SCHEDULE 14A
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 WASHINGTON REALTY TRUST, INC.
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6 (i)(3).
[ ] Fee computed on the table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:1
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
[LETTERHEAD FIRST WASHINGTON REALTY TRUST, INC.]
April 8, 1998
Dear Stockholder:
You are cordially invited to attend our annual meeting of Stockholders,
which will be held this year at The Hyatt Regency-Bethesda, One Bethesda Metro
Center, Bethesda, Maryland, on Friday, May 8, 1998, at 11:00 a.m. (EDT). On the
following pages you will find the Notice of Annual Meeting of Stockholders and
the accompanying Proxy Statement.
Whether or not you plan to attend the meeting in person, it is
important that your shares be represented and voted at the meeting. Accordingly,
please date, sign and return the enclosed proxy card promptly.
Sincerely,
/s/ Stuart D.Halpert
-------------------------------
Stuart D. Halpert
Chairman of the Board
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of First Washington Realty Trust, Inc.:
Notice is hereby given that the Annual Meeting of the Stockholders of
FIRST WASHINGTON REALTY TRUST, INC., a Maryland corporation (the "Company"),
will be held at The Hyatt Regency - Bethesda, One Bethesda Metro Center,
Bethesda, Maryland, on Friday, May 8, 1998, at 11:00 a.m. (EDT), for the
following purposes:
1. To elect two Directors to serve for a three-year term and until
their successors are elected and qualify.
2. To consider and vote upon amendments to the Company's Stock Option
Plan in order to (i) increase the number of shares of Common Stock
available for issuance thereunder to officers, directors and key employees,
and (ii) permit discretionary option grants to Independent Directors each
year.
3. To consider and vote upon an amendment to the Company's Restricted
Stock Plan in order to increase the number of shares available for issuance
thereunder to officers and employees.
4. To consider and vote upon amendments to the existing Contingent
Stock Agreements with senior management to provide for additional
quantitative performance standards for contingent grants of shares
thereunder in calendar year 2001 and thereafter.
5. To consider and vote upon amendments to the current annual
incentive bonus program for senior management in order to extend such
program and provide for additional quantitative performance standards
thereunder.
6. To consider and vote upon ratification of the appointment of
Coopers & Lybrand, L.L.P. to serve as independent auditors for the Company
for the calendar year ending December 31, 1998.
7. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 31,
1998 as the record date for determining stockholders of record entitled to
notice of and to vote at the Annual Meeting.
Accompanying this Notice is a proxy. WHETHER OR NOT YOU EXPECT TO BE AT
THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY.
All stockholders are cordially invited to attend the meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Jeffrey S. Distenfeld
-----------------------------------
JEFFREY S. DISTENFELD
Senior Vice President and Secretary
Bethesda, Maryland
April 8, 1998
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 8, 1998
The enclosed Proxy is solicited by the Board of Directors of First
Washington Realty Trust, Inc., a Maryland corporation (the "Company"), in
connection with the Annual Meeting of Stockholders to be held at 11:00 a.m.
(EDT) on May 8, 1998, at The Hyatt Regency - Bethesda, One Bethesda Metro
Center, Bethesda, Maryland 20814 (the "Annual Meeting"), and at any adjournment
or postponement thereof.
The Proxy is revocable at any time before its exercise by written
notice of revocation to the Secretary of the Company at its principal office, by
executing and returning another proxy bearing a later date or by attending and
voting in person at the Annual Meeting. Attendance at the Annual Meeting will
not in and of itself constitute a revocation of a Proxy. Execution of a Proxy
will not affect your right to attend the Annual Meeting and to vote in person.
Unless the accompanying Proxy has been previously revoked, the shares
represented by the Proxy will, unless otherwise directed, be voted at the Annual
Meeting for the nominees named below for election as Directors and for all other
proposals described in this Proxy Statement and in the discretion of the proxy
holder(s) on any other matters coming before the Annual Meeting or any
postponement or adjournment thereof. Votes cast by Proxy or in person at the
Annual Meeting will be counted by the person appointed by the Company to act as
Inspector of Election for the Annual Meeting. Any valid and properly executed
but otherwise unmarked Proxies, including those submitted by brokers or
nominees, will be voted in favor of the proposals and nominees of the Board of
Directors, as indicated in the accompanying Proxy card.
The costs of solicitation of Proxies will be borne by the Company. In
addition to soliciting Proxies by mail, the Company's officers, directors and
other regular employees, without additional compensation, may solicit Proxies
personally or by other appropriate means. It is anticipated that banks, brokers,
fiduciaries, other custodians and nominees will forward proxy soliciting
materials to their principals and that the Company will reimburse such persons'
out-of-pocket expenses.
This Proxy Statement and the accompanying form of Proxy and the 1997
Annual Report are first being mailed to stockholders on or about April 8, 1998.
The Company's 1997 Annual Report to its stockholders is also enclosed and should
be read in conjunction with the matters set forth herein. See "Annual Report."
Only holders of record of the Company's Common Stock, $.01 par value
per share (the "Common Stock"), as of the close of business on March 31, 1998,
are entitled to notice of and to vote at the Annual Meeting. At the close of
business on March 31, 1998, there were outstanding 7,388,718 shares of the
Company's Common Stock, which constitute all of the outstanding voting
securities of the Company, each of which is entitled to one vote on each of the
matters to be presented to the stockholders at the meeting.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors currently consists of the following seven
Directors: Stuart D. Halpert, William J. Wolfe, Lester Zimmerman, Stanley T.
Burns, Matthew J. Hart, William M. Russell and Heywood Wilansky. Pursuant to the
Company's charter, the Directors are divided into three classes. The terms of
Directors Lester Zimmerman and William M. Russell expire at the Annual Meeting,
while the terms of the remaining Directors expire in 1999 or 2000.
Messrs. Zimmerman and Russell have been nominated and recommended for
election to serve as Directors for a term of three years and until their
respective successors are duly elected and qualify. Messrs. Zimmerman and
Russell have advised the Board of Directors that they are able and willing to
serve as Directors. If, for any reason, any of them shall become unavailable for
election, an event that the Company does not anticipate, the individuals named
in the enclosed Proxy may exercise their discretion to vote for any substitute
nominee or nominees. The Board of Directors has no reason to believe that any
nominee named herein will be unable to serve.
Vote Required; Recommendation of the Board of Directors
A plurality of all the votes cast at the Annual Meeting by the holders
of shares of Common Stock present or represented by proxy, assuming a quorum is
present, will be sufficient to elect a nominee as a Director. For purposes of
the election of Directors, abstentions will not be counted as votes cast and
will have no effect on the result of the vote, although they will count toward
the presence of a quorum. The Board of Directors unanimously recommends a vote
FOR the nominees set forth above. Proxies solicited by the Company will be so
voted unless stockholders specify otherwise on the accompanying Proxy.
BOARD OF DIRECTORS AND OFFICERS
The nominees for election as Directors of the Company, the executive
officers of the Company and the other persons whose terms as Directors continue
after the Annual Meeting, and their principal occupations for the past five
years or more, their ages, their positions and offices with the Company and
information as to their terms as Directors as of March 31, 1998, are as follows:
<TABLE>
<CAPTION>
Name Age Director Since Term Expires Position
---- --- -------------- ------------ --------
<S> <C> <C> <C> <C>
Stuart D. Halpert. . . . . 55 1994 2000 Chairman of the Board of Directors
William J. Wolfe . . . . . 45 1994 1999 President, Chief Executive Officer
and Director
Lester Zimmerman . . . . . 48 1994 1998 Executive Vice President and Director
Stanley T. Burns . . . . . 53 1994 2000 Director
Matthew J. Hart . . . . . 45 1994 1999 Director
William M. Russell . . . . 61 1994 1998 Director
Heywood Wilansky . . . . 50 1994 2000 Director
James G. Blumenthal . . . 41 Executive Vice President and Chief
Financial Officer
Jeffrey S. Distenfeld . . 43 Senior Vice President, Secretary and
General Counsel
James G. Pounds . . . . . 42 Senior Vice President
</TABLE>
- 2 -
<PAGE>
Stuart D. Halpert. Mr. Halpert is the Chairman of the Board of
Directors of the Company. He co-founded First Washington Management, Inc.
("FWM"), a predecessor business to the Company, in 1983 and has been its
Chairman from its inception. He has been involved in the real estate industry
for over 20 years. Mr. Halpert is actively involved with all aspects of the
Company's business, including its work with the capital market, acquisitions,
asset management, and third-party services. He shares overall responsibility for
the Company's day-to-day operations with Mr. Wolfe. Prior to the formation of
FWM, Mr. Halpert was a practicing attorney specializing in real estate
transactions and banking matters. Prior to entering private practice, Mr.
Halpert served as Counsel to the House Banking Committee, U.S. Congress. Mr.
Halpert is a past member of the Board of Directors of the District of Columbia
National Bank and the National Bank of Commerce. He has been nominated to become
a member of the Board of Directors of ElderTrust, a publicly-traded real estate
investment trust. Mr. Halpert is a member of the International Council of
Shopping Centers. He received his Bachelor's Degree from Brown University and
his Juris Doctor Degree from The George Washington University Law School.
William J. Wolfe. Mr. Wolfe is the President and Chief Executive
Officer of the Company. He is also the President, Chief Executive Officer and
co-founder of FWM and has been its President from its inception. Mr. Wolfe
shares overall responsibility for the Company's day-to-day operations with Mr.
Halpert, and is actively involved in all aspects of the Company's business,
including acquisition, development, leasing and management of the Company's
retail properties. Prior to co-founding the Company's predecessor, from 1979 to
1982, Mr. Wolfe was a principal in a commercial real estate firm in the
Washington, D.C. metropolian area. Prior to entering the real estate business,
Mr. Wolfe served in the Executive Office of the President of the United States.
Mr. Wolfe is a member of the International Council of Shopping Centers, and is a
past member of the Board of Directors of the National Bank of Commerce. He
received his Bachelor's Degree from Clark University and his Master's Degree
from Harvard University.
Lester Zimmerman. Mr. Zimmerman is an Executive Vice President of the
Company and co-founder of the Company's predecessor and has primary
responsibility for the brokerage activities of the Company. He has over 18 years
of experience in the acquisition, management and disposition of commercial
properties. Mr. Zimmerman is a member of the National Multi-Housing Council, the
National Association of Real Estate Investment Trusts and the National Housing
and Rehabilitation Association. Prior to joining the Company's predecessor, Mr.
Zimmerman was an executive with the Xerox Corporation in Washington, D.C. and
Sydney, Australia. Mr. Zimmerman received his Bachelor's Degree from the College
of William and Mary.
Stanley T. Burns. Mr. Burns is the principal of The Calloway Group, a
consulting firm specializing in business strategy and finance. Mr. Burns is the
former President and Chief Executive Officer of United Savings Bank of Virginia,
and served for over 22 years with Chase Manhattan Bank, N.A. and affiliates. In
1985, Mr. Burns negotiated the acquisition of three banks in Maryland on behalf
of the Chase Manhattan Corporation, which banks were then merged to form Chase
Bank of Maryland, where he served as President and Chief Executive Officer until
1988. He is the author of Exceeding Expectations: The Story of Enterprise
Rent-A-Car, co-author of Educating Managers, and he currently serves on the
faculty of The Johns Hopkins University. He received his Bachelor's Degree from
Duke University and a Master's Degree from The Johns Hopkins University.
Matthew J. Hart. Mr. Hart is the Executive Vice President and Chief
Financial Officer of Hilton Hotels Corporation. Mr. Hart is primarily
responsible for Hilton's corporate finance and development activities. Prior to
joining Hilton, Mr. Hart was Senior Vice President and Treasurer of the Walt
Disney Company. Prior to joining Disney, Mr. Hart was Executive Vice President
and Chief Financial Officer of Host Marriott Corporation (formerly known as
Marriott Corporation). Before joining Marriott Corporation, Mr. Hart had been a
lending officer with Bankers Trust Company in New York. Mr. Hart received his
Bachelor's Degree from Vanderbilt University and a Master's of Business
Administration from Columbia University. He is also a member of the Board of
Directors of Kilroy Realty Corporation, an office property REIT based in El
Segundo, California.
- 3 -
<PAGE>
William M. Russell. Mr. Russell is the Senior Real Estate Advisor of
Aetna, Inc. Prior to his current position, Mr. Russell was chairman of the Real
Estate and Mortgage Investment Committee of the Aetna Life & Casualty Companies.
Over the term of his association with Aetna, Mr. Russell held senior positions
in virtually every area of its real estate operations, including supervising
Aetna's $23 billion mortgage portfolio and serving as past president of Aetna
Property Services, a subsidiary engaged in the on-site management of Aetna-owned
properties, and acting as former chairman of AE Properties, Inc., a subsidiary
engaged in real estate development. Mr. Russell is a member of the Board of
Directors and past president of the Connecticut Housing Investment Fund. Mr.
Russell was the Governor's appointee to the Connecticut Blue Ribbon Commission
on Housing and he is co-chairman of the Hartford Downtown Development Task
Force.
Heywood Wilansky. Mr. Wilansky is the President, Chief Executive
Officer and a Director of The Bon-Ton Stores, Inc., a retail department store
chain. Prior to joining his current position in August, 1995, Mr. Wilansky was
the president and chief executive officer of Foley's Department Store, a
50-store division of May Department Stores Company. Mr. Wilansky is the former
president and chief executive officer of Filene's Department Store and the
former executive vice president for merchandising of Lord & Taylor. Prior to
that, Mr. Wilansky held various positions with Hecht's Department Store of
Washington, D.C., most recently serving as senior vice president and general
merchandise manager. Mr. Wilansky received his Bachelor's Degree from Canaan
College.
James G. Blumenthal. Mr. Blumenthal is an Executive Vice President and
the Chief Financial Officer of the Company. Mr. Blumenthal joined FWM in 1986
and has served in a variety of positions, including Senior Asset Manager and
Director of Acquisitions. He has responsibility for accounting and financial
reporting for the Company. Prior to joining FWM, Mr. Blumenthal was a practicing
CPA with Grant Thornton, a national accounting firm. He is a member of the
American Institute of Certified Public Accountants. Mr. Blumenthal received his
Bachelor's Degree from The George Washington University and his Master's of
Science in Taxation from The American University.
Jeffrey S. Distenfeld. Mr. Distenfeld is a Senior Vice President,
Secretary and General Counsel of the Company. He joined FWM in 1989 and is
responsible for all legal matters. Prior to joining FWM, Mr. Distenfeld was a
partner with the law firm of Lane and Edson, P.C., where he specialized in
commercial real estate and financing transactions. He is a member of the bar of,
and qualified to practice in, Maryland, Virginia and the District of Columbia.
Mr. Distenfeld received his Bachelor's Degree from The George Washington
University and his Juris Doctor Degree from the University of Virginia School of
Law.
James G. Pounds. Mr. Pounds is a Senior Vice President of the Company
and has responsibility for its redevelopment and renovation activities, as well
as its third-party management business. He joined FWM in 1988 and has had a
variety of responsibilities, including construction management and supervision
of expansion and renovation projects. Prior to joining FWM, Mr. Pounds was a
vice president of T.F. Stone, a real estate development firm, where he was
responsible for the development and construction of a variety of commercial and
multifamily projects. Prior to that, he was a project manager with HKS, Inc., an
architectural firm, where he was responsible for development and construction of
commercial office properties. Mr. Pounds received his Bachelor's Degree in
Engineering from the University of Kansas and Master's of Business
Administration and Master's of Architecture from the University of Illinois.
Committees of the Board of Directors; Meetings
The Board of Directors held nine meetings during the year ending
December 31, 1997. For that year, no nominee for Director who served as a
Director during the past year attended fewer than 75% of the aggregate of the
total number of meetings of the Board of Directors and committees on which he
served. The Board of Directors has established the following standing
committees: Audit Committee and Compensation Committee. There is no standing
Nominating Committee. The Board of Directors has delegated certain functions to
the following standing committees of the Board:
- 4 -
<PAGE>
Audit Committee. The Audit Committee consists of four Directors, all of
whom are independent of the Company's management ("Independent Directors").
Messrs. Hart, Burns, Russell and Wilansky are the current members of the Audit
Committee, and Mr. Hart is the Chairman of the Audit Committee. The Audit
Committee was established to make recommendations concerning the engagement of
independent public accountants, review with independent public accountants the
plans and results of the audit engagement, approve professional services
provided by the independent accountants, review the independence of the
independent accountants, consider the range of audit and non-audit fees and
review the adequacy of the Company's internal accounting controls. The Audit
Committee met two times during the year ending December 31, 1997.
Compensation Committee. The Compensation Committee consists of four
Directors, all of whom are Independent Directors. Messrs. Burns, Hart, Russell
and Wilansky are the current members of the Compensation Committee, and Mr.
Burns is the Chairman of the Compensation Committee. The Compensation Committee
determines compensation for the Company's executive officers, administers the
granting of stock options and administers the Company's stock option plan and
restricted stock plan. The Compensation Committee met two times during the year
ending December 31, 1997.
Directors' Compensation
Independent Directors receive a retainer of $18,000 per annum. In
addition, the Chairman of each Committee is paid $1,000 for each meeting which
he attends and chairs. Each Independent Director also is reimbursed for expenses
incurred in attending meetings. Under the Stock Option Plan, each Independent
Director receives, upon initial election to the Board of Directors, an option to
purchase 2,500 shares of the Company's Common Stock at an exercise price equal
to the fair market value of a share of Common Stock on the grant date. Pursuant
to an amendment to the Stock Option Plan, and subject to stockholder approval
thereof as provided herein, the Board of Directors has discretion to make annual
grants of options to each Independent Director for up to 5,000 shares of Common
Stock on the first day of the next calendar month following the annual meeting
of stockholders (at an exercise price equal to the fair market value of a share
of Common Stock on the date of grant). In accordance with this amendment, and
subject to such stockholder approval, the Board granted each Independent
Director serving on June 1, 1997 an option to purchase 4,000 shares of stock at
an exercise price of $24.00 per share. Employees of the Company who are
Directors are not paid Director fees nor do they receive options for their
service as Directors of the Company.
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 31, 1998, the Company had approximately 5,000 beneficial
holders of Common Stock. The following table sets forth information regarding
beneficial ownership of the shares of Common Stock as of such date by (i) the
Company's Chief Executive Officer and each of the other four most highly
compensated executive officers (collectively, the "Named Executive Officers"),
(ii) each Director of the Company, (iii) the Company's officers and Directors as
a group and (iv) all persons known by the Company to be the beneficial owner of
more than five percent of the Company's outstanding shares of Common Stock. For
purposes of this Proxy Statement, beneficial ownership of securities is defined
in accordance with the rules of the Securities and Exchange Commission (the
"SEC") and means generally the power to vote or exercise investment discretion
with respect to securities, regardless of any economic interests therein. Except
as otherwise indicated, the Company believes that the beneficial owners of the
securities listed below have sole investment and voting power with respect to
such shares, subject to community property laws where applicable. Unless
otherwise indicated, the business address for each of the individuals listed
below is c/o First Washington Realty Trust, Inc., 4350 East-West Highway, Suite
400, Bethesda, Maryland 20814.
- 5 -
<PAGE>
<TABLE>
<CAPTION>
Shares Beneficially Owned
-----------------------------------------------
Amount and Nature of
Name of Beneficial Owner Beneficial Ownership (1) Percent of Class (2)
- ------------------------ ------------------------ --------------------
<S> <C> <C>
Stuart D. Halpert (3) (4)................... 344,395 4.6%
William J. Wolfe (3) (4).................... 344,395 4.6%
Lester Zimmerman............................ 93,971 1.3%
Jeffrey S. Distenfeld (3) (4)............... 20,526 *
James G. Blumenthal (3) (4)................. 20,526 *
Stanley T. Burns (5)........................ 3,833 *
Matthew J. Hart (5)......................... 7,833 *
William M. Russell (5)...................... 4,833 *
Heywood Wilansky (5)........................ 3,833 *
All executive officers and directors as a
group (10 persons).......................... 864,668 11.1%
Farallon Capital
Management, L.L.C. and
Farallon Partners, L.L.C. (6)(7)............ 643,846 8.7%
One Maritime Plaza, Suite 1325
San Francisco, CA 94111
T. Rowe Price Associates, Inc. (8)(9)....... 472,000 6.4%
100 East Pratt Street
Baltimore, MD 21202
J.P. Morgan & Co. Incorporated (10)(11)..... 399,343 5.4%
60 Wall Street
New York, NY 10260
</TABLE>
- -------------
* = less than 1%
(1) Includes shares of Common Stock issuable upon conversion of partnership
units ("Common Units") in First Washington Realty Limited Partnership (the
"Operating Partnership") which are convertible within 60 days. As of March
31, 1998, Common Units owned by the Named Executive Officers was as
follows: Stuart D. Halpert - 3,198, William J. Wolfe - 3,198 , Lester
Zimmerman - 2,318, Jeffrey S. Distenfeld - 3,077 and James G. Blumenthal -
3,077.
(2) Based on 7,388,718 shares of Common Stock outstanding as of March 31, 1998,
plus the shares of Common Stock issuable upon conversion of all Common
Units and the options to purchase shares of Common Stock (which are
exercisable within 60 days) held by such beneficial owner.
(3) Includes options to purchase shares of Common Stock (which are exercisable
within 60 days) as follows: Stuart D. Halpert - 157,141, William J. Wolfe -
157,141, Jeffrey S. Distenfeld - 7,796 and James G. Blumenthal - 7,796.
(4) Includes restricted shares of Common Stock (not vested) held by Stuart D.
Halpert - 27,550, William J. Wolfe - 27,550, Jeffrey S. Distenfeld - 6,268
and James G. Blumenthal - 6,268.
(5) Includes options to purchase 3,833 shares of Common Stock (which are
exercisable within 60 days). For Mr. Russell only, it includes an option to
purchase 1,333 shares of Common Stock (which are exercisable within 60
days) since he has exercised his option to purchase the 2,500 shares
available under his initial option.
- 6 -
<PAGE>
(6) Reflects beneficial ownership as of December 31, 1997, as reported to the
Company by Farallon Partners, L.L.C. and Farallon Capital Management,
L.L.C.
(7) Consists of 196,054 shares held by Farallon Capital Partners, L.P., 179,060
shares held by Farallon Capital Institutional Partners, L.P., 42,107 shares
held by Tinicum Partners, L.P., 185,803 shares held by Farallon Capital
Institutional Partners II, L.P., and 16,122 shares held by Farallon Capital
Institutional Partners III, L.P. Each of the foregoing entities are
separate partnerships of which Farallon Partners, L.L.C. is the general
partner. Additionally, 24,000 shares are held by discretionary accounts
managed by Farallon Capital Management, L.L.C. and 700 shares held by the
minor children of Jason Fish. Farallon Partners, L.L.C. and Farallon
Capital Management, L.L.C. disclaim beneficial ownership over all of the
foregoing shares, and all of the above-mentioned entities disclaim group
attribution.
(8) Reflects beneficial ownership as of December 31, 1997, as reported to the
Company on Schedule 13G filed in February, 1998.
(9) These securities are owned by various individual and institutional
investors which T. Rowe Price Associates, Inc. ("Price Associates") serves
as investment advisor with power to direct investments and/or sole power to
vote the securities. For purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates is deemed to be a
beneficial owner of such securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of such securities.
(10) Reflects beneficial ownership as of December 31, 1997, as reported to the
Company on Schedule 13G filed in February, 1998.
(11) Consists of 399,343 shares held by various entities and/or funds managed by
J.P. Morgan & Co. Incorporated. No one entity/fund has beneficial ownership
over shares constituting more than five percent (5%) of a class.
EXECUTIVE COMPENSATION
Summary Compensation Table
The Named Executive Officers are employed and compensated by both
the Company and FWM. The Company believes that the effective allocation of such
executives' compensation as among such entities reflects the services provided
by such executives with respect to each entity. The following table shows, for
the fiscal year ending December 31, 1995, December 31, 1996 and December 31,
1997, respectively, the compensation paid by the Company and FWM to the Named
Executive Officers.
- 7 -
<PAGE>
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation Awards
--------------------- -----------------------------------------------------------
Securities All
Under- Other
lying Restricted Contingent Compen-
Bonus Options Stock Stock Stock sation
Principal Position Year (1) Salary ($)(2) ($) (#)(3) Grants (4) Grants (5) Grants (6) ($)
- ------------------ -------- ------------- ----- ------ ---------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William J. Wolfe ............ 1997 $250,000 $125,000 32,000 47,380 4,750 5,000 --
President and Chief ......... 1996 $221,500 $ 77,500 -- -- 39,200 -- --
Executive Officer ......... 1995 $190,000 $ 50,000 -- 22,417 -- -- --
Stuart D. Halpert ........... 1997 $250,000 $125,000 32,000 47,380 4,750 5,000 --
Chairman of ................. 1996 $221,500 $ 77,500 -- -- 39,200 -- --
the Board ................. 1995 $190,000 $ 50,000 -- 22,417 -- -- --
Lester Zimmerman ............ 1997 $149,975 -- -- 38,574 -- -- --
Executive Vice .............. 1996 $111,548 -- -- -- -- -- 116,278(7)
President ................. 1995 $111,548 -- -- 14,140 -- -- 217,442(7)
Jeffrey S. Distenfeld ....... 1997 $155,000 $ 15,000 8,000 -- 5,128 -- --
Senior Vice President ....... 1996 $148,100 -- -- -- 1,960 -- --
and General Counsel ....... 1995 $126,548 -- -- 2,564 -- -- --
James G.Blumenthal .......... 1997 $145,000 $ 25,000 8,000 -- 5,128 -- --
Executive Vice .............. 1996 $130,400 -- -- -- 1,960 -- --
President and Chief ....... 1995 $115,000 -- -- 2,564 -- -- --
Financial Officer
</TABLE>
- -------------
(1) The Company paid advisory, leasing and management fees to FWM of
approximately $3,687,000 in 1997. Certain of the Named Executive Officers
have certain ownership interests in FWM. See "Certain Relationships and
Related Transactions."
(2) Includes compensation that was deferred pursuant to the Company's 401(k)
Plan.
(3) Represents options which were granted under the Company's Stock Option Plan
at an exercise price equal to $24.00 per share (the per share price of
Common Stock on the date granted) for the 1997 options.
(4) Awarded to Messrs. Halpert and Wolfe (or their designees) on the first and
third anniversaries of the June 1994 Offering based upon the Company's
attainment of certain specified performance objectives. See -- "Employment
Agreements."
(5) Awarded under the Company's Restricted Stock Plan. See -- "Employment
Agreements."
(6) Awarded to Messrs. Halpert and Wolfe pursuant to their 1996 Contingent
Stock Agreements based upon the Company's attainment of certain specified
performance objectives for fiscal year 1997. See -- "Employment
Agreements."
(7) Mr. Zimmerman, in his capacity as a licensed real estate broker, received
such amount as sales commissions in connection with the sale of properties
for third-party owners. Mr. Zimmerman receives a share of sales commissions
which exceed a predetermined threshold amount.
- 8 -
<PAGE>
Stock Option Grants Table
The following table provides information concerning the grant of stock
options to the Named Executive Officers for the fiscal year ending December 31,
1997 under the Stock Option Plan. The Company does not have any outstanding
stock appreciation rights.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assessed Annual
Rates of Stock
Price Appreciation
Individual Grants for Option Term
- --------------------------------------------------------------------------------------------------- --------------------------
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise or Base Expiration
Name Granted Fiscal Year Price ($/Sh) Date 5%($)(2) 10%($)(2)
- ---- ------- ----------- ------------ ---- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Stuart D. Halpert ................. 32,000(1) 22.0% $24.00 06/01/2007 $547,500 $1,231,500
William J. Wolfe .................. 32,000(1) 22.0% $24.00 06/01/2007 547,500 1,231,500
Jeffrey S. Distenfeld ............. 8,000(1) 5.5% $24.00 06/01/2007 137,000 308,000
James G. Blumenthal ............... 8,000(1) 5.5% $24.00 06/01/2007 137,000 308,000
</TABLE>
- -------------
(1) These options are exercisable according to the following schedule:
one-third of such options vest on each of the first, second and third
anniversary dates of the date of grant (June 1, 1997). The exercise price
of the options is $24.00 (the market price on the date of grant).
(2) The total value of all outstanding shares of the Common Stock, based on the
fair market value per share of Common Stock on March 26, 1997 of $26.50 per
share, was approximately $195.8 Million. If the Common Stock appreciated at
the 5% and 10% compounded annual rates assumed in the table, the value of
Common Stock held by all stockholders would have increased by approximately
$107.9 Million and $265.8 Million, respectively, by the June 1, 2007
expiration date of most of these options. There can be no assurance that
such increases in value will occur.
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table sets forth information related to the exercise of
stock options during the year ended December 31, 1997 by each of the Named
Executive Officers and the 1997 fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)(1)
------------- -------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- ----------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Stuart D. Halpert N/A N/A 146,475/32,000 $1,171,800/$112,000
William J. Wolfe N/A N/A 146,475/32,000 $1,171,800/$112,000
Jeffrey S. Distenfeld N/A N/A 5,130/8,000 $41,040/$28,000
James G. Blumenthal N/A N/A 5,130/8,000 $41,040/$28,000
</TABLE>
- 9 -
<PAGE>
- -------------
(1) Represents the difference between the fair market value of the Common Stock
on December 31, 1997 and the exercise price of the options.
Employment Agreements
Messrs. Halpert and Wolfe currently serve under employment agreements
with the Company which expire June 30, 1999 and December 31, 1999, respectively.
In order to maintain continuity of management and secure continued executive
leadership, the Compensation Committee has recommended, and the Board has
approved, amendments to the employment agreements, effective March 1998 (the
"Amended Employment Agreements") in order to extend the expiration dates and to
provide for the other terms and conditions discussed herein. See --
"Compensation Committee Report." The term of Mr. Wolfe's Amended Employment
Agreement will now continue until June 30, 2002 and the term of Mr. Halpert's
Amended Employment Agreement will now continue until December 31, 2002. The
employment agreements provide that for a period of 18 months following the
period each is an officer of the Company, Messrs. Halpert and Wolfe will not be
employed or otherwise involved in any business engaged in the acquisition,
development, management or operation of principally retail shopping centers
within 25 miles of a shopping center in the Company's portfolio at the time of
such executive's termination of employment.
The employment agreements provide that, under certain circumstances,
Messrs. Halpert and Wolfe shall receive a severance benefit equal to the greater
of (a) 200% of the sum of (x) the employee's annual base salary at the time of
such termination plus (y) the average annual bonus paid to the employee during
the employment term, or (b) the sum of (x) the aggregate amount of annual base
salary that would have been paid through the scheduled expiration of the term of
the employment agreement plus (y) the average annual bonus paid to the employee
during the employment term, annualized from the time of such termination through
the end of the employment term. If Mr. Halpert or Mr. Wolfe is terminated prior
to the expiration of his employment agreement, he shall continue to receive
medical benefits until the date his term of employment otherwise would have
expired.
Under the current employment agreements in effect prior to the March
1998 amendments (the "Current Employment Agreements"), 200,000 shares of Common
Stock (the "Contingent Shares") were reserved for issuance to Messrs. Halpert
and Wolfe (or their designees), based upon the achievement of certain specified
performance objectives during the period beginning June 27, 1994 and ending June
27, 1997. As of July 1, 1997, the Company had issued all of the Contingent
Shares which were issuable to Messrs. Halpert and Wolfe and their designees.
Specifically, Messrs. Halpert and Wolfe each received 69,797 shares of Common
Stock, Lester Zimmerman received 52,714 shares of Common Stock, and Jeffrey S.
Distenfeld, James G. Blumenthal and James G. Pounds each received 2,564 shares
of Common Stock.
The Current Employment Agreements also provided for grants to each of
Messrs. Halpert and Wolfe of 39,200 shares of Restricted Stock pursuant to the
Restricted Stock Plan, and 30,000 shares of Contingent Stock pursuant to
separate Contingent Stock Agreements (the "1996 Contingent Stock Agreements").
Such shares of Restricted Stock are subject to vesting based on continued
employment and such shares of Contingent Stock are subject to grant only if
specified performance targets are met. As of March 31, 1998, 16,400 shares of
Restricted Stock had fully vested as to each of Messrs. Halpert and Wolfe and
5,000 shares of Contingent Stock had been issued to each of Messrs. Halpert and
Wolfe.
Each of the Amended Employment Agreements provides for an annual base
salary in the amount of $300,000 for calendar year 1998, subject to increase as
determined by the Compensation Committee; provided, however, that the annual
base salary of each shall increase to $400,000 as of January 1, 2000. Prior to
1998, the employment agreements also contained provisions for annual incentive
bonuses based on performance criteria. The target bonus for each of Messrs.
Halpert and Wolfe was 50% of base salary, up to a maximum of 100%. (See
"Compensation Committee Report.") As part of the March 1998 amendments to the
employment agreements, the Board has structured the bonus component of such
agreements to qualify as performance-based compensation pursuant to Code Section
162(m) for the remainder of the employment term (as extended) beginning January
1, 1999, so that bonus payments made for periods thereafter will be fully
deductible for federal income tax purposes. (See Proposal 5 herein.)
- 10 -
<PAGE>
The Amended Employment Agreements also provide for the grant on January
1, 2000 to each of Messrs. Halpert and Wolfe of options to purchase 250,000
shares of Common Stock, at an exercise price equal to the fair market value of a
share of Common Stock on January 1, 2000 (provided the executive remains
employed by the Company on such date). The stock options shall be exercisable
until January 1, 2010, and, subject to the executive's continued employment with
the Company, shall become exercisable in accordance with the following schedule:
one-third of such options become exercisable on January 1 of each of years 2001,
2002 and 2003. In the event of termination of employment under specified
circumstances, including by the Company without cause or good reason or upon a
change in control (each as defined in the employment agreements), all of the
executive's options shall be immediately exercisable in full.
The Amended Employment Agreements further provide for awards to each of
Messrs. Halpert and Wolfe of 150,000 shares of Restricted Stock on January 1,
2000 under the Company's Restricted Stock Plan, which awards are subject to
vesting over the three-year period thereafter. (See Proposal 3 herein.)
Consistent with the provisions of the Current Employment Agreements,
the Board has approved, subject to stockholder approval as described herein,
future performance-based Contingent Stock Awards of up to 25,000 shares of
Common Stock to each of Messrs. Halpert and Wolfe on each of March 31, 2001,
2002 and 2003, based on the Company's attainment of performance goals during the
preceding fiscal year. (See Proposal 4 herein.)
Stock Performance Graph
The following stock performance graph compares the Company's
performance to the S&P 500 and the index of equity real estate investment trusts
prepared by the National Association of Real Estate Investment Trusts
("NAREIT"). Equity real estate investment trusts are defined as those which
derive more than 75% of their income from equity investments in real estate
assets. The NAREIT equity index includes all tax-qualified real estate
investment trusts listed on the New York Stock Exchange, the American Stock
Exchange or the NASDAQ National Market. Stock price performance for the past
year is not necessarily indicative of future results. All stock price
performance includes the reinvestment of dividends.
[graph to be inserted]
- 11 -
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Compensation Committee was established in November, 1994 and
consists of Mr. Burns (Chairman), Mr. Hart, Mr. Russell and Mr. Wilansky, none
of whom is or has been an officer or employee of the Company. For a description
of the background of each of these individuals, see "Board of Directors and
Officers." To the Company's knowledge, there were no interrelationships
involving members of the Compensation Committee or other directors of the
Company requiring disclosures in this Proxy Statement.
COMPENSATION COMMITTEE REPORT
The information set forth below shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933, as amended, or under
the Securities Exchange Act of 1934, as amended, except to the extent the
Company specifically incorporates this information by reference, and shall not
otherwise be deemed filed under such Acts.
General. The Company's compensation and benefit practices for employees
are established and governed by the Compensation Committee, which is comprised
entirely of Independent Directors who are not eligible to participate in the
compensation plans which they administer. The Compensation Committee establishes
the general compensation policy of the Company, approves compensation of the
senior executive officers of the Company and administers the Stock Option Plan,
the Restricted Stock Plan and any other employee benefit plans which may be
established by the Company.
The Company's compensation program is designed to achieve both
short-term and long-term objectives, balancing compensation to reward past
performance and, consistent with the Company's growth philosophy, to provide
incentives for superior performance over the long term. The Compensation
Committee works with management to design compensation structures which will
best serve these goals. The Compensation Committee utilizes base salary, cash
bonuses, incentive stock plans and other performance-based compensation as part
of its programs.
Changes to Executive Compensation. With the employment agreements of
Messrs. Wolfe and Halpert set to expire in fiscal year 1999, the Compensation
Committee asked a nationally recognized consulting firm with experience in the
real estate investment trust industry (the "Consultant") to assist the
Compensation Committee by reviewing the compensation of the Chief Executive
Officer and Chairman of the Company. The Consultant made recommendations to the
Compensation Committee relating to overall compensation philosophy, appropriate
base salary, short-term and long-term compensation plans and appropriate goals
and targets for the continued employment of Messrs. Halpert and Wolfe.
In March, 1998, based upon the Consultant's recommendations and the
Compensation Committee's review of the anticipated effect which such proposed
changes would have upon the Company's financial performance, the Compensation
Committee determined that it was appropriate and in the best interests of the
Company to (i) extend the terms of the employment agreements until June 30, 2002
for Mr. Wolfe and until December 31, 2002 for Mr. Halpert; (ii) amend each of
Messrs. Halpert's and Wolfe's employment agreements to increase the annual base
salary from $250,000 to $300,000 for calendar year 1998 and $400,000 for
calendar year 2000, and to provide for annual incentive bonuses based on
performance criteria (see Proposal 5 herein); (iii) grant to each of Messrs.
Halpert and Wolfe on January 1, 2000 awards of options to purchase 250,000
shares of Common Stock at an exercise price equal to the fair market value of a
share of Common Stock on January 1, 2000, with one-third of such options to
become exercisable on each of the first, second and third anniversaries of
January 1, 2000 (see "Employment Agreements"); (iv) grant each of Messrs.
Halpert and Wolfe 150,000 shares of restricted stock on January 1, 2000, under
the Restricted Stock Plan, which awards are subject to vesting over the
three-year period thereafter (see Proposal 3 herein); and (v) provide for the
possible grant to each of Messrs. Halpert and Wolfe of up to 25,000 shares of
Contingent Stock on each of March 31, 2001, 2002 and 2003 based on the Company's
attainment of performance goals during the preceding fiscal year (see Proposal 4
herein).
Compensation of the Chairman and the Chief Executive Officer. Amounts
earned during 1997 by Messrs. Wolfe and Halpert, the Chief Executive Officer and
Chairman of the Company, respectively, are shown in the Summary Compensation
Table. The Compensation Committee believes that the annual base salaries for
Messrs. Wolfe and Halpert, as will be adjusted pursuant to their amended
employment agreements, are appropriate and are reflective of
- 12 -
<PAGE>
industry practices of other similar public real estate investment trusts. The
maximum bonus payable under each of Messrs. Wolfe's and Halpert's employment
agreements is 100% of annual base salary and the target bonus payable under
their employment agreements is 50% of their annual base salaries, and such
bonuses are to be determined based on the achievement of specified criteria.
After reviewing the performance-based criteria for fiscal year 1997 (all of
which exceeded the target levels), the Compensation Committee awarded to each of
Messrs. Wolfe and Halpert as a bonus for the period January 1, 1997 to December
31, 1997: a cash bonus of $125,000 and a grant on March 13, 1998 of $125,000 of
Restricted Stock, based on the fair market value of a share of Common Stock on
such date (4,750 shares each). Such shares of Restricted Stock vest, and the
restrictions applicable thereto lapse, in equal one-third installments on each
of the first three anniversaries of the date of grant, subject to the
executive's continued employment with the Company on such date. In addition,
after reviewing the performance-based criteria for fiscal year 1997 (which
exceeded the target levels), the Compensation Committee granted to each of
Messrs. Wolfe and Halpert 5,000 shares of Contingent Stock pursuant to the 1996
Contingent Stock Agreements. The Compensation Committee believes that the future
Restricted Stock grants and Contingent Stock awards provided under the Amended
Employment Agreements will combine to be an effective method of aligning Messrs.
Wolfe's and Halpert's interests with those of the Company's stockholders and for
rewarding them appropriately for their services as Chief Executive Officer and
Chairman of the Company, respectively.
Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code") provides that income tax deductions of publicly-traded
companies may be limited to the extent total compensation (including base
salary, annual bonus, stock option exercises and non-qualified benefits) for
certain executive officers exceeds $1 million (less the amount of any "excess
parachute payments" as defined in Section 280G of the Code) in any one year.
However, under Section 162(m), the deduction limit does not apply to certain
"performance-based" compensation established by an independent compensation
committee which conforms to certain restrictive conditions stated under the Code
and related regulations.
The Company is submitting the Contingent Stock Awards and the Annual
Incentive Bonus Program to the stockholders in order to satisfy the stockholder
approval requirements of Section 162(m). The Company intends to comply with
other requirements of the performance-based compensation exclusion under Section
162(m), including requirements governing the administration of the Contingent
Stock Awards and the Annual Incentive Bonus Program, so that the deductibility
of such compensation paid to top executives thereunder is not expected to be
disallowed. It is the Company's policy to take account of the implications of
Section 162(m) among all factors reviewed in making compensation decisions. The
Amended and Restated Stock Option Plan permits the grant of options intended to
qualify as "performance-based compensation" exempt from application of the
Section 162(m) limitation. Furthermore, the Annual Incentive Bonuses have been
amended to permit payment of bonuses to so qualify (subject to stockholder
approval) and the Contingent Stock Awards have been established to so qualify
(again, subject to stockholder approval). The Company expects that it will not
be denied any deduction under Section 162(m) for compensation paid during its
taxable year ended December 31, 1997, although it is possible that in some
future year some portion of the compensation paid to a Company executive will
not be tax deductible under Section 162(m).
Date: March 30, 1998 STANLEY T. BURNS (CHAIRMAN)
MATTHEW J. HART
WILLIAM M. RUSSELL
HEYWOOD WILANSKY
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Messrs. Halpert, Wolfe and Zimmerman are owners, together with two
other individuals, of the sole general partner of FW Realty Limited Partnership,
which is a general partner in the Mid-Atlantic Centers Limited Partnership (the
"MAC Partnership"). The MAC Partnership owns three properties managed by FWM
(during 1997, the MAC Partnership owned up to 10 properties). During the fiscal
year ended December 31, 1997, the MAC Partnership paid management fees of
approximately $253,000 to FWM.
Messrs. Halpert, Wolfe and Zimmerman each hold a minority ownership
interest in an office building for which FWM provides management and leasing
services. During the fiscal year ended December 31, 1997, the partnership which
owns the office building paid management and leasing fees of $30,000 to FWM.
- 13 -
<PAGE>
All of the voting common stock of FWM is owned by Messrs. Halpert,
Wolfe and Zimmerman, which enables them to control the election of the board of
directors of FWM. The Operating Partnership owns all of the non-voting preferred
stock of FWM, which is generally entitled to dividends equal to 99% of the net
cash flow of FWM. Messrs. Halpert and Wolfe have a right of first refusal with
respect to the remaining capital stock of FWM. During the fiscal year ended
December 31, 1997, the Company paid advisory, leasing and management fees of
approximately $3,687,000 to FWM.
First Washington Management, Inc. ("FWM") is considering a proposed
transaction transferring its sales brokerage business currently conducted
through its wholly-owned subsidiary First Capital Realty, Inc. ("FCR") to LZ
Realty, Inc., a Maryland corporation controlled by Lester Zimmerman, a director
of the Company. FCR has provided sales brokerage services since 1984 and is
operated by Lester Zimmerman. The proposed transaction would transfer
substantially all the assets of FCR (consisting primarily of commission and
listing agreements) to LZ Realty, Inc. for an interest-free, three year
promissory note equal to approximately $300,000, payable in monthly installments
and guaranteed by Mr. Zimmerman. Furthermore, FWM will provide LZ Realty for at
least two years a line of credit up to $350,000 (guaranteed by Mr. Zimmerman)
with a variable interest rate equal to FWM's borrowing rate and certain other
reimbursable administrative services (such as accounting services and shared
office space) in exchange for a portion of LZ Realty's profits during the term
of the line of credit. By consummating this transaction, FWM intends to
eliminate the volatility of the income stream generated by the sales brokerage
business. Both FWM and FCR believe that it is in the best interest of the
respective companies to consummate this transaction.
The Company has paid legal fees in excess of $60,000 during 1997 to the
law firm of Latham & Watkins. William J. Wolfe's brother, Scott N. Wolfe, is a
partner of Latham & Watkins.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Under Section 16(a) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), directors, officers and beneficial owners of 10 percent or
more of the Company's Common Stock and Preferred Stock ("Reporting Persons") are
required to report to the SEC on a timely basis the initiation of their status
as a Reporting Person and any changes with respect to their beneficial ownership
of the Company's Common Stock or Preferred Stock. Regulations promulgated by the
SEC require the Company to disclose in this Proxy Statement any reporting
violations with respect to the 1997 fiscal year, which came to the Company's
attention based on a review of the applicable filings required by the SEC to
report such status as an officer or director or such changes in beneficial
ownership as submitted to the Company.
Based solely on its review of such forms received by it or
representations that no such reports were required, the Company believes that
during the fiscal year ending December 31, 1997 its executive officers,
directors and beneficial owners of more than ten percent of the Company's Common
Stock or Preferred Stock complied with the requirements of Section 16(a).
PROPOSAL 2
AMENDMENT OF THE STOCK OPTION PLAN
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon a proposal to amend the 1994 Stock Option Plan for
Officers, Directors and Key Employees of First Washington Realty Trust, Inc.,
First Washington Realty Limited Partnership and First Washington Management,
Inc. (the "Stock Option Plan") described herein. The Stock Option Plan was
originally adopted by the Company's Board of Directors and approved by the
Company's stockholders in June, 1994, and an amendment was approved by the
stockholders in May, 1997. An amended and restated Stock Option Plan was adopted
by the Company's Board of Directors in March, 1998.
The following description of the Stock Option Plan is qualified in its
entirety by reference to the amended and restated Stock Option Plan. Copies of
the amended and restated Stock Option Plan will be available at the Meeting and
can also be obtained by making a written request of the Company's Secretary.
- 14 -
<PAGE>
The principal purposes of the Stock Option Plan are to provide
additional incentives for directors, executive officers and other key employees
of the Company, the Operating Partnership and FWM, to further the growth,
development and financial success of the Company, and to obtain and retain the
services of such directors, executive officers and other key employees essential
to the long range success of the Company.
The shares available under the Stock Option Plan may be either
previously unissued shares or issued shares which have been repurchased by the
Company and may be equity securities of the Company other than Common Stock. The
Stock Option Plan provides for appropriate adjustments in the number and kind of
shares subject to the Stock Option Plan and to outstanding grants thereunder in
the event of a stock split, stock dividend or certain other types of
recapitalizations.
If any portion of a stock option or other award terminates or lapses
unexercised, or is canceled without having been fully exercised, the shares
which were subject to the unexercised portion of such option or other award will
continue to be available for issuance under the Stock Option Plan.
The Stock Option Plan is administered by the Compensation Committee of
the Board of Directors (or the Board in the case of options granted to members
of the Board who are Independent Directors). The Compensation Committee consists
of at least two Independent Directors, each of whom is a "non-employee director"
as defined by Rule 16b-3 of the Exchange Act and an "outside director" for
purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). Presently, there are four members of the Compensation Committee.
The Compensation Committee is authorized to select from among the
eligible employees of the Company, the Operating Partnership and FWM the
individuals to whom options are to be granted and to determine the number of
shares to be subject thereto and the terms and conditions thereof, consistent
with the Stock Option Plan. The Compensation Committee is also authorized to
adopt, amend and rescind rules relating to the administration of the Stock
Option Plan. Non-qualified stock options shall be granted to Independent
Directors in accordance with the formula set forth in the Stock Option Plan,
and, subject to stockholder approval as provided herein, discretionary grants up
to 5,000 shares may be made annually to each Independent Director as determined
by the full Board; provided, however, that the exercise price of all options
granted to Independent Directors shall be the fair market value of a share of
Common Stock on the date of grant.
The Stock Option Plan also authorizes the Compensation Committee to
delegate to the Chief Financial Officer or the Chief Executive Officer of the
Company, or both, any or all of the administrative duties and authority of the
Compensation Committee under the Stock Option Plan, including the authority to
make grants of options under the Plan other than to "Section 16 Persons" or
"Section 162(m) Participants" (each as defined in the Stock Option Plan),
consistent with an approved program authorized by the Compensation Committee and
specifying the maximum aggregate number of shares for which grants may be made
pursuant to such program.
The Company has issued to certain officers and key employees of the
Company, the Operating Partnership and FWM options to purchase, in each case
subject to the Common Stock Ownership Limit and the Aggregate Stock Ownership
Limit (as such terms are defined in the Company's Charter), an aggregate of
481,964 shares of Common Stock pursuant to the Stock Option Plan. The Named
Executive Officers received options for 383,210 shares of Common Stock (see also
"Executive Compensation -- Stock Option Grants Table" above), and the Company
issued to other employees (as a group) options to purchase 98,754 shares of
Common Stock.
The Company has also granted a total of 26,000 options to Independent
Directors (16,000 shares subject to stockholder approval) as set forth under
Director Compensation.
The exercise or purchase price for all options to acquire Common Stock,
together with any applicable tax required to be withheld, must be paid in full
in cash at the time of exercise or purchase or may, with the approval of the
Compensation Committee, be paid in whole or in part in Common Stock of the
Company owned by the optionee and having a fair market value on the date of
exercise equal to the aggregate exercise price of the shares so to be purchased,
by other lawful consideration including services rendered or by surrender of
shares to be issued under presently exercisable options.
- 15 -
<PAGE>
Amendments of the Stock Option Plan to increase the number of shares as
to which options may be granted (except for adjustments resulting from any stock
splits, reorganization, merger, consolidation, recapitalization,
reclassification or stock dividend or other extraordinary corporate events), to
materially modify eligibility requirements under the Stock Option Plan, to
reduce the minimum option price requirements, to materially increase benefits
accruing to Independent Directors under the Stock Option Plan, to extend the
period during which options may be granted or to otherwise materially increase
the benefits accruing to participants under the Stock Option Plan require the
approval of the Company's stockholders. In all other respects the Stock Option
Plan can be amended, modified, suspended or terminated by the Board. Amendments
of the Stock Option Plan will not, without the consent of the participant,
affect such person's rights under an award previously granted, unless the award
itself otherwise expressly so provides. No termination date is specified for the
Stock Option Plan.
Options granted under the Stock Option Plan may provide for their
termination upon dissolution or liquidation of the Company, the merger or
consolidation of the Company into another corporation, the acquisition by
another corporation of all or substantially all of the Company's assets, or the
acquisition by another corporation of 80% or more of the Company's then
outstanding voting stock; but in such event the Compensation Committee (or the
Board in the case of options granted to members of the Board who are Independent
Directors) may also give optionees and other grantees the right to exercise
their outstanding options or rights in full during some period prior to such
event, even though the options or rights have not yet become fully exercisable.
In consideration of the granting of a stock option, each employee and
each director must agree in the written agreement embodying such award to remain
in the employ or remain as a director, respectively, of the Company or a
subsidiary of the Company, the Operating Partnership or FWM for at least one
year after the award is granted.
Subject to the respective option agreements, unless otherwise specified
in writing, stock options cannot be exercised after one year from the date the
optionee's employment terminates by reason of death or disability, nor more than
three months after termination of employment for any reason other than death or
disability.
No option or other right granted under the Stock Option Plan may be
assigned or transferred by the optionee, except by will or the laws of intestate
succession. During the lifetime of the holder of any option or right, the option
or right may be exercised only by the holder or his guardian or legal
representative.
The Company requires participants to discharge withholding tax
obligations in connection with the exercise of an option granted under the Stock
Option Plan, as a condition to the issuance or delivery of stock or payment of
other compensation pursuant thereto. Shares held by or to be issued to a
participant may also be used to discharge tax withholding obligations related to
exercise of options or receipt of other awards, subject to the discretion of the
Compensation Committee to disapprove such use.
Federal Income Tax Consequences
The tax consequences of the Stock Option Plan under current federal law
are summarized in the following discussion which deals with the general tax
principles applicable to the Stock Option Plan, and is intended for general
information only. The discussion is based on the Code, regulations thereunder,
rulings and decisions now in effect, all of which are subject to change. State
and local income taxes are not discussed and may vary from locality to locality.
Non-qualified Stock Options. For federal income tax purposes, assuming
the option is not issued at an exercise price below market value, the recipient
of non-qualified stock options granted under the Stock Option Plan generally
will not recognize taxable income upon the grant of the option, nor will the
Company then be entitled to any deduction. Generally, upon exercise of a
non-qualified stock option the optionee will recognize ordinary income, and the
Company (or other employer) will be entitled to a deduction (subject to the
limits of Section 162(m) of the Code which limits the deductibility of certain
compensation in excess of $1,000,000 and the limits of Section 280G of the Code
which limits the deductability of certain "parachute payments" paid in
connection with a "change in control"), in an amount equal to the difference
between the option exercise price and the fair market value of the stock at the
date of exercise. An optionee's basis for the stock for purposes of determining
his gain or loss on his subsequent disposition of the shares generally will be
the fair market value of the stock on the date of exercise of the non-qualified
stock option.
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The tax consequences resulting from the exercise of a non-qualified
stock option through delivery of already owned shares of Common Stock are not
completely certain. In published rulings, the Internal Revenue Service has taken
the position that, to the extent an equivalent value of shares is acquired upon
such exercise, an optionee will recognize no gain and the optionee's basis in
the shares acquired upon such exercise will be equal to the optionee's basis in
the surrendered shares, that any additional shares acquired upon such exercise
will be compensation to the optionee taxable under the rules described above and
that the optionee's basis in any such additional shares will be their then fair
market value.
Incentive Stock Options. There is no taxable income to an optionee when
an incentive stock option is granted to him or when that option is exercised;
however, the amount by which the fair market value of the shares at the time of
exercise exceeds the option price will be an "item of tax preference" for the
optionee. Gain realized by an optionee upon the sale of stock issued on exercise
of an incentive stock option is taxable at capital gains rates, and no tax
deduction is available to the Company, unless the optionee disposes of the
shares within two years after the date of grant of the option or within one year
of the date the shares were transferred to the optionee. If the shares are
disposed of before the expiration of these one-year or two-year periods, the
difference between the option exercise price and the fair market value of the
shares on the date of the option's exercise will be taxed at ordinary income
rates; the balance of the gain, if any, will be taxed as capital gain. If the
shares are disposed of before the expiration of these one-year or two-year
periods and the amount realized is less than the fair market value of the shares
at the date of exercise, the employee's ordinary income is limited to the amount
realized less the option exercise price paid. The Company (or other employer)
will be entitled to a deduction (subject to Section 162(m) of the Code) to the
extent the employee must recognize ordinary income. An incentive stock option
exercised more than three months after an optionee's retirement from employment,
other than by reason of death or disability, will be taxed as a non-qualified
stock option, with the optionee deemed to have received income upon such
exercise taxable at ordinary income rates. The Company (or other employer) will
be entitled to a tax deduction (subject to Sections 162(m) and 280G of the Code)
equal to the ordinary income, if any, realized by the optionee.
The tax consequences resulting from exercise of an incentive stock
option through delivery of already-owned shares of Common Stock are not
completely certain. In published rulings and proposed regulations, the Internal
Revenue Service has taken the position that generally the optionee will
recognize no income upon such stock-for-stock exercise (subject to the
discussion above), that to the extent an equivalent number of shares is
acquired, the optionee's basis in the shares acquired upon such exercise is
equal to the employee's basis in the surrendered shares increased by any
compensation income recognized by the optionee, that the optionee's basis in any
additional shares acquired upon such exercise is zero and that any sale or other
disposition of the acquired shares within the one-year or two-year periods
described above will be viewed as a disposition of the shares with the lowest
basis first.
Proposed Amendments to the Stock Option Plan
A total of 796,691 shares of Common Stock are currently reserved for
issuance under the Stock Option Plan, subject to certain adjustments in the
Company's Common Stock or other extraordinary corporate events. The Board of
Directors recommends an amendment to the Stock Option Plan to increase the
number of shares available for issuance under the Stock Option Plan by 500,000
shares, for a total of 1,296,691 shares.
As of March 31, 1998, options to purchase an aggregate of 481,964
shares of Common Stock had been granted under the Stock Option Plan.
Accordingly, only 314,727 shares of Common Stock are available for the issuance
of new stock options. The Board of Directors believes that increasing the number
of shares available for issuance under the Stock Option Plan is necessary in
order for the Board of Directors to have sufficient flexibility to carry out its
responsibilities to (i) further the growth, development and financial success of
the Company by providing additional incentives to its directors, executive
officers and other key employees, and (ii) enable the Company to obtain and
retain the services of such directors, executive officers and other key
employees considered essential to the long-range success of the Company.
Additionally, the Board has determined that it is appropriate to grant
options to Independent Directors other than upon their initial election, and
thus has adopted a program for providing grants of up to 5,000 shares of Common
Stock to each Independent Director each year, as determined by the full Board,
on the first day of the first month following the annual stockholders meeting.
In accordance with this change, the full Board approved, subject to stockholder
approval, a grant of options to purchase 4,000 shares of Common Stock to each
Independent Director
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serving on June 1, 1997, in part to provide increased compensation to
Independent Directors without increasing retainer fees. The Board believes that
this amendment to the Stock Option Plan (including approval of the Options
granted June 1, 1997) will assist the Company in attracting and retaining
Independent Directors of superior ability and will align their interests with
those of the Company's stockholders.
Vote Required; Recommendation of the Board of Directors
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting is
required to approve the amendments to the Stock Option Plan. Abstentions will
have the same effect as votes against the amendments to the Stock Option Plan,
and "broker non-votes" will not be counted as shares entitled to vote on the
matter and will have no effect on the result of the vote. The Board of Directors
unanimously recommends that stockholders vote FOR approval of the amendments to
the Stock Option Plan. Proxies solicited by the Board of Directors will be so
voted unless stockholders specify otherwise on the accompanying Proxy cards.
PROPOSAL 3
AMENDMENT OF RESTRICTED STOCK PLAN
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon a proposal to amend the First Washington Realty Trust,
Inc. Restricted Stock Plan (the "Restricted Stock Plan") described herein. The
Restricted Stock Plan was adopted by the Company's Board of Directors on April
1, 1996, and approved by the stockholders in May, 1996. The Board approved an
amendment of the Restricted Stock Plan in March, 1998. The principal features of
the Restricted Stock Plan are summarized below, but the description is qualified
in its entirety by reference to the Plan itself.
The following description of the Restricted Stock Plan is qualified in
its entirety by the amended Restricted Stock Plan. Copies of the amended
Restricted Stock Plan will be available at the Meeting and can also be obtained
by making a written request of the Company's Secretary.
The general purpose of the Restricted Stock Plan is to further the
growth, development and financial success of the Company by providing additional
incentives to certain of its employees, and to enable the Company to obtain and
retain the services of the type of officers considered essential to the
long-range success of the Company.
Any employee of the Company selected from time to time by the
Committee, acting in its discretion, may participate in the Restricted Stock
Plan.
The Restricted Stock Plan is administered by the Compensation Committee
of the Board of Directors (the "Committee"). The Committee consists of at least
two Independent Directors, each of whom is a "non-employee director" as defined
by Rule 16b-3 of the Exchange Act and an "outside director" for purposes of
Section 162(m) of the Code. Presently, there are four members of the Committee.
The Committee is authorized to determine (i) which officers and
employees of the Company, or any corporation which is then a parent or
subsidiary corporation, should be issued Restricted Stock, (ii) the number of
shares of Restricted Stock to be issued to such officers and employees, and
(iii) the terms and conditions applicable to such Restricted Stock, consistent
with the Restricted Stock Plan. Restricted Stock issued under the Restricted
Stock Plan is subject to such restrictions as the Committee may provide in the
terms of each individual restricted stock agreement; provided, however, that the
Committee may remove any or all of such restrictions after issuance of the
Restricted Stock and that all such restrictions shall expire in any event within
ten years of the date of grant. In connection with the Amended Employment
Agreements, 150,000 shares of Common Stock will be sold to each of Messrs.
Halpert and Wolfe on January 1, 2000, at a purchase price equal to the par value
($.01 per share) of the Common Stock, subject to the restrictions on vesting
described below. Such shares of Restricted Stock shall vest, and all
restrictions with respect to such shares shall expire, in accordance with the
schedule set forth below.
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Number of Aggregate Number of
Vesting Date Vested Shares Vested Shares
------------ ------------- -------------
January 1, 2001 25,000 25,000
January 1, 2002 50,000 75,000
January 1, 2003 75,000 150,000
The unvested Restricted Stock is subject to reacquisition by the
Company if the employee-employer relationship between the executive and the
Company is terminated by the Company with "cause," or is terminated by the
employee other than: (i) with "good reason;" (ii) with good reason and after a
"change of control"; (iii) for reasons due to death or disability; or (iv) due
to the fact that the employment agreement expires and is not renewed. The
Restricted Stock Agreements also provide that all shares of Restricted Stock
vest if the employee-employer relationship between the executive and the Company
is terminated by the Company without cause, by the employee due to death or
disability, by the employee for good reason or after a change of control, or due
to the fact that the employment agreement has expired and is not renewed.
Messrs. Halpert and Wolfe will have voting rights and will receive dividends
prior to the time when the restrictions on the Restricted Stock lapse.
Restricted Stock may be transferred only by will or by the laws of
descent and distribution.
If the outstanding shares of Common Stock are changed into or exchanged
for a different number or kind of shares of the Company or other securities of
the Company by reason of reorganization, merger, consolidation,
recapitalization, reclassification, or the number of shares is increased or
decreased by reason of a stock split, reverse stock split, stock dividend,
combination or reclassification of shares or otherwise, the Committee will make
an appropriate adjustment in the number and kind of outstanding shares of
Restricted Stock and in the number and kind of shares which may be issued. Upon
the merger or consolidation of the Company with or into another corporation, the
acquisition by another corporation or person (excluding any employee benefit
plan of the Company or any trustee or other fiduciary holding securities under
an employee benefit plan of the Company) of all or substantially all of the
Company's assets or 51% or more of the Company's then outstanding voting stock,
or the liquidation or dissolution of the Company, the Committee may provide by
resolution adopted prior to such event that, at some time prior to the effective
date of such event, the restrictions imposed under the Restricted Stock
Agreement upon some or all shares of Restricted Stock shall immediately expire
and/or that some or all of such shares shall cease to be subject to
reacquisition by the Company.
The Restricted Stock Plan expires on March 31, 2006, unless sooner
terminated by the Board of Directors. The Board of Directors may at any time
amend or otherwise modify, suspend or terminate the Restricted Stock Plan,
provided that no such action shall deprive a Restricted Stockholder, without his
or her consent, of any Restricted Stock previously granted pursuant to the
Restricted Stock Plan or of any of the Restricted Stockholder's rights under any
Restricted Stock theretofore issued.
Federal Income Tax Consequences. The following discussion is a general
summary of the material federal income tax consequences to participants in the
Restricted Stock Plan. The discussion is based on the Code, regulations
thereunder, rulings and decisions now in effect, all of which are subject to
change. State and local income taxes are not discussed and may vary from
locality to locality.
Generally, an officer or employee to whom Restricted Stock is issued
will not have taxable income upon issuance and the Company will not then be
entitled to a deduction, unless an election is made under Section 83(b) of the
Code. However, when restrictions on shares of Restricted Stock lapse, such that
shares are no longer subject to repurchase by the Company, the employee will
generally recognize ordinary income and the Company will be entitled to a
deduction in an amount equal to the fair market value of the shares at the date
such restrictions lapse, less the purchase price therefor, if any. If an
election is made under Section 83(b) of the Code (a "Section 83(b) Election"),
the employee will recognize ordinary income at the date of issuance equal to the
difference between the fair market value of the shares at that date less the
purchase price therefor and the Company will be entitled to a deduction in the
same amount.
Benefits of Restricted Stock Agreements. The following table sets forth
the shares of Common Stock that certain groups will receive if the amendment to
the Restricted Stock Plan is approved by the Company's stockholders at the
meeting.
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Number of
Shares
Dollar of Common
Name and Position Value Stock
- ----------------- ----- ------
Stuart D. Halpert............................ (1) 150,000
William J. Wolfe............................. (1) 150,000
=======
Executive Group.............................. (1) 300,000(2)
Non-Executive Director Group................. -- --
Non-Executive Officer Employee Group......... -- --
- --------------
(1) The dollar value of the Restricted Stock granted depends upon the future
market price of the Common Stock and therefore is not presently
determinable.
(2) Comprised of 150,000 shares for Mr. Halpert and 150,000 shares for Mr.
Wolfe.
Proposed Amendments to the Restricted Stock Plan
A total of 128,400 shares of Common Stock was originally reserved for
issuance under the Restricted Stock Plan. As of March 31, 1998, 109,892 shares
of Restricted Stock had been granted under the Restricted Stock Plan.
Accordingly, only 18,508 shares of Common Stock are available for issuance. The
Board of Directors recommends an amendment to the Restricted Stock Plan to
increase the number of shares available for issuance under the Restricted Stock
Plan by 350,000 shares, for a total of 368,508 shares.
The Board of Directors believes that increasing the number of shares
available for issuance under the Restricted Stock Plan is necessary in order for
the Board of Directors to have sufficient flexibility to carry out its
responsibilities to (i) further the growth, development and financial success of
the Company by providing additional incentives to its executive officers and
other key employees, and (ii) enable the Company to obtain and retain the
services of such executive officers and other key employees considered essential
to the long-range success of the Company.
Vote Required; Recommendation of the Board of Directors
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting is
required to approve the amendment to the Restricted Stock Plan. Abstentions will
have the same effect as votes against the amendment to the Restricted Stock
Plan, and "broker non-vote" will not be counted as shares entitled to vote on
the matter and will have no effect on the result of the vote. The Board of
Directors unanimously recommends that the stockholders vote FOR approval of the
amendment of the Restricted Stock Plan. Proxies solicited by the Board of
Directors will be so voted unless stockholders specify otherwise on their Proxy
cards.
PROPOSAL 4
AMENDMENT OF CONTINGENT STOCK AGREEMENTS
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon a proposal to amend the existing, performance-based
Contingent Stock Agreements between the Company and each of Messrs. Halpert and
Wolfe in connection with the Amended Employment Agreements. The Contingent Stock
Agreements were originally adopted by the Company's Board of Directors in April,
1996 and approved by the Stockholders in May, 1996. The Board approved an
amendment to the Contingent Stock Agreements in March, 1998.
The following description of the Contingent Stock Awards is qualified
in its entirety by reference to the amended Contingent Stock Agreements. Copies
of the amended Contingent Stock Agreements will be available at the Meeting and
can also be obtained by making a written request to the Company's Secretary.
As discussed above, one component of the Company's senior management
compensation arrangements includes Contingent Stock, awarded upon the
achievement of specified performance objectives. The current Contingent Stock
Agreements between the Company and Messrs. Halpert and Wolfe provide for grants
of up to 30,000 shares to each for the period ending December 31, 1999. In
connection with the March 1998 amendments to the employment agreements,
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the Compensation Committee has recommended and the Board has approved further
grants of Contingent Stock to Messrs. Halpert and Wolfe (subject to their
continued employment on the date of grant, based on performance during the three
year period beginning January 1, 2000 (the "Contingent Stock Awards").
As part of the compensation payable to Messrs. Halpert and Wolfe during
the period for which their employment agreements have been extended (2000-2002),
the Board has approved, subject to stockholder approval, the Contingent Stock
Awards, a performance-based stock incentive program under which Messrs. Halpert
and Wolfe are eligible to receive shares of Common Stock. The Contingent Stock
Awards represent a component of stock compensation that the Board believes has
been and will continue to be an important incentive for senior management and
that is consistent with the compensation philosophy of the Company that has been
in effect for several years. The Contingent Stock Awards have been adopted and
are being submitted to the Company's stockholders for approval so that amounts
payable as Contingent Stock Awards are fully deductible for federal income tax
purposes. The Contingent Stock Awards and the performance objectives applicable
thereto are subject to stockholder approval before any Common Stock will be paid
thereunder.
The Contingent Stock Awards will be administered by the Compensation
Committee, which has the sole discretion and authority to administer and
interpret the Contingent Stock Agreements. Awards will be based upon the
attainment of performance objectives established by the Compensation Committee
and related to one or more of the following Company performance criteria: funds
from operations; total return (measured as the sum of the annual dividend plus
increases in the market price of the Common Stock); portfolio growth (measured
as increases in the aggregate value of the real property in the Company's
portfolio, based upon the original cost of such property); stock price;
operating income; cost reductions and savings; and earnings before any one or
more of the following: interest, taxes, depreciation or amortization. Each of
Messrs. Halpert and Wolfe will be eligible to receive 25,000 shares of Common
Stock on each March 31, 2001 through 2003, based on the Company's attainment of
performance goals during the preceding fiscal year.
The Contingent Stock Awards are designed to ensure that Common Stock
paid thereunder is deductible by the Company, without limit under Section 162(m)
of the Code. Section 162(m), which was added to the Code in 1993, places a limit
of $1,000,000 on the amount of compensation that may be deducted by the Company
in any taxable year with respect to each "covered employee" within the meaning
of Section 162(m). However, certain performance-based compensation is not
subject to the deduction limit. The Contingent Stock Awards are designed to
provide performance-based compensation that is not subject to this limitation.
Contingent Stock Awards will be made to Messrs. Halpert and Wolfe based
upon formulas that tie in the award of Common Stock to one or more objective
performance standards, adopted in each year 2000 through 2002 no later than the
latest time permitted by Section 162(m) of the Code (generally, no later than 90
days after the commencement of the performance period). No Contingent Stock
Awards will be made unless and until the Compensation Committee makes a
certification in writing with respect to the attainment of the objective
performance standards as required by Section 162(m) of the Code; and, although
the Compensation Committee may in its sole discretion reduce the amount of an
award, the Compensation Committee has no discretion to increase the number of
shares of Common Stock awarded to each of Messrs. Halpert and Wolfe above 25,000
in any one year.
Consistent with the Amended Employment Agreements, the effective date
of the Contingent Stock Agreements is April 1, 1998, although the first
performance period begins January 1, 2000 and no awards may be made until March
31, 2001.
In addition, all shares of Contingent Stock shall be immediately
granted if the employee-employer relationship between either of Messrs. Halpert
or Wolfe and the Company is terminated by the Company without cause, by the
employee due to death or disability, by the employee with good reason after a
change of control, or due to the fact that the employment agreement has expired
and is not renewed and, in each case, the performance targets are met.
Federal Income Tax Consequences. The following discussion is a general
summary of a material federal income tax consequences under the Contingent Stock
Agreements. This discussion is based on the Code, regulations thereunder,
rulings and decisions now in effect, all of which are subject to change. Also,
state and local income taxes are not discussed and may vary from locality to
locality.
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When the Contingent Stock vests and is issued to the employee, the
employee will realize ordinary income and the Company will be entitled to a
deduction in the amount equal to the fair market value of the shares at the date
of issuance. The Code does not permit a Section 83(b) Election to be made with
respect to Contingent Stock.
Benefits of Contingent Stock Agreements. Messrs. Halpert and Wolfe are
the only recipients of Common Stock under the amended Contingent Stock
Agreements (if approved by the Company's stockholders at the Annual Meeting),
and each is entitled to the possible grant of up to 25,000 shares during each
year of the three year extended employment term provided that certain
performance goals are attained by the Company during the preceding fiscal year.
The dollar value of the shares of Contingent Stock to be granted depends upon
the future market price of the Common Stock and therefore is not presently
determinable. Accordingly, no Benefits Table is provided.
The Board believes the possibility of the grant of Contingent Stock
Awards will provide a continued incentive for superior work and motivate senior
management toward even higher achievement and business results during the period
of their extended employment. The Board also believes the Contingent Stock
Awards will further tie senior management's goals and interests to those of the
Company and its stockholders (as such compensation has done in the past), and
will enable the Company to retain its highly qualified senior executives.
Vote Required; Recommendation of the Board of Directors
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting is
required for approval of the amendments to the Contingent Stock Agreements.
Abstentions will have the same effect as votes against the amendments to the
Contingent Stock Agreements, and "broker non-votes" will not be counted as
shares entitled to vote on the matter and will have no effect on the result of
the vote. The Board of Directors unanimously recommends a vote FOR approval of
the amendments to the Contingent Stock Agreements. Proxies solicited by the
Board of Directors will be so voted unless stockholders specify otherwise on the
accompanying Proxy cards.
PROPOSAL 5
AMENDMENT OF ANNUAL INCENTIVE BONUS PROGRAM
CONTAINED IN EXECUTIVE EMPLOYMENT AGREEMENTS
At the Annual Meeting, the stockholders of the Company will be asked to
consider and vote upon a proposal to amend the current performance-based annual
incentive bonus program for senior management in connection with the Amended
Employment Agreements for Messrs. Halpert and Wolfe.
The following description of the Incentive Plan is qualified in its
entirety by reference to the Incentive Plan itself. Copies of the Incentive Plan
will be available at the Meeting and can also be obtained by making written
request to the Company's Secretary.
As discussed above, another integral part of the Company's senior
management compensation program includes annual incentive bonuses as determined
by the Compensation Committee each year based upon the achievement of certain
performance goals. The target bonus award is 50% of base salary, up to a maximum
of 100% of base salary. In connection with the Amended Employment Agreements for
Messrs. Halpert and Wolfe, the Board has amended the performance criteria for
the annual bonus provisions of such agreements, effective January 1, 1999 (the
"Incentive Plan"), and its seeking stockholder approval of the Incentive Plan
and its performance criteria in order to qualify such payments as
"performance-based compensation" under Code Section 162(m) so such payments are
fully deductible for federal income tax purposes. The Incentive Plan and its
performance goals are subject to stockholder approval before any bonuses
thereunder will be paid.
The Incentive Plan will be administered by the Compensation Committee,
which will have the sole discretion and authority to administer and interpret
the Incentive Plan. Bonuses will be paid under the Incentive Plan based upon the
attainment of performance objectives established by the Compensation Committee
each year and related to one or more of the following Company performance
criteria: funds from operations; total return (measured as the sum of the
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<PAGE>
annual dividend plus increases in the market price of the Common Stock);
portfolio growth (measured as increases in the aggregate value of the real
property in the Company's portfolio, based upon the original cost of such
property); stock price; operating income; cost reductions and savings; and
earnings before any one or more of the following: interest, taxes, depreciation
or amortization.
The actual amount of future bonus payments under the Incentive Plan is
not presently determinable. However, the Incentive Plan provides that the
maximum bonus shall not exceed 100% of base salary with respect to any fiscal
year of the Company.
The Incentive Plan is designed to ensure that annual bonuses paid
thereunder to are deductible by the Company, without limit under Section 162(m)
of the Code. Section 162(m), which was added to the Code in 1993, places a limit
of $1,000,000 on the amount of compensation that may be deducted by the Company
in any taxable year with respect to each "covered employee" within the meaning
of Section 162(m). However, certain performance-based compensation is not
subject to the deduction limit. The Incentive Plan is designed to provide this
type of performance-based compensation to Messrs. Halpert and Wolfe.
Bonuses will be based upon bonus formulas that tie the bonuses to one
or more objective performance standards, adopted in each year by the
Compensation Committee no later than the latest time permitted by Section 162(m)
of the Code (generally, no later than 90 days after the commencement of the
performance period). No bonuses will be paid unless and until the Compensation
Committee makes a certification in writing with respect to the attainment of the
objective performance standards as required by Section 162(m) of the Code; and,
although the Compensation Committee may in its sole discretion reduce a bonus,
the Compensation Committee has no discretion to increase the amount of a bonus
beyond the stated maximum amounts.
The effective date of the Incentive Plan is January 1, 1999, and the
first performance period will be calendar year 1999.
The Incentive Plan continues the present bonus arrangements that have
been in place for Messrs. Halpert and Wolfe for several years, and, as revised,
should insure that such payments continue to be deductible under the code
without regard to Section 162(m) thereof.
Vote Required; Recommendation of the Board of Directors
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting is
required for approval of the amendment to the Incentive Plan. Abstentions will
have the same effect as votes against the amendment to the Incentive Plan, and
"broker non-votes" will not be counted as shares entitled to vote on the matter
and will have no effect on the result of the vote. The Board of Directors
unanimously recommends a vote FOR approval of the amendment to the Incentive
Plan. Proxies solicited by the Board of Directors will be so voted unless
stockholders specify otherwise on the accompanying Proxy cards.
PROPOSAL 6
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Coopers & Lybrand, L.L.P., the Company's independent
auditors for the fiscal year ending December 31, 1997, was appointed by the
Board of Directors, upon the recommendation of the Audit Committee, to act in
the same capacity for the fiscal year ending December 31, 1998, subject to
ratification by the stockholders. There are no affiliations between the Company
and Coopers & Lybrand, L.L.P., its partners, associates or employees, other than
as pertain to its engagement as independent auditors for the Company in the
previous year. Representatives of Coopers & Lybrand, L.L.P. are expected to be
present at the Annual Meeting and will be given the opportunity to make a
statement if they so desire and to respond to appropriate questions.
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<PAGE>
Vote Required; Recommendation of the Board of Directors
The affirmative vote of the holders of a majority of all the votes cast
at the Annual Meeting, assuming a quorum is present, is necessary for approval
of the ratification of Coopers & Lybrand, L.L.P. as the Company's independent
auditors for the fiscal year ending December 31, 1998. For purposes of the vote
on this proposal, abstentions will not be counted as votes cast and will have no
effect on the result of the vote, although they will count toward the presence
of a quorum. The Board of Directors unanimously recommends a vote FOR
ratification of the appointment of independent auditors set forth above. Proxies
solicited by the Company will be so voted unless stockholders specify otherwise
on the accompanying Proxy.
OTHER MATTERS
The Board of Directors is not aware of any other matter that is likely
to come before the Annual Meeting. If other matters should properly come before
the Annual Meeting, the persons named in the accompanying Proxy will vote all
Proxies in their discretion.
Annual Report
The Annual Report of the Company for the fiscal year ending December
31, 1997 is provided with this Proxy Statement to the stockholders of record as
of the close of business on March 31, 1998. However, the Annual Report does not
constitute, and should not be considered, a part of this Proxy solicitation
material.
Any stockholder who desires a copy of the Company's 1997 Annual Report
on Form 10-K filed with the Securities and Exchange Commission may obtain a copy
(including exhibits) without charge by addressing a request to Jeffrey S.
Distenfeld, Secretary, First Washington Realty Trust, Inc., 4350 East West
Highway, Suite 400, Bethesda, Maryland 20814.
Stockholders' Proposals
Any proposal intended to be presented by a stockholder at the next
annual meeting of stockholders must be received by the Company at its principal
executive offices not later than December 15, 1998, in order to be included in
the Company's proxy statement and form of proxy relating to that meeting. In
addition, the Bylaws of the Company provide that in order for a stockholder to
nominate a candidate for election as a director at an annual meeting of
stockholders or propose business for consideration at such meeting, notice must
generally be given to the Secretary of the Company no more than 90 days nor less
than 60 days prior to the first anniversary of the preceding year's annual
meeting. The fact that the Company may not insist upon compliance with these
requirements should not be construed as a waiver by the Company of its right to
do so at any time in the future.
STOCKHOLDERS ARE URGED TO IMMEDIATELY MARK, DATE, SIGN AND RETURN THE ENCLOSED
PROXY IN THE ENVELOPE PROVIDED, TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Jeffrey S. Distenfeld
-----------------------------------
JEFFREY S. DISTENFELD
Senior Vice President and Secretary
Bethesda, Maryland
April 8, 1998
- 24 -
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of First Washington Realty Trust, Inc., a
Maryland corporation (the "Company"), revoking previous proxies, acknowledges
the receipt of the Notice and Proxy Statement dated April 8, 1998 in connection
with the Annual Meeting of Stockholders of the Company to be held at 11:00 a.m.
on Friday, May 8, 1998 at The Hyatt Regency-Bethesda, One Bethesda Metro Center,
Bethesda, MD 20814, and hereby appoints STUART D. HALPERT and WILLIAM J. WOLFE,
or either of them, as proxies for the undersigned, with full power of
substitution in each of them, to attend the meeting or any adjournment or
postponement thereof, to cast all votes that the undersigned is entitled to cast
upon all matters properly coming before the meeting or any adjournment or
postponement thereof, and otherwise to represent the undersigned at the meeting
with all powers possessed by the undersigned as if personally present at the
meeting.
INSTRUCTIONS: This proxy when properly executed will be voted in the manner
directed herein by the undersigned stockholder. If no direction is made, this
proxy will be voted FOR items 1, 2, 3, 4, 5 and 6.
(Important - Please sign and date on other side)
SEE REVERSE
SIDE
<PAGE>
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
FIRST WASHINGTON REALTY TRUST, INC.
May 8, 1998
Please Detach and Mail in the Envelope Provided
- --------------------------------------------------------------------------------
A [X] Please mark your
votes as in this
example.
- --------------------------------------------------------------------------------
The Board of Directors recommends that you vote FOR Items 1, 2, 3, 4, 5 and 6,
as more fully described in the accompanying Proxy Statement.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR ALL WITHHELD FROM
nominees All nominees FOR AGAINST ABSTAIN
-------- ------------ --- ------- -------
<S> <C> <C> <C> <C> <C> <C>
1. Election of the 2. Proposal to amend Company's Stock Option
following nominees [ ] [ ] Plan to (i) increase the number of shares [ ] [ ] [ ]
as Directors: available for issuance to officers, directors
and employees and (ii) permit discretionary
grants to Independent Directors each year.
Nominees: Lester Zimmerman and William M. Russell 3. Proposal to amend Company's Restricted Stock
Plan to increase the number of shares available [ ] [ ] [ ]
FOR ALL EXCEPT vote withheld from for issuance to officers and employees.
the following nominee.
____________________________ 4. Proposal to amend existing Contingent Stock
Agreements with senior management to provide [ ] [ ] [ ]
for additional quantitative performance
standards for contingent grants of shares in
year 2001 and thereafter.
5. Proposal to amend current annual incentive
bonus program for senior management to extend [ ] [ ] [ ]
such program and provide for additional
quantitative performance standards.
6. Ratification of Coopers & Lybrand L.L.P. as
auditors. [ ] [ ] [ ]
7. In the discretion of the proxy holder(s) on any other matter coming before
the Meeting or any postponement or adjournment thereof.
Signature(s)____________________________________________ Signature(s)_________________________________________ DATE_________________
Note: Each joint tenant should sign: executors, administrators, trustees, etc. should give full title and where more than one is
named, a majority should sign. Please read other side before signing.
</TABLE>
THE AMENDED AND RESTATED 1994 STOCK OPTION PLAN FOR
OFFICERS, DIRECTORS AND
KEY EMPLOYEES OF
FIRST WASHINGTON REALTY TRUST, INC.,
FIRST WASHINGTON REALTY LIMITED PARTNERSHIP
AND
FIRST WASHINGTON MANAGEMENT, INC.
First Washington Realty Trust, Inc., a Maryland corporation (the
"Company"), First Washington Realty Limited Partnership, a Maryland limited
partnership (the "Partnership"), and First Washington Management, Inc., a
Maryland corporation ("FWM"), adopted The 1994 Stock Option Plan for Officers,
Directors and Key Employees of First Washington Realty Trust, Inc., First
Washington Realty Limited Partnership and First Washington Management, Inc. (the
"Plan"), effective June 24, 1994, for the benefit of their eligible employees,
consultants and directors and those of their subsidiaries. The Plan consists of
two plans, one for the benefit of the employees and directors of the Company and
Company Subsidiaries (as defined below) and one for the employees and
consultants of the Partnership, Partnership Subsidiaries (as defined below), FWM
and FWM Subsidiaries (as defined below).
In furtherance of the purposes of this Plan as set forth below, including
provision for discretionary grants to Independent Directors (as defined below)
and an increase to the number of shares available for issuance under the Plan,
and in order to reflect amendments to applicable laws, an amendment to the Plan
was adopted by a resolution of the Board (as defined below) as of March 13,
1998, effective as of such date, except as otherwise specified herein. This
amendment to the Plan constitutes a complete amendment, restatement and
continuation of the plan.
The purposes of this Plan are as follows:
(1) To provide an additional incentive for Independent Directors, officers
and key Employees (as defined below) to further the growth,
development and financial success of the Company by personally
benefiting through the ownership of Company stock and/or rights which
recognize such growth, development and financial success.
(2) To enable the Company, the Partnership and FWM (and their respective
subsidiaries) to obtain and retain the services of Independent
Directors, officers and key Employees considered essential to the long
range success of the Company by offering them an opportunity to own
stock in the Company and/or rights which will reflect the growth,
development and financial success of the Company.
<PAGE>
ARTICLE I.
DEFINITIONS
1.1. General
Wherever the following terms are used in this Plan they shall have the
meanings specified below, unless the context clearly indicates otherwise.
Wherever the masculine gender is used it shall include the feminine and neuter
and wherever a singular pronoun is used it shall include the plural, unless the
context clearly indicates otherwise.
1.2. "Award Limit" shall mean 250,000 shares of Common Stock.
1.3. "Beneficiary" shall mean the person or persons properly designated by the
Optionee, including his or her spouse or heirs at law, to exercise such
Optionee's rights under this Plan in the event of the Optionee's death, or if
the Optionee has not designated such person or persons, or such person or
persons shall all have pre-deceased the Optionee, the executor or administrator
of the Optionee's estate. Designation, revocation and redesignation of
Beneficiaries must be made in writing in accordance with rules established by
the Committee and shall be effective upon delivery to the Committee.
1.4. "Board" shall mean the Board of Directors of the Company.
1.5. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.6. "Committee" shall mean the Compensation Committee of the Board or the full
Board or another committee of the Board, appointed as provided in Section 6.1.
1.7. "Common Stock" shall mean the common stock of the Company, par value $.01
per share, and any equity security of the Company issued or authorized to be
issued in the future, but excluding any warrants, options or other rights to
purchase Common Stock. Debt securities of the Company convertible into Common
Stock shall be deemed equity securities of the Company.
1.8. "Company" shall mean First Washington Realty Trust, Inc., a Maryland
corporation.
1.9. "Company Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is then a Company Subsidiary.
1.10. "Company Subsidiary" shall mean (i) any corporation in an unbroken chain
of corporations beginning with the Company if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing 50
percent or more of the total combined voting power of all classes of stock in
one of the other corporations in such chain. Except with respect to Incentive
Stock Options, (ii) any entity in which the Company and/or any Company
Subsidiary owns more than 50 percent of the capital or profits interests;
provided, however, that "Company Subsidiary" shall not include the Partnership
or any Partnership
2
<PAGE>
Subsidiary and (iii) any other entity not described in clauses (i) or (ii) above
of which 50% or more of the ownership and the power, pursuant to a written
contract or agreement, to direct the policies and management or the financial
and the other affairs thereof, are owned or controlled by the Company or by one
or more other Company Subsidiaries or by the Company and one or more Company
Subsidiaries..
1.11. "Director" shall mean a member of the Board.
1.12. "Employee" shall mean any Company Employee, FWM Employee or Partnership
Employee.
1.13. "Expiration Date" shall mean the last day of the term of the Option as
established in Section 4.3.
1.14. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
1.15. "Fair Market Value" of a share of Common Stock as of a given date shall be
(i) the closing price of a share of the Company's Common Stock on the principal
exchange on which shares of the Company's Common Stock are then trading, if any,
on the trading day previous to such date, or, if shares were not traded on the
trading day previous to such date, then on the next preceding trading day during
which a sale occurred; or (ii) if such Common Stock is not traded on an exchange
but is quoted on Nasdaq or a successor quotation system, (1) the last sales
price (if the Company's Common Stock is then listed as a National Market Issue
under the Nasdaq National Market System) or (2) the mean between the closing
representative bid and asked prices (in all other cases) for the Company's
common stock on the trading day previous to such date as reported by Nasdaq or
such successor quotation system; (ii) if such Common Stock is not publicly
traded on an exchange and not quoted on Nasdaq or a successor quotation system,
the mean between the closing bid and asked prices for the Company's Common Stock
on the day previous to such date, as determined in good faith by the Committee;
or (iv) if the Company's Common Stock is not publicly traded, the fair market
value established by the Committee acting in good faith.
1.16. "FWM" shall mean First Washington Management, Inc. a Maryland corporation.
1.17. "FWM Compensation Shares" shall have the meaning set forth in Section 5.5.
1.18. "FWM Employee" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of FWM, or of any entity which is
then an FWM Subsidiary; provided, however, that no such individual shall be an
"FWM Employee" for purposes of granting Options if all Property Management
Agreements have been terminated; and provided further, that for purposes of the
Plan, "FWM Employee" shall not include any individual who is a Company Employee.
For purposes of this Plan, "FWM Employee" shall also include any independent
contractor or other individual engaged to perform services for FWM or for any
entity which is then an FWM Subsidiary and who is designated by the Committee as
an individual to whom Options shall be granted.
3
<PAGE>
1.19. "FWM Optionee Purchased Shares" shall have the meaning set forth in
Section 5.5.
1.20. "FWM Purchase Price" shall have the meaning set forth in Section 5.5
1.21. "FWM Purchased Shares" shall have the meaning set forth in Section 5.5.
1.22. "FWM Subsidiary" shall mean (i) any corporation in an unbroken chain of
corporations beginning with FWM if each of the corporations other than the last
corporation in the unbroken chain then owns stock possessing 50 percent or more
of the total combined voting power of all classes of stock in one of the other
corporations in such chain (ii) any entity in which 50 percent or more of the
capital or profits interests is owned, directly or indirectly, by FWM or by one
or more FWM Subsidiaries or by FWM and one or more FWM Subsidiaries and (iii)
any other entity not described in clauses (i) or (ii) above of which 50% or more
of the ownership and the power, pursuant to a written contract or agreement, to
direct the policies and management or the financial and the other affairs
thereof, are owned or controlled by FWM or by one or more FWM Subsidiaries or by
FWM and one or more FWM Subsidiaries.
1.23. "General Partner Interest" shall mean an ownership interest in the
Partnership that is a general partnership interest and includes any and all
benefits to which the holder of such an interest may be entitled as provided in
the Agreement of Limited Partnership of First Washington Realty Limited
Partnership, as amended, together with all obligations of such holder to comply
with the terms and provisions of such agreement.
1.24. "Incentive Stock Option" shall mean an option which conforms to the
applicable provisions of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Committee.
1.25. "Independent Director" shall mean a member of the Board who is not a
Company Employee, an FWM Employee or a Partnership Employee.
1.26. "Non-Qualified Stock Option" shall mean an Option which is not designated
an Incentive Stock Option by the Committee.
1.27. "Option" shall mean a stock option granted pursuant to this Plan. An
option granted under this Plan shall, as determined by the Committee, be either
a Non-Qualified Stock Option or an Incentive Stock Option; provided, however,
that Options granted to Partnership Employees, FWM Employees and Independent
Directors shall be Non-Qualified Stock Options.
1.28. "Optionee" shall mean an Employee or Independent Director to whom an
Option is granted under the Plan.
1.29. "Partnership" shall mean First Washington Realty Limited Partnership, a
Maryland limited partnership.
1.30. "Partnership Compensation Shares" shall have the meaning set forth in
Section 5.6.
4
<PAGE>
1.31. "Partnership Employee" shall mean any officer or other employee (as
defined in accordance with Section 3401(c) of the Code) of the Partnership, or
any entity which is then a Partnership Subsidiary; provided, however, that for
purposes of the Plan, "Partnership Employee" shall not include any individual
who is a Company Employee.
1.32. "Partnership Optionee Purchased Shares" shall have the meaning set forth
in Section 5.6.
1.33. "Partnership Purchase Price" shall have the meaning set forth in Section
5.6.
1.34. "Partnership Purchased Shares" shall have the meaning set forth in Section
5.6.
1.35. "Partnership Subsidiary" shall mean (i) a corporation, association or
other business entity of which 50% or more of the total combined voting power of
all classes of capital stock is owned, directly or indirectly, by the
Partnership or by one or more Partnership Subsidiaries, (ii) any entity of which
50% or more of the capital or profits interests is owned, directly or
indirectly, by the Partnership or by one or more Partnership Subsidiaries or by
the Partnership and one or more Partnership Subsidiaries, and (iii) any other
entity not described in clauses (i) or (ii) above of which 50% or more of the
ownership and the power, pursuant to a written contract or agreement, to direct
the policies and management or the financial and the other affairs thereof, are
owned or controlled by the Partnership or by one or more other Partnership
Subsidiaries or by the Partnership and one or more Partnership Subsidiaries.
1.36. "Plan" shall mean The Amended and Restated 1994 Stock Option Plan for
Officers, Directors and Key Employees of First Washington Realty Trust, Inc.,
First Washington Realty Limited Partnership and First Washington Management,
Inc., as amended from time to time.
1.37. "Property Management Agreement" shall mean any and all Property Management
Agreements between the Partnership (or one of its subsidiaries or affiliates)
and FWM.
1.38. "Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended in the future.
1.39. "Section 162(m) Participant" shall mean any Employee designated by the
Committee as an Employee whose compensation for the fiscal year in which such
Employee is so designated or a future fiscal year may be subject to the limit on
deductible compensation imposed by Section 162(m) of the Code.
1.40. "Stock Ownership Limit" shall mean (i) the restrictions on ownership and
transfer of Common Stock provided in Section 4.7.5 and Section 5.1 of the
Company's Amended and Restated Charter; (ii) the "Aggregate Stock Ownership
Limit" restrictions on ownership and transfer provided in the Company's Amended
and Restated Charter, and (ii) any other restriction on ownership and transfer
set forth in the Company's Amended and Restated Charter.
1.41. "Termination Of Directorship" shall mean the time when an Optionee who was
an Independent Director ceases to be a director of the Company for any reason,
including, but not by
5
<PAGE>
way of limitation, a termination by resignation, failure to be elected, death or
retirement. The Board, in its sole discretion, shall determine the effect of all
other matters and questions relating to Termination of Directorship.
1.42. "Termination of Employment" shall mean the time when the employee-employer
relationship between the Optionee and the Company, a Company Subsidiary, FWM, an
FWM Subsidiary, the Partnership or a Partnership Subsidiary is terminated for
any reason (or, with respect to FWM Employees, the termination of the engagement
of the Optionee otherwise to perform services for FWM or an FWM Subsidiary),
including, but not by way of limitation, a termination by resignation,
discharge, death, permanent and total disability or retirement; but excluding
(i) a termination where there is a simultaneous reemployment or continuing
employment of the Optionee by the Company, a Company Subsidiary, FWM, an FWM
Subsidiary, the Partnership or a Partnership Subsidiary and (ii) at the sole
discretion of the Committee, a termination which results in a temporary
severance of the employee-employer relationship that does not exceed one year.
With respect to FWM Employees, "Termination of Employment" shall also mean the
time as of which all Property Management Agreements have terminated. The
Committee, in its sole discretion, shall determine the effect of all other
matters and questions relating to Termination of Employment, including, but not
by way of limitation, the question of whether a Termination of Employment
resulted from a discharge for good cause, and all questions of whether a
particular leave of absence constitutes a Termination of Employment; provided,
however, that, with respect to Incentive Stock Options, unless otherwise
determined by the Committee in its discretion, a leave of absence, change in
status from an employee to an independent contractor or other change in the
employee-employer relationship shall constitute a Termination of Employment if,
and to the extent that, such leave of absence or other change in status
interrupts employment for the purposes of Section 422(a)(2) of the Code and the
then applicable regulations and revenue rulings under said Section.
Notwithstanding any other provision of this Plan, the Company, any Company
Subsidiary, FWM, any FWM Subsidiary, the Partnership or any Partnership
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause, except
to the extent expressly provided otherwise in writing.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan
(a) The shares of stock subject to Options shall be Common Stock, initially
shares of the Company's common stock, par value $.01 per share, as presently
constituted, and the aggregate number of such shares which may be issued upon
exercise of such Options shall not exceed 796,691; provided, however, that
effective as of the date of the next succeeding annual meeting of stockholders
at which the stockholders of the Company approve the increase to 1,296,691 of
the number of shares available for issuance hereunder, the aggregate number of
shares of Common Stock which may be issued upon exercise of such Options shall
be 1,296,691. The shares of Common Stock issuable upon exercise or grant of an
Option may be either
6
<PAGE>
previously authorized but unissued shares or issued shares which have been
repurchased by the Company.
(b) The maximum number of shares which may be subject to Options granted
under the Plan to any individual in any calendar year shall not exceed the Award
Limit. To the extent required by Section 162(m) of the Code, shares subject to
Options which are canceled will continue to be counted against the Award Limit
and if, after grant of an Option, the price of shares subject to such Option is
reduced, the transaction will be treated as a cancellation of the Option and a
grant of a new Option and both the Option deemed to be canceled and the Option
deemed to be granted will be counted against the Award Limit.
2.2. Unexercised Options and Other Rights
If any Option expires or is canceled without having been fully exercised,
or is exercised in whole or in part for cash as permitted by this Plan, the
number of shares subject to such Option but as to which such Option was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Options which are adjusted pursuant to
Section 7.3 and become exercisable with respect to shares of stock of another
corporation shall be considered canceled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Notwithstanding
the provisions of this Section 2.2, no shares of Common Stock may again be
optioned, granted or awarded if such action would cause an Incentive Stock
Option to fail to qualify as an incentive stock Option under Section 422 of the
Code.
2.3. Effect of Certain Exercises
If any shares of Common Stock issuable pursuant to any Option or other
right to acquire shares of Common Stock are surrendered to the Company as
payment for the exercise price of said Option or other right to acquire shares
of Common Stock, the number of shares of Common Stock issuable but so
surrendered shall be charged against the maximum number of shares of Common
Stock that may be issued under this Plan. In the event the Company withholds
shares of Common Stock pursuant to Section 7.6 hereof, the number of shares that
would have been issuable but that are withheld pursuant to the provisions of
Section 7.6 shall be charged against the maximum number of shares of Common
Stock that may be issued under this Plan.
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<PAGE>
ARTICLE III.
GRANTING OF OPTIONS
3.1. Eligibility
Subject to the Award Limit and the Stock Ownership Limit, any officer or
key Employee selected by the Committee pursuant to Section 3.3(a)(i) shall be
eligible to be granted an Option. Subject to the Stock Ownership Limit, each
Independent Director of the Company shall be eligible to receive Options at the
times and in the manner set forth in Section 3.3(d).
3.2. Qualification of Incentive Stock Options
No Incentive Stock Option shall be granted unless such Option, when
granted, qualifies as an "incentive stock option" under Section 422 of the Code
and no Incentive Stock Option shall be granted to any person who is not an
employee of the Company or of an entity which constitutes a "subsidiary
corporation" of the Company within Section 424(f) of the Code. Options granted
under the Plan to Independent Directors do not qualify as "incentive stock
options" under Section 422 of the Code.
3.3. Granting of Options
(a) Subject to applicable limitations of this Plan, the Committee shall
from time to time, in its sole discretion:
(i) Determine which Employees are officers or key Employees and select
from among them (including Employees to whom Options have previously been
granted) such of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected Employees;
(iii) Determine whether such Options are to be Incentive Stock Options
or Non-Qualified Stock Options and whether such Options are to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code; provided, however, that any Option granted to any FWM Employee or any
Partnership Employee shall be a Non-Qualified Stock Option; and
(iv) Determine the terms and conditions of such Options provided,
however, that the terms and conditions of Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the
Code shall include, but not be limited to, such terms and conditions as may
be necessary to meet the applicable provisions of Section 162(m) of the
Code.
(b) Upon the selection of an Employee to be granted an Option, the
Committee shall instruct the Secretary of the Company to issue the Option and
may impose such conditions on the
8
<PAGE>
grant of the Option as it deems appropriate. Without limiting the generality of
the preceding sentence, the Committee may, in its sole discretion and on such
terms as it deems appropriate, require as a condition on the grant of an Option
to an Employee that the Employee surrender for cancellation some or all of the
unexercised Options or other rights which have been previously granted to him or
her under this Plan. An Option, the grant of which is conditioned upon such
surrender, may have an option price lower (or higher) than the exercise price of
such surrendered Option, may cover the same (or a lesser or greater) number of
shares as such surrendered right, may contain such other terms as the Committee
deems appropriate, and shall be exercisable in accordance with its terms,
without regard to the number of shares, price, exercise period or any other term
or condition of such surrendered right.
(c) Any Incentive Stock Option granted under this Plan may be modified by
the Committee to disqualify such option from treatment as an "incentive stock
option" under Section 422 of the Code; provided, however, that prior to such
modification the Committee must obtain a written consent of the Optionee
relating to such modification.
(d) Subject to the Stock Ownership Limit,
(i) When a person is initially elected to the Board and is then an
Independent Director, each such new Independent Director automatically
shall be granted an Option to purchase 2,500 shares of Common Stock
(subject to adjustment as provided in Section 7.3) on the date of his or
her election to the Board. Members of the Board who are Company Employees
who subsequently retire from the Company and remain on the Board will not
receive an initial Option grant pursuant to the preceding sentence. In
addition, subject to stockholder approval as provided in Section 7.5,
effective as of June 1, 1997, each Independent Director who was then
serving as such was granted on such date an Option to purchase 4,000 shares
of Common Stock at an exercise price equal to $24.00 per share.
(ii) Subject to stockholder approval as provided in Section 7.5 and
effective as of the date of such approval, the Board may, in its sole
discretion, grant to each Independent Director serving as such as of the
first day of the first month following each annual meeting of stockholders,
an Option to purchase up to 5,000 shares of Common Stock (subject to
adjustment as provided in Section 7.3) at an exercise price per share equal
to Fair Market Value on the date of grant.
ARTICLE IV.
TERMS OF OPTIONS
4.1. Option Agreement
Each Option shall be evidenced by a written Stock Option Agreement, which
shall be executed by the Optionee and an authorized officer of the Company and
which shall contain such terms and conditions as the Committee (or the Board, in
the case of Options granted to Independent Directors) shall determine,
consistent with this Plan. Stock Option Agreements
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<PAGE>
evidencing Incentive Stock Options shall contain such terms and conditions as
may be necessary to meet the applicable provisions of Section 422 of the Code
and Stock Option Agreements evidencing Options intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code.
4.2. Option Price
The price per share of the shares subject to each Option shall be set by
the Committee; provided, however, that (i) such price shall be no less than the
par value of a share of Common Stock; (ii) in the case of Incentive Stock
Options and Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, such price shall not be less than
100% of the Fair Market Value of a share of Common Stock on the date the Option
is granted (or the date the Option is modified, extended or renewed for purposes
of Section 424(h) of the Code); (iii) in the case of Incentive Stock Options
granted to an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any subsidiary or parent corporation thereof (within the
meaning of Section 422 of the Code), such price shall not be less than 110% of
the Fair Market Value of a share of Common Stock on the date the Option is
granted (or the date the Option is modified, extended or renewed for purposes of
Section 424(h) of the Code); and (iv) in the case of Options granted to
Independent Directors, such price shall equal 100% of the Fair Market Value of a
share of Common Stock on the date the Option is granted.
4.3. Option Term
The term of an Option shall be set by the Committee in its sole discretion;
provided, however, that no such term shall exceed a reasonable time period, and,
in the case of Incentive Stock Options, the term shall not be more than ten (10)
years from the date the Incentive Stock Option is granted; and provided,
further, the term of each Option granted to an Independent Director shall be ten
years, without variation or acceleration hereunder except as provided in Section
7.3. The last day of the term of an Option shall be such Option's Expiration
Date.
4.4. Option Vesting
(a) The period during which the right to exercise an Option in whole or in
part vests in the Optionee shall be set by the Committee (or Board, in the case
of Options granted to Independent Directors) and the Committee (or Board, as
applicable) may determine that an Option may not be exercised in whole or in
part for a specified period after it is granted provided, however, that the
initial Options granted to Independent Directors pursuant to Section 3.3(d)(i)
shall become immediately exercisable. At any time after grant of an Option, the
Committee may, in its sole discretion and subject to whatever terms and
conditions it selects, accelerate the period during which an Option granted to
an Employee vests.
(b) No portion of an Option granted to an Employee which is unexercisable
at Termination of Employment shall thereafter become exercisable; provided,
however, that the
10
<PAGE>
Committee may provide, either pursuant to the written Stock Option Agreement or
employment agreement with respect to an Employee or by resolution after the date
of grant, that such Option shall become exercisable in the event of a
Termination of Employment because of the Optionee's normal retirement, or
permanent and total disability, death or early retirement or otherwise (each as
determined by the Committee in accordance with Company policies).
(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422 of
the Code, but without regard to Section 422(d) of the Code) are exercisable for
the first time by an Optionee during any calendar year (under the Plan and all
other incentive stock option plans of the Company and any Company Subsidiary)
exceeds $100,000, such Options shall be treated as Non-Qualified Options to the
extent required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 4.4(c), the Fair Market Value of
stock shall be determined as of the time the Option with respect to such stock
is granted.
4.5. Exercise of Option after Termination of Employment or Directorship
(a) Except as the Committee shall otherwise provide, an Option granted to
an Employee is exercisable by an Optionee only while he or she is an Employee.
The preceding notwithstanding, the Committee may determine that an Option
granted to an Employee may be exercised subsequent to an Optionee's Termination
of Employment, subject to the following limitations:
(i) If the Optionee dies while an Option is exercisable under the
terms of this Plan, the Optionee's Beneficiary may exercise such rights, to
the extent the Optionee could have done so immediately preceding his or her
death. Any such Option must be exercised within twelve (12) months after
the Optionee's death and the Committee may in its sole discretion extend
such period to accommodate such exercise; provided, however, an Option may
not be exercised later than the Expiration Date.
(ii) If the Optionee's employment is terminated due to the Optionee's
permanent and total disability, as defined in Section 22(e)(3) of the Code,
the Optionee may exercise his or her Option, to the extent exercisable as
of the Optionee's Termination of Employment, within twelve (12) months
after termination.
(iii) If the Optionee's employment is terminated for any reason other
than those set forth in subsections (i) or (ii) above, the Optionee may
exercise his or her Option, to the extent exercisable as of his or her
Termination of Employment, within three (3) months after Termination of
Employment, unless the Employee dies within said three-month period.
(iv) Notwithstanding (i) through (iii) above, an Option may not be
exercised later than the Option's Expiration Date.
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(b) No Option granted to an Independent Director may be exercised to any
extent by anyone after the first to occur of the following events:
(i) The expiration of twelve (12) months from the date of the
Optionee's death; or
(ii) The expiration of twelve (12) months from the date of the
Optionee's Termination of Directorship by reason of his or her permanent
and total disability (within the meaning of Section 22(e)(3) of the Code);
or
(iii) The expiration of three (3) months from the date of the
Optionee's Termination of Directorship for any reason other than such
Optionee's death or his or her permanent and total disability, unless the
Optionee dies within said three-month period.
(iv) Notwithstanding subsections (i) through (iii) above, an Option
may not be exercised later than the Option's Expiration Date.
4.6. Consideration
In consideration of the granting of a Non-Qualified Stock Option, the
Optionee shall agree, in the written Stock Option Agreement, to remain in the
employ of the Company, a Company Subsidiary, FWM, an FWM Subsidiary, the
Partnership or a Partnership Subsidiary (or to serve as an Independent Director
of the Company) for a period of at least one year after the Non-Qualified Stock
Option is granted (or until the next annual meeting of the stockholders of the
Company, in the case of an Independent Director). In consideration of the
granting of an Incentive Stock Option, the Optionee shall agree, in the written
Stock Option Agreement, to remain in the employ of the Company or a Company
Subsidiary for a period of at least one year after the Incentive Stock Option is
granted. Nothing in this Plan or in any Stock Option Agreement hereunder shall
confer upon any Optionee any right to continue in the employ of the Company, any
Company Subsidiary, FWM, any FWM Subsidiary, the Partnership or any Partnership
Subsidiary or as a director of the Company.
4.7. Limitation in Terms of Option
The Company shall not grant an Option which will, or is likely to, result
in a violation of Section 5.11.
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ARTICLE V.
EXERCISE OF OPTIONS
5.1. Partial Exercise
An exercisable Option may be exercised in whole or in part. However, an
Option shall not be exercisable with respect to fractional shares and the
Committee (or Board, in the case of Options granted to Independent Directors)
may require that, by the terms of the Option, a partial exercise be with respect
to a minimum number of shares.
5.2. Time of Exercise
Options may be exercised only on the first business day of every month.
5.3. Manner of Exercise
All or a portion of an exercisable Option shall be deemed exercised upon
(a) Delivery of all of the following to the Secretary of the Company or his
or her office:
(i) A written notice complying with the applicable rules established
by the Committee (or Board, in the case of Options granted to Independent
Directors), the Company, FWM or the Partnership stating that the Option, or
a portion thereof, is exercised. The notice shall be signed by the Optionee
or other person then entitled to exercise the Option or such portion;
(ii) Such representations and documents as the Committee (or Board, in
the case of Options granted to Independent Directors), in its sole
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act of 1933, as amended, and any
other federal or state securities laws or regulations. The Committee or
Board may, in its sole discretion, also take whatever additional actions it
deems appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer notices to
agents and registrars; and
(iii) In the event that the Option shall be exercised pursuant to
Section 4.5(a) by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option; and
(b) Full cash payment to (i) the Secretary of the Company (with respect to
Options held by Company Employees or Independent Directors), (ii) the
Partnership (with respect to Options held by Partnership Employees) or (iii) the
Secretary of FWM (with respect to Options held by FWM Employees) for the shares
with respect to which the Option, or portion thereof, is exercised. However, at
the sole discretion of the Committee (or the Board, in the case of Options
granted to Independent Directors), the terms of any Option may (i) allow
payment, in whole or in
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part, through the delivery of shares of Common Stock owned by the Optionee duly
endorsed for transfer to the Company with a Fair Market Value on the date of
delivery equal to the aggregate exercise price of the Option or exercised
portion thereof or (ii) allow payment, in whole or in part, through the
surrender of shares of Common Stock then issuable upon exercise of the Option
having a Fair Market Value on the date of Option exercise equal to the aggregate
exercise price of the Option or exercised portion thereof. In addition, at the
sole discretion of the Committee, the terms of Options granted to Employees may
(x) allow a delay in payment up to thirty (30) days from the date the Option, or
portion thereof, is exercised; (y) allow payment, in whole or in part, through
the delivery of property of any kind which constitutes good and valuable
consideration; or (z) allow payment through any combination of the consideration
provided in the foregoing subparagraphs (i), (ii), (x) and (y).
5.4. Transfer of Shares to a Company Employee or Independent Director
As soon as practicable after receipt by the Company, pursuant to Section
5.3(b), of payment for the shares with respect to which an Option, or portion
thereof, is exercised by an Optionee who is a Company Employee or Independent
Director, with respect to each such exercise, the Company shall transfer to the
Optionee the number of shares equal to
(a) the amount of the payment made by the Optionee to the Company pursuant
to Section 5.3(b), divided by
(b) the price per share of the shares subject to the Option as determined
pursuant to Section 4.2.
5.5. Transfer of Shares to an FWM Employee
(a) As soon as practicable after receipt by FWM, pursuant to Section
5.3(b), of payment for the shares with respect to which an Option, or portion
thereof, is exercised by an Optionee who is an FWM Employee, with respect to
each such exercise:
(i) The Company shall sell to FWM the number of shares (the "FWM
Purchased Shares") equal to (A) the amount of the payment to be made by the
Optionee to FWM pursuant to Section 5.3(b) divided by (B) the price per
share of the shares subject to the Option as determined pursuant to Section
4.2. The price to be paid by FWM to the Company for the FWM Purchased
Shares (the "FWM Purchase Price") shall be an amount equal to the product
of (A) the number of FWM Purchased Shares multiplied by (B) the Fair Market
Value of a share of Common Stock at the time of the exercise;
(ii) FWM shall sell to the Optionee, for a cash price equal to the
Fair Market Value of a share of Common Stock at the time of the exercise,
the number of shares (the "FWM Optionee Purchased Shares") equal to (A) the
amount of the payment to be made by the Optionee to FWM pursuant to Section
5.3(b) divided by (B) the Fair Market Value of a share of Common Stock at
the time of the exercise; and
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(iii) FWM shall transfer to the Optionee at no additional cost, as
additional compensation, the number of shares (the "FWM Compensation
Shares") equal to the number of FWM Purchased Shares less the number of FWM
Optionee Purchased Shares.
(b) As soon as practicable after receipt of the capital contribution
described in Section 5.7, the Partnership shall pay to FWM, as an additional
management fee under the Property Management Agreements an amount in cash equal
to the product of (A) the number of FWM Compensation Shares described in Section
5.5(a)(iii) multiplied by (B) the Fair Market Value of a share of Common Stock
at the time of the exercise.
5.6. Transfer of Shares to a Partnership Employee
As soon as practicable after receipt by the Partnership, pursuant to
Section 5.3(b), of payment for the shares with respect to which an Option, or
portion thereof, is exercised by an Optionee who is a Partnership Employee, with
respect to each such exercise:
(a) The Company shall sell to the Partnership the number of shares (the
"Partnership Purchased Shares") equal to (A) the amount of the payment to be
made by the Optionee to the Partnership pursuant to Section 5.3(b) divided by
(B) the price per share of the shares subject to the Option as determined
pursuant to Section 4.2. The price to be paid by the Partnership to the Company
for the Partnership Purchased Shares (the "Partnership Purchase Price") shall be
an amount equal to the product of (A) the number of Partnership Purchased Shares
multiplied by (B) the Fair Market Value of a share of Common Stock at the time
of the exercise;
(b) The Partnership shall sell to the Optionee, for a cash price equal to
the Fair Market Value of a share of Common Stock at the time of the exercise,
the number of shares (the "Partnership Optionee Purchased Shares") equal to (A)
the amount of the payment to be made by the Optionee to the Partnership pursuant
to Section 5.3(b) divided by (B) the Fair Market Value of a share of Common
Stock at the time of the exercise; and
(c) The Partnership shall transfer to the Optionee at no additional cost,
as additional compensation, the number of shares (the "Partnership Compensation
Shares") equal to the number of Partnership Purchased Shares less the number of
Partnership Optionee Purchase Shares.
5.7. Transfer of Payment to the Partnership
As soon as practicable after receipt by the Company of any of (i) the
amount described in Section 5.3(b) (with respect to Options held by Company
Employees), (ii) the FWM Purchase Price described in Section 5.5 (with respect
to Options held by FWM Employees) or (iii) the Partnership Purchase Price
described in Section 5.6 (with respect to Options held by Partnership
Employees), the Company shall contribute to the Partnership an amount of cash
equal to such payment and the Partnership shall issue an additional General
Partner Interest to the Company with a value equal to the amount of such
contribution.
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5.8. Conditions to Issuance of Stock Certificates
The Company, FWM or the Partnership shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of any Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or regulations of
the Securities and Exchange Commission or any other governmental regulatory body
which the Committee shall, in its sole discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee (or Board, in the case of
Options granted to Independent Directors) shall, in its sole discretion,
determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise of
the Option as the Committee (or Board, in the case of Options granted to
Independent Directors) may establish from time to time for reasons of
administrative convenience; and
(e) The receipt by the Company, FWM, or the Partnership of full payment for
such shares, including payment of any applicable withholding tax.
5.9. Rights as Stockholders
The holders of Options shall not be, nor have any of the rights or
privileges of, stockholders of the Company in respect of any shares purchasable
upon the exercise of any part of an Option unless and until certificates
representing such shares have been issued by the Company to such holders.
5.10. Ownership and Transfer Restrictions
Shares acquired through the exercise of an Option shall be subject to the
restrictions on ownership and transfer set forth in the Company's Amended and
Restated Charter. The Committee (or Board, in the case of Options granted to
Independent Directors), in its sole discretion, may impose such additional
restrictions on the ownership and transferability of the shares purchasable upon
the exercise of an Option as it deems appropriate. Any such restriction shall be
set forth in the respective Stock Option Agreement and may be referred to on the
certificates evidencing such shares. The Committee may require an Employee to
give the Company prompt notice of any disposition of shares of Common Stock
acquired by exercise of an Incentive Stock Option within (i) two years from the
date of granting such Option to such Employee or (ii) one year after the
transfer of such shares to such Employee. The Committee
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may direct that the certificates evidencing shares acquired by exercise of an
Option refer to such requirement to give prompt notice of disposition.
5.11. Restrictions on Exercise of Option
An Option is not exercisable if in the sole discretion of the Committee the
exercise of such Option would likely result in any of the following:
(a) the Optionee's ownership of Capital Stock being in violation of the
Stock Ownership Limit;
(b) income to the Company that could impair the Company's status as a real
estate investment trust, within the meaning of Sections 856 through 860 of the
Code; or
(c) a transfer, at any one time, of more than 0.1% (measured in value or in
number of shares, whichever is more restrictive) of the Company's total Capital
Stock (as defined in the Company's Amended and Restated Charter) from the
Company to FWM or the Partnership pursuant to Section 5.5(a)(i) or 5.6.(a)(i).
Notwithstanding any other provision of this Plan, the Optionee shall have
no rights under this Plan to acquire Common Stock which would otherwise be
prohibited under the Company's Amended and Restated Charter.
ARTICLE VI.
ADMINISTRATION
6.1. Compensation Committee
The Compensation Committee shall consist of three or more Directors,
appointed by and holding office at the pleasure of the Board, each of whom is
not then an officer of the Company and each of whom is both (a) a "non-employee
director" as defined by Rule 16b-3 and (b) an "outside director" for purposes of
Section 162(m) of the Code. Appointment of Committee members shall be effective
upon acceptance of appointment. Committee members may resign at any time by
delivering written notice to the Board. Vacancies in the Committee may be filled
by the Board.
6.2. Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general administration
of this Plan in accordance with its provisions. The Committee shall have the
power to interpret this Plan, the Options and the , and the agreements pursuant
to which the Options are granted, and to adopt such rules for the
administration, interpretation, and application of this Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Notwithstanding the
foregoing, the full Board, acting by a majority of its members in office, shall
conduct the general administration of the Plan with respect to Options granted
to Independent Directors. Any such grant or award
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under this Plan need not be the same with respect to each Optionee or . Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code.
6.3. Majority Rule
The Committee shall act by a majority of its members in attendance at a
meeting at which a quorum is present or by a memorandum or other written
instrument signed by all members of the Committee.
6.4. Compensation; Professional Assistance; Good Faith Actions
Members of the Committee shall receive such compensation for their services
as members as may be determined by the Board. All expenses and liabilities which
members of the Committee or Board incur in connection with the administration of
this Plan shall be borne by the Company. The Committee may, with the approval of
the Board, employ attorneys, consultants, accountants, appraisers, brokers, or
other persons. The Committee, the Board, the Company and the Company's officers
and Directors shall be entitled to rely upon the advice, opinions or valuations
of any such persons. All actions taken and all interpretations and
determinations made by the Committee or Board in good faith shall be final and
binding upon all Optionees, the Company, FWM, the Partnership and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to this Plan, any Option or any , and all members of the Committee and
Board shall be fully protected by the Company in respect of any such action,
determination or interpretation.
6.5. Delegation of Authority
The Committee may in its sole discretion delegate to the Chief Financial
Officer of the Company or the Chief Executive Officer of the Company, or both,
any or all of the administrative duties and authority of the Committee under
this Plan, other than the authority (i) to make grants or awards under this Plan
to Employees who are officers of the Company within the meaning of Rule
16(a)-1(b) of the Exchange Act or whose total compensation is required to be
reported to the Company's stockholders under the Exchange Act or to Section
162(m) Participants, (ii) to determine the price, timing or amount of such
grants or awards or (iii) to determine any other matter required by Rule 16b-3
or Code Section 162(m) to be determined in the sole discretion of the Committee.
6.6. No Liability
No member of the Board or the Committee, or director, officer or employee
of the Company, any Company Subsidiary, FWM, any FWM Subsidiary, the Partnership
or any Partnership Subsidiary shall be liable, responsible or accountable in
damages or otherwise for any determination made or other action taken or any
failure to act by such person so long as such person is not determined to be
guilty by a final adjudication of willful misconduct with respect to such
determination, action or failure to act.
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6.7. Indemnification
To the fullest extent permitted by law, each of the members of the Board
and the Committee and each of the directors, officers and employees of the
Company, any Company Subsidiary, FWM, any FWM Subsidiary, the Partnership and
any Partnership Subsidiary shall be held harmless and be indemnified by the
Company for any liability, loss (including amounts paid in settlement), damages
or expenses (including reasonable attorneys' fees) suffered by virtue of any
determinations, acts or failures to act, or alleged acts or failures to act, in
connection with the administration of this Plan so long as such person is not
determined by a final adjudication to be guilty of willful misconduct with
respect to such determination, action or failure to act.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
7.1. Not Transferable
Options under this Plan may not be sold, pledged, assigned, or transferred
in any manner other than by will or the laws of descent and distribution;
provided, however, that, subject to the Stock Ownership Limit, an Optionee may
designate a Beneficiary to exercise his or her Option or other rights under this
Plan after his or her death. No Option or interest or right therein shall be
liable for the debts, contracts or engagements of the Optionee or his or her
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that nothing in this
Section 7.1 shall prevent transfers by will or by the applicable laws of descent
and distribution. An Option shall be exercised during the Optionee's lifetime
only by the Optionee or his or her guardian or legal representative.
7.2. Amendment, Suspension or Termination of this Plan
This Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board.
Notwithstanding the foregoing, the provisions of the Plan relating to the grant
of Options to Independent Directors and the terms of such Options shall not be
amended more than once every six months, other than to comport with changes in
the Internal Revenue Code, the Employee Retirement Income Security Act or the
respective rules thereunder. Furthermore, without approval of the Company's
stockholders given within twelve months before or after the action by the Board,
no action of the Board may, except as provided in Section 7.3, increase the
limits imposed in Section 2.1 on the maximum number of shares which may be
issued under this Plan, materially modify the eligibility requirements of
Section 3.1, reduce the minimum Option price requirements of Section 4.2, extend
the limit imposed in this Section 7.2 on the period during which Options may be
granted or otherwise materially increase the benefits accruing to participants
under the Plan and no action of the Committee or Board may be taken that would
otherwise require stockholder approval as a matter
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of applicable law, regulation or rule. No amendment, suspension or termination
of this Plan shall, without the consent of the holder of an Option, alter or
impair any rights or obligations under any Option theretofore granted or
awarded, unless the award itself otherwise expressly so provides. No Option may
be granted or awarded during any period of suspension nor after termination of
this Plan, and in no event may any Incentive Stock Option be granted under this
Plan after the first to occur of the following events:
(a) the expiration of ten years from the date the Plan was initially
adopted by the Board; or
(b) the expiration of ten years from the date the Plan was initially
approved by the Company's stockholders under Section 7.5.
7.3. Changes in Common Stock or Assets of the Company
(a) In the event that the outstanding shares of Common Stock are hereafter
changed into or exchanged for cash or a different number or kind of shares or
other securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend, or combination of shares, appropriate adjustments
shall be made by the Committee (or the Board, in the case of Options granted to
Independent Directors) in the number and kind of shares for the purchase of
which Options may be granted including adjustments of the limitation in Section
2.1 on the maximum number and kind of shares which may be issued.
(b) In the event of such a change or exchange, other than for shares or
securities of another corporation or by reason of reorganization, the Committee
(or the Board, in the case of Options granted to Independent Directors) shall
also make an appropriate and equitable adjustment in the number and kind of
shares as to which all outstanding Options, or portions thereof then
unexercised, shall be exercisable. Such adjustment shall be made with the intent
that after the change or exchange of shares, each Optionee's proportionate
interest shall be maintained as before the occurrence of such event. Such
adjustment in an outstanding Option may include a necessary or appropriate
corresponding adjustment in Option exercise price, but shall be made without
change in the total price applicable to the Option, or the unexercised portion
thereof (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices).
(c) Where an adjustment of the type described above is made to an Incentive
Stock Option under this Section, the adjustment will be made in a manner which
will not be considered a "modification" under the provisions of subsection
424(h)(3) of the Code.
(d) In the event of a "spin-off" or other substantial distribution of
assets of the Company which has a material diminutive effect upon the Fair
Market Value of the Company's Common Stock, the Committee (or the Board, in the
case of Options granted to Independent Directors if the Board determines that no
contravention of the requirements of Rule 16b-3(c) (2) (ii) will result) may in
its sole discretion make an appropriate and equitable adjustment to the
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Option exercise price to reflect such diminution.
(e) With respect to Incentive Stock Options and Options granted to Section
162(m) Participants which are intended to qualify as performance-based
compensation under Section 162(m)(4)(C) of the Code, no adjustment or action
described in this Section 7.3 or in any other provision of the Plan shall be
authorized to the extent that such adjustment or action would cause the Plan to
violate Section 422(b)(1) of the Code or would cause such Option to fail to so
qualify under Section 162(m)(4)(C) of the Code, as the case may be, or any
successor provisions thereto. Furthermore, no such adjustment or action shall be
authorized to the extent such adjustment or action would result in short-swing
profits liability under Section 16 of the Exchange Act or violate the exemptive
conditions of Rule 16b-3 unless the Committee (or the Board, in the case of
Options granted to Independent Directors) determines that the Option is not to
comply with such exemptive conditions. The number of shares of Common Stock
subject to any Option shall always be rounded to the next whole number.
7.4. Merger of the Company
In the event of the merger or consolidation of the Company with or into
another corporation, the exchange of all or substantially all of the assets of
the Company for the securities of another corporation, the acquisition by
another corporation or person of all or substantially all of the Company's
assets or 80% or more of the Company's then outstanding voting stock, or the
liquidation or dissolution of the Company:
(a) At the sole discretion of the Committee (or the Board, in the case of
Options granted to Independent Directors), the terms of an Option may provide
that it cannot be exercised after such event.
(b) In its sole discretion, and on such terms and conditions as it deems
appropriate, the Committee (or the Board, in the case of Options granted to
Independent Directors) may provide either by the terms of such Option or by a
resolution adopted prior to the occurrence of such event that, for a specified
period of time prior to such event, such Option shall be exercisable as to all
shares covered thereby, notwithstanding anything to the contrary in (i) Section
4.4 or (ii) the provisions of such Option.
7.5. Approval of Plan by Stockholders
(a) This Plan will be submitted for the approval of the Company's
stockholders within twelve months after the date of the Board's initial adoption
of this Plan. Options may be granted prior to such stockholder approval,
provided that such Options shall not be exercisable prior to the time when this
Plan is approved by the stockholders, and provided further that if such approval
has not been obtained at the end of said twelve-month period, all Options
previously granted under this Plan shall thereupon be canceled and become null
and void. The Company shall take such actions with respect to the Plan as may be
necessary to satisfy the requirements of Rule 16b-3.
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(b) The Plan as amended and restated herein shall be effective as of March
13, 1998; provided, however, that (i) grants to Independent Directors pursuant
to last sentence of Section 3.3(d)(i) and pursuant to Section 3.3(d)(ii) and
(ii) the increase to 1,296,691 of the aggregate number of shares that may be
issued hereunder shall not be effective unless and until the stockholders of the
Company shall have approved such amendments.
7.6. Tax Withholding
The Company, FWM and the Partnership shall be entitled to require payment
or deduction from other compensation payable to each Optionee of any sums
required by federal, state or local tax law to be withheld with respect to any
Option. The Committee (or the Board, in the case of Options granted to
Independent Directors) may in its sole discretion allow such Optionee to elect
to have the Company, FWM or the Partnership withhold shares of Common Stock (or
allow the return of shares of Common Stock) having a Fair Market Value equal to
the sums required to be withheld. If the Optionee elects to advance such sums
directly, written notice of that election shall be delivered on or prior to such
exercise and, whether pursuant to such election or pursuant to a requirement
imposed by the Company, FWM or the Partnership, payment in cash or by check of
such sums for taxes shall be delivered within two days after the date of
exercise. If, as allowed by the Committee (or the Board, in the case of Options
granted to Independent Directors), the Optionee elects to have the Company, FWM
or the Partnership withhold shares of Common Stock (or allow the return of
shares of Common Stock) having a Fair Market Value equal to the sums required to
be withheld, the value of the shares of Common Stock to be withheld (or returned
as the case may be) will be equal to the Fair Market Value of such shares (less
any costs or taxes associated with the sale of such shares) on the date that the
amount of tax to be withheld is to be determined (the "Tax Date"). Elections by
such persons to have shares of Common Stock withheld for this purpose will be
subject to the following restrictions: (v) the election must be made on or prior
to the Tax Date (or such earlier date as may be applicable under Section 5.3,
(w) the election must be irrevocable, (x) the election shall be subject to the
disapproval of the Committee (or the Board, in the case of Options granted to
Independent Directors), (y) if the person is an officer of the Company within
the meaning of Section 16 of the Exchange Act, the election shall be subject to
such additional restrictions as the Committee (or the Board, in the case of
Options granted to Independent Directors) may impose in an effort to secure the
benefits of any regulations thereunder, and (z) any stock ownership resulting
form such withholding shall not violate the Stock Ownership Limit. The Committee
shall not be obligated to issue shares and/or distribute cash to any person upon
exercise of any right until such payment has been received or shares have been
so withheld, unless withholding (or offset against a cash payment) as of or
prior to the date of such exercise is sufficient to cover all such sums due or
which may be due with respect to such exercise.
7.7. Loans
The Committee may, in its sole discretion, extend one or more loans to
Employees in connection with the exercise or receipt of outstanding Options
granted under this Plan. The terms and conditions of any such loan shall be set
by the Committee.
22
<PAGE>
7.8. Limitations Applicable to Section 16 Persons
Notwithstanding any other provision of this Plan, this Plan, and any Option
granted to an Employee who is then subject to Section 16 of the Exchange Act,
shall be subject to any additional limitations set forth in any applicable
exemptive rule under Section 16 of the Exchange Act (including any amendment to
Rule 16b-3 of the Exchange Act) that are requirements for the application of
such exemptive rule.
7.9. Effect of Plan Upon Options and Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Company Subsidiary, FWM, any FWM
Subsidiary, the Partnership or any Partnership Subsidiary. Nothing in this Plan
shall be construed to limit the right of the Company, FWM or the Partnership (a)
to establish any other forms of incentives or compensation for employees and
directors of the Company, any Company Subsidiary, FWM, any FWM Subsidiary, the
Partnership or any Partnership Subsidiary or (b) to grant or assume options or
other rights otherwise than under this Plan in connection with any proper
corporate or partnership purpose including but not by way of limitation, the
grant or assumption of options in connection with the acquisition by purchase,
lease, merger, consolidation or otherwise, of the business, stock or assets of
any corporation, partnership, firm or association.
7.10. Compliance with Laws
This Plan, the granting and vesting of Options under this Plan and the
issuance and delivery of shares of Common Stock and the payment of money under
this Plan or under Options granted hereunder are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law and federal margin requirements) and
to such approvals by any listing, regulatory or governmental authority as may,
in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under this Plan shall be subject
to such restrictions, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance with
all applicable legal requirements. To the extent permitted by applicable law,
the Plan, Options and granted or awarded hereunder shall be deemed amended to
the extent necessary to conform to such laws, rules and regulations.
23
<PAGE>
7.11. Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Plan.
7.12. Governing Law
This Plan and any agreements hereunder shall be administered, interpreted
and enforced under the internal laws of the State of Maryland without regard to
conflicts of laws thereof.
******
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of First Washington Realty Trust, Inc. on March 13, 1998.
Executed on this ____ day of ___, 1998.
----------------------------------
Secretary
*****
I hereby certify that the foregoing Plan was duly adopted by First
Washington Realty Limited Partnership on March 13, 1998.
Executed on this ____ day of ___, 1998.
----------------------------------
Secretary
*****
I hereby certify that the foregoing Plan was duly adopted by the Board of
Directors of First Washington Management, Inc. on March 13, 1998.
Executed on this ____ day of ___, 1998.
----------------------------------
Secretary
*****
I hereby certify that the foregoing Plan was duly approved by the
stockholders of First Washington Realty Trust, Inc. on ___________ __, 1998.
Executed on this ____ day of ___, 1998.
----------------------------------
Secretary
AMENDED AND RESTATED CONTINGENT STOCK AGREEMENT
THIS AMENDED AND RESTATED CONTINGENT STOCK AGREEMENT (this "Agreement"),
dated as of ________ __, 1998 and, subject to stockholder approval as provided
in Section __, effective as of March 13, 1998 (the "Effective Date"), is made by
and between First Washington Realty Trust, Inc., a Maryland corporation (the
"Company"), and _____________, an officer of the Company (the "Employee").
RECITALS
WHEREAS, the Company and the Employee are parties to that certain
Contingent Stock Agreement, dated June 30, 1996 (the "Original Contingent Stock
Agreement") pursuant to which the Employee has been and may in the future be
granted shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"), subject to the performance conditions specified in the Original
Contingent Stock Agreement and herein;
WHEREAS, in connection with the extension and amendment of the Employment
Agreement (as defined below), the Compensation Committee of the Company's Board
of Directors (the "Committee"), has determined that it would be to the advantage
and in the best interest of the Company and its stockholders to provide for the
issuance to the Employee of additional shares of Common Stock, subject to the
performance conditions set forth herein, and has advised the Company thereof;
WHEREAS, the Company desires to insure that compensation payable hereunder
(in the form of Contingent Stock) is deductible without limit under Section
162(m) of the Code (as defined below); and
WHEREAS, the Company and the Employee desire to amend the Original
Contingent Stock Agreement to reflect the foregoing and to amend such agreement
in certain other respects.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1. "Annual Budget" for each of fiscal years 1998 and 1999 shall mean
those targeted performance criteria, which shall include, but not be limited to,
rental and other revenues and net operating income, which the Committee and
senior management of the Company shall mutually determine is appropriate. The
Annual Budget for each fiscal year 1998 and 1999 shall be presented to the
Committee during the first quarter of such fiscal year and shall be subject to
the review and approval of the Committee. In determining whether the Company has
materially met the Annual Budget for fiscal years 1998 and 1999, the Committee
shall make allowances for extraordinary items or events.
Section 1.2. "Board" shall mean the Board of Directors of the Company.
Section 1.3. "Committee" shall mean the Compensation Committee of the Board or
another committee appointed by and serving at the pleasure of the Board, and
shall consist of at least two members of the Board who shall each qualify as
both "outside directors" under Section 162(m) of the Code and as "non-employee
directors" as defined under Rule 16b-3 promulgated under the Exchange Act. The
Committee shall have the sole discretion and authority to administer and
interpret this Agreement.
Section 1.4. "Common Stock" shall mean the Company's common stock, par value
$0.01 per share.
<PAGE>
Section 1.5. "Company" shall mean First Washington Realty Trust, Inc., a
Maryland corporation
Section 1.6. "Contingent Stock" shall mean Common Stock of the Company issued
under this Agreement..
Section 1.7. "Effective Date" shall mean March 13, 1998; provided; that this
Amended and Restated Stock Agreement shall be of no force and effect unless and
until approved by the stockholders of the Company as provided in Section 4.1.
Section 1.8. "Employee" shall mean ______________.
Section 1.9. "Employment Agreement" shall mean that certain Second Amended and
Restated Executive Employment Agreement between the Employee and the Company
dated as of _____ __, 1998.
Section 1.10. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.11. "Original Contingent Stock Agreement" shall mean that certain
Contingent Stock Agreement, dated June 30, 1996.
Section 1.12. "Performance Goals" shall mean, with respect to any fiscal year
2000 through 2002, the Company performance objectives established by the
Committee pursuant to Section 3.2(a), which objectives shall relate to one or
more of the following performance criteria: funds from operations; total return
(measured as the sum of the annual dividend plus increases in the market price
of the Common Stock); portfolio growth (measured as increases in the aggregate
value of the real property in the Company's portfolio, based upon the original
cost of such property); stock price; operating income; cost reductions and
savings; and earnings before any one or more of the following: interest, taxes,
depreciation or amortization.
ARTICLE II.
SHARES AVAILABLE FOR ISSUANCE UNDER THIS AGREEMENT
Section 2.1. Shares of Common Stock Reserved for Issuance. As of the Effective
Date, the Company has issued to the Employee 5,000 shares of Contingent Stock.
The maximum number of shares of Contingent Stock that may be issued to Employee
after the Effective Date shall be 25,000 as specified in Section 3.1 (subject to
adjustment pursuant to Section 4.11); provided, that if the stockholders of the
Company approve this Agreement as contemplated in Section 4.1, the Company may
issue to the Employee up to 75,000 additional shares of Contingent Stock as
specified in Section 3.2 (subject to adjustment pursuant to Section 4.11).
ARTICLE III.
CONDITIONS AND ISSUANCE OF CONTINGENT STOCK
Section 3.1. Conditions and Issuance of Original Contingent Stock. Subject to
Section 3.3, shares of Contingent Stock shall be granted to the Employee on the
dates and in the amounts set forth below if the Committee determines that the
Company has materially met the Company's Annual Budget during the relevant
fiscal year as set forth below. Shares of Contingent Stock shall be granted to
the Employee as specified below notwithstanding termination of his employment
with the Company (i) by the Company pursuant to Section 2(c)(i) of the
Employment Agreement or (ii) by the Employee pursuant to (x) Section 2(d) of the
Employment Agreement, (y) Section 2(e) of the Employment Agreement or (z) the
Company's nonrenewal of the Employment Agreement.
2
<PAGE>
Number of Shares of Contingent
Date of Grant Fiscal Year Stock to be Granted
------------- ----------- ------------------------------
March 31, 1999 1/1/98 - 12/31/98 12,500
March 31, 2000 1/1/99 - 12/31/99 12,500
Section 3.2. Conditions and Issuance of New Contingent Stock.
(a) No later than ninety (90) days following the commencement of each
fiscal year 2000 through 2002, the Committee shall, in writing, establish a
formula for the award of Contingent Stock to the Employee based upon the
Company's attainment of the Performance Goals applicable to such fiscal year.
(b) Subject to Section 3.3, the Employee may receive on the date specified
below up to that number of shares of Contingent Stock as specified below based
upon the attainment of the Performance Goals established for each such fiscal
year. No Contingent Stock shall be granted to the Employee unless and until the
Committee makes a certification in writing with respect to the attainment of the
Performance Goals as required by Section 162(m) of the Code. Shares of
Contingent Stock shall be granted to the Employee as specified below
notwithstanding termination of his employment with the Company (i) by the
Company pursuant to Section 2(c)(i) of the Employment Agreement or (ii) by the
Employee pursuant to (x) Section 2(d) of the Employment Agreement, (y) Section
2(e) of the Employment Agreement or (z) the Company's nonrenewal of the
Employment Agreement. Although the Committee may, in its sole discretion, reduce
the number of shares of Contingent Stock awarded to the Employee pursuant to the
applicable Performance Goal formula for any fiscal year, the Committee shall
have no discretion to increase the number of shares of Contingent Stock as
determined under the applicable Performance Goal formula.
Maximum Number of Shares of Contingent
Date of Grant Fiscal Year Stock to be Granted
------------- ----------- --------------------------------------
March 31, 2001 1/1/00 - 12/31/00 25,000
March 31, 2002 1/1/01 - 12/31/01 25,000
March 31, 2003 1/1/02 - 12/31/02 25,000
Section 3.3. Forfeiture. Notwithstanding any other provision of this Agreement,
no shares of Contingent Stock shall be granted following termination of the
Employee's employment (a) by the Company pursuant to Section 2(c)(ii) of the
Employment Agreement or (b) by the Employee other than pursuant to (x) Section
2(d) of the Employment Agreement, (y) Section 2(e) of the Employment Agreement
or (z) the Company's nonrenewal of the Employment Agreement.
Section 3.4. Issuance of Certificates. Upon the granting of the shares of
Contingent Stock as provided in Sections 3.1 and 3.2, the Company shall cause
certificates with respect to such Contingent Stock to be issued and delivered to
the Employee or his legal representative.
Section 3.5. Legend; Additional Terms.
(a) Unless such shares shall have been registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended,
certificates representing shares of Contingent Stock granted to the Employee
pursuant to this Agreement shall bear the following legend:
3
<PAGE>
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). NO SALE, HYPOTHECATION, TRANSFER OR OTHER
DISPOSITION OF THESE SECURITIES MAY BE MADE UNLESS EITHER (A)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (B) PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT."
(b) The Committee, in its discretion, may impose such further provisions or
limitations on the Contingent Stock as it may deem equitable and in the best
interests of the Company.
ARTICLE IV.
MISCELLANEOUS
Section 4.1. Stockholder Approval; Effectiveness. This Agreement shall be of no
force or effect and no shares of Contingent Stock shall be granted pursuant to
Section 3.2 unless and until the Company's stockholders shall have approved this
Agreement and the Performance Goals as required by Section 162(m) of the Code.
Immediately upon stockholder approval of this Agreement as provided in this
Section 4.1, the Original Contingent Stock Agreement shall terminate and shall
not be of any further force or effect. So long as this Agreement shall have not
have been previously terminated by the Board, it shall be resubmitted for
approval by the Company's stockholders, to the extent required by Section 162(m)
of the Code, if it is amended in any way which materially modifies the
Performance Goals or increases the maximum number of shares of Contingent Stock
payable under Section 3.2.
Section 4.2. Administration. The Committee shall have the power to interpret
this Agreement and all other documents relating to Contingent Stock and to adopt
such rules for the administration, interpretation and application of this
Agreement as are consistent herewith and to interpret, amend or revoke any such
rules. All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon the Employee, the
Company and all other interested persons. No member of the Committee shall be
personally liable for any action, determination or interpretation made in good
faith with respect to Contingent Stock and all members of the Committee shall be
fully protected by the Company in respect to any such action, determination or
interpretation. The Board shall have no right to exercise any of the rights or
duties of the Committee under this Agreement.
Section 4.3. Rights to Contingent Stock Not Transferable. No shares of
Contingent Stock or any interest or right therein or part thereof shall be
liable for the debts, contracts or engagements of the Employee or his successors
in interest or shall be subject to disposition by transfer, alienation,
anticipation, pledge, encumbrance, assignment or any other means whether such
disposition be voluntary or involuntary or by operation of law by judgment,
levy, attachment, garnishment or any other legal or equitable proceedings
(including bankruptcy) and any attempted disposition thereof shall be null and
void and of no effect, unless and until such shares of Contingent Stock have
been granted to the Employee and all restrictions applicable thereto have
lapsed; provided, however, that this Section 4.3 shall not prevent transfers by
will or applicable laws of descent and distribution.
Section 4.4. Conditions to Issuance of Stock Certificates. The Company shall not
be required to issue or deliver any certificate or certificates for shares of
Contingent Stock pursuant to this Agreement prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed; and
4
<PAGE>
(b) The completion of any registration or other qualification of such
shares under any state or Federal law or under rulings or regulations of the
Securities and Exchange Commission or of any other governmental regulatory body,
which the Committee shall, in its discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or
Federal governmental agency which the Committee shall, in its discretion,
determine to be necessary or advisable; and
(d) The payment by the Employee of all amounts required to be withheld,
under federal, state and local tax laws, with respect to the issuance of
Contingent Stock; and
(e) The lapse of such reasonable period of time as the Committee may from
time to time establish for reasons of administrative convenience.
Section 4.5. Notices. Any notice to be given under the terms of this Agreement
to the Company shall be addressed to the Company in care of its secretary, and
any notice to be given to the Employee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
4.5, either party may hereafter designate a different address for notices to be
given to it or him. Any notice which is required to be given to the Employee
shall, if the Employee is then deceased, be given to the Employee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 4.5. Any notice shall
have been deemed duly given when enclosed in a properly sealed envelope or
wrapper addressed as aforesaid, deposited (with postage prepaid) in a post
office or branch post office regularly maintained by the United States Postal
Service.
Section 4.6. Rights as Stockholder. Upon delivery of the shares of Contingent
Stock pursuant to Section 3.1 or 3.2, the Employee shall have all the rights of
a stockholder with respect to said shares, subject to the restrictions specified
herein (including the provisions of Section 4.10), including the right to vote
the shares and to receive all dividends or other distributions paid or made with
respect to such shares.
Section 4.7. Titles. Titles are provided herein for convenience only and are not
to serve as a basis for interpretation or construction of this Agreement.
Section 4.8. Conformity to Securities Laws. This Agreement is intended to
conform to the extent necessary with all provisions of the Securities Act of
1933, as amended, and the Exchange Act and any and all regulations and rules
promulgated by the Securities and Exchange Commission thereunder, including
without limitation Rule 16b-3 promulgated under the Exchange Act.
Notwithstanding anything herein to the contrary, this Agreement shall be
administered, and Contingent Stock shall be issued, only in such a manner as to
conform to such laws, rules and regulations. To the extent permitted by
applicable law, this Agreement and Contingent Stock issued hereunder shall be
deemed amended to the extent necessary to conform to such laws, rules and
regulations.
Section 4.9. Amendment. This Agreement may be amended only by a writing executed
by the parties hereto which specifically states that it is amending this
Agreement. Any amendments to this Agreement shall require stockholder approval
only to the extent required by Section 162(m) of the Code.
Section 4.10. Tax Withholding. The Company's obligation (i) to issue or deliver
to the Employee any certificate or certificates for Contingent Stock and (ii) to
pay to the Employee any dividends or make any distributions with respect to
Contingent Stock is expressly conditioned upon receipt from the Employee, on or
prior to the date the same is required to be withheld, of:
5
<PAGE>
(a) Full payment (in cash or by check) of any amount that must be withheld
by the Company for federal, state and/or local tax purposes; or
(b) With the consent of the Committee, full payment by delivery to the
Company of unrestricted shares of Common Stock previously owned by the Employee
duly endorsed for transfer to the Company by the Employee with an aggregate fair
market value (as determined by the Committee) equal to the amount to be withheld
by the Company for federal, state and/or local tax purposes; or
(c) With the consent of the Committee, full payment by retention by the
Company of a portion of the shares of Contingent Stock to be granted to the
Employee as of such date with an aggregate Fair Market Value (determined as of
the Grant Date) equal to the amount that must be withheld by the Company for
federal, state and/or local tax purposes; or
(d) With the consent of the Committee, any combination of payments provided
for in the foregoing subsections (a), (b) or (c).
Section 4.11. Changes in Common Stock. In the event that the outstanding shares
of Common Stock of the Company are hereafter changed into or exchanged for a
different number or kind of shares or other securities of the Company, or of
another corporation, by reason of reorganization, merger, consolidation,
recapitalization, reclassification, or the number of shares is increased or
decreased by reason of a stock split-up, stock dividend, combination of shares
or any other increase or decrease in the number of such shares of Common Stock
effected without receipt of consideration by the Company (provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration"), the Committee shall
make appropriate adjustments in the number and kind of shares of Contingent
Stock which may be issued.
Section 4.12. Governing Law. The laws of the State of Maryland shall govern the
interpretation, validity, administration, enforcement and performance of the
terms of this Agreement regardless of the law that might be applied under
principles of conflicts of laws.
[remainder of page intentionally left blank]
6
<PAGE>
IN WITNESS HEREOF, this Agreement has been executed and delivered by the
parties hereto.
99
FIRST WASHINGTON REALTY TRUST, INC.
By_________________________________
Its________________________________
___________________________________
Employee
___________________________________
___________________________________
Address
ANNEX A
-------
SENIOR EXECUTIVE INCENTIVE BONUS PROGRAM
APPENDIX TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
1. PURPOSE
-------
The senior executive incentive bonus program (the "Incentive Plan") is
designed to provide meaningful quantitative performance standards and to
ensure that the bonuses paid hereunder are deductible without limit under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations and interpretations promulgated thereunder.
2. THE COMMITTEE
-------------
The "Committee" shall be the Compensation Committee of the Board or another
committee appointed by and serving at the pleasure of the Board, and shall
consist of at least two members of the Board who shall each qualify as both
"outside directors" under Section 162(m) of the Code and as "non-employee
directors" as defined under Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended. The Committee shall have the sole
discretion and authority to administer and interpret the Incentive Plan.
3. BONUS DETERMINATIONS
--------------------
The Executive may receive a bonus payment under the Incentive Plan based
upon the attainment of performance objectives which are established by the
Committee and relate to one or more of the following company performance
goals (the "Performance Goals"): funds from operations, total return
(measured as the sum of the annual dividend plus increases in the market
price of the Common Stock); portfolio growth (measured as increases in the
aggregate value of the real property in the Company's portfolio, based upon
the original cost of such property); stock price; operating income; cost
reductions and savings; and earnings before any one or more of the
following: interest, taxes, depreciation or amortization. Any bonus payable
to the Executive under the Incentive Plan shall be based upon objectively
determinable bonus formulas that tie such bonuses to one or more objective
performance criteria relating to the Performance Goals. Bonus formulas for
each fiscal year commencing on or after January 1, 1999 through December
31, 2002 shall be established by the Committee no later than the latest
time permitted by Section 162(m) of the Code (generally, for performance
periods of one year or more, no later than 90 days after the commencement
of the performance period). No bonuses shall be paid to the Executive
unless and until the Committee makes a certification in writing with
respect to the attainment of the performance objectives as required by
Section 162(m) of the Code. Although the
<PAGE>
Committee may in its sole discretion reduce a bonus payable to the
Executive pursuant to the applicable bonus formula, the Committee shall
have no discretion to increase the amount of the Executive's bonus as
determined under the applicable bonus formula. The target annual incentive
bonus payable to the Executive under the Incentive Plan with respect to any
fiscal year of the Company shall be 50% of his base salary as in effect at
the start of the applicable year, and shall not exceed 100% of such base
salary. The payment of a bonus to the Executive with respect to a
performance period shall be conditioned upon the Executive's employment by
the Company on the last day of the performance period; provided, however,
that the Committee may make exceptions to this requirement, in its sole
discretion, in the case of the Executive's retirement, death or disability.
4. AMENDMENT AND TERMINATION
-------------------------
The Incentive Plan may be amended or terminated only by written agreement
executed by the Executive and the Company. Any amendments to the Incentive
Plan shall require stockholder approval only to the extent required by
Section 162(m) of the Code.
5. STOCKHOLDER APPROVAL
--------------------
No bonuses shall be paid under the Incentive Plan unless and until the
Company's stockholders shall have approved the Incentive Plan and the
Performance Goals as required by Section 162(m) of the Code. So long as the
Incentive Plan shall not have been previously terminated by the Board, it
shall be resubmitted for approval by the Company's stockholders, to the
extent required by Section 162(m) of the Code, if it is amended in any way
which materially modifies the Performance Goals or increases the maximum
bonus payable under the Incentive Plan.
