina Corp.
GOTHAM PARTNERS INTERNATIONAL LTD.
By: Gotham International Advisors, L.L.C.,
its investment manager
APOLLO REAL ESTATE INVESTMENT FUND II, L.P.
By: Apollo Real Estate Advisors II, L.P.,
Managing Member
By: Apollo Real Estate Capital
Advisors II, Inc., General Partner
APOLLO REAL ESTATE ADVISORS II, L.P.
By: Apollo Real Estate Capital Advisors II,
Inc., General Partner
D-3
<PAGE> 113
APPENDIX E - PROPOSED AMENDMENTS TO THE DECLARATION OF TRUST
PROPOSED SECTION 4.6
The Board of Trustees of the Company unanimously recommends that the
Declaration of Trust of the Company be amended by the addition of a new Section
4.6 to Article IV of the Declaration of Trust, to provide as follows:
"Section 4.6. Change of Number of Issued Shares of Beneficial Interest
(a) The Trustees are hereby empowered, from time to time and without action of
the Beneficiaries, to change the then issued shares of beneficial interest ("Old
Shares") into a lesser number (a "Reverse Split") of shares of beneficial
interest ("New Shares"). In connection therewith, in lieu of a fractional New
Share, each holder of an Old Share who otherwise would be entitled to receive a
fractional New Share will be entitled to receive cash in an amount equal to the
market value of each Old Share that would have been converted into a fraction of
a New Share but for this sentence, upon surrender of the certificate for such
Old Share. For this purpose, the market value of each Old Share shall be the
unweighted average of the closing price of a common share of beneficial interest
for each of the ten business days ending on the date immediately preceding the
date on which the Reverse Split becomes effective. The Trustees are hereby
empowered to adopt rules and regulations concerning the surrender of
certificates with respect to Old Shares, issuance of certificates with respect
to the New Shares and payment for fractional shares resulting from any Reverse
Split that the Trustees may, from time to time, authorize.
(b) The Trustees are hereby empowered, from time to time and without action of
the Beneficiaries, to change the Old Shares into a greater number (a "Forward
Split") of shares of beneficial interest ("Forward New Shares"). In connection
therewith, the Trustees are hereby empowered to adopt rules and regulations
concerning the surrender of certificates with respect to Old Shares, issuance of
certificates with respect to the Forward New Shares and payment for fractional
shares resulting from any Forward Split that the Trustees may, from time to
time, authorize.
(c) In connection with the implementation of a specific Reverse Split or Forward
Split, the Trustees may, but shall not be required to, change the par value per
Share."
PROPOSED SECTION 11.27
The Board of Trustees of the Company unanimously recommends that the
Declaration of Trust of the Company be amended by the addition of a new Section
11.27 to Article XI of the Declaration of Trust, to provide as follows:
"Section 11.27. Authority of Trustees to Authorize Certain Investment, Financing
and Other Activities.
Notwithstanding anything to the contrary in this Declaration of Trust, the
Trustees are hereby empowered to authorize the following activities in
connection with the investment or financing of the assets of the Trust: making
loans to other persons, notwithstanding the provisions of Section 11.11; making
investments in real estate mortgages regardless of maturity, notwithstanding the
provisions of Sections 11.11 and 11.24; investing in excess of 10% of its assets
in assets other than real estate, notwithstanding the provisions of Section
11.11; purchasing assets without the necessity of obtaining a real estate
appraisal prepared by a
E-1
<PAGE> 114
qualified, disinterested, independent appraiser, notwithstanding the provisions
of Section 11.16; investing in mortgages, land contracts or unimproved property
which in the aggregate exceed 5% of its assets, notwithstanding the provisions
of Section 11.17; investing in real property subject to a mortgage even if the
unpaid balance of such mortgage exceeds two-thirds of the fair market value of
the real property, notwithstanding the provisions of Section 11.17; effectuating
short sales of securities, notwithstanding the provisions of Section 11.18;
borrowing unsecured more than 8% of its net worth or encumbering any of its real
property for more than two-thirds of the fair market value of such property,
notwithstanding the provisions of Section 11.18; issuing securities evidencing
borrowings secured by real estate in excess of two-thirds of the value of such
security, notwithstanding the provisions of Section 11.18; and making
investments in unimproved property or in a partnership, joint venture,
corporation or other association owning unimproved property without receiving an
opinion of counsel with respect thereto to the effect that the Trust will not be
liable for the obligations or liabilities of the partnership, joint venture or
association and the investment will not result in disqualification of the Trust
as a real estate investment trust under the Internal Revenue Code,
notwithstanding the provisions of Section 11.23."
E-2
<PAGE> 115
DETACH CARD
- --------------------------------------------------------------------------------
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 PUBLIC SQUARE, SUITE 1900, CLEVELAND, OHIO 44113-1937
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
FOR THE SPECIAL MEETING OF THE BENEFICIARIES TO BE HELD ON
TUESDAY, NOVEMBER 16, 1999.
[FIRST UNION LOGO]
The undersigned hereby appoints Daniel P. Friedman and William A.
Ackman, or any one of them, each with power of substitution,
attorney and proxy (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 $1.00 per share ("Shares"), of First
Union Real Estate Equity and Mortgage Investments (the "Company"),
on all matters at the Special Meeting of the Beneficiaries to be
held on Tuesday, November 16, 1999, at 10:00 A.M. local time, or at
any adjournment or postponement thereof, according to the number of
votes that the undersigned could vote if personally present at the
meeting.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE FOLLOWING:
1. Proposal to consent to the sale of certain properties of the
Company pursuant to a Purchase and Sale Agreement, dated as of
July 14, 1999, as amended, between Southwest Shopping Centers
Co. II, L.L.C., a Delaware limited liability company and an
indirect wholly-owned subsidiary of the Company, and WXI/Z
Southwest Malls Real Estate Limited Partnership, a Delaware
limited partnership. [ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to approve an amendment to the Company's Amended
Declaration of Trust relating to the Company's ability to engage
in certain activities in connection with the investment and
financing of Company assets. [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Proposal to approve an amendment to the Company's Amended
Declaration of Trust relating to the Company's ability to
effectuate a reverse or forward split of Shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon all
other matters as may properly come before the meeting, or any
adjournment or postponement thereof.
(Continued and to be signed on the reverse side)
P
R
O
X
Y
<PAGE> 116
DETACH CARD
- --------------------------------------------------------------------------------
(Continued from reverse side)
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 PROPOSALS 1, 2 AND 3 AND IN THE DISCRETION OF THE
PROXIES, UPON ALL OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING, OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF. THIS PROXY MAY
BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
Date, 1999
---------------------------
Signature
---------------------------
Signature (if jointly held)
Please sign exactly as your
name(s) appear(s) on this
Proxy. When Shares are held
by joint tenants, both
should sign. When signing
as attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
corporation, please sign in
full corporate name by
president or other
authorized officer. If a
partnership, please sign in
partnership name by
authorized person.
IMPORTANT: PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
