UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---- ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1999
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____ to _____
Commission File Number 0-25230
FIRST WASHINGTON REALTY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-1879972
(State of Incorporation or Organization) (I.R.S. employer
identification no.)
4350 East-West Highway (301) 907-7800
Suite 400 (Registrant's telephone
Bethesda, MD 20814 number, including area code)
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
- ------------------- -----------------------------------------
Common Stock, $.01 par value New York Stock Exchange
9.75% Series A Cumulative Participating Convertible Preferred
Stock Liquidation Preference of $25 per Share New York Stock Exchange
Class B Junior Participating Preferred Stock
Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $190 million based on the closing price of such
shares on the New York Stock Exchange as of March 27, 2000.
The number of shares of the Registrant's Common Stock outstanding was 10,057,847
on March 27, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Portions of the definitive proxy statement for the Annual Meeting of
Shareholders presently scheduled to be held on May 12, 2000, to be filed
pursuant to Regulation 14A.
This report including Exhibits, contains 55 pages.
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
1999 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Item
No. Page
- ---- ----
PART I
1. Business............................................................... 1
2. Properties............................................................. 7
3. Legal Proceedings...................................................... 11
4. Submission of Matters to a Vote of Security Holders.................... 11
PART II
5. Market for the Registrant's Common Equity and Related Shareholder
Matters............................................................ 12
6. Summary of Selected Financial Data..................................... 13
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 15
7a. Qualitative and Quantitative Disclosures About Market Risk............. 21
8. Consolidated Financial Statements and Supplementary Data............... 22
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures.......................................... 22
PART III
10. Directors and Executive Officers of the Company........................ 23
11. Executive Compensation................................................. 23
12. Security Ownership of Certain Beneficial Owners and Management......... 23
13. Certain Relationships and Related Transactions......................... 23
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....... 23
<PAGE>
PART I
ITEM 1. BUSINESS (dollars in thousands)
General
First Washington Realty Trust, Inc. (the "Company") is a fully
integrated real estate organization with expertise in acquisitions, property
management, leasing, renovation and development of principally
supermarket-anchored neighborhood shopping centers. The Company currently owns a
portfolio of 62 retail properties (the "Retail Properties") containing a total
of approximately 6.7 million square feet of gross leasable area ("GLA") located
in the Mid-Atlantic region and the Chicago, Illinois and Milwaukee, Wisconsin
metropolitan areas. The Company has elected to be taxed as a real estate
investment trust ("REIT") under the Internal Revenue Code of 1986, as amended
(the "Code").
The Retail Properties are strategically located neighborhood shopping
centers principally anchored by well known tenants such as Giant Food, Safeway,
Shoppers Food Warehouse, Food Lion, A&P Superfresh, Winn Dixie, Weis Markets,
Acme Market, Dominick's Supermarket, Ukrops, CVS/Pharmacy, Walgreen's, Borders
Books, Eckerd Drug and Rite Aid. Neighborhood shopping centers are typically
open-air centers ranging in size from 50,000 to 150,000 square feet of GLA and
anchored by supermarkets and/or drug stores. The Retail Properties range in size
from approximately 3,000 square feet of GLA to approximately 335,000 square feet
of GLA, and average approximately 108,000 square feet of GLA. The anchor tenants
typically offer daily necessity items rather than specialty goods. Nine of the
Retail Properties are relatively small in size, with less than 50,000 square
feet of GLA. Such properties do not have a large supermarket or drug store
anchor tenant, and as such may be subject to greater variability in consumer
traffic and operating performance.
Organization
The Company was formed in April 1994 to continue and expand the
neighborhood shopping center acquisition, management and renovation strategies
of First Washington Management, Inc. ("FWM"), which has been engaged in the
business since 1983. FWM was founded by Stuart D. Halpert, the Company's
Chairman and William J. Wolfe, the Company's President and Chief Executive
Officer (collectively the "Principals").
The Company's assets are held by, and all its operations conducted
through, First Washington Realty Limited Partnership (the "Operating
Partnership") and FWM. The Company is the sole general partner of the Operating
Partnership. The limited partners are individuals, partnerships and others who
have contributed their property in exchange for partnership interests ("Units").
The limited partners may exchange their Units for cash or, at the option of the
Company, for stock of the Company on a 1 for 1 basis. As of December 31, 1999
and 1998, the Company owned approximately 74% and 73% of the Operating
Partnership, respectively. This arrangement is commonly referred to as an
Umbrella Partnership or "UPREIT" structure. The Operating Partnership owns 100%
of the non-voting preferred stock of FWM which entitles it to 99% of the cash
flow. Messrs. Halpert and Wolfe own 100% of the voting common stock of FWM which
entitles them to 1% of the cash flow. In addition, the Operating Partnership
holds an FWM promissory note in the amount of $4,000 with interest payable
quarterly in the amount of $120. FWM provides management, leasing and related
services to the Operating Partnership and also provides such services to 11
third-party clients consisting of 21 properties and 1.8 million square feet of
GLA. As of December 31, 1999, the Company and the Operating Partnership,
including subsidiary entities, collectively owned 100% of the Retail Properties.
Due to the Company's ability, as the general partner, to exercise both financial
and operational control over the Operating Partnership, the Operating
Partnership is consolidated for financial reporting purposes. Allocation of net
income and equity to the limited partners of the Operating Partnership is based
on their respective partnership interests and is reflected in the accompanying
Consolidated Financial Statements as minority interests. Losses allocable to the
limited partners in excess of their basis are allocated to the Common
Stockholders as the limited partners have no requirement to fund losses.
The Company is incorporated in the State of Maryland with its
headquarters located at 4350 East-West Highway, Suite 400, Bethesda, Maryland.
The telephone number is (301) 907-7800. FWM has regional property management
offices located in Illinois, Pennsylvania and Virginia. FWM has approximately 75
employees.
1
<PAGE>
Operating Strategies
The Company seeks to increase cash flow and distributions, as well as
the value of its portfolio, through intensive property management and strategic
renovation and expansion of its properties and the opportunistic acquisition of
additional neighborhood shopping centers within the Mid-Atlantic region and the
Chicago, Illinois and Milwaukee, Wisconsin metropolitan areas, where the Company
has extensive knowledge of local market growth patterns and economic conditions.
The Company would also consider acquisitions in other metropolitan markets which
management determines to be both attractive and conveniently accessible.
Intensive Management. A key aspect of the Company's strategy is
improving the operating performance of its properties over time through
intensive property management. The Company seeks to increase operating margins
through a combination of increasing revenues (through increased occupancy and/or
rental rates), maintaining high tenant retention rates (i.e., the percentage of
tenants who renew their leases upon expiration), and aggressively managing
operating expenses.
The Company believes that, as a fully integrated real estate
organization with both owned and third-party managed properties, it enjoys
significant operating efficiencies relative to many of its competitors that
operate smaller, fragmented portfolios. These operating efficiencies are the
result of economies of scale in operating expenses, more effective leasing and
marketing efforts, and enhanced tenant retention levels. The Company also
benefits from effectively spreading certain fixed property management and
leasing costs over its entire owned and third-party managed portfolio.
Management believes that the scope of the Company's portfolio, combined with
managements' professional and community ties to the Mid-Atlantic region and the
Chicago, Illinois and Milwaukee, Wisconsin metropolitan areas, enables the
Company to develop long-term relationships with national and regional tenants
which occupy multiple properties in its portfolio, which improves occupancy
rates and tenant retention levels.
Strategic Renovation and Expansion. The Company seeks to increase
operating results through the strategic renovation and expansion of certain of
the Retail Properties. The Retail Properties are typically adaptable for varied
tenant layouts and can be reconfigured to accommodate new tenants or the
changing space needs of existing tenants. In determining whether to proceed with
a renovation or expansion, the Company considers both the cost of such expansion
or renovation and the increase in rent attributable to such expansion or
renovation. The Company believes that many of the Retail Properties provide
opportunities for renovation and expansion.
The following table sets forth information with respect to the
Company's recent and ongoing renovations and expansions:
<TABLE>
<CAPTION>
Additional
Name Description Cost Square Feet
---- ----------- ---- -----------
<S> <C> <C> <C>
1999 Completed Projects:
-----------------------
City Avenue
Shopping Center Common area renovation $ 230 --
Newtown Square
Shopping Center Acme expansion
and common area renovation 1,238 20,944
Mallard Creek Common area renovation 290 --
Stonebrook Plaza Common area renovation 180 --
------ ------
$1,938 20,944
====== ======
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Estimated
Completion Estimated Additional
Name Description Date Cost Square Feet
---- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
2000 Projects:
-------------
Parkville Shopping Center Facade, common area renovation
and expansion of A&P Superfresh Fourth Quarter 2000 $ 2,400 22,500
Saratoga Shopping Center Facade & common area renovation Third Quarter 2000 800 -
Willston Centre I & II Facade & common area renovation Second Quarter 2000 1,500 -
The Village Facade renovation Second Quarter 2000 175 -
------ ------
$4,875 22,500
====== ======
</TABLE>
As a fully-integrated real estate organization, the Company maintains
expertise in the development of new retail properties, having developed three of
the FWM Properties containing approximately 525,000 square feet of GLA.
Management believes the Company's principal anchor tenants and other real estate
professionals present the Company with development opportunities which the
Company may pursue.
Opportunistic Acquisitions. Another principal component of the
Company's strategy is the acquisition of additional neighborhood shopping
centers within the Mid-Atlantic region and the Chicago, Illinois and Milwaukee,
Wisconsin metropolitan areas. The Company will seek to acquire properties which
are strategically located along major traffic arteries in well-established,
densely populated communities. The Company typically selects properties in
locations where it believes the supply of developable land and zoning
restrictions impede the development of competing shopping centers and where
tenants' location alternatives are limited. The Company would also consider
acquisitions in other metropolitan markets which management determines to be
both attractive and conveniently accessible.
Through its third-party management, leasing and related service
business and network of regional management and leasing offices, the Company is
familiar with local conditions in its given markets. Because the Company's
third-party clients frequently seek assistance with the revitalization and
disposition of the properties, the Company believes it is in a unique position
to ultimately acquire such properties. For example, FWM provided property
management and leasing services for nine properties acquired from third-party
clients. The Company believes opportunities for neighborhood shopping center
acquisitions are particularly attractive at this time because of the
fragmentation in ownership of such properties and the decline in the
construction of new retail properties.
When evaluating potential acquisitions, the Company will consider such
factors as: (i) economic, demographic, and regulatory conditions in the
property's local and regional market; (ii) the location, construction quality,
and design of the property; (iii) the current and projected cash flow of the
property and the potential to increase cash flow; (iv) the potential for capital
appreciation of the property; (v) the terms of tenant leases, including the
relationship between the property's current rents and market rents and the
ability to increase rents upon lease rollover; (vi) the occupancy and demand by
tenants for properties of a similar type in the market area; (vii) the potential
to complete a strategic renovation, expansion, or retenanting of the property;
(viii) the property's current expense structure and the potential to increase
operating margins; and, (ix) competition from comparable retail properties in
the market area. The Company successfully completed the acquisition of 51
properties since its organization in April 1994.
Financing Strategies
The Company intends to finance its acquisition and development
activities with the most appropriate sources of capital available at the time,
which may include undistributed funds from operations, the net proceeds from
issuance of equity securities (including Operating Partnership Units), bank and
other institutional borrowings, sale of properties, and the issuance of debt
securities.
Future borrowings may be either on a secured or unsecured basis. The
Company's ratio of debt to total market capitalization as of December 31, 1999
was approximately 48.1%. The Company is subject to a number of risks associated
with borrowing, including the uncertainty associated with the ability of the
Company to refinance mortgage indebtedness of approximately $74.6 million
maturing in 2000 and 2001, that the indebtedness might be refinanced on less
favorable terms, that there is a lack of limitations on the amount of
indebtedness that the Company may incur, that interest rates
3
<PAGE>
might increase on variable rate or refinanced indebtedness and that the
Company's level of leverage may limit its ability to grow through additional
debt financing.
Marketing and Promotion
The Company engages in various marketing and promotional activities
designed to increase consumer traffic, retail sales and percentage rents at its
Properties.
Environmental Regulations
The Company, as an owner of real estate, is subject to various
environmental laws of Federal and local governments. Compliance by the Company
with existing laws has not had a material adverse effect on its financial
condition and management does not believe it will have such an effect in the
future. However, the Company cannot predict the impact of new or changed laws or
regulations on its current Properties. All of the Properties have been subjected
to Phase I environmental audits. A summary of environmental issues is set forth
below:
Contamination caused by dry cleaning solvents has been detected in
groundwater below the Penn Station Shopping Center. The source of the
contamination has not been determined. Potential sources include a dry cleaner
tenant at the Penn Station Shopping Center and a dry cleaner located in an
adjacent property. Sampling conducted at the site indicates that the
contamination is limited and is unlikely to have any affect on human health. The
Company has made a request for closure to the State of Maryland. Management
believes that there is minimal exposure at this time, and therefore has not
recorded an environmental clean-up liability.
Petroleum has been detected in the soil of a parcel adjacent to the Fox
Mill Shopping Center on property occupied by Exxon Corporation ("Exxon") for use
as a gas station (the "Exxon Station"). Exxon has taken steps to remediate the
petroleum in and around the Exxon Station, which is located down gradient from
the Fox Mill Shopping Center. Exxon has agreed to take full responsibility for
the remediation of such petroleum. Currently, the Company is not aware of any
contamination of the Company's property and none is expected to occur. In
addition, a dry cleaning solvent has been detected in the groundwater below the
Fox Mill Shopping Center. A groundwater pump and treatment system, approved by
the Virginia Water Control Board, was installed in July 1992, and was operating
until recently when the Control Board ordered quarterly sampling to determine if
further remediation is necessary. The previous owner of the Fox Mill Shopping
Center has since made a request for closure to the Virginia Department of
Environmental Quality. The previous owner has also agreed to pay for the costs
of running the pumps and monitoring the contamination and has agreed to fully
remediate the groundwater contamination to the extent required by the applicable
regulatory authority. Management believes that there is minimal exposure at this
time and, therefore, has not recorded an environmental clean-up liability.
A dry cleaning solvent has been detected in the soil and groundwater
below the Four Mile Fork Shopping Center. Testing conducted at the site
indicates that the contamination is limited and is unlikely to have any affect
on human health. In addition, the previous owner of the Four Mile Fork Shopping
Center has provided an indemnification for all costs and expenses to obtain
closure from the responsible regulatory authority, and the Commonwealth of
Virginia Department of Environmental Quality has issued a Certificate of
Satisfactory Completion of Remediation. Management believes that there is
minimal exposure at this time and, therefore, has not recorded an environmental
clean-up liability.
A dry cleaning solvent has been detected in the soil below the Bowie
Plaza Shopping Center. Testing done at the site indicates that the contamination
is limited and is unlikely to have any affect on human health. In addition, the
previous owner of the property has provided an indemnification for all costs and
expenses to obtain closure from the responsible regulatory authority. Also,
petroleum has been detected in the soil and groundwater beneath the property
arising from a release from an adjoining Shell service station not owned by the
Company. Shell is liable for the clean up and is currently performing clean up
activities. Also, the contamination is unlikely to have an affect on human
health. In light of the above, management believes that there is minimal
exposure at this time and, therefore, has not recorded an environmental clean-up
liability for either of these items.
Petroleum has been detected in the soil and groundwater beneath the
Newtown Square Shopping Center arising from a release from an adjoining Mobil
service station not owned by the Company. Mobil is liable for the clean up and
is currently performing clean up activities. Also, the contamination is unlikely
to have an affect on human health. In light of the above, management believes
that there is minimal exposure at this time and, therefore, has not recorded an
environmental clean-up liability for either of these items.
4
<PAGE>
Dry cleaning solvent and hydraulic fluid has been detected in the soil
below the Riverside Square. Testing done at the site indicates that the
contamination is limited and is unlikely to have any affect on human health, and
the environmental consultant recommended that no further investigation or
remediation was warranted at that time. In light of the above, management
believes that there is minimal exposure at this time and, therefore, has not
recorded an environmental clean-up liability.
Petroleum has been detected in the soil and groundwater beneath an
Exxon service station not owned by the Company which is adjacent to the Spring
Valley Shopping Center. Exxon is liable for the clean up and is currently
performing clean up activities. Also, the contamination is unlikely to have an
affect on human health. In light of the above, management believes that there is
minimal exposure at this time and, therefore, has not recorded an environmental
clean-up liability.
Petroleum has been detected in the soil below the Parkville Shopping
Center. Testing conducted at the site indicates that the contamination is
limited and is unlikely to have any affect on human health. In addition, the
previous owner of the Parkville Shopping Center provided an indemnification for
all costs and expenses to obtain closure from the responsible regulatory
authority, and the Maryland Department of the Environment has issued a "no
further action" letter. Management believes that there is minimal exposure at
this time and, therefore, has not recorded an environmental clean- up liability.
Petroleum and a dry cleaning solvent have been detected in the soil and
groundwater below The Village Shopping Center. Testing conducted at the site
indicates that the contamination is limited and is unlikely to have any affect
on human health. In addition, the previous owner of The Village Shopping Center
provided an indemnification for all costs and expenses to obtain closure from
the responsible regulatory authority, and the Commonwealth of Virginia
Department of Environmental Quality has issued a "no further action" letter.
Management believes that there is minimal exposure at this time and, therefore,
has not recorded an environmental clean-up liability.
Dry cleaning solvent has been detected in the soil and groundwater
below the Kamp Washington Shopping Center. Testing conducted at the site
indicates that the contamination is largely confined to the site and poses
minimal risk to public health or the environment. In addition, the previous
owner of the Kamp Washington Shopping Center has agreed to be responsible for a
portion of the costs and expenses to obtain closure from the responsible
regulatory authority. Management believes that there is minimal exposure at this
time and, therefore, has not recorded an environmental clean- up liability at
this time.
Dry cleaning solvent has been detected in the soil and groundwater
below the Westmont Plaza Shopping Center. Testing conducted at the site
indicates that the contamination is limited and is unlikely to have any affect
on human health. In addition, the previous owner of the Westmont Plaza Shopping
Center provided an indemnification for all costs and expenses to obtain closure
from the responsible regulatory authority. Management believes that there is
minimal exposure at this time and, therefore, has not recorded an environmental
clean-up liability.
Petroleum and a dry cleaning solvent have been detected in the soil and
groundwater below the Woodmoor Shopping Center. Testing conducted at the site
indicates that the contamination is limited and is unlikely to have any affect
on human health. In addition, the previous owner of the Woodmoor Shopping Center
provided an indemnification for all costs and expenses to obtain closure from
the responsible regulatory authority. Steuart Petroleum is liable for any clean
up of the petroleum and is pursuing closure. Management believes that there is
minimal exposure at this time and, therefore, has not recorded an environmental
clean-up liability.
Insurance
The Company's tenants are generally responsible for providing adequate
insurance on the Retail Properties they lease. The Company believes the Retail
Properties are covered by adequate fire, flood and property insurance provided
by reputable companies. However, some of the Retail Properties are not covered
by disaster insurance with respect to certain hazards (such as earthquakes) for
which coverage is not available or available only at rates which, in the opinion
of the Company, are prohibitive.
Certain statements in this Form 10-K may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results of the
Company to be materially different from historical results or from any results
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors include, but are not limited to,
5
<PAGE>
the following risks: risks associated with borrowing; limitations on the level
of distributions payable on the Common Stock; the level of distributions on
Common Stock that represent a return of capital for Federal income tax purposes;
general real estate investment and financing risks; risks associated with the
Company's third-party business; possible conflicts of interest; limitations on
the stockholders' ability to change control of the Company and failure of the
Company to qualify as a REIT.
6
<PAGE>
Item 2 Properties
The Following table sets forth certain information relating to the Properties
as of December 31, 1999
FIRST WASHINGTON REALTY TRUST INC
PROPERTY SUMMARY TABLE
<TABLE>
<CAPTION>
LAND LEASABLE
YEAR YEAR AREA AREA PERCENT
PROPERTY LOCATION BUILT ACQUIRED (ACRES) (SQFT) LEASED
-------- -------- ----- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
WASHINGTON DC METRO
Bowie Plaza Bowie, MD 1966 1998 10.8 104,836 97.1%
Bryans Road Shopping Center Bryans Road, MD 1972 1990 11.8 118,676 98.3%
Capital Corner Shopping Center Landover , MD 1987 1987 4.1 42,625 76.0%
Clinton Square Shopping Center Clinton, MD 1979 1984 2.0 18,961 62.4%
Cloppers Mills Vilage Shopping Center Germantown, MD 1995 1996 14.2 137,035 99.0%
Firstfield Shopping Center Gaithersburg, MD 1978 1995 2.4 22,327 100.0%
Mitchellville Plaza Mitchellville, MD 1991 1997 14.5 155,674 96.2%
Penn Station Shopping Center (1) District Heights, MD 1989 1987 22.5 334,970 79.1%
Prince George's County Commercial Park Beltsville, MD 1988 1985 9.7 146,422 90.3%
Rosecroft Shopping Center Temple Hills, MD 1963 1985 8.3 119,010 93.5%
Takoma Park Shopping Center Takoma Park, MD 1960 1996 9.8 108,168 100.0%
Watkins Park Plaza Mitchellville, MD 1985 1998 12.8 112,143 97.9%
Woodmoor Shopping Center Silver Spring, MD 1954 1999 3.1 67,394 98.4%
Ashburn Farm Village Center Ashburn, VA 1996 1997 10.2 88,917 100.0%
Brafferton Center Garrisonville, VA 1974 1994 9.4 94,731 98.3%
Centre Ridge Marketplace Centreville, VA 1996 1996 10.9 104,154 98.8%
Chesapeake Bagel Building Alexandria, VA 1800's 1983 0.1 11,288 100.0%
Davis Ford Crossing Manassas,VA 1988 1994 20.8 149,917 86.7%
Four Mile Fork Shopping Center Fredericksburg, VA 1975 1997 10.3 101,360 90.5%
Fox Mill Shopping Center Reston, VA 1977 1994 14.0 103,269 94.3%
Kamp Washington Shopping Center Fairfax, VA 1960 1999 5.9 71,825 100.0%
Kings Park Shopping Center Burke, VA 1966 1996 8.6 78,013 100.0%
Potomac Plaza Woodbridge,VA 1963 1986 5.4 85,400 97.4%
Saratoga Shopping Center Springfield, VA 1977 1999 11.3 101,587 94.1%
Town Center at Sterling Sterling, VA 1973-1978 1998 14.3 185,071 100.0%
Willston Centre I Falls Church, VA 1952 1998 5.9 86,468 100.0%
Willston Centre II Falls Church, VA 1986 1998 10.6 127,434 100.0%
The Georgetown Shops (3) Washington, DC Late 1800's 1981-1989 0.2 9,052 100.0%
Connecticut Avenue Shops Washington, DC 1954 1986 0.1 3,000 100.0%
Spring Valley Shopping Center Washington, DC 1930 1997 0.9 16,834 100.0%
</TABLE>
<TABLE>
<CAPTION>
SIGNIFICANT TENANTS
PROPERTY (LEASE EXPIRATION DATES) ENCUMBRANCES
-------- ------------------------ ------------
(in 000's)
<S> <C> <C>
WASHINGTON DC METRO
Bowie Plaza Giant (2002), CVS (2003) $ 4,703
Bryans Road Shopping Center Safeway (2014), CVS (2006)
Capital Corner Shopping Center
Clinton Square Shopping Center
Cloppers Mills Village Shopping Center Shoppers Food Warehouse (2015), CVS (2006), 13,627
Firstfield Shopping Center 2,416
Mitchellville Plaza Food Lion (2016) 14,249
Penn Station Shopping Center (1) Safeway (n/a)
Prince George's County Commercial Park
Rosecroft Shopping Center Food Lion (2015)
Takoma Park Shopping Center Shoppers Food Warehouse (2011) 44,000(2)
Watkins Park Plaza Safeway (2007), CVS (2006) (2)
Woodmoor Shopping Center CVS (2005)
Ashburn Farm Village Center A & P Superfresh (2016) 6,537
Brafferton Center Giant Food (2009)
Centre Ridge Marketplace A & P Superfresh (2016); Sears Paint & Hardware (2007) (2)
Chesapeake Bagel Building 735
Davis Ford Crossing Weis Markets (2010), CVS (2005) 10,617
Four Mile Fork Shopping Center CVS (2001) (2)
Fox Mill Shopping Center Giant Food(2018) 11,724
Kamp Washington Shopping Center Borders Books (2010) 2,979
Kings Park Shopping Center Giant (2013), CVS (2003) 4,458
Potomac Plaza 2,579
Saratoga Shopping Center Giant Food (2002) 6,776
Town Center at Sterling Giant Food (2003) 8,847
Willston Centre I CVS (2003)
Willston Centre II Safeway (2015) 10,132
The Georgetown Shops (3)
Connecticut Avenue Shops
Spring Valley Shopping Center CVS (2009)
</TABLE>
7
<PAGE>
Item 2 Properties
FIRST WASHINGTON REALTY TRUST INC
PROPERTY SUMMARY TABLE
(Continued)
<TABLE>
<CAPTION>
LAND LEASABLE
YEAR YEAR AREA AREA PERCENT
PROPERTY LOCATION BUILT ACQUIRED (ACRES) (SQFT) LEASED
-------- -------- ----- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
BALTIMORE METRO
Elkridge Corners Shopping Center Elkridge, MD 1990 1998 8.4 73,529 100.0%
Festival At Woodholme Baltimore, MD 1986 1995 7.1 81,027 100.0%
Northway Shopping Center Millersville, MD 1987 1996 9.6 98,016 93.2%
Parkville Shopping Center Baltimore, MD 1961 1998 12.7 140,925 97.0%
Southside Marketplace Baltimore, MD 1990 1996 9.1 125,146 96.6%
Valley Centre Owings Mills, MD 1987 1994 33.0 251,928 93.1%
CHICAGO METRO
McHenry Commons McHenry, IL 1988 1997 11.5 100,526 98.6%
Mallard Creek Round Lake Beach, IL 1987 1997 14.9 143,759 100.0%
Riverside Square/River's Edge Chicago, IL 1986 1997 17.7 169,435 94.1%
Stonebrook Plaza Merrionette Park, IL 1984 1997 8.1 95,825 96.1%
The Oaks Shopping Center Des Plaines, IL 1983 1997 16.7 135,030 95.5%
RICHMOND, VA. METRO
Glen Lea Shopping Center Richmond, VA 1969 1995 9.2 77,603 100.0%
Hanover Village Shopping Center Mechanicsville, VA 1971 1995 9.5 96,146 98.3%
Laburnum Park Shopping Center(5) Richmond, VA 1988 1995 9.3 113,992 97.7%
Laburnum Square Shopping Center Richmond, VA 1975 1995 11.4 109,405 87.3%
The Village Shopping Center Richmond, VA 1948 1998 11.7 110,885 99.6%
PHILADELPHIA METRO
City Avenue Shopping Center Philadelphia, PA 1950's-60's 1997 12.2 161,454 96.3%
Mayfair Shopping Center Philadelphia, PA 1988 1994 5.7 115,027 99.0%
Newtown Square Shopping Center Newtown Square, PA 1960's-70's 1996 14.4 142,210 97.6%
Westmont Plaza Shopping Center Hadden Township, NJ 1953/1983 1999 9.5 52,640 100.0%
WILMINGTON, DE. METRO
First State Plaza New Castle, DE 1988 1994 21.0 164,569 99.0%
Newark Shopping Center Newark, Delaware 1950's- 87 1999 16.8 182,860 91.5%
Shoppes of Graylyn Wilmington, DE 1971 1997 5.0 66,676 100.0%
</TABLE>
<TABLE>
<CAPTION>
SIGNIFICANT TENANTS
PROPERTY (LEASE EXPIRATION DATES) ENCUMBRANCES
-------- ------------------------ ------------
(in 000's)
<S> <C> <C>
BALTIMORE METRO
Elkridge Corners Shopping Center A & P Superfresh (2015), Rite Aid (2005) 6,322
Festival At Woodholme Sutton Place Gourmet (2006) 11,238
Northway Shopping Center Metro Foods (2007) 6,043
Parkville Shopping Center A & P Superfresh (2015),Rite Aid (2001) 3,409
Southside Marketplace Metro Foods (2016), Rite Aid (2001) 7,848
Valley Centre Weis Markets(2007),TJ Maxx(2007),Sony Theaters (2005) 21,562
CHICAGO METRO
McHenry Commons Dominick's Finer Foods (2008) 6,640
Mallard Creek Dominick's Finer Foods (2008) 10,802
Riverside Square/River's Edge Dominick's Finer Foods (2017)
Stonebrook Plaza Dominick's Finer Foods (2005) 5,770
The Oaks Shopping Center Dominick's Finer Foods (2017) 9,242
RICHMOND, VA. METRO
Glen Lea Shopping Center Winn Dixie (2005), Eckerd Drug (2005) 12,627(4)
Hanover Village Shopping Center Rack 'N Sack (2008), Rite Aid (2003)
Laburnum Park Shopping Center (5) Ukrop's Supermarket (n/a), Rite Aid (2007) (4)
Laburnum Square Shopping Center Hannaford Brothers Supermarket (2013) (4)
The Village Shopping Center Ukrop's Super Market (2019), CVS (2003) (4)
PHILADELPHIA METRO
City Avenue Shopping Center Acme Supermarkets(2004), Eckerd Drug(2004),T J Maxx(2001) 9,581
Mayfair Shopping Center Shop 'N Bag Supermarket(2013), Eckerd Drug (2006) 6,650
Newtown Square Shopping Center Acme Supermarkets(2014), Eckerd Drug (2004) (2)
Westmont Plaza Shopping Center Acme (2000), CVS (2005)
WILMINGTON, DE. METRO
First State Plaza Shop Rite Supermarket(2009), Cinemark USA(2011), 13,594
Newark Shopping Center 9,337
Shoppes of Graylyn Rite Aid (2016) (2)
</TABLE>
8
<PAGE>
Item 2 Properties
FIRST WASHINGTON REALTY TRUST INC
PROPERTY SUMMARY TABLE
(Continued)
<TABLE>
<CAPTION>
LAND LEASABLE
YEAR YEAR AREA AREA PERCENT
PROPERTY LOCATION BUILT ACQUIRED (ACRES) (SQFT) LEASED
-------- -------- ----- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
MILWAUKEE METRO
Cudahy Center Cudahy, WI 1972 1999 7.2 103,254 84.6%
Racine Centre Mount Pleasant, WI 1988 1999 13.4 135,827 96.4%
Whitnall Square St. Francis, WI 1989 1999 15.9 133,301 94.7%
CENTRAL PENNSYLVANIA
Allen Street Shopping Center Allentown, PA 1958 1996 4.1 46,503 97.4%
Colonial Square Shopping Center York, PA 1955 1990 2.9 28,640 100.0%
Kenhorst Plaza Shopping Center Kenhorst, PA 1990 1995 19.2 161,424 98.9%
Stefko Boulevard Shopping Center Bethlehem, PA 1958-60-75 1996 10.3 135,864 95.6%
RALIEGH, NC.
Shoppes Of Kildaire Cary, NC 1986 1986 14.0 148,204 100.0%
CHARLESTON, SC.
James Island Shopping Center Charleston, SC 1967 1990 6.5 88,557 100.0%
----- --------- -----
TOTAL/AVERAGE 642.9 6,696,748 95.4%
===== ========= ====
</TABLE>
<TABLE>
<CAPTION>
SIGNIFICANT TENANTS
PROPERTY (LEASE EXPIRATION DATES) ENCUMBRANCES
-------- ------------------------ ------------
(in 000's)
<S> <C> <C>
MILWAUKEE METRO
Cudahy Center Pick 'N Save (2001), Walgreens (2028) (6)
Racine Centre Super Saver (2003), Office Depot (2006) (6)
Whitnall Square Pick 'N Save (2009), Walgreens (2030) (6)
CENTRAL PENNSYLVANIA
Allen Street Shopping Center Laneco (2003), Eckerd Drug (2004) 5,714(7)
Colonial Square Shopping Center Minnichs Pharmacy (2003)
Kenhorst Plaza Shopping Center Redners(2009), Rite Aid(2000); Sears Paint & Hardware(2007) (2)
Stefko Boulevard Shopping Center Laneco (2003) (7)
RALIEGH, NC.
Shoppes Of Kildaire Winn Dixie (2006), 7,358
CHARLESTON, SC.
James Island Shopping Center Piggly Wiggly (2010), Kerr Drug (2002)
--------
TOTAL/AVERAGE $298,116
========
</TABLE>
- -------------
(1) Includes Safeway (50,000 sq. ft.) and Bowling Alley (40,000 sq. ft.) pad
sites owned by others.
(2) These properties serve as collateral for the Line of Credit facility. As
December 31, 1999, $44,000 is outstanding on the Line of Credit.
(3) Represents two (2) historic retail shops located in the central shopping
district of Georgetown, Washington D.C.
(4) These properties are encumbered by first deeds of trust as collateral for a
$12,627 mortgage loan.
(5) Includes Ukrop's Supermarket (49,000 sq. ft.) pad site owned by Ukrop's.
(6) These properties were subsequently encumbered by first deeds of trust in
January 2000.
(7) These properties are encumbered by first deeds of trust as collateral for
$5,714 mortgage loan.
9
<PAGE>
Competition
There are numerous commercial developers, real estate companies and
other owners of real estate that operate in the Mid-Atlantic region and the
Chicago, Illinois and Milwaukee, Wisconsin metropolitan areas which compete with
the Company in seeking acquisition opportunities and tenants for its properties.
In addition, retailers at the shopping centers face competition from malls,
factory outlet centers, discount shopping clubs, direct mail, telemarketing and
the Internet.
Retail Properties. The Retail Properties are located in Maryland,
Virginia, North Carolina, Pennsylvania, Delaware, South Carolina, Illinois,
Wisconsin and the District of Columbia. The 62 Retail Properties are primarily
neighborhood shopping centers containing a total of approximately 6.7 million
square feet of GLA occupied by approximately 1,400 tenants. The Retail
Properties range in size from approximately 3,000 square feet of GLA to
approximately 335,000 square feet of GLA, and average approximately 108,000
square feet of GLA. A substantial portion of the income from the Properties
consists of rent received under long term leases. Most of these leases provide
for the payment of fixed minimum rent monthly in advance and for the payment by
tenants of a pro-rata share of the real estate taxes, insurance, utilities and
common area maintenance of the shopping centers. Certain of these tenant leases
provide for exclusion from some or all of these expenses. The Company's
portfolio is comprised of a diversified tenant base, with no single tenant
representing more than 7.1% of the Company's annualized minimum rent. All of the
Retail Properties are managed by the Company. As of December 31, 1999, the
Retail Properties were 95.4% leased.
Lease Expirations. The majority of leases on the Retail Properties
provide for lease terms of between three and 20 years. The following table shows
lease expirations (excluding renewal options) for the calendar years 2000
through 2009 and thereafter:
<TABLE>
<CAPTION>
Number of Approximate Percent of Total Annualized Percent of Total Average Annual
Leases GLA GLA Represented Minimum Rent of Annualized Minimum Rent
Year Expiring in Square Feet by Expiring Leases Expiring Leases Minimum Rent per Square Foot
- ---- -------- -------------- ------------------ ------------------ ------------ ---------------
(in 000's) (in 000's)
<S> <C> <C> <C> <C> <C> <C>
2000 364 770 12.4% $ 8,922 12.3% $11.59
2001 239 716 11.5% 9,061 12.5% 12.66
2002 201 607 9.8% 7,622 10.5% 12.55
2003 202 868 14.0% 10,074 13.9% 11.60
2004 160 537 8.6% 7,139 9.9% 13.30
2005 72 370 6.0% 4,303 6.0% 11.61
2006 49 278 4.5% 3,796 5.3% 13.64
2007 31 339 5.4% 3,588 5.0% 10.59
2008 19 251 4.0% 2,446 3.4% 9.74
2009 26 285 4.6% 3,118 4.3% 10.95
Thereafter 52 1,194 19.2% 12,240 16.9% 10.25
-- ----- ----- ------ ----- -----
Total 1,415 6,215 100.0% $72,309 100.0% $11.64
===== ===== ====== ======= ====== ======
</TABLE>
10
<PAGE>
Tenant Diversification. The following table sets forth information
regarding the Company's leases with its 20 largest tenants based upon annualized
minimum rents as of December 31, 1999:
<TABLE>
<CAPTION>
Percentage of Aggregate
Number Annualized Annualized
Tenant GLA (Sq. Ft.) of Properties Minimum Rent Minimum Rents
- ------ ----------------- ------------- ------------ -------------
(in 000's)
<S> <C> <C> <C> <C>
Safeway/Dominick's 577,089 10 $5,181 7.07%
Supervalu (1) 356,640 7 2,491 3.40%
A&P Superfresh 170,489 4 1,568 2.14%
CVS/Pharmacy 131,952 12 1,417 1.93%
Blockbuster Video 82,222 14 1,347 1.84%
Giant Food 221,642 6 1,315 1.79%
Ukrops 88,003 2 1,137 1.55%
Shop Rite Supermarket 57,333 1 974 1.33%
Fashion Bug 89,793 11 820 1.12%
Weis Markets 94,960 2 786 1.07%
Rite Aid 81,418 7 768 1.05%
Borders Books Music 30,000 1 690 0.94%
Food Lion 78,100 2 678 0.92%
Sears Paint Hardware 65,816 3 670 0.91%
First Union 17,396 8 653 0.89%
McDonalds 22,548 9 634 0.86%
Acme Markets 120,466 3 613 0.84%
Eckerd Drug 45,752 5 593 0.81%
Pick 'N Save 131,955 2 577 0.78%
Radio Shack 33,296 15 503 0.69%
---------- --------- --------
Total 2,496,870 $ 23,415 31.93%
========== ============= =======
</TABLE>
(1) Includes Shoppers Food Warehouse, Metro Foods, Laneco and Rack 'N Sack.
Mortgages, Notes and Loans Payable
Information relating to future maturities of mortgages, notes and loans
payable at December 31, 1999 is set forth in Management's Discussion and
Analysis of Financial Condition and Results of Operation and footnote 5 to the
Consolidated Financial Statements included with this Form 10-K and is
incorporated by reference herein.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any material litigation nor,
to its knowledge, is any material litigation threatened against the Company or
its properties, other than routine litigation arising in the ordinary course of
business or which is expected to be covered by the Company's liability
insurance. In the opinion of management of the Company, such litigation is not
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of fiscal year
1999
11
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters
(a) Market Information
The Company's Common Stock and Preferred Stock began trading on the
NASDAQ National Market System on June 27, 1995. On August 13, 1996, the
Company's common and preferred stock began trading on the New York Stock
Exchange under the symbol FRW. The high and low market values of the Company's
Common Stock for 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Distributions
High Low Per Share
---- --- ---------
<S> <C> <C> <C>
1998
First Quarter $ 28.00 $ 25.38 $ .4875
Second Quarter 27.13 22.31 .4875
Third Quarter 24.13 20.00 .4875
Fourth Quarter 24.00 22.06 .4875
1999
First Quarter $ 23.94 $ 20.44 $ .4875
Second Quarter 23.75 19.38 .4875
Third Quarter 24.00 20.94 .4875
Fourth Quarter 21.00 17.75 .4875
</TABLE>
(b) Holders of Record
As of March 17, 2000 the approximate number of holders of record of the
Common Stock was 190 and the approximate number of beneficial owners was 6,300.
(c) Dividends
The Company intends to make quarterly distributions to its common and
preferred stockholders. Quarterly distributions made during 1999 are as follows:
Record Date Payment Date Amount Per Share
- ----------- ------------ ----------------
Common Stock
February 1, 1999 February 15, 1999 $0.4875
May 1, 1999 May 15, 1999 $0.4875
August 1, 1999 August 15, 1999 $0.4875
November 1, 1999 November 15, 1999 $0.4875
Preferred Stock
February 1, 1999 February 15, 1999 $0.6094
May 1, 1999 May 15, 1999 $0.6094
August 1, 1999 August 15, 1999 $0.6094
November 1, 1999 November 15, 1999 $0.6094
The actual cash flow that the Company will realize will be affected by
a number of factors, including the revenues received from rental properties, the
operating expenses of the Company, the interest expense on its borrowing, the
ability of lessees to meet their obligations to the Company, unanticipated
capital expenditures and dividends received from the Company's interest in FWM.
Future distributions paid by the Company will be at the discretion of the
Directors of the Company and will depend on the actual cash flow of the Company,
its financial condition, capital requirements, the annual distribution
requirements under the REIT provisions of the Internal Revenue Code of 1986, as
amended (the "Code") and such other factors as the Directors of the Company deem
relevant.
For the fiscal year ended December 31, 1999, none of the distributions
made on the Common Stock represented a return of capital.
12
<PAGE>
Recent Sales of unregistered equity securities
(a) Securities sold
The following table sets forth the date of sale, title and amount
of unregistered securities sold by the Company during the fourth quarter
of fiscal year 1999:
Date of Sale Title Amount Consideration
------------ ----- ------ -------------
11/08/99 Common Units 185,273 units Retail property having
a value of $5.6 million.
(b) Underwriters and other purchasers
There were no underwriters retained in connection with the sale of
the above securities which were issued in transactions exempt from
registration under Section 4(2) of the Securities Act.
(c) Exemption from registration claimed.
Each of the transactions is exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "Act").
(d) Terms of Conversion
The Common Units are exchangeable, at the Company's option, for
cash equal to the fair market value of a share of Common Stock at the time
of exchange or one share of Common Stock.
Item 6. Summary of Selected Financial Data
The following table sets forth selected financial and portfolio
information of the Company, and should be read in conjunction with the
discussion set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and all of the consolidated financial
statements and notes thereto included in this Form 10-K.
13
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION (1)
Year Ended December 31,
-------------------------------------------------------------
(dollars in thousands, except per share data)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues:
Minimum rents 67,092 56,702 43,857 31,398 22,793
Tenant reimbursements 16,877 14,176 9,506 6,704 4,362
Percentage rents 1,709 1,613 1,060 664 495
Other income 1,850 1,573 1,211 1,672 1,447
----- ----- ----- ------- -------
Total revenues 87,528 74,064 55,634 40,438 29,097
------ ------ ------ ------ ------
Expenses:
Property operating and maintenance 20,140 17,934 13,522 9,743 6,746
General and administrative 4,161 3,789 3,363 3,137 2,831
Interest 21,481 19,966 18,416 14,986 11,230
Depreciation and amortization 16,985 14,627 11,172 8,019 5,808
------ ------ ------ ------ ------
Total expenses 62,767 56,316 46,473 35,885 26,615
------ ------ ------ ------ ------
Income before gain (loss) on sale of properties,
income (loss) from Management Company,
minority interest, extraordinary item
and distributions to Preferred Stockholders 24,761 17,748 9,161 4,553 2,482
Gain (loss) on sale of properties (495) 2,371 549 - -
Income (loss) from Management Company (1,103) 82 433 221 449
------- ------ ------ ------ ------
Income before minority interest, extraordinary
item and distributions to Preferred Stockholders 23,163 20,201 10,143 4,774 2,931
Income allocated to minority interest (5,717) (4,602) (1,743) (694) (602)
------- ------- ------- ------ -------
Income before extraordinary item and distributions
to Preferred Stockholders 17,446 15,599 8,400 4,080 2,329
Extraordinary item (net of minority interest) - (277) (790) - -
------- ------- -------- ------- -----
Net income 17,446 15,322 7,610 4,080 2,329
Distributions to Preferred Stockholders (6,120) (5,641) (5,641) (5,641) (5,117)
------- ------- ------- -------- --------
Net income (loss) allocated to Common Stockholders $11,326 $9,681 $1,969 $(1,561) $(2,788)
======= ====== ====== ======== ========
Earnings (loss) per Common Share - Basic (2) $1.25 $1.21 $0.35 ($0.46) ($1.19)
===== ===== ===== ===== =====
Earnings(loss) per Common Share - Diluted $1.23 $1.20 $0.34 ($0.46) ($1.19)
===== ===== ===== ===== =====
Weighted average Common Shares - Basic 9,086 7,978 5,663 3,367 2,351
======= ===== ===== ===== ======
Weighted average Common Shares - Diluted 9,179 8,055 5,730 3,367 2,351
===== ===== ===== ===== =====
Cash dividends per Common Share $1.95 $1.95 $1.95 $1.95 $1.95
======= ===== ===== ===== =====
BALANCE SHEET DATA (END OF PERIOD):
Rental properties $614,996 $556,146 $456,798 $314,235 $228,092
Total assets $583,293 $532,954 $439,141 $313,613 $227,405
Mortgage notes payable $298,116 $244,113 $212,030 $167,047 $116,182
Debentures - $25,000 $25,000 $25,000 $25,000
Total liabilities $310,466 $280,655 $247,944 $198,375 $145,241
Minority interest $66,267 $66,218 $38,255 $16,661 $11,088
Stockholders' equity $206,560 $186,081 $152,942 $98,577 $71,076
PORTFOLIO PROPERTY DATA (END OF PERIOD):
Retail occupancy 95.4% 95.3% 96.2% 96.4% 96.0%
Number of retail properties 62 55 47 36 27
Number of multi-family properties - - 2 2 2
Retail Properties GLA
(thousands of square feet) 6,697 5,954 4,931 3,652 2,668
Multi-family properties (number of units) - - 401 401 401
OTHER DATA:
Funds From Operations- Diluted (3) (4) $41,653 $34,519 $23,949 $16,352 $12,601
Cash flow provided by operating activities $39,230 $27,148 $23,441 $11,616 $10,003
Cash flow (used in) investing activities $(42,551) $(28,230) $(25,689) $(56, 994) $29,884
Cash flow provided by (used in) financing activities $4,490 $1,103 $(6,390) $49,352 $26,574
</TABLE>
(1) See Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operation and Financial Statements.
(2) Earnings (loss) per Common Share is based on the weighted average total
shares of Common Stock outstanding. Because the Company's income is based
on its percentage interest in the Operating Partnership's income, the
Earnings (loss) per Common Share would be unchanged for the periods
presented even if the Common Units were exchanged for Common Stock of the
Company.
(3) The Company considers Funds From Operations to be an appropriate measure of
the performance of an equity REIT. Funds From Operations is defined by
NAREIT as net income (computed in accordance with generally accepted
accounting principles), excluding gains (or losses) from sales of property
and extraordinary items as defined under GAAP, plus depreciation and
amortization and after adjustments for unconsolidated partnerships and
joint ventures. Adjustments for unconsolidated partnerships and joint
ventures are calculated to reflect Funds of Operations on the same basis.
Funds From Operations does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs and
should not be considered an alternative to net income as an indicator of
the Company's operating performance or as an alternative to cash flow as a
measure of liquidity or of ability to make distributions. Our calculation
of FFO may differ from that used by other companies and, therefore, the
amounts disclosed above for FFO may not be comparable directly to similarly
titled measures used by other companies.
(4) Before minority interest and distributions to Preferred Stockholders.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Overview
The following discussion should be read in conjunction with the
Financial Statements and notes thereto of the Company appearing elsewhere in
this Annual Report. Dollars are in thousands except per share data.
Certain information included in the following section of this report,
other than historical information, may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
forward- looking statements are identified by terminology such as "may", "will",
"believe", "expect", "estimate", "anticipate", "continue", or similar terms.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, actual results may differ materially
from those projected in the forward-looking statements.
Comparison of the Year Ended December 31, 1999 to the Year Ended December 31,
1998
For the year ended December 31, 1999, net income allocated to common
stockholders increased by $1,645 or 17% from $9,681 to $11,326, when compared to
the year ended December 31, 1998, primarily due to increases in revenues offset
by an increase in expenses, a loss in 1999 versus a gain in 1998 on the sale of
properties, a loss in 1999 versus income in 1998 from the Management Company,
and an increase in the amount of income allocated to minority interests.
Total revenues increased by $13,464 or 18.2%, from $74,064 to $87,528,
due primarily to an increase in minimum rents of $10,390 and tenant
reimbursements of $2,701. The increases were primarily due to the purchase of
Watkins Park Plaza in March 1998, Parkville Shopping Center in April 1998,
Elkridge Corners and Village Center in June 1998, Willston Centres I & II in
October 1998 and Town Center at Sterling in November 1998 (the "1998
Acquisitions"), (resulting in partial year revenues being included in the year
ending December 31, 1998), Kamp Washington in January 1999, Newark Shopping
Center in August 1999, Saratoga Shopping Center in October 1999, Woodmoor
Shopping Center in November 1999, and Westmont Shopping Center, Cudahy Center,
Racine Centre and Whitnall Square in December 1999 (the "1999 Acquisitions").
Total revenues increased by $11,044 due to the 1998 and 1999 Acquisitions offset
by a decrease of $625 due to properties sold during 1998 and 1999. Minimum rents
increased by $8,886 and tenant reimbursements increased by $1,711 due to the
purchase of the 1998 and 1999 Acquisitions. For properties owned for all of 1998
and 1999, total revenues increased by $2,337 (3.5 %). This increase was
primarily due to increases in minimum rents of $960 (1.9%) and tenant
reimbursements of $990 (7.8%).
Property operating and maintenance expense increased by $2,206, or
12.3%, from $17,934 to $20,140, due primarily to the 1998 and 1999 Acquisitions.
Operating and maintenance expenses increased by $2,074 due to the purchase of
the 1998 and 1999 Acquisitions offset by a decrease of $378 due to properties
sold during 1998 and 1999. For properties owned for all of 1998 and 1999, total
operating and maintenance expense increased by $504 (3.1%). General and
administrative expenses increased by $372 or 9.8%, from $3,789 to $4,161, due
primarily to increases in officers bonuses of $145, write off of abandoned
project costs of $148 and internal acquisition costs of $131 (prior to March 19,
1998, internal acquisition costs were capitalized and included in the cost of
the acquired property), offset by a decrease in legal fees of $81.
Interest expense increased by $1,515, or 7.6%, from $19,966 to $21,481,
due primarily to the increase in assumed mortgage indebtedness associated with
the 1999 Acquisitions ($19,213), net borrowings under the Line of Credit
($34,800) and excess refinancing proceeds ($13,723), offset by a decrease in
indebtedness due to the conversion of the Exchangeable Debentures to Preferred
Stock ($25,000), the Sale of Pheasant Hill ($7,539) and the curtailment of
mortgage debt ($6,193). The weighted average debt outstanding increased from
$251.0 million in 1998 to $280.0 million in 1999, and the weighted average
interest rate decreased from 8.0% to 7.7%.
Depreciation and amortization expenses increased by $2,358, or 16.1%,
from $14,627 to $16,985, primarily due to the 1998 and 1999 Acquisitions.
During 1999, a loss on the sale of properties of $495 was realized due
to the sale of Pheasant Hill in December. During 1998, a gain on the sale of
properties of $2,371 was realized due to the sale of Branchwood and Park Place
Apartments in March 1998 ($1,536), the sale of a Georgetown property in March
1998 ($147), the sale of a Georgetown property in September 1998 ($335) and the
sale of a Georgetown property in December 1998 ($353). During 1998, the Mellon
Bank and Corestates Lines of Credit were retired with proceeds from the Union
Bank of Switzerland ("UBS AG") Line of Credit and $3,826 of debt was retired
early due to the sale of Park Place Apartments resulting in a loss on early
extinguishment of debt of $358.
15
<PAGE>
Income allocated to minority interests increased by $1,196, or 26.5%,
from $4,602 to $5,717 due to an increase in net income, offset by a decrease in
the minority interests ownership of the Operating Partnership from 27.0% to
26.1%.
Net cash flow provided by operating activities increased from $27,148
in 1998 to $39,230 in 1999, primarily due to the 1999 Acquisitions and the
realization of a full year of operations from the 1998 Acquisitions and improved
property performance. Net cash flows used in investing activities increased from
$28,230 in 1998 to $42,551 in 1999 primarily due to a decrease in the amount of
property acquisitions financed through the use of assumed mortgage indebtedness
and the issuance of Common Units during 1999. Net cash provided by financing
activities increased from $1,103 in 1998 to $4,490 in 1999, primarily due to an
increase in Line of Credit proceeds used for the acquisition of rental
properties and an increase in proceeds from mortgage notes refinancing offset by
a reduction in proceeds from the issuance of common stock. In 1998, the
acquisition of rental properties was more heavily financed through assumed
mortgage indebtedness and the issuance of Common Units.
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997
For the year ended December 31, 1998, net income allocated to common
stockholders increased by $7,712 from $1,969 to $9,681, when compared to the
year ended December 31, 1997, primarily due to increases in revenues and gains
on the sale of properties, and a decrease in extraordinary losses offset by an
increase in expenses and an increase in the amount of income allocated to
minority interests.
Total revenues increased by $18,430, or 33.1%, from $55,634 to $74,064,
due primarily to an increase in minimum rents of $12,845 and tenant
reimbursements of $4,670. The increases were primarily due to the purchase of
Ashburn Farm Village Shopping Center in March 1997, the six properties in
Chicago in September 1997, Mitchellville Plaza in October 1997 and Spring Valley
Shopping Center in December 1997 (the "1997 Acquisitions") (resulting in partial
year revenues being included in the year ended December 31, 1997), Bowie Plaza
in January 1998, Watkins Park Plaza in March 1998, Parkville Shopping Center in
April 1998, Elkridge Corners and Village Center in June 1998, Willston Centres I
& II in October 1998 and Town Center at Sterling in November 1998 (the "1998
Acquisitions"). Total revenues increased by $18,719 due to the 1997 and 1998
Acquisitions offset by a decrease in total revenues of $1,701 due to properties
sold during 1997 and 1998. Minimum rents increased by $13,828 and tenant
reimbursements increased by $4,229 due to the 1997 and 1998 Acquisitions. For
properties owned for all of 1997 and 1998, total revenues increased by $1,449,
(3.0%). This increase was primarily due to increases in minimum rents of $900
(2.4%) and tenant reimbursements of $451 (5.5%).
Property operating and maintenance expense increased by $4,412, or
32.6%, from $13,522 to $17,934, due primarily to the 1997 and 1998 Acquisitions.
Operating and maintenance expenses increased by $5,104 due to the purchase of
the 1997 and 1998 Acquisitions offset by a decrease of $804 due to properties
sold during 1997 and 1998. For properties owned for all of 1997 and 1998, total
operating and maintenance expense increased by $111 (1.0%). General and
administrative expenses increased by $426, or 12.7%, from $3,363 to $3,789, due
primarily to increases in miscellaneous administrative costs of $222, legal fees
of $135, write off of abandoned project costs of $75, and internal acquisition
costs of $428 (prior to March 19, 1998, internal acquisition costs were
capitalized and included in the cost of the acquired property), offset by a
decrease in officers bonuses of $434.
Interest expense increased by $1,550, or 8.4%, from $18,416 to $19,966,
due primarily to the increase in mortgage indebtedness of $100,135 associated
with the 1997 Acquisitions ($64,614) and the 1998 Acquisitions ($35,521), offset
by a decrease in mortgage and Line of Credit indebtedness of $30,017 retired
with the proceeds of the sale of properties and a public offering of 1,150,000
shares of Common Stock in July 1998 (the "July 1998 Offering"). The average debt
outstanding increased from $216.6 million in 1997 to $251.0 million in 1998, and
the weighted average interest rate decreased from 8.5% to 8.0%.
Depreciation and amortization expenses increased by $3,455, or 30.9%,
from $11,172 to $14,627, primarily due to the 1997 and 1998 Acquisitions.
During 1998, a gain on the sale of properties of $2,371 was realized
due to the sale of Branchwood and Park Place Apartments in March 1998 ($1,536),
the sale of a Georgetown property in March 1998 ($147), the sale of a Georgetown
property in September 1998 ($335) and the sale of a Georgetown property in
December 1998 ($353). During 1997, a gain on the sale of properties of $549 was
realized from the sale of Thieves Market ($45) and a portion of Laburnum Park
($504). During 1998 the Mellon Bank and Corestates Lines of Credit were retired
with proceeds of the UBS AG Line of Credit and $3,826 of debt was retired early
due to the sale of Park Place Apartments resulting in a loss
16
<PAGE>
on early extinguishment of debt of $358. During 1997, debt in the amount of
$46,375 was retired with proceeds of the September 1997 common stock offering,
resulting in loss on early extinguishment of debt of $954.
Income allocated to minority interests increased by $2,942 from $1,579
to $4,521 due to an increase in net income and an increase in the minority
interests ownership of the Operating Partnership from 20.7% to 27.0%.
Net cash flow provided by operating activities increased from $23,441
in 1997 to $27,149 in 1998, primarily due to the 1998 Acquisitions and the
realization of a full year of operations from the 1997 Acquisitions and improved
property performance. Net cash flows used in investing activities increased from
$25,869 to $28,230 in 1998 primarily due to a decrease in the amount of property
acquisitions financed through the use of assumed mortgage indebtedness during
1998. Net cash flow from financing activities changed from net cash used in
financing activities of $6,390 to net cash provided by financing activities of
$1,103 primarily due to an increase in Line of Credit proceeds used for the
acquisition of rental properties. In 1997, the acquisition of rental properties
was more heavily financed through assumed mortgage indebtedness and the issuance
of Common Units.
Liquidity and Capital Resources
In 1999, the Company continued to expand its portfolio of neighborhood
shopping centers. During the year, the Company acquired eight shopping centers
for an aggregate acquisition cost of $63,078. The acquisitions were primarily
located in the metropolitan areas of Washington, D.C. and Milwaukee, Wisconsin,
a new market for the Company. The acquisitions increased the Company's portfolio
by 848,688 square feet. The Company financed the acquisitions through the
issuance of Common Units with an aggregate value of $5,922, assumed mortgage
indebtedness of $19,213, and cash of $37,943. The cash was provided by draws on
the Company's Line of Credit, proceeds from the sale of properties and cash on
hand.
The Company also sold one property (Pheasant Hill) during the year
resulting in net proceeds of $1,291 after the repayment of associated debt.
During 1999, $88,933 of indebtedness matured including the $25,000
Exchangeable Debentures. The Company refinanced this debt primarily through six
separate loans aggregating $75,000 with Metropolitan Life Insurance Company
("Met Life") and the conversion of the Exchangeable Debentures to 1,000,000
shares of Preferred Stock. The Met Life loans are non-recourse and are each
secured by one property. Part of this transaction included the closing of three
swap contracts that the Company had in place in anticipation of this financing.
The Company paid the Counter Party approximately $3,200 to close the contracts.
This cost was capitalized and is being amortized over the life of the Met Life
loans. The following is a summary of the transaction:
<TABLE>
<CAPTION>
Coupon
Loan Amount Collateral Term (years) Interest Rate All-In Rate (1)
----------- ---------- ------------ ------------- ---------------
<S> <C> <C> <C> <C>
$10,700 Davis Ford Crossing 10 6.79% 7.21%
13,700 First State Plaza 10 6.79% 7.23%
11,800 Fox Mill Shopping Center 12 6.84% 7.37%
10,900 Mallard Creek Shopping Center 10 6.85% 7.35%
6,700 McHenry Commons 10 6.85% 7.35%
21,200 Valley Centre 12 6.84% 7.21%
------ ------ -----
$75,000 6.83% 7.27%
======= ====== ======
</TABLE>
(1) Includes the amortization of costs to close out the interest rate swap
contracts, mortgage loan fees and other closing costs over the life of the
loans using the effective interest rate.
During 1999, the Company completed the renovation of four of its
properties (City Avenue, Newtown Square, Mallard Creek, and Stonebrook) for an
aggregate cost of approximately $1,938. The renovation of Newtown Square
included the expansion of the Acme Supermarket from 35,282 square to 56,226
square feet.
During 2000, the Company expects to renovate a minimum of four
properties for an aggregate cost of $4,875. The renovations will include the
expansion of A&P Superfresh at Parkville Shopping Center by 22,500 square feet.
These expansions and renovations are expected to be financed primarily through
draws on the Company's Line of Credit.
17
<PAGE>
The Company expects to continue its renovation and acquisition program
for the remainder of 2000. However, the level of future acquisitions is
dependent on the Company's ability to raise additional capital through debt
proceeds, equity offerings and the issuance of Common Units.
Indebtedness
The following table sets forth certain information regarding the
indebtedness of the Company as of December 31, 1999:
<TABLE>
<CAPTION>
Maturity
Mortgage Loans Interest Rate (1) Balance (2) Date (3)
- -------------- ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Ashburn Farm Village (4) 7.38% $ 6,537 01/01/01
Allen St. & Stefko Boulevard (5) 8.41% 5,714 01/31/06
Bowie Plaza 6.98% 4,703 12/01/09
Chesapeake Bagel Building 6.54% 735 07/01/01
City Avenue Shopping Center 8.13% 9,581 10/18/05
Clopper's Mill 7.27% 13,627 03/21/06
Davis Ford Crossing 7.21% 10,617 06/01/09
Elkridge Corners 7.68% 6,322 11/01/10
Festival at Woodholme 9.83% 11,238 04/01/00
Firstfield Shopping Center 7.50% 2,416 12/01/05
First State Plaza 7.23% 13,594 06/01/09
Fox Mill Shopping Center 7.37% 11,724 08/01/11
Kamp Washington 7.26% 2,979 10/01/02
Kings Park Shopping Center 8.02% 4,458 11/01/14
McHenry Commons 7.35% 6,640 05/01/09
Mallard Creek 7.35% 10,802 05/01/09
Mayfair Shopping Center (6), (7) 5.43% 6,650 06/24/10
Mitchellville Plaza 7.34% 14,249 06/24/05
Newark Shopping Center 7.82% 9,337 11/01/07
Northway Shopping Center 7.96% 6,043 01/01/07
Parkville Shopping Center 7.14% 3,409 03/01/08
Potomac Plaza(8) 8.00% 2,579 11/01/04
Saratoga 9.58% 6,776 06/01/01
Shoppes of Kildaire 7.89% 7,358 05/31/06
Southside Marketplace 8.76% 7,848 08/01/05
Stonebrook Plaza 7.24% 5,770 07/15/00
The Oaks 7.40% 9,242 05/01/03
Town Center at Sterling 7.02% 8,847 07/01/03
Valley Centre 7.75% 525 06/30/07
Valley Centre 7.21% 21,037 06/01/11
Various/UDRT 8.72% 12,627 10/31/05
Willston Centre II 7.02% 10,132 10/01/02
Revolving Line of Credit (9) 8.00% 44,000 02/01/01
------ ------
TOTALS 7.70% $298,116
===== ========
</TABLE>
(1) The effective interest rate includes the amortization of deferred financing
costs and premiums over the term of the respective loan.
(2) Includes premiums on the assumption of mortgage debt in the amount of
$5,081.
(3) Many of the outstanding mortgages contain prepayment penalties, typically
calculated using a yield maintenance formula.
(4) The interest rate is adjusted monthly based on the 30-day LIBOR rate plus
1.50%.
(5) This debt is collateralized by these two properties. The loan can be
extended through January 11, 2021. The interest rate adjusts to the greater
of the initial interest rate plus five percentage points or the T-bill rate
plus five percentage points.
(6) The debt service on this mortgage loan is determined based upon a variable
rate of interest, plus a letter of credit enhancement fee of 1.5%. The
variable interest rate is determined weekly at the rate necessary to
produce a bid in the process of remarketing the Bond Obligations equal to
par plus accrued interest, based on comparable issues in the market.
(7) This debt matures in the year 2010. However, the letter of credit
enhancement expires in June 2003.
(8) The interest rate is adjusted monthly based on the 30-day LIBOR rate plus
2.25%.
18
<PAGE>
(9) The interest rate is adjusted monthly based on the 30-day LIBOR rate plus
1.0%. The Company has in place a LIBOR Cap of 6.5% on $30,000 through April
1, 2000.
As of December 31, 1999, the Company had total mortgage notes of
approximately $298,116, which consisted of approximately $291,466 in
indebtedness collateralized by 41 of the Retail Properties and tax-exempt bond
financing obligations issued by the Philadelphia Authority for Industrial
Development (the "Bond Obligations") of approximately $6,650 collateralized by
one of the Retail Properties. Of the Company's indebtedness, $59,766 (20.0%) is
variable rate indebtedness and $238,350 (80.0%) is at a fixed rate. The
indebtedness has interest rates ranging from 6.54% to 9.83%, with a weighted
average interest rate of 7.7%, and will mature between 2000 and 2014, with a
weighted average remaining term to maturity of 5.5 years. Approximately 25% of
the Company's indebtedness will become due by 2001, requiring balloon payments
of $16,933 in 2000 and $57,680 in 2001. From 2000 through 2014, the Company will
have to refinance an aggregate of approximately $245,490. Since the Company
anticipates that only a small portion of the principal of such indebtedness will
be repaid prior to maturity and the Company will likely not have sufficient
funds on hand to repay such indebtedness, the Company will need to refinance
such indebtedness through modification or extension of existing indebtedness,
additional debt financing or through additional offering of equity securities.
The Company has entered into a forward interest rate swap contract and
intends to hold such contract until its expiration date. The purpose of the swap
is to mitigate any exposure to fluctuations in interest rates until the maturity
dates of the mortgages when the Company expects to refinance these loans. Under
the terms of the swap contract, the Company pays a fixed rate to the other party
to the contract ("Counter Party") while receiving variable payments from the
Counter Party based on the 30-day LIBOR rate. This effectively fixes the LIBOR
rate for the Company during the period of the swap contract. The following is a
summary of the Company's swap contract as of December 31, 1999:
<TABLE>
<CAPTION>
Notional Amount Date of Agreement Period of Contract Fixed Rate Payable Fair Market Value
- --------------- ----------------- ------------------ ------------------ -----------------
(In 000'S) (In 000'S)
<S> <C> <C> <C> <C>
$24,000 01/98 05/01/00 - 05/02/05 5.85% $1,028
</TABLE>
Line of Credit
The Company has a collateralized revolving Line of Credit of $51,000
with UBS AG. This line is collateralized by seven properties (Kenhorst Plaza,
Shoppes of Graylyn, Four Mile Fork, Takoma Park, Centre Ridge Marketplace,
Watkins Park Plaza and Newtown Square). The line matures on January 31, 2001 and
loans under this line will bear interest at the 30-day LIBOR rate plus one
percent (1%). As of December 31, 1999, there was $44,000 outstanding under the
Line of Credit.
The Line of Credit is available to fund acquisitions, renovations,
expansions and other working capital requirements. Definitive agreements with
respect to the Line of Credit contain customary representations, warranties and
covenants.
Liquidity
The Company expects to meet its short-term liquidity requirements
generally through its working capital, net cash provided by operations, draws on
its Line of Credit and the leveraging of currently unencumbered Retail
Properties. The Company believes that the foregoing sources of liquidity will be
sufficient to fund liquidity for the foreseeable future.
The Company expects to meet certain long-term liquidity requirements
such as development, property acquisitions, scheduled debt maturities,
renovations, expansions and other non-recurring capital improvements through
long-term secured and unsecured indebtedness, including the Line of Credit and
the issuance of additional equity and debt securities. The Company also expects
to use funds available under the Line of Credit to fund acquisitions,
development activities and capital improvements on an interim basis.
19
<PAGE>
Other
Year 2000 Issue
The "Year 2000 issue" is the result of many existing computer programs
using only the last two digits to refer to a year. Therefore, these computer
programs may not property recognize a year that begins with "20" instead of the
familiar "19". If not corrected, many computer applications could fail or create
erroneous results.
The Company developed a Year 2000 Compliance Plan ("The Plan") to
address these issues and incurred approximately $100 in the implementation of
the Plan. These costs have primarily been incurred to upgrade the desktop PC's
at the Company's home office. The Company budgeted $500 to replace its previous
accounting and property management software system. Although the Company
believes that the previous system was materially Year 2000 compliant, the
Company decided to migrate because of the improved technology and reporting
capabilities of the new system. The Company went live on the new system on
October 1, 1999. Approximately $400 has been incurred including software,
hardware and implementation costs. The costs were funded from the Company's cash
flow. The Company has not experienced any operational problems relating to the
Year 2000 issue and does not expect any such problems to occur throughout 2000.
Inflation and Economic Conditions
Most of the Company's leases contain provisions designed to partially
mitigate the adverse impact of inflation. Such provisions include escalation
clauses with fixed increases or increases related to changes in the Consumer
Price Index or similar inflation indices. The leases may also contain clauses
enabling the Company to receive percentage rents based on tenant's gross sales
above predetermined levels, which generally increase as prices rise. Most of the
Company's leases require the tenant to pay its pro rata share of the property
operating expenses, including common area maintenance, real estate taxes and
insurance, thereby reducing the Company's exposure to increases in costs and
operating expenses resulting from inflation. In addition, the Company
periodically evaluates its exposure to interest rate fluctuations, and may enter
into interest rate protection agreements which mitigate, but do not eliminate,
the effect of changes in interest rates on its floating rate loans. The Company,
as a general policy, endeavors to obtain fixed rate financing.
The Company's financial results are affected by general economic
conditions in the markets in which its properties are located. An economic
recession, or other adverse changes in general or local economic conditions,
could result in the inability of some existing tenants of the Company to meet
their lease obligations and could otherwise adversely affect the Company's
ability to attract or retain tenants. The Company's properties are typically
anchored by supermarkets, drug stores and other consumer necessity and service
retailers which usually offer day-to-day necessities rather than luxury items.
These types of tenants, in the experience of the Company, generally maintain
more consistent sales performance during periods of adverse economic conditions.
New Accounting Standards
On March 19, 1998, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board reached a consensus opinion on issue
No.97-11, "Accounting for Internal Costs Relating to Real Estate Property
Acquisitions" which requires that the internal costs of preacquisition
activities incurred in connection with the acquisition of an operating property
be expensed as incurred. The Company has historically capitalized internal pre
acquisition cost of operating properties as a component of the acquisition
price. The Company capitalized $227 for the period January 1 through March 19,
1998 and $229 for the twelve months ended December 31, 1997. For 1999 and 1998,
the expense was $558 and $428, respectively. The Company experienced an increase
in general and administrative expense due to the adoption of this ruling.
On June 16, 1998, the Financial Accounting Standards Board "FASB",
issued Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended by SFAS 137, which is effective for fiscal
years beginning after June 15, 2000. This statement establishes accounting and
reporting standards requiring that every
20
<PAGE>
derivative instrument, including certain derivative instruments imbedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. The Company is currently assessing the impact of
this new statement on its consolidated financial position, liquidity, and
results of operations.
On December 6, 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" (SAB 101), which is effective for all periods after December 31,
1999. SAB 101 establishes that contingent rental income should accrue only when
the changes in the factors on which the contingent lease payment are based
actually occur. Management plans to adopt this standard for all reporting
periods subsequent to December 31, 1999. Management has not assessed the impact
of the adoption of SAB 101 due to the variability of the terms under which
contingent rentals may occur.
Item 7a. Qualitative and Quantitative Disclosures About Market Risk
The Company is exposed to certain financial market risks, the most
predominant being fluctuations in interest rates. Interest rate fluctuations are
monitored by management as an integral part of the Company's overall risk
management program, which recognizes the unpredictability of financial markets
and seeks to reduce the potentially adverse effect on the Company's results. The
Company's interest rate risk management objective is to limit the impact of
interest rate changes on earnings and cash flows and to lower it's overall
borrowing costs. To achieve these objectives, from time to time the Company
enters into interest rate hedge contracts such as swap and cap agreements in
order to mitigate interest rate risk with respect to various debt instruments.
The Company does not hold or issue these derivative contracts for trading or
speculative purposes. The effect of interest rate fluctuations historically has
been small relative to other factors affecting operating results, such as rental
rates and occupancy.
The Company's operating results are affected by changes in interest
rates on variable rate borrowings including the Company's Line of Credit
facility as well as other mortgages and notes with variable interest rates. If
interest rates increased by 100 basis points, the Company's 1999 and 1998 annual
interest expense would have increased by $349 and $220, respectively, based on
balances outstanding during the years ending December 31, 1999 and 1998. The
following is a summary of the Company's long term debt as of December 31, 1999:
<TABLE>
<CAPTION>
Expected Maturity Date of Balloon Payments
Fair Value
of Debt as of
2000 2001 2002 2003 2004 Thereafter Total 12/31/99
--------- ---------- --------- -------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FIXED RATE (1) $16,933 $7,237 $11,843 $14,926 $ - $138,455 $189,394 $222,585
- --------------
Average Interest Rate 9.0% 9.3% 7.1% 7.2% n/a 7.6% 7.7%
VARIABLE RATE
LIBOR-based(2):
Potomac Plaza (LIBOR
plus 2.25%) 2,418 2,418 2,418
Line of Credit (LIBOR
plus 1.0% )(3) 44,000 44,000 44,000
Ashburn Farms (LIBOR
plus 1.5%) 6,443 6,443 6,443
-------- -------- -------- -------- ------- -------- -------- -------
Total LIBOR-based - 50,443 - - 2,418 - 52,861 52,861
Tax-exempt:
Mayfair Shopping
Center (4) 3,235 3,235 3,235
-------- -------- -------- -------- -------- -------- ------- -------
Total variable rate debt - 50,443 - - 2,418 3,235 56,096 56,096
-------- -------- -------- -------- -------- -------- -------- --------
Total Debt $16,933 $57,680 $11,843 $14,926 $2,418 $141,690 $245,490 $278,681
</TABLE>
21
<PAGE>
(1) See the schedule of Indebtedness in Management's Discussion and Analysis
for rates on individual debt instruments.
(2) At December 31, 1999 the 30-day LIBOR rate was 5.82%
(3) This schedule assumes that the Line of Credit is repaid by the maturity
date.
(4) The interest rate is determined weekly at the rate necessary to produce a
bid in the process of remarketing the obligation equal to par plus accrued
interest. The Company also pays a 1.5% letter of credit enhancement fee to
Mellon Bank.
As of December 31, 1998, the Company's total expected balloon payments were
$229,548 with a fair value of $305,868 and an average interest rate of 7.8%.
For a discussion of our interest rate hedge contracts in effect at December
31, 1999, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Indebtedness." If
interest rates increase by 100 basis points, the aggregate fair market value of
these interest rate hedge contracts as of December 31, 1999 would increase by
approximately $944. If interest rates decrease by 100 basis points, the
aggregate fair market value of these interest rate hedge contracts as of
December 31, 1999 would decrease by approximately $950. In addition, we are
exposed to certain losses in the event of nonperformance by the counter parties
under the hedge contracts. We expect these counter parties, which are major
financial institutions, to perform fully under these contracts. However, if the
counter parties were to default on their obligations under the interest rate
hedge contracts, we could be required to pay the full rates on our debt, even if
such rates were in excess of the rates in the contracts.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements is included on Page F-1 of this
report.
Item 9. Changes in and Disagreements With Accountants On Accounting and
Financial Disclosures.
None.
22
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company*
Item 11. Executive Compensation*
Item 12. Security Ownership of Certain Beneficial Owners and Management*
Item 13. Certain Relationships and Related Transactions*
*The information called for by Part III, Items 10, 11, 12 and 13, is
hereby incorporated by reference to the Company's definitive Proxy Statement to
be filed with the Securities and Exchange Commission within 120 days after the
year covered by this Form 10-K with respect to the Company's Annual Meeting of
Shareholders presently scheduled for May 12, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports On Form 8-K
A. The following documents are filed as part of this report.
1. The Consolidated Financial Statements of First Washington Realty
Trust, Inc. and Subsidiaries.
See Index to Financial Statements on Page F-1 included herein.
2. Financial Statement Schedules.
See Index to Financial Statements Schedule on Page F-1 included
herein.
B. Reports on Form 8-K
1. The Company filed a Current Report on Form 8-K on December 23, 1999
reporting other events under Item 5.
C. Exhibits - pursuant to Item 601 of Regulation S-K
3.1 Articles of Incorporation of the Company (amendments and originals).
(2)
3.2 Amended and Restated Bylaws of the Company. (3)
10.1 First Amended and Restated Agreement of Limited Partnership of First
Washington Realty Limited Partnership. (4)
10.2 Third Amended and Restated Employment Agreement between the Company
and William J. Wolfe, dated January 14, 2000. (1)
10.3 Third Amended and Restated Employment Agreement between the Company
and Stuart J. Halpert, dated January 14, 2000. (1)
10.4 Revolving Credit Agreement dated January 22, 1998 between Union Bank
of Switzerland and First Washington Realty Limited Partnership. (5)
21.1 List of Subsidiaries. (1)
23
<PAGE>
23.1 Consent of PricewaterhouseCoopers LLP. (1)
27 Financial Data Schedule. (1)
(1) Filed herewith
(2) Incorporated herin by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
(3) Incorporated herein by reference from the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998.
(4) Incorporated herein by reference from the Company's Registration Statement
on Form S-11 (No. 33-83960).
(5) Incorporated herein by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
FIRST WASHINGTON REALTY TRUST, INC.
Date: March 30, 2000 /s/ James G. Blumenthal
--------------------------------
By: James G. Blumenthal
Executive Vice President and
Chief Financial Officer
March 30, 2000
25
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Financial Statements:
Report of Independent Accountants.....................................F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998..........F-3
Consolidated Statements of Operations for each of the three years
in the period ended December 31, 1999.................................F-4
Consolidated Statements of Changes in Stockholders' Equity for
each of the three years in the period ended December 31, 1999.........F-5
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1999................................F-6
Notes to Consolidated Financial Statements............................F-7
Financial Statement Schedules:
II -- Valuation and Qualifying Accounts..............................F-25
III -- Real Estate and Accumulated Depreciation......................F-26
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of First Washington Realty Trust, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index on page F-1 present fairly, in all material respects, the
financial position of First Washington Realty Trust, Inc. and Subsidiaries at
December 31, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
In addition, in our opinion, the financial statement schedules listed in the
accompanying index on page F-1 present fairly, in all, respects, the information
set forth therein when read in conjunction with the consolidated financial
statements. These financial statements and financial statement schedules are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
February 9 , 2000
F-2
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
ASSETS
<S> <C> <C>
Rental properties:
Land ....................................................................................... $ 119,965 $ 108,562
Buildings and improvements ................................................................. 495,031 447,584
------------ ------------
614,996 556,146
Accumulated depreciation ................................................................... (67,029) (51,475)
------------ ------------
Rental properties, net ..................................................................... 547,967 504,671
Cash and cash equivalents .................................................................... 4,332 3,163
Tenant receivables, net ...................................................................... 11,750 9,463
Deferred financing costs, net ................................................................ 5,137 1,921
Other assets ................................................................................. 14,107 13,736
------------ ------------
Total assets ....................................................................... $ 583,293 $ 532,954
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgage notes payable ..................................................................... $ 298,116 $ 244,113
Debentures ................................................................................. -- 25,000
Accounts payable and accrued expenses ...................................................... 12,350 11,542
------------ ------------
Total liabilities .................................................................. 310,466 280,655
Minority interest ............................................................................ 66,267 66,218
Commitments and contingencies (note 11)
Stockholders' equity:
Convertible preferred stock $.01 par value;
10,000,000 shares authorized, 3,800,000 shares designated;
2,359,202, and 2,314,189 shares issued and
outstanding, liquidation value of $25.00 per share ...................................... 24 23
Common stock $.01 par value; 90,000,000 shares
authorized; 9,709,670 and 8,566,985 shares issued and
outstanding, respectively ............................................................... 97 86
Additional paid-in capital ................................................................. 245,054 218,345
Accumulated distributions in excess of earnings ............................................ (38,615) (32,373)
------------ ------------
Total stockholders' equity ......................................................... 206,560 186,081
------------ ------------
Total liabilities and stockholders' equity ......................................... $ 583,293 $ 532,954
============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-3
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Minimum rents ............................................................. $ 67,092 $ 56,702 $ 43,857
Tenant reimbursements ..................................................... 16,877 14,176 9,506
Percentage rents .......................................................... 1,709 1,613 1,060
Other income .............................................................. 1,850 1,573 1,211
-------- -------- --------
Total revenues ........................................................ 87,528 74,064 55,634
-------- -------- --------
Expenses:
Property operating and maintenance ........................................ 20,140 17,934 13,522
General and administrative ................................................ 4,161 3,789 3,363
Interest .................................................................. 21,481 19,966 18,416
Depreciation and amortization ............................................. 16,985 14,627 11,172
-------- -------- --------
Total expenses ........................................................ 62,767 56,316 46,473
-------- -------- --------
Income before gain (loss) on sale of properties, income (loss)
from Management Company, minority interest, extraordinary
item, and distributions to Preferred Stockholders ......................... 24,761 17,748 9,161
Gain (loss) on sale of properties .............................................. (495) 2,371 549
Income (loss) from Management Company .......................................... (1,103) 82 433
-------- -------- --------
Income before minority interest, extraordinary item,
and distributions to Preferred Stockholders ............................... 23,163 20,201 10,143
Income allocated to minority interest .......................................... (5,717) (4,602) (1,743)
-------- -------- --------
Income before extraordinary item and distributions
to Preferred Stockholders ................................................. 17,446 15,599 8,400
Extraordinary item (net of minority interest) -
Loss on early extinguishment of debt ..................................... -- (277) (790)
-------- -------- --------
Net income ..................................................................... 17,446 15,322 7,610
Distributions to Preferred Stockholders ........................................ (6,120) (5,641) (5,641)
-------- -------- --------
Net income allocated to Common Stockholders .................................... $ 11,326 $ 9,681 $ 1,969
======== ======== ========
Earnings per Common Share - Basic
Income before extraordinary item .......................................... $ 1.25 $ 1.25 $ 0.49
Extraordinary item ........................................................ -- (0.04) (0.14)
-------- -------- --------
Net income ..................................................................... $ 1.25 $ 1.21 $ 0.35
======== ======== ========
Earnings per Common Share - Diluted
Income before extraordinary item .......................................... $ 1.23 $ 1.24 $ 0.48
Extraordinary item ........................................................ -- (0.04) (0.14)
-------- -------- --------
Net income ..................................................................... $ 1.23 $ 1.20 $ 0.34
======== ======== ========
Weighted average Common Shares - Basic ......................................... 9,086 7,978 5,663
Dilutive effect of stock options and common stock equivalents .................. 93 77 67
-------- -------- --------
Weighted average Common Shares - Diluted ....................................... 9,179 8,055 5,730
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Convertible Additional Distributions
Preferred Common Paid - in Excess of
Stock Stock in Capital Earnings Total
--------- ----------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $23 $49 $116,068 $(17,563) $98,577
Net income 7,610 7,610
Issuance of Common Stock
(2,155,562 shares) 22 48,850 48,872
Issuance of Common Stock for compensation
(144,084 shares) 1 3,447 3,448
Exercise of Stock Options (2,956 shares) 58 58
Cash distributions to Common and
Preferred Stockholders (16,556) (16,556)
Exchange of Common Units for
Common Shares (38,251 shares) 320 320
Adjustment for minority interests'
ownership of the Operating Partnership 10,613 10,613
-------- --------- ------ ------------ ------
Balance, December 31, 1997 23 72 179,356 (26,509) 152,942
Net income 15,322 15,322
Issuance of Common Stock
(1,150,000 shares) 12 25,769 25,781
Issuance of Common Stock for
Compensation (10,000 shares) 1 269 270
Vesting of Restricted Shares
for Compensation (25,290 shares) 1 617 618
Exercise of Stock Options
(2,919 shares) 56 56
Cash distributions to Common and
Preferred Stockholders (21,186) (21,186)
Exchange of Common Units
for Common Shares (100,456 shares) 1,297 1,297
Adjustment for minority interests'
ownership of the Operating Partnership 10,981 10,981
------- -------- ------ ----------- ------
Balance, December 31, 1998 23 86 218,345 (32,373) 186,081
Net income 17,446 17,446
Debenture Conversion (1,000,000 shares
of Preferred Stock) 10 24,990 25,000
Issuance of Common Stock for
Compensation (25,000 shares) 536 536
Vesting of Restricted Shares
for Compensation (33,594 shares) 722 722
Exercise of Stock Options
(3,184 shares) 62 62
Cash distributions to Common and
Preferred Stockholders (23,688) (23,688)
Exchange of Common Units
for Common Shares (58,915 shares) 1 870 871
Exchange of Preferred Units for
Preferred Shares (3,840 shares) 1 94 95
Conversion of Preferred Stock
to Common Stock (839,581 shares) (8) 11 (3) 0
Share Buyback (26,800 shares of Common Stock
and 119,246 shares of Preferred Stock) (2) (1) (3,333) (3,336)
Adjustment for minority interests'
ownership of the Operating Partnership 2,771 2,771
------- -------- ----- ----------- -----
Balance, December 31, 1999 $24 $97 $245,054 $(38,615) $206,560
=== === ======== ========= ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Operating activities:
Net Income $17,446 $15,322 $7,610
Adjustments to reconcile to net cash provided by operating activities:
Income allocated to minority interest 5,717 4,602 1,743
Depreciation and amortization 16,985 14,627 11,172
Loss (gain) on sale of rental properties 495 (2,371) (549)
Loss on early extinguishment of debt - 277 790
Deferred financing costs and loan premiums (550) (629) 979
Loss recognized on investment of Management Company 1,583 398 47
Compensation paid or payable in Company stock 1,203 1,284 1,866
Provision for uncollectible accounts 521 1,993 1,285
Recognition of deferred rent (1,319) (1,122) (1,337)
Net changes in:
Tenant receivables (1,489) (3,060) (2,582)
Other assets (2,580) (4,729) (1,525)
Accounts payable and accrued expenses 1,218 556 3,942
----- ------- ---------
Net cash provided by operating activities 39,230 27,148 23,441
------ -------- -------
Investing activities:
Acquisition of rental properties (37,943) (27,175) (19,864)
Additions to rental properties (5,899) (7,126) (7,891)
Proceeds from sale of rental properties 1,291 6,071 2,066
-------- -------- ----------
Net cash used in investing activities (42,551) (28,230) (25,689)
--------- --------- ---------
Financing activities:
Proceeds from Line of Credit draws 58,000 38,138 23,800
Proceeds from mortgage notes 13,723 318 398
Proceeds from issuance of Common Stock - 25,781 48,872
Proceeds from exercise of Stock Options 62 56 58
Repayment of Line of Credit (23,200) (32,237) (20,500)
Repayment on mortgage notes (4,666) (3,325) (38,704)
Additions to deferred financing costs (4,194) (639) (686)
Prepayment Penalties - (56) (169)
Distributions paid to Preferred Stockholders (6,120) (5,641) (5,641)
Distributions paid to Common Stockholders (17,568) (15,545) (10,915)
Distributions paid to minority interest (8,211) (5,747) (2,903)
Repurchase of Preferred and Common Shares (3,336) - -
------ ------ ------
Net cash provided by (used in) financing activities 4,490 1,103 (6,390)
----- ------- ------
Net increase (decrease) in cash and equivalents 1,169 21 (8,638)
Cash and equivalents, beginning of year 3,163 3,142 11,780
------- ------ -------
Cash and equivalents, end of year $4,332 $3,163 $3,142
====== ======== ======
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
F-6
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
---------
1. Organization and Business
First Washington Realty Trust, Inc. (the "Company") is a fully
integrated real estate organization that acquires, manages, leases, renovates
and develops principally supermarket-anchored neighborhood shopping centers. As
of December 31, 1999, the Company owned a portfolio of 62 retail properties (the
" Retail Properties") containing a total of approximately 6.7 million square
feet of gross leasable area ("GLA") located in the Mid- Atlantic region and the
Chicago, Illinois and Milwaukee, Wisconsin metropolitan areas.
The Retail Properties are strategically located neighborhood shopping
centers principally anchored by tenants such as Giant Food, Safeway, Shoppers
Food Warehouse, Food Lion, A&P Superfresh, Winn Dixie, Weis Markets, Acme
Market, Dominick's Supermarket, CVS/Pharmacy, Walgreens, Eckerd Drug and Rite
Aid. Neighborhood shopping centers are typically open-air centers ranging in
size from 50,000 to 150,000 square feet of GLA and anchored by supermarkets
and/or drug stores. The Retail Properties range in size from approximately 3,000
square feet of GLA to approximately 335,000 square feet of GLA, and average
approximately 108,000 square feet of GLA.
The Company, incorporated in Maryland in April 1994, is self-managed
and self-administered and has elected to be taxed as a real estate investment
trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code").
The Company's assets are held by, and all its operations are conducted
through, First Washington Realty Limited Partnership (the "Operating
Partnership") and First Washington Management, Inc. ("FWM"). The Company is the
sole general partner of the Operating Partnership. The limited partners are
individuals, partnerships and others who have contributed their property in
exchange for partnership interests ("Units"). The limited partners may exchange
their Units for cash, or at the option of the Company, for stock of the Company
on a 1 for 1 basis. At December 31, 1999 and 1998, the Company owned
approximately 74% and 73% of the Operating Partnership, respectively. This
arrangement is commonly referred to as an Umbrella Partnership or "UPREIT"
structure. The Operating Partnership owns 100% of the non-voting preferred stock
of FWM which entitles it to 99% of the cash flow. Certain officers of the
Company own 100% of the voting common stock of FWM which entitles them to 1% of
the cash flow. In addition, the Operating Partnership holds a FWM promissory
note in the amount of $4,000 with interest payable quarterly in the amount of
$120. FWM provides management, leasing and related services to the Operating
Partnership and also provides such services to 11 third-party clients consisting
of 21 properties and 1.8 million square feet of GLA. At December 31, 1999, the
Company and the Operating Partnership, including subsidiary partnerships,
collectively owned 100% of the Retail Properties. Due to the Company's ability,
as the general partner, to exercise both financial and operational control over
the Operating Partnership, the Operating Partnership is consolidated for
financial reporting purposes. Allocation of net income and equity to the limited
partners of the Operating Partnership is based on their respective partnership
interests and is reflected in the accompanying Consolidated Financial Statements
as minority interests. Losses allocable to the limited partners in excess of
their basis are allocated to the Common Stockholders as the limited partners
have no requirement to fund losses.
In September 1997 and July 1998, the Company completed public offerings
of Common Stock of 2,070,000 shares priced at $24.00 per share raising net
proceeds of $46,900, and 1,150,000 shares priced at $23.75 per sharing, raising
net proceeds of $25,781, respectively. There were no offerings of Common Stock
during 1999.
The Company's financial results are affected by general economic
conditions in the markets in which its properties are located. An economic
recession, or other adverse changes in general or local economic conditions,
could result in the inability of some existing tenants of the Company to meet
their lease obligations and could otherwise adversely affect the Company's
ability to attract or retain tenants. The Retail Properties are typically
anchored by supermarkets, drug stores and other consumer necessity and service
retailers which usually
F-7
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
---------
offer day-to-day necessities rather than luxury items. These types of tenants,
in the experience of the Company, generally maintain more consistent sales
performance during periods of adverse economic conditions.
2. Acquisition and Disposition of Rental Properties
During 1999, the Company acquired eight shopping centers for an
aggregate acquisition cost of approximately $63,078. All the acquisitions were
accounted for using the purchase method of accounting and the operations of each
property are included in the Company's Statement of Operations from their
respective dates of acquisition. The following is a summary of the acquisitions:
<TABLE>
<CAPTION>
TOTAL
DATE ACQUISITION ANCHOR ANCHOR
ACQUIRED PROPERTY NAME LOCATION GLA COST TENANT GLA
-------- ------------- -------- -------- --------- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C>
01/99 Kamp Washington Fairfax, VA 71,825 $15,184 Borders Books 30,000
08/99 Newark Shopping Ctr. Newark, DE 182,860 12,145 N/A
10/99 Saratoga Shopping Ctr. Springfield, VA 101,587 9,818 Giant Food 39,187
11/99 Woodmoor Shop. Ctr. Silver Spring, MD 67,394 5,616 CVS 8,296
12/99 Westmont Shopping Ctr. Hadden Township, NJ 52,640 1,656 ACME 34,240
CVS 9,100
12/99 Cudahy Center Cudahy, WI 103,254 2,804 Pick 'N Save 62,865
Walgreens 11,320
12/99 Racine Centre Mt. Pleasant, WI 135,827 8,064 Super Saver 50,979
Office Depot 31,117
12/99 Whitnall Square St. Francis, WI 133,301 7,791 Pick 'N Save 69,090
------- -----
Walgreens 11,165
------
848,688 $63,078 357,359
======= ====== =======
The acquisitions were funded as follows:
Assumed mortgage debt (including premiums) $19,213
Market value of 289,068 Common Units issued 5,922
Cash 37,943
------
Total $63,078
=======
</TABLE>
During 1998, the Company acquired eight shopping centers for an
aggregate acquisition cost of approximately $103,198. All the acquisitions were
accounted for using the purchase method of accounting and operations of each
property which are included in the Company's Statement of Operations from their
respective dates of acquisition. The following is a summary of the acquisitions:
F-8
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
---------
<TABLE>
<CAPTION>
Total
Date Acquisition Anchor Anchor
Acquired Property Name Location GLA Cost Tenant GLA
-------- ------------- -------- -------- --------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
01/98 Bowie Plaza Bowie, MD 104,836 $12,189 Giant 21,750
CVS 15,000
03/98 Watkins Park Plaza Mitchellville, MD 112,143 14,662 Safeway 43,205
CVS 11,192
04/98 Parkville Shopping Ctr. Baltimore, MD 140,925 8,388 A&P Superfresh 18,750
Rite Aid 8,608
06/98 Elkridge Corners Baltimore, MD 73,529 8,862 A&P Superfresh 39,571
Rite Aid 10,408
06/98 Village Center Richmond, VA 110,885 13,305 Ukrop's Super Market 39,003
CVS 11,700
11/98 Willston Centre I Falls Church, VA 86,468 10,382 CVS 11,206
11/98 Willston Centre II Falls Church, VA 127,434 13,339 Safeway 42,491
11/98 Town Center at Sterling Sterling, VA 179,002 22,071 Giant Food 39,187
------- ------ ------
935,222 $103,198 312,071
======= ======= =======
The Acquisitions were funded as follows:
Assumed mortgage debt (including premiums) $ 35,521
Market value of 1,618,794 Common Units issued 39,674
Deferred consideration 828
Cash 27,175
------
Total $103,198
========
</TABLE>
The deferred consideration is due January 1, 2000 and is to be paid in
the form of 36,000 common Operating Partnership Units. The deferred
consideration was determined at the date of acquisition and was included in
determining the cost of the related acquisition.
In 1999, the Company sold one of its retail properties. During 1998,
the Company sold its two multifamily properties and three of its Georgetown
properties. The following is a summary of the dispositions:
<TABLE>
<CAPTION>
Gain
Date Sales (Loss)
Sold Property Name Location GLA Price On Sale
- ---- ------------- -------- --- ----- -------
<S> <C> <C> <C> <C> <C>
1999
12/99 Pheasant Hill Plaza Bolingbrook, IL 111,190 $9,200 ($495)
======= ====== ====
1998
03/98 Branchwood and Charleston, SC $8,050 $1,536
Park Place Apartments
03/98 3269 M Street Washington, DC 5,000 750 147
09/98 3033 M Street Washington, DC 3,700 800 335
09/98 1328 Wisconsin Avenue Washington, DC 4,100 1,075 353
----- ----- ----
Total 1998 12,800 $10,675 $2,371
======= ===== ======
</TABLE>
F-9
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
---------
The following unaudited pro forma condensed combined results of
operations for the years ended December 31, 1999 and 1998 are presented as if
the acquisitions and sales of the rental properties that occurred during 1999
and 1998 had occurred on January 1 of the period presented. In preparing the pro
forma data, adjustments have been made to assume that the July 1998 Offering
occurred on January 1, 1998. The pro forma statements are based on historical
information and do not necessarily reflect the actual results that would have
occurred if the Company had owned the properties for the periods presented nor
are they necessarily indicative of future results of operations of the Company.
1999 1998
-------- ------
(unaudited)
Total revenues $91,425 $85,998
======= =======
Net income allocated to Common Stockholders $11,857 $9,967
======= =======
Earnings per common share - Basic $1.31 $1.17
======== =========
Earnings per common share - Diluted $1.29 $1.15
======== =========
3. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the
Company, the Operating Partnership and other limited partnerships and limited
liability companies which are majority owned by the Operating Partnership. All
significant intercompany balances and transactions have been eliminated.
The Company's investment in the preferred stock of FWM is accounted for
under the equity method of accounting. In addition to receiving fees under
third-party management, leasing and brokerage agreements, FWM manages, leases
and provides other related services to all the properties owned by the Operating
Partnership and its affiliates in exchange for a fee.
Use of Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These estimates involve judgments with respect to, among other
things, various future economic factors which are difficult to predict and are
beyond the control of the Company. Therefore, actual amounts could differ from
these estimates.
Rental Properties
Rental properties are carried at depreciated cost. Depreciation is
computed on the straight-line basis over the estimated useful lives of the
assets. The Company uses a 31.5 to 40 year estimated life for buildings and 5 to
40 year estimated life for capital improvements. Tenant improvement expenditures
are depreciated over the term of the related lease. Expenditures for ordinary
maintenance and repairs are charged to operations as incurred, while significant
renovations and improvements that improve and/or extend the useful life of the
asset are capitalized and depreciated over the estimated useful life.
In determining whether there have been any impairment losses, the
Company verifies that the property's net projected undiscounted cash flow before
debt service is sufficient to recover the cost of the asset. An impairment loss
would result if the carrying value were greater than the cumulative undiscounted
net cash flow. The amount of an impairment would be calculated by determining
the difference between the carrying value and the cumulative discounted net cash
flow.
F-10
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------
Cash and Cash Equivalents
All demand, money market accounts, certificates of deposit and
repurchase agreement accounts with an original maturity of three months or less
at the date of purchase are considered to be cash and cash equivalents.
The Company places its temporary cash investments with high quality
financial institutions. The deposits at such financial institutions are
guaranteed by the Federal Deposit Insurance Corporation ("FDIC") up to $100. At
various times during the year, the Company has deposits in excess of the FDIC
insurance limit. In addition, the Company is required to maintain escrow
deposits with certain lenders. Such amounts which are included in other assets,
are also in excess of FDIC insurance limits.
Deferred Lease Costs
Fees and costs incurred to initiate and renew operating leases,
including amounts incurred by FWM, are amortized over the lease term and are
included in other assets.
Deferred Financing Costs
Costs of interest rate caps, interest rate swaps, interest rate
buydowns and fees incurred to obtain long- term financing are being amortized
over the terms of the respective loans using the effective interest method.
Unamortized deferred financing costs are charged to expense when debt is retired
before the maturity date. Accumulated amortization of deferred financing costs
at December 31, 1999 and 1998 was $7,128 and $8,022, respectively. Deferred
financing cost amortization which is included in interest expense amounted to
$977, $1,148 and $1,546 during 1999, 1998 and 1997, respectively.
Interest Rate Swap and Cap Agreements
Interest rate differential to be paid or received on interest rate swap
and cap agreements are recognized as an adjustment to interest expense. Gains
and losses on terminated interest rate swaps and caps accounted for as hedges
are amortized over the remaining lives of the related swaps and caps; any
unamortized gain or loss in recognized when the underlying debt is terminated.
Revenue Recognition
Rental income attributable to leases is recorded when due from tenants.
Certain of the leases provide for escalating base rents, which are recognized on
a straight-line basis over the term of the agreement. Rents accrued, but not yet
paid, are included in accounts receivable. As of December 31, 1999 and 1998 the
amounts of these straight-line receivables were $6,720 and $5,685, respectively.
The amount of rental income from the straight-lining of rents amounted to
$1,319, $1,122 and $1,337 for the years ended 1999, 1998 and 1997, respectively.
Certain of the leases also provide for additional revenue to be paid based upon
the level of sales achieved by the lessee and are recorded as percentage rents.
Additional rental revenue is recognized when it is probable that the lessee will
reach the established level of sales. Most leases provide for tenant
reimbursement of common area maintenance and other operating expenses.
An allowance for doubtful accounts has been provided against the
portion of tenant accounts receivable which is estimated to be uncollectible.
Tenant accounts receivable in the accompanying consolidated balance sheets are
shown net of an allowance for doubtful accounts of $2,285 and $2,493 as of
December 31, 1999 and 1998, respectively.
F-11
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
---------
Income Taxes
The Company operates and intends to continue to operate in a manner
which will qualify it as a REIT under the Internal Revenue Code. A trust which
distributes at least 95% of its taxable income to its shareholders each year and
which meets certain other conditions will not be taxed on that portion of its
taxable income which is distributed to its shareholders. The following per share
distributions (and their tax classifications) were paid during 1999 (unaudited):
Ordinary Return Capital Total
Income of Capital Gain Paid
------ ---------- ---- ----
Preferred $2.44 - - $2.44
Common $1.95 - - $1.95
If the Company fails to qualify as a REIT in any tax year, the Company
will be subject to Federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Even if the
Company qualifies for taxation as a REIT, the Company may be subject to certain
state and local taxes on its income and property and federal income and excise
taxes on its undistributed income.
Earnings per Common Share
Basic earnings per Common Share is calculated by dividing net income
allocated to Common Stockholders by the weighted average number of common shares
outstanding during the respective periods. Diluted earnings per common share
reflects the dilutive effect of outstanding employee stock options using the
treasury stock method and other common stock equivalents. The assumed conversion
of the partnership units (4,189,842, 2,787,954 and 1,278,088 common units for
the years ended December 31, 1999, 1998 and 1997, respectively, and 85,760,
429,147 and 427,605 preferred units for the years ended December 31, 1999, 1998
and 1997, respectively), held by the limited partners of the Operating
Partnership would result in the elimination of earnings allocated to minority
interests. The conversion of the preferred units would be anti-dilutive while
the conversion of the common units would have no effect on the periods
presented. The conversion of Preferred Stock (3,171,626, 2,966,908 and 2,966,908
common share equivalents for the years ended December 31, 1999, 1998, and 1997,
respectively) and the Exchangeable Debentures (625,219, 1,282,051, and 1,282,051
common share equivalents for the years ended December 31, 1999, 1998 and 1997,
respectively) would be anti-dilutive for the periods presented.
Minority Interest
Minority interest represents the limited partners' interest of
4,389,979 and 3,707,364 common units in the Operating Partnership as of December
31, 1999 and 1998, respectively, and 85,760 and 429,147 Exchangeable Preferred
Units in the Operating Partnership as of December 31, 1999 and 1998,
respectively. The Exchangeable Preferred Units have an aggregate liquidation
value of $2,144. At the date of formation, the minority interest was established
based on their interest in the value of the Operating Partnership. Annually, the
income is assigned to Preferred Unitholders to the extent of their distributions
and amounts necessary to maintain their balance at its liquidation value. Any
remaining income is assigned to Common Unitholders based on their percentage
interest during the period the income is generated. Losses of the Operating
Partnership are allocated to Common Unitholders based on their percentage
interest to the extent that they have capital available. Additionally, the
impact on stockholders' equity of changes in minority interests' percentage of
ownership caused by the issuance of Common Stock in the Company or the issuance
of units in the Operating Partnership are reflected in additional paid in
capital.
F-12
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
---------
New Accounting Pronouncements
On June 16, 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended by SFAS 137, which is effective for fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. Under
this statement derivatives are recognized at fair market value and changes in
fair market value are recognized as gains or losses. Management has not assessed
the impact of the adoption of SFAS 133.
On December 6, 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101), which is effective for
all periods after December 31, 1999. SAB 101 establishes that contingent rental
income should accrue only when the changes in the factors on which the
contingent lease payment are based actually occur. Management plans to adopt
this standard for all reporting periods subsequent to December 31, 1999.
Management has not assessed the impact of the adoption of SAB 101 due to the
variability of the terms under which contingent rentals may occur.
4. RENTAL PROPERTIES
Depreciation expense for each of the years ended December 31, 1999,
1998 and 1997 was $16,152, $13,997 and $10,719, respectively.
For each of the years ended December 31, 1999, 1998, and 1997,
maintenance and repairs expense was $5,248, $4,299 and $3,501, respectively, and
real estate taxes were $8,525, $7,535 and $4,968, respectively. Such amounts are
included in property operating and maintenance expense in the accompanying
consolidated statements of operations.
5. MORTGAGE DEBT
Mortgage and other notes payable consisted of the following as of
December 31, 1999 and 1998, respectively:
1999 1998
---- ----
Fixed-rate debt with rates ranging from 6.54%
to 9.83%, payable through 2014 (a) ... $238,350 $221,406
Borrowings under the Line of Credit .......... 44,000 9,200
Industrial revenue bonds payable June 2010 (b) 6,650 6,870
Other variable rate mortgages
payable 2001 to 2004, at LIBOR + 1.50%
to LIBOR + 2.25% ............................. 9,116 6,637
-------- --------
Total .................................... $298,116 $244,113
======== ========
(a) As part of the loans the lenders require the Company to maintain
escrow accounts for real estate taxes, insurance and a replacement
reserve. These escrows, totaling $2,181 and $3,034 as of December 31,
1999 and 1998, respectively, are included in other assets.
F-13
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
---------
(b) The Company assumed Bond Obligations of $7,600 collateralized by
Mayfair Shopping Center. The Bond Obligations bear interest at
variable rates, plus a letter of credit enhancement fee of 1.5%. The
variable rates are determined weekly at the rate necessary to produce
a bid in the process of remarketing the Bond Obligations equal to par
plus accrued interest, based on comparable issues in the market. The
interest rate, including the 1.5% credit enhancement fee, was 5.43% at
December 31, 1999. The Bond Obligations have a stated maturity of
February 1, 2010, however, the letter of credit supporting the Bond
Obligations expires on June 24, 2003.
The Bond Obligations contain affirmative and negative covenants,
events of default and other provisions as are customarily required for
such instruments. The most restrictive covenants require the Company
to maintain a maximum leverage ratio (total indebtedness divided by
net worth) of 2.0, maintain a debt service coverage ratio (net income
before interest and depreciation divided by scheduled debt service
payments) of at least 1.50 and require the Operating Partnership to
maintain a net worth of at least $150,000. At December 31, 1999 and
1998, the Company was in compliance with all restrictive covenants.
Maturities of the existing indebtedness at December 31, 1999 are as
follows:
Principal Amortization Balloon
Curtailment of Premiums Amount Total
----------- ----------- ------ -----
2000 $5,410 $ 1,179 $ 16,933 $ 23,522
2001 5,664 1,031 57,680 64,375
2002 5,710 901 11,843 18,454
2003 5,283 608 14,926 20,817
2004 5,668 471 2,418 8,557
Thereafter 19,810 891 141,690 162,391
------- ------ -------- --------
$47,545 $5,081 $245,490 $298,116
======= ====== ======== ========
In anticipation of the mortgage debt maturing in 2000, the Company
entered into a forward interest rate swap contract. The Company
intends to hold such contract until the expiration date. The purpose
of the swap is to mitigate any exposure to fluctuations in interest
rates until the maturity dates of the mortgages when the Company
expects to refinance these loans. Under the terms of the swap
contract, the Company pays a fixed rate to the other party to the
contract ("Counter Party") while receiving variable payments from the
Counter Party based on the 30-day LIBOR rate. This effectively fixes
the LIBOR rate for the Company during the period of the swap contract.
The following is a summary of the Company's swap contract as of
December 31, 1999:
NOTIONAL DATE OF FIXED RATE FAIR MARKET
AMOUNT AGREEMENT PERIOD OF CONTRACT PAYABLE VALUE
------ --------- ------------------ ------- -----
$24,000 01/98 05/01/00 - 05/02/05 5.85% $1,028
At December 31, 1998, the Company had three swap contracts with a
total notional amount of $97,500, an average fixed rate of 6.23% and
fair market value of $(4,511). The contract periods ranged from July
1, 1999 through May 2, 2005.
F-14
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
---------
During 1999, $88,933 of indebtedness matured including the $25,000
Exchangeable Debentures. The Company refinanced this debt primarily through six
separate loans aggregating $75,000 with Metropolitan Life Insurance Company
("Met Life") and the conversion of the Exchangeable Debentures to 1,000,000
shares of Preferred Stock. The Met Life loans are non-recourse and are each
secured by one property.
Part of this transaction included the closing of the three swap
contracts that the Company had in place in anticipation of this financing. The
Company paid the Counter Party approximately $3,200 to close the Contracts. This
cost was capitalized and is being amortized over the life of the Met Life loans.
The following is a summary of Met Life loans:
<TABLE>
<CAPTION>
Coupon
Loan Amount Collateral Term (years) Interest Rate All-In Rate(1)
----------- ---------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
$10,700 Davis Ford Crossing 10 6.79% 7.21%
13,700 First State Plaza 10 6.79% 7.23%
11,800 Fox Mill Shopping Center 12 6.84% 7.37%
10,900 Mallard Creek Shopping Center 10 6.85% 7.35%
6,700 McHenry Commons 10 6.85% 7.35%
21,200 Valley Centre 12 6.84% 7.21%
------- ---- ----
$75,000 6.83% 7.27%
======= ==== ====
</TABLE>
- -------
(1) Includes the amortization of costs to close out the interest rate swap
contracts, mortgage loan fees and other closing costs over life of the
loans using the effective interest rate method.
The Company has a collateralized revolving Line of Credit of up to
$51,000 with Union Bank of Switzerland ("UBS AG"). This line is collateralized
by seven properties (Kenhorst Plaza, Shoppes of Graylyn, Watkins Park Plaza,
Four Mile Fork, Takoma Park, Centre Ridge Marketplace and Newtown Square). The
line matures on January 31, 2001 and borrowings under this line bear interest at
the 30-day LIBOR plus one percent (1%). As of December 31, 1999, there was
$44,000 outstanding under the Line of Credit.
The Line of Credit is available to fund acquisitions, renovations,
expansions and other working capital requirements. Definitive agreements with
respect to the Line of Credit contain customary representations, warranties and
covenants.
Interest paid for the years ended December 31, 1999, 1998, and 1997 was
$22,031, $20,595 and $17,437, respectively.
6. DEBENTURES
On June 27, 1999, the holder of the $25,000, 8.25% Debentures exchanged
the Debentures for 1,000,000 shares of Preferred Stock.
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following as of
December 31, 1999 and 1998, respectively:
F-15
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
---------
1999 1998
---- ----
Accrued real estate taxes ............................ $ 3,286 $ 2,780
Deferred acquisition payments ........................ 1,434 1,939
Tenant security deposits ............................. 2,132 2,170
Accrued compensation payable in Company stock ........ 1,534 1,479
Accounts payable and other accrued expenses .......... 3,964 3,174
------- -------
Total ................................................ $12,350 $11,542
======= =======
8. PREFERRED STOCK
The Company's charter authorizes the issuance of up to 10,000,000
shares of preferred stock, par value $.01 per share. The Convertible Preferred
Stock has a liquidation preference equal to $25.00 per share plus an amount
equal to any accrued and unpaid dividend (the "Convertible Preferred Liquidation
Preference Amount"). Holders of the Convertible Preferred Stock are entitled to
receive cumulative preferential cash dividends in an amount per share of
Convertible Preferred Stock equal to $0.6094 per quarter plus a participating
dividend equal to the amount, if any, of dividends in excess of $0.4875 per
quarter with respect to the number of shares of Common Stock into which a share
of Convertible Preferred Stock is then convertible. Shares of Convertible
Preferred Stock are convertible on or after May 31, 1999 into 1.282051 shares of
Common Stock. The Company may redeem the Convertible Preferred Stock commencing
July 15, 1999 at a redemption price of $27.44 per share. The redemption price
reduces annually thereafter in stages to $25.00 in 2004.
9. SUMMARY OF NONCASH INVESTING AND FINANCING ACTIVITIES
Significant noncash transactions for the years ended December 31, 1999,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Liabilities assumed in purchase of rental properties $19,213 $35,521 $74,657
Conversion of Exchangeable Debentures to
Preferred Stock ................................. $25,000 -- --
Common and Preferred Units in the Operating
Partnership issued in connection with the
purchase of rental properties ................... $ 5,922 $39,674 $33,851
Common Units in the Operating Partnership
issued to pay deferred consideration liability ... $ 360 $ 1,462 --
Adjustment for minority interest's
ownership of the Operating Partnership .......... $ 2,771 $10,981 $10,613
Exchange of Common Units in the
Operating Partnership for Common Shares ........ $ 871 $ 1,297 $ 320
Exchange of Preferred Units in the
Operating Partnership for Preferred Shares ..... $ 95 -- --
</TABLE>
F-16
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
-------
10. LEASE AGREEMENTS
The Company is the lessor of retail properties with initial lease terms
expiring through the year 2030. Many leases are renewable for three to five
years at the lessee's option. Future minimum lease receipts under noncancelable
operating leases as of December 31, 1999 are as follows:
2000 $ 68,039
2001 61,921
2002 53,895
2003 44,841
2004 36,117
Thereafter 172,783
-------
Total $437,596
========
These future rentals do not include additional rent which may be
received from tenants for pass-through provisions in leases related to increases
in operating expenses or for percentage rentals.
11. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is not presently involved in any material litigation nor,
to its knowledge, is any material litigation threatened against the Company or
its properties, other than routine litigation arising in the ordinary course of
business or which is expected to be covered by the Company's liability
insurance. In the opinion of management of the Company, such litigation is not
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
Environmental
The Company, as an owner of real estate, is subject to various
environmental laws of Federal and local governments. Compliance by the Company
with existing laws has not had a material adverse effect on its financial
condition and management does not believe it will have such an effect in the
future. However, the Company cannot predict the impact of new or changed laws or
regulations on its current Retail Properties.
All of the Retail Properties have been subjected to Phase I
environmental audits. Such audits have not revealed, nor is management aware of
any environmental liability that management believes would have a material
adverse impact on the consolidated financial position, results of operations or
liquidity. Management is unaware of any instances in which it would incur and be
financially responsible for any material environmental costs if any or all
Retail Properties were sold, disposed or abandoned.
12. RELATED-PARTY TRANSACTIONS
The Operating Partnership owns 100% of the non-voting Preferred Stock
of First Washington Management, Inc. (FWM), which entitles it to 99% of the cash
flow of FWM. Certain of the officers of the Company own 100% of the Common Stock
of FWM which entitles them to 1% of the cash flow of FWM. In addition, the
Company received $480 annually of interest income, included in income from FWM,
on the FWM Note in 1999, 1998 and 1997. The Company's loss recognized on the
investment in FWM for the years ended December 31, 1999, 1998 and 1997 was
$1,583, $398 and $47, respectively. Included in other assets is $1,552
representing the investment in FWM.
F-17
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
---------
FWM provides property management, leasing and other related services to
the Company. Management and other fees paid by the Company in 1999, 1998 and
1997 amounted to $5,530, $4,546 and $3,687, respectively.
13. STOCK AND STOCK OPTION PLANS
Stock Option Plans
Under various plans and agreements, the Company has authorized the
issuance of stock and stock options to certain officers and employees of the
Company. As permitted by SFAS 123, the Company continues to apply APB Opinion
No. 25 and related Interpretations in accounting for its plans.
The Company established a Stock Option Plan (the "Stock Option Plan")
for the Company's directors, executive officers and key employees of FWM. The
Stock Option Plan provides that the compensation committee of the Board of
Directors (or Board, in the case of options granted to independent directors)
may grant or issue stock options. Each grant or issuance will be set forth in a
separate agreement with the person receiving the award and will indicate the
type, terms and conditions of the award. The plan provides for both
non-qualified and incentive stock options. The Stock Option Plan provides that
1,296,691 shares of Common Stock will be reserved for issuance.
SFAS 123 requires pro forma information regarding net income and
earnings per share as if the Company accounted for its stock options under the
fair value method of that statement. The fair value of the options issued in
1999, 1998 and 1997 are estimated to be $234, $161 and $221, respectively, as of
the date of the grant, using a binomial model with the following
weighted-average assumptions: risk-free interest rates of 4.8%, 5.5% and 7.4%;
dividend rate of 8.8%, 9.3% and 8.7%; volatility factors of the expected market
price of the Company's shares of 17.5%, 17.3% and 17.0%; and a weighted average
expected life of the options of 2.3, 3.0 and 3.8 years, respectively.
Because option valuation models require input of highly subjective
assumptions, such as the expected stock price volatility, and because changes in
these assumptions can materially affect the fair value estimate, the existing
model may not necessarily provide a reliable single measure of the fair value of
its stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options are amortized to expense over the options' vesting period. The pro forma
net income is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma net income before extraordinary item $ 11,121 $ 9,831 $ 2,685
Extraordinary item ........................... -- (277) (790)
---------- --------- ---------
Pro forma net income ......................... $ 11,121 $ 9,554 $ 1,895
========== ========= =========
Pro forma earnings per Common Share - Basic
Income before extraordinary item .......... $ 1.22 $ 1.23 $ 0.47
Extraordinary item ........................ -- (0.04) (0.14)
---------- --------- ---------
Net income ................................ $ 1.22 $ 1.19 $ 0.33
========== ========= =========
Pro forma earnings per Common Share - Diluted
Income before extraordinary item .......... $ 1.21 $ 1.22 $ 0.47
Extraordinary item ........................ -- (0.04) (0.14)
---------- --------- ---------
Net income ................................ $ 1.21 $ 1.18 $ 0.33
========== ========= =========
</TABLE>
F-18
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
---------
A summary of the Company's stock option activity for the years ended
December 31 is as follows:
<TABLE>
<CAPTION>
SHARES AVAILABLE WEIGHTED RANGE OF
OPTIONS FOR FUTURE AVERAGE EXERCISE
OUTSTANDING OPTION GRANTS EXERCISE PRICE PRICE
----------- ------------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996 ................ 339,648 11,892 $ 19.50 $ 19.50
Amendment of Stock
Option Plan ...................... -- 450,000
Options granted .................. 145,500 (145,500) $ 24.00 $ 24.00
Options exercised ................ (2,956) -- $ 19.50 $ 19.50
Options expired/forfeited ........ (228) 228 $ 19.50 $ 19.50
------- --------
December 31, 1997 ................ 481,964 316,620 $ 20.86 $19.50-$24.00
Amendment of Stock
Option Plan ...................... -- 500,000
Options granted .................. 105,500 (105,500) $ 25.50 $ 25.50
Options exercised ................ (2,919) -- $ 19.50 $ 19.50
Options expired/forfeited ........ (8,228) 8,228 $ 23.69 $19.50-$25.50
------- --------
December 31, 1998 ................ 576,317 719,348 $ 21.67 $19.50-$25.50
Options granted .................. 216,500 (216,500) $ 20.90 $20.75-$22.56
Options exercised ................ (3,184) -- $ 19.50 $19.50
Options expired/forfeited ........ (21,000) 21,000 $ 22.45 $19.50-$25.50
------- --------
December 31, 1999 ................ 768,633 523,848 $ 21.43 $19.50-$25.50
======= ========
</TABLE>
At December 31, 1999, 1998 and 1997 options for 454,133 shares, 379,150
shares and 334,131 shares, respectively, were exercisable. The average remaining
contractual life of options outstanding at December 31, 1999, 1998 and 1997 were
7.1 years, 7.2 years and 7.9 years, respectively. The weighted average grant
date fair value per options granted in 1999, 1998 and 1997 was $1.08, $1.53 and
$1.52, respectively.
Contingent and Restricted Stock Plans
Two of the Company's senior officers have entered into employment
agreements. The agreements call for a base salary plus an incentive compensation
arrangement based on the Company meeting certain operating results requirements.
The incentive compensation is in the form of common stock grants. Up to 100,000
shares of stock may be issued to each of the two officers (or their designees).
These additional shares of stock will be recorded as additional compensation in
the period earned. In 1997, 47,380 shares were issued to each of the officers
with a total value of $2,300. Total compensation cost recognized under this plan
was $1,100, for the year ended December 31, 1997.
F-19
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------
The Company approved a Contingent Stock Agreement and a Restricted
Stock Plan for each of these officers. The Contingent Stock Agreements have
reserved for grant 60,000 shares of common stock (30,000 shares each) for the
period July 1, 1997 through December 31, 1999. The agreements are administered
by the Compensation Committee of the Board of Directors ( the "Committee"). The
grants are awarded if the Committee determines that the Company has materially
met certain targeted performance criteria. During 1999 and 1998, 12,500 and
5,000 shares, respectively, were issued to each of the two officers. The
weighted average fair value of the shares was $536 and $270, respectively.
12,500 shares are available to be issued in March 2000 to each of the two
officers. The two officers were issued 39,200 shares of common stock each under
the Restricted Stock Plan, which is also administered by the Compensation
Committee. The shares issued under this plan are subject to a vesting schedule
as follows:
Vesting Date Number of Shares Vested
------------ -----------------------
July 1, 1997 5,000
March 31, 1998 11,400
March 31, 1999 11,400
March 31, 2000 11,400
------
TOTAL 39,200
======
The Company will record compensation expense as the shares vest based
on the fair market value of the stock as of the date of issuance (i.e. $24.25
per share).
In addition to the above restricted shares, during 1998 each of the two
officers elected to receive 4,750 restricted shares in lieu of their cash bonus.
Such restricted shares are subject to a 3-year vesting period.
In May 1998, the Board amended the employment agreements of the two
senior officers effective March 1998. The terms of the employment agreements
were extended to June 30, 2002 and December 31, 2002. The amended employment
agreements continue to provide for a base salary plus annual incentive bonus
arrangement, payable in cash, based on the Company meeting certain targeted
performance criteria to be established by the committee. The amended employment
agreements further provide for a grant to each officer of 150,000 shares of
additional Restricted Stock on January 1, 2000. The shares issued will be
subject to vesting as follows: 25,000 shares on January 1, 2001; 50,000 shares
on January 1, 2002, and 75,000 shares on January 1, 2003. The amended employment
agreements also provide for the issuance to each officer of an additional 25,000
shares of Contingent Stock on each of March 31, 2001, 2002 and 2003, based on
the Company's attainment during the preceding fiscal year of certain targeted
performance criteria to be established by the Committee.
A total of 478,400 shares of common stock are reserved under the
Restricted Stock Plan for grants to officers and employees of the Company, of
which 117,542 were issued as of December 31, 1999.
F-20
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------
14. CONDENSED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1999 First Second Third Fourth
- ---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
Total revenues ........................ $ 21,125 $ 21,440 $ 21,622 $ 23,341
Income before minority interest,
extraordinary item, and distributions
to Preferred Stockholders ........... $ 5,173 $ 5,311 $ 6,346 $ 6,333
Net income allocated
to Common Stockholders .............. $ 2,457 $ 2,626 $ 3,176 $ 3,067
Earnings per Common Share-Basic ....... $ 0.29 $ 0.30 $ 0.34 $ 0.32
Earnings per Common Share-Diluted ..... $ 0.28 $ 0.30 $ 0.33 $ 0.32
1999 First Second Third Fourth
- ---- ----- ------ ----- ------
Total revenues ........................ $ 16,640 $ 18,112 $ 18,563 $ 20,749
Income before minority interest,
extraordinary item, and distributions
to Preferred Stockholders ........... $ 5,507 $ 3,940 $ 5,151 $ 5,603
Extraordinary item .................... $ (277) -- -- --
Net income allocated
to Common Stockholders .............. $ 2,673 $ 1,643 $ 2,625 $ 2,740
Earnings per Common Share-Basic
Income before extraordinary item .... $ 0.40 $ 0.22 $ 0.31 $ 0.32
Extraordinary item ................. (0.04) -- -- --
---------- ---------- ---------- ----------
Net Income .......................... $ 0.36 $ 0.22 $ 0.31 $ 0.32
========== ========== ========== ==========
Earnings per Common Share - Diluted
Income before extraordinary item .... $ 0.40 $ 0.22 $ 0.31 $ 0.32
Extraordinary item .................. (0.04) -- -- --
---------- ---------- ---------- ----------
Net income .......................... $ 0.36 $ 0.22 $ 0.31 $ 0.32
========== ========== ========== ==========
</TABLE>
F-21
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
------
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
values of the Company's financial instruments:
Cash and Equivalents: The carrying amount approximates fair value.
Mortgage notes payable and Debentures: The fair values were estimated
by discounting the future cash flows using the current rates for similar types
of borrowing arrangements.
Interest Rate Swaps and Caps: The fair value of these contracts was
estimated based upon the amount the Company would have received/paid to
terminate the swaps and caps.
The estimated fair values of the Company's financial instruments at
December 31 are as follows:
1999 1998
--------------------- ----------------------
CARRYING FAIR CARRYING FAIR
Financial Assets: VALUE VALUE VALUE VALUE
----------------- ----- ----- ----- -----
Cash and Cash Equivalents ..... $ 4,332 $ 4,322 $ 3,163 $ 3,163
Financial Liabilities:
Mortgage notes payable ........ $ 298,116 $ 282,350 $ 244,113 $ 275,499
Debentures .................... -- -- $ 25,000 $ 30,369
Off-Balance Sheet Instruments
Interest Rate Swaps and Caps
receive/(pay) ................ -- $ 1,028 -- $ (4,523)
16. BUSINESS SEGMENTS
The Company owns one property type only (i.e. neighborhood shopping
centers). Resource allocation, determination of compensation and financial
analysis are performed by the Company's management for each segment. The Company
measures performance of the segments based on total revenues less property
operating and maintenance expenses, as detailed in the following table:
Retail
Properties FWM, Inc. Other(1) Total
---------- --------- -------- -----
Year ended December 31,
1999:
Revenues ......................... $ 86,209 $ 6,357 $ (5,038) $ 87,528
Operating and maintenance
expenses ........................ 20,140 7,460 (7,460) 20,140
-------- --------- -------- --------
Income from operations ........... $ 66,069 $ (1,103) $ 2,422 $ 67,388
======== ========= ======== ========
Commercial real estate
property expenditures ........... $ 68,977 $ -- $ -- $ 68,977
======== ========= ======== ========
Segment assets at December
31, 1999 ........................ $583,293 $ -- $ -- $583,293
======== ========= ======== ========
F-22
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
--------
Year ended December 31,
1998:
Revenues .......................... $ 72,942 $ 6,487 $ (5,365) $ 74,064
Operating and maintenance
expenses ......................... 17,934 6,405 (6,405) 17,934
-------- -------- -------- --------
Income from operations ............ $ 55,008 $ 82 $ 1,040 $ 56,130
======== ======== ======== ========
Commercial real estate
property expenditures ............ $110,646 $ -- $ -- $110,646
======== ======== ======== ========
Segment assets at December
31, 1998 ......................... $532,954 $ -- $ -- $532,954
======== ======== ======== ========
Year ended December 31, 1997:
Revenues .......................... $ 54,297 $ 5,902 $ (4,565) $ 55,634
Operating and maintenance
expenses ......................... 13,522 5,469 (5,469) 13,522
-------- -------- -------- --------
Income from operations ............ $ 40,775 $ 433 $ 904 $ 42,112
======== ======== ======== ========
Commercial real estate
property expenditures ............ $144,411 $ -- $ -- $144,411
======== ======== ======== ========
Segment assets at December 31,
1997.............................. $439,141 $ -- $ -- $439,141
======== ======== ======== ========
- ----------
(1) Represents the adjustment for straight-lining of rents and reflecting the
net income from FWM using the equity method of accounting.
The following table reconciles income from operations for reportable
segments to income before extraordinary items as reported in the Consolidated
Statements of Operations.
Years ended December 31
-------------------------------------
1999 1998 1997
---- ---- ----
Income from operations for
reportable segments ................. $ 67,388 $ 56,130 $ 42,112
General and administrative
expenses ............................ (4,161) (3,789) (3,363)
Interest expense ..................... (21,481) (19,966) (18,416)
Depreciation and amortization ........ (16,985) (14,627) (11,172)
Income allocated to minority
interest ............................ (5,717) (4,602) (1,743)
Distributions to Preferred
Stockholders ........................ (6,120) (5,641) (5,641)
Income from Management Company ....... (1,103) 82 433
Gain (loss) on sale of
properties .......................... (495) 2,371 549
-------- -------- --------
Income before extraordinary
item ................................ $ 11,326 $ 9,958 $ 2,759
======== ======== ========
F-23
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
17. SUBSEQUENT EVENTS
On January 7, 2000, the Company placed separate mortgages on Whitnall
Square, Cudahy Center and Racine Centre. The mortgages bear interest at 7.8%
annually, are due in 10 years and have monthly payments based on a 30-year
amortization schedule. The loan proceeds were $12,325 and were used to pay down
the line of credit.
On January 14, 2000, the Board of Directors declared a distribution of
$0.4875 and $0.6094 per Common and Preferred share of stock, respectively, to
shareholders of record as of February 1, 2000. On February 15, 2000,
distributions in the amount of $8,433 were paid.
On March 10, 2000, the Board of Directors awarded 12,500 shares to each
of two of the Company's senior officers as provided for under their employment
agreements. The shares have a fair market value of approximately $481 as of
March 10, 2000.
F-24
<PAGE>
FIRST WASHINGTON REALTY TRUST, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
-------
<TABLE>
<CAPTION>
Balance at Additions Deduction
Beginning Charged to Bad Amounts Balance at
Description of Year Debt Expense Written Off End of Year
----------- ---------- -------------- ----------- -----------
Allowance for
Doubtful Accounts:
<S> <C> <C> <C> <C>
Year Ended December 31, 1999 $2,493 $521 $(729) $2,285
====== ==== ====== ======
Year Ended December 31, 1998 $1,453 $1,993 $(953) $2,493
====== ====== ====== ======
Year Ended December 31, 1997 $683 $1,285 $(515) $1,453
==== ====== ====== ======
</TABLE>
F-25
<PAGE>
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Initial Cost Capitalized
---------------------- Subsequent to
Building & Acquisition-
Property Location Encumbrance Land Improvements Improvements Land
- -------- -------- ----------- ---- ------------ ------------ ----
Retail:
<S> <C> <C> <C> <C> <C> <C>
Allen Street Shopping Center (1) Allentown, PA $ 5,714 $ 867 $ 3,271 $ 206 $ 867
Ashburn Farm Village Center Ashburn, VA 6,537 2,373 7,494 (86) 2,263
Bowie Plaza Bowie, MD 4,703 2,256 9,933 502 2,438
Brafferton Center Garrisonville, VA -- 1,595 6,385 491 1,595
Bryans Road Shopping Center Bryans Road ,MD -- 1,214 3,314 4,201 1,230
Capital Corner Shopping Center Landover, MD -- 966 0 3,516 989
Centre Ridge Marketplace (2) Centreville, VA 44,000 4,847 3,807 2,228 5,108
Chesapeake Bagel Building Alexandria, VA 735 191 804 673 192
City Avenue Shopping Center Philadelphia, PA 9,581 3,135 12,540 2,295 3,260
Clinton Square Shopping Center Clinton, MD -- 242 1,437 (117) 251
Clopper's Mill Village Shopping Center Germantown, MD 13,627 4,011 16,006 206 4,011
Connecticut Avenue Shops Washington, DC -- 91 932 153 95
Colonial Square Shoppipng Center York, PA -- 639 1,678 269 646
Cudahy Center (5) Cudahy, WI -- 561 2,243 0 561
Davis Ford Crossing Manassas, VA 10,617 2,574 10,092 304 2,543
Elkridge Corners Shopping Center Elkridge, MD 6,322 1,625 7,237 30 1,772
Festival at Woodholme Baltimore, MD 11,238 2,915 11,660 465 2,915
Firstfield Shopping Center Gaithersburg, MD 2,416 699 2,797 242 699
First State Plaza New Castle, DE 13,594 2,575 10,358 815 2,575
Four Mile Fork Shopping Center (2) Fredericksburg, VA -- 1,196 4,783 195 1,196
Fox Mill Shopping Center Reston, VA 11,724 2,752 11,019 482 2,752
Georgetown Shops (3) Washington ,D.C. -- 949 3,174 (2,135) 515
Glen Lea Shopping Center (4) Richmond, VA 12,627 757 3,027 207 757
Hanover Village Shopping Center (4) Mechanicsville, VA -- 1,081 4,323 238 1,081
James Island Shopping Center Charleston, SC -- 1,321 2,758 495 1,324
Kamp Washington Shopping Center Fairfax, VA 2,979 3,039 12,145 117 3,039
Kenhorst Plaza Shopping Center (2) Reading, PA -- 2,253 9,013 1,699 2,253
Kings Park Shopping Center Burke, VA 4,458 1,153 4,613 623 1,153
Laburnum Park Shopping Center (4) Richmond, VA -- 1,194 4,774 (320) 1,148
Laburnum Square Shopping Center (4) Richmond, VA -- 1,104 4,418 1,107 1,105
McHenry Commons McHenry, IL 6,640 1,669 6,676 155 1,669
Mallard Creek Shopping Center Round Lake Beach, IL 10,802 2,674 10,695 444 2,674
Mayfair Shopping Center Philadelphia, PA 6,650 2,463 9,860 376 2,463
Mitchellville Plaza Mitchellville, MD 14,249 4,279 17,114 167 3,877
Newark Shopping Center Newark, DE 9,337 2,429 9,716 13 2,429
Newtown Square Shopping Center (2) Newtown Square, PA -- 2,508 10,031 1,399 2,508
Northway Shopping Center Millersville, MD 6,043 1,838 7,400 621 1,838
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross amounts
at which
carried at the
close of period
Building & Accumulated Date of Date
Improvements Total Depreciation Construction Acquired
------------ ----- ------------ ------------ --------
Retail:
<S> <C> <C> <C> <C> <C>
Allen Street Shopping Center (1) $ 3,477 $ 4,344 $ 455 1958 1996
Ashburn Farm Village Center 7,518 9,781 676 1996 1997
Bowie Plaza 10,253 12,691 658 1966 1998
Brafferton Center 6,876 8,471 1,254 1974 1994
Bryans Road Shopping Center 7,499 8,729 2,322 1972 1990
Capital Corner Shopping Center 3,493 4,482 1,631 1987 1986
Centre Ridge Marketplace (2) 5,774 10,882 659 1996 1996
Chesapeake Bagel Building 1,476 1,668 751 1800 1983
City Avenue Shopping Center 14,710 17,970 1,351 1950's-60's 1997
Clinton Square Shopping Center 1,311 1,562 804 1979 1984
Clopper's Mill Village Shopping Center 16,212 20,223 1,964 1995 1996
Connecticut Avenue Shops 1,081 1,176 456 1954 1986
Colonial Square Shoppipng Center 1,940 2,586 622 1955 1990
Cudahy Center (5) 2,243 2,804 5 1972 1999
Davis Ford Crossing 10,427 12,970 1,859 1988 1994
Elkridge Corners Shopping Center 7,120 8,892 362 1990 1998
Festival at Woodholme 12,125 15,040 1,806 1986 1995
Firstfield Shopping Center 3,039 3,738 409 1978 1995
First State Plaza 11,173 13,748 2,146 1988 1994
Four Mile Fork Shopping Center (2) 4,978 6,174 500 1975 1997
Fox Mill Shopping Center 11,501 14,253 2,039 1988 1994
Georgetown Shops (3) 1,473 1,988 650 Late 1800's 1981-1989
Glen Lea Shopping Center (4) 3,234 3,991 483 1969 1995
Hanover Village Shopping Center (4) 4,561 5,642 656 1971 1995
James Island Shopping Center 3,250 4,574 1,020 1967 1990
Kamp Washington Shopping Center 12,262 15,301 403 1960 1999
Kenhorst Plaza Shopping Center (2) 10,712 12,965 1,540 1990 1995
Kings Park Shopping Center 5,236 6,389 509 1966 1996
Laburnum Park Shopping Center (4) 4,500 5,648 663 1988 1995
Laburnum Square Shopping Center (4) 5,524 6,629 854 1975 1995
McHenry Commons 6,831 8,500 522 1988 1997
Mallard Creek Shopping Center 11,139 13,813 836 1987 1997
Mayfair Shopping Center 10,236 12,699 1,867 1988 1994
Mitchellville Plaza 17,683 21,560 1,285 1991 1997
Newark Shopping Center 9,729 12,158 102 1950's/87 1999
Newtown Square Shopping Center (2) 11,430 13,938 1,025 1960's-70's 1996
Northway Shopping Center 8,021 9,859 780 1987 1996
</TABLE>
F-26
<PAGE>
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Initial Cost Capitalized
---------------------- Subsequent to
Building & Acquisition-
Property Location Encumbrance Land Improvements Improvements Land
- -------- -------- ----------- ---- ------------ ------------ ----
<S> <C> <C> <C> <C> <C> <C>
Parkville Shopping Center Baltimore, MD 3,409 1,678 6,710 150 1,678
Penn Station Shopping Center District Heights, MD -- 4,275 0 21,429 4,285
Prince George's County Commercial Park Beltsville, MD -- 1,309 972 5,523 1,342
Potomac Plaza Woodbridge, VA 2,579 795 4,235 1,200 733
Racine Centre (5) Racine, WI -- 1,613 6,451 0 1,613
Riverside Square / River's Edge Chicago, IL -- 2,772 11,086 760 2,777
Rosecroft Shopping Center Temple Hills, MD -- 664 2,723 2,599 688
Saratoga Shopping Center Springfiled, VA 6,776 1,964 7,854 1 1,964
Shoppes of Graylyn (2) Wilmington, DE -- 1,478 5,912 129 1,478
Shoppes of Kildaire Cary, NC 7,358 2,202 8,833 2,240 2,208
Southside Marketplace Baltimore, MD 7,848 2,209 8,835 418 2,209
Spring Valley Shopping Center Washington, DC -- 1,175 4,698 221 1,175
Stefko Boulevard Shopping Center (1) Bethlehem, PA -- 1,149 4,336 1,140 1,149
Stonebrook Plaza Merrionette Park, IL 5,770 1,657 6,626 370 1,657
Takoma Park Shopping Center (2) Takoma Park -- 957 3,829 1,227 957
The Oaks Shopping Center Des Plaines, IL 9,242 2,892 11,570 617 2,888
Town Center at Sterling Sterling, VA 8,847 4,414 17,657 446 4,432
Valley Centre Owings Mills, MD 21,562 4,718 18,938 2,084 5,551
The Village Shopping Center Richmond, VA -- 2,660 10,645 19 2,660
Watkins Park Plaza (2) Mitchellville, MD -- 2,932 11,730 78 2,932
Westmont Plaza Shopping Center Haddon township, NJ -- 331 1,325 0 331
Whitnall Square (5) St. Francis, WI -- 1,558 6,233 0 1,558
Willston Centre I Falls Church, VA -- 2,076 8,306 297 2,087
Willston Centre II Falls Church, VA 10,132 2,667 10,672 273 2,700
Woodmoor Shopping Center Silver Spring, MD -- 1,123 4,493 0 1,122
------ ----- ----- ----- -----
$298,116 $119,303 $432,196 $63,497 $119,965
======== ======== ======== ======= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross amounts
at which
carried at the
close of period
Building & Accumulated Date of Date
Improvements Total Depreciation Construction Acquired
------------ ----- ------------ ------------ --------
<S> <C> <C> <C> <C> <C>
Parkville Shopping Center 6,860 8,538 409 1961 1998
Penn Station Shopping Center 21,419 25,704 7,266 1989 1986
Prince George's County Commercial Park 6,462 7,804 2,826 1985 1985
Potomac Plaza 5,497 6,230 2,132 1963 1985
Racine Centre (5) 6,451 8,064 13 1988 1999
Riverside Square / River's Edge 11,841 14,618 910 1986 1997
Rosecroft Shopping Center 5,298 5,986 2,255 1963 1985
Saratoga Shopping Center 7,855 9,819 33 1977 1999
Shoppes of Graylyn (2) 6,041 7,519 599 1971 1997
Shoppes of Kildaire 11,067 13,275 4,411 1986 1986
Southside Marketplace 9,253 11,462 1,077 1990 1996
Spring Valley Shopping Center 4,919 6,094 323 1930 1997
Stefko Boulevard Shopping Center (1) 5,476 6,625 755 1823 1996
Stonebrook Plaza 6,996 8,653 546 1984 1997
Takoma Park Shopping Center (2) 5,056 6,013 608 1960 1996
The Oaks Shopping Center 12,191 15,079 960 1983 1997
Town Center at Sterling 18,085 22,517 673 1973-1978 1998
Valley Centre 20,189 25,740 3,430 1987 1994
The Village Shopping Center 10,664 13,324 539 1948 1998
Watkins Park Plaza (2) 11,808 14,740 668 1985 1998
Westmont Plaza Shopping Center 1,325 1,656 3 1959 1999
Whitnall Square (5) 6,233 7,791 13 1989 1999
Willston Centre I 8,592 10,679 296 1952 1998
Willston Centre II 10,912 13,612 342 1986 1998
Woodmoor Shopping Center 4,494 5,616 18 1954 1999
------- ------ -----
$495,031 $614,996 $67,029
======== ======== =======
</TABLE>
- ------------
(1) These properties are encumbered by first deeds of trust as collateral for a
$5,714 mortgage loan.
(2) These properties serve as collateral for the Line of Credit facility.
(3) Consists of two locations in the shopping district of Georgetown in
Washington, DC. Three properties were sold in 1998.
(4) These properties are encumbered by first deeds of trust as collateral for a
$12,627 mortgage loan.
(5) These properties were subsequently encumbered by first deeds of trust in
January 2000.
(6) The retail properties have depreciable lives of 31.5 to 40.0 years.
F-27
<PAGE>
SCHEDULE III - REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1999
(dollars in thousands)
(Continued)
<TABLE>
<CAPTION>
Property Acquistions / Additions /
Balance at Charges to Depreciation Improvements Cost of Real Balance at
Property Beginning of Year Expense to Properties Estate Sold Beginning of Year
- -------- ----------------- ------- ------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Rental Properties $ 556,146 $ 63,078 $ 5,887 $ (10,115) $ 614,996
========= ======== ======= ========= =========
Accumulated Depreciation $ 51,475 $ 16,152 $ -- $ (598) $ 67,029
======== ======== ======= ========= =========
</TABLE>
F-28
EXECUTION COPY
THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS THIRD AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT is dated
as of January 14, 2000, effective as of January 1, 2000, by and between First
Washington Realty Trust, Inc., a Maryland corporation (the "REIT"), and William
J. Wolfe (the "Employee").
RECITALS
A. WHEREAS, the REIT and the Employee executed an Executive Employment
Agreement dated as of June 26, 1994, and subsequently executed an Amended and
Restated Executive Employment Agreement dated as of June 30, 1996, and a Second
Amended and Restated Employment Agreement dated as of May 1, 1998 (the "Amended
Agreement");
B. WHEREAS, the REIT and the Employee mutually desire to amend and
restate the Amended Agreement pursuant to the terms set forth herein; and
C. WHEREAS, the REIT wishes to contract for the managerial and business
skills possessed by the Employee and the Employee desires to be employed by the
REIT upon the terms and subject to the conditions herein provided.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants and conditions hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereby agree as follows:
AGREEMENT
1. Employment and Duties
(a) Position and Duties. The Employee shall serve as the President and
Chief Executive Officer of the REIT, with such duties and authority as are
customary for, and commensurate with, such position, including developing
policy, supervising staff, directing day- to-day operations, and such other
duties as the Board of Directors of the REIT (the "Board") prescribes. The
Employee shall have such other duties and authority as may from time to time be
delegated or assigned to him by the Board.
(b) Preclusion of Outside Business Activities. During the Term, the
Employee shall devote substantially all of his professional energies, interest,
abilities and productive work time to the performance of duties pursuant to this
Agreement. The Employee shall not, without the prior written consent of the
Board, perform other professional services of any kind or engage in any other
business activity, with or without compensation; provided, however, that the
Employee
<PAGE>
shall be allowed (i) to continue to engage in the development of First
Washington Management, Inc., a Maryland corporation ("FWM"), at a level
consistent with past duties; (ii) to engage in administering the business and
activities of First Washington Realty Limited Partnership, a Maryland limited
partnership (the "Operating Partnership"); (iii) to serve as a director on the
boards of up to three (3) non-competing companies; and (iv) to engage in passive
investments that the Employee may make from time to time for his personal
account, so long as the activities described in clauses (i) through (iv) do not
detract or adversely affect the Employee's duties and responsibilities under
this Agreement. The Employee shall not, without the prior written consent of the
Board, engage in any activity adverse to the REIT's interests.
2. Term of Employment
(a) Term. This Agreement shall continue in full force and effect until
June 30, 2002, unless sooner terminated or extended as hereinafter provided (the
"Term").
(b) Extension of Term. The employment term set forth in a paragraph
2(a) above may be extended by written amendment to this Agreement signed by both
parties. The parties agree that they will use their best efforts to negotiate
the extension of this Agreement, if both parties desire such an extension, not
later than twelve months before the scheduled end of the Term.
(c) Termination by the REIT.
(i) Without Cause. The REIT may terminate the Employee's
employment at any time for any reason other than with Cause (as
hereinafter defined) or for no reason at all upon at least two weeks
prior written notice to the Employee; provided, however, that in
connection with such a termination of employment, the REIT may elect
to require the Employee to continue to perform his duties under this
Agreement for an additional sixty (60) days commencing on the date the
Employee receives notice of such termination. In connection with the
termination of the Employee's employment pursuant to this Section
2(c)(i), the Employee shall (A) be paid salary and any bonus payable
to him in accordance with Sections 3(a) and 3(b) hereof accrued
through the effective date of termination; (B) be entitled to the
benefits set forth in Sections 3(c) through 3(e) hereof in accordance
with the terms thereof ; (C) be entitled to the benefits set forth in
Sections 3(f) through 3(h) hereof accrued through the effective date
of such termination in accordance with such plans, programs and
arrangements; (D) receive the Termination Compensation specified in
Section 5(b) hereof; and (E) be entitled to the continuation of
benefits specified in Section 5(d) hereof.
(ii) With Cause. The REIT may terminate the Employee's employment
with Cause immediately upon delivery of notice thereof. In connection
with the termination of the Employee's employment pursuant to this
Section 2(c)(ii), the Employee shall (A) be paid salary and any bonus
payable to him in accordance with Sections 3(a) and 3(b) hereof
accrued through the effective date of termination; (B) be entitled to
the benefits set forth in Sections 3(c) through 3(e) hereof in
accordance with the terms thereof; and (C) be
- 2 -
<PAGE>
entitled to the benefits set forth in Sections 3(f) through 3(h)
hereof accrued through the effective date of such termination in
accordance with such plans, programs and arrangements. For purposes of
this Agreement, "Cause" shall mean the Employee's (A) material
incompetence in the performance of his duties or obligations
hereunder, including, without limitation, those duties and obligations
specified in Section 1(a) hereof; (B) commission of any act which is
materially injurious to the REIT; (C) personal dishonesty, willful
misconduct, or breach of fiduciary duty involving personal profit; (D)
intentional and material failure to perform his stated duties for the
REIT; (E) willful violation of any law which violation materially
adversely affects his ability to discharge his duties for the REIT or
has an adverse effect on the REIT's interest or (F) breach in any
material respect of any of the terms of this Agreement or any
confidentiality or proprietary information agreement between the
Employee and FWM, the Operating Partnership or the REIT; provided,
however, that "Cause" shall not exist unless and until the Board
provides the Employee with (X) at least 15 days prior written notice
of its intention to terminate his employment with Cause, together with
a certified copy of the resolution of the Board approving the
termination of the Employee's employment with Cause by the affirmative
vote of not less than a majority of the Board, and a written statement
describing the nature of the Cause, and (Y) a reasonable opportunity
and a reasonable period of time to cure any curable acts or omissions
on which the finding of Cause is based. If the Employee cures the acts
or omissions on which the finding of Cause is based, the REIT shall
not have Cause to terminate the Employee's employment hereunder.
(d) Termination by the Employee.
(i) With Good Reason or After Change of Control. The Employee may
terminate this Agreement prior to the expiration of the Term upon two
weeks prior written notice to the REIT with Good Reason (as
hereinafter defined) at any time (including within twenty-four (24)
months following any Change of Control (as hereinafter defined) of the
REIT). The Employee shall continue to perform, at the election of the
REIT, his duties under this Agreement for an additional thirty (30)
days following the REIT's receipt of his notice of termination in
accordance with this Section 2(d). In connection with termination of
the Employee's employment pursuant to this Section 2(d), the Employee
shall (A) be paid salary and any bonus otherwise payable to him in
accordance with Sections 3(a) and 3(b) hereof accrued through the
effective date of such termination; (B) be entitled to the benefits
set forth in Sections 3(c) through 3(e) hereof in accordance with the
terms thereof; (C) be entitled to the benefits set forth in Sections
3(f) through 3(h) hereof accrued through the effective date of such
termination in accordance with such plans, programs and arrangements;
(D) receive the Termination Compensation specified in Section 5(b)
hereof; and (E) be entitled to the continuation of benefits specified
in Section 5(d) hereof.
(ii) For purposes of this Section 2(d), "Good Reason" shall mean
(A) the breach by the REIT of any of its obligations hereunder and the
failure of the REIT to cure such breach within sixty (60) days after
receipt by the REIT of a written notice of the
- 3 -
<PAGE>
Employee specifying in reasonable detail the nature of the alleged
breach or (B) any material diminution in the scope of Employee's
responsibilities and duties without his consent.
(iii) For purposes of this Section 2(d), a "Change of Control"
shall mean the first occurrence of any of the following events: (A)
any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), other than a trustee or
other fiduciary holding securities under an employee benefit plan of
the REIT, a corporation owned directly or indirectly by the
stockholders of the REIT in substantially the same proportions as
their ownership of stock of the REIT, the Employee or William J.
Wolfe, or any of their respective affiliates, becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities representing 50% or more of the total voting
power represented by the then outstanding securities which vote
generally in the election of directors (referred to herein as "Voting
Securities") of the REIT; (B) during any period of two consecutive
years, individuals who at the beginning of such period constitute the
Board and any new directors whose election by the Board or nomination
for election by the REIT's stockholders was approved by a vote of at
least two-thirds (2/3) the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board; (C) the stockholders of
the REIT approve a merger or consolidation of the REIT with any other
entity, other than a merger or consolidation which would result in the
Voting Securities of the REIT outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 50%
of the total voting power represented by the Voting Securities of the
REIT or such surviving entity outstanding immediately after such
merger or consolidation; or (D) the stockholders of the REIT approve a
plan of complete liquidation of the REIT or an agreement for the sale
or disposition by the REIT of (in one transaction or a series of
transactions) all or substantially all of the REIT's assets.
(e) Termination Due to Death or Disability. The Employee's employment
hereunder shall terminate immediately upon his death prior to the expiration of
the Term. In the event that by reason of injury, illness or other physical or
mental impairment the Employee shall be: (i) completely unable to perform his
services hereunder for more than six consecutive months or (ii) unable to
perform his services hereunder for fifty percent or more of the normal working
day throughout twelve consecutive months (each of (i) and (ii) constituting the
"Disability" of the Employee for purposes of this Agreement), then the REIT may
terminate the Employee's employment hereunder immediately upon delivery of
notice thereof. In the event of the termination of the Employee's employment
pursuant to this Section 2(e), the Employee or the Employee's beneficiaries,
estate, heirs, representatives or assigns, as appropriate, shall be (A) be paid
the salary and any other bonus otherwise payable to the Employee in accordance
with Sections 3(a) and 3(b) hereof accrued through the effective date of such
termination; (B) be entitled to the benefits set forth in Sections 3(c) through
3(e) hereof in accordance with the terms thereof; (C) receive the Termination
Compensation specified in Section 5(b) hereof; (D) receive the proceeds, if any,
due under any REIT-paid life insurance policy held by the Employee, as
- 4 -
<PAGE>
determined by and in accordance with the terms of any such policy; and (E)
solely in the event of the Employee's Disability, be entitled to the
continuation of benefits specified in Section 5(d) hereof.
(f) Removal as Director. Notwithstanding any other provision of this
Agreement, if the Employee shall be removed from (or fail to be re-elected to)
office as a director of the REIT at any time during the Term, then the Employee
may notify the REIT in writing of his election to terminate this Agreement upon
written notice to the REIT and such notice shall be effective immediately upon
receipt by the REIT. In connection with the Employee's termination of employment
pursuant to this Section 2(f), the Employee shall (A) be paid the salary and any
bonus payable to him in accordance with Sections 3(a) and 3(b) hereof accrued
through the effective date of such termination; (B) be entitled to the benefits
set forth in Sections 3(c) through 3(e) hereof in accordance with the terms
thereof ; (C) be entitled to the benefits set forth in Sections 3(f) through
3(h) hereof accrued through the effective date of such termination in accordance
with such plans, programs and arrangements; (D) receive the Termination
Compensation specified in Section 5(b) hereof and (E) be entitled to the
continuation of benefits specified in Section 5(d) hereof; provided, however,
that the Employee shall not be entitled to the payments and benefits described
in subsections (D) and (E) above if he is removed as a director for cause under
the corporation law of the State of Maryland.
3. Compensation and Related Matters.
(a) Salary. The Employee's annual base salary during the Term shall be
$300,000 per annum effective January 1, 1998. Such salary shall be reviewed by
the Board annually during the first quarter of fiscal year of the REIT during
the Term, and the Employee shall receive such salary increases, if any, as the
Board, in its sole discretion, shall determine; provided, however, that the
Employee's annual base salary shall not be less than $400,000 effective January
1, 2000 and thereafter. Such salary shall be payable in accordance with the
REIT's normal payment practices, but in no event shall such salary be payable
less frequently than monthly in equal installments.
(b) Bonus. Effective January 1, 1999 and thereafter, the Employee shall
be eligible to receive an Annual Incentive Bonus in accordance with the Plan set
forth on Annex A hereto.
(c) Options.
(i) Provided that he is employed by the REIT as of January 1,
2000, effective as of such date the Employee shall be granted, and
hereby is granted, an option to purchase 250,000 shares of Common
Stock at an exercise price equal to the Fair Market Value (as defined
in the Option Plan) of a share of Common Stock on January 1, 2000 (the
"Option") subject to the terms and provisions of the 1994 Stock Option
Plan for Officers, Directors and Employees of First Washington Realty
Trust, Inc., First Washington Realty Limited Partnership and First
Washington Management, Inc. (the "Option Plan") (or a successor option
plan then maintained by the REIT) and a written Stock Option Agreement
between the Employee and the REIT (the "Stock Option
- 5 -
<PAGE>
Agreement"). The Stock Option Agreement shall provide that the Option
shall become exercisable in equal cumulative installments of one-third
each on each of the first three anniversaries of the date of grant
(subject to the Employee's continued employment by the REIT on such
dates) and shall be subject to immediate vesting in the event of the
Employee's termination of employment pursuant to Section 2(c)(i),
2(d), 2(e) or 2(f) (other than in connection with Employee's removal
as a director for cause under the corporation law of the State of
Maryland) or by reason of expiration of the Term without renewal
(collectively an "Early Termination") and shall be the Stock Option
Agreement attached hereto as Annex C.
(ii) If the Employee's employment is terminated in an Early
Termination prior to January 1, 2000, then, effective as January 1,
2000, the Employee shall be granted, and hereby is granted the Option
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
subject, if permitted by the terms thereof, to the Option Plan (or a
successor option plan then maintained by the REIT), and, in any event,
the written Stock Option Agreement between the Employee and the REIT.
The Stock Option Agreement shall provide that the Option shall be
fully exercisable as of the date of grant and shall expire on the date
specified in Section 2(a) herein and shall be the Stock Option
Agreement attached hereto as Annex C.
(d) Restricted Stock.
(i) Provided that he is employed by the REIT as of January 1,
2000, effective as of such date the Employee shall be granted, and
hereby is granted, 150,000 shares of common stock of the REIT (the
"Restricted Stock") subject to the terms and conditions of the First
Washington Realty Trust, Inc. Restricted Stock Plan (the "Stock Plan")
and a written Restricted Stock Agreement between the Employee and the
REIT (the "Restricted Stock Agreement"). The Restricted Stock
Agreement shall provide that shares of the Restricted Stock shall
become vested in cumulative installments of one-sixth, one-third and
one-half, respectively, on each of the first three anniversaries of
the date of grant (subject to the Employee's continued employment by
the REIT on such dates) and shall be subject to immediate vesting in
the event of the Employee's termination of employment in an Early
Termination and shall be the Restricted Stock Agreement attached
hereto as Annex D.
(ii) If the Employee's employment is terminated in an Early
Termination prior to January 1, 2000, then effective immediately prior
to such termination the Employee shall be granted, and hereby is
granted, the 150,000 shares of Restricted Stock subject to the terms
and conditions of the Stock Plan and, in any event, the written
Restricted Stock Agreement between the Employee and the REIT. The
Restricted Stock Agreement shall provide that shares of the Restricted
Stock shall be fully vested on the date of grant and shall be the
Restricted Stock Agreement attached hereto as Annex D.
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(e) Contingent Stock. As provided in the Amended and Restated
Contingent Stock Agreement dated as of May 1, 1998 by and between the REIT and
the Employee attached hereto as Annex E, as amended from time to time (the
"Contingent Stock Agreement"), the Employee shall be entitled to receive shares
of Contingent Stock (as defined therein) pursuant to such agreement. In
accordance with Section 3.2(a) of the Contingent Stock Agreement, the
Compensation Committee of the Board has established the "Performance Goals" (as
defined therein) for fiscal years 2000 through 2003 applicable to the award of
Contingent Stock in the event of the Employee's termination of employment in an
Early Termination during the period beginning on January 1, 2000 and ending on
March 31, 2003 (the "Contingent Stock Period"). In the event of the Employee's
termination of employment in an Early Termination during the Contingent Stock
Period, the Compensation Committee shall certify in writing, as of the effective
date of such Early Termination, whether the REIT's annual operating income for
the portion of the then current fiscal year completed prior to such date equals
or exceeds 80% of the product of (1) the REIT's annual operating income for
fiscal year 1999 and (2) the ratio of (A) the number of days elapsed in the then
current fiscal year prior to the date of Early Termination to (B) the number 365
(the "Early Termination Performance Goal"). If the Early Termination Performance
Goal has been met, the Employee shall receive, within 5 days following the
effective date of such Early Termination, that number of shares of Contingent
Stock equal to (x) 75,000 minus (y) the number of shares of Contingent Stock
awarded to the Employee under Section 3.2 of the Contingent Stock Agreement
prior to such date.
(f) Benefits. During the Term the Employee shall be entitled to
participate in or receive benefits under any employee benefit plan or other
arrangement (including, but not limited to, any medical, dental, retirement,
disability, life insurance, sick leave and vacation plans or arrangements and
the REIT's executive deferred compensation plan) made available by the REIT to
any of its employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans or arrangements.
(g) Expenses. The REIT shall promptly pay directly or reimburse the
Employee for all reasonable travel and other business expenses incurred by the
Employee in the performance of his duties to the REIT under this Agreement.
(h) Vacation. The Employee shall be entitled to vacation benefits in
accordance with the REIT's normal vacation policies, but in no event shall he
receive less than four weeks of paid vacation each calendar year during the
Term.
(i) Professional Memberships. The REIT shall promptly pay directly or
reimburse the Employee for all reasonable expenses incurred by the Employee with
respect to professional memberships maintained by him during the Term.
(j) Automobile Allowance. During the Term, the REIT shall provide the
Employee with an automobile allowance for a company automobile of comparable
quality as automobiles customarily provided to executive officers in the
industry. Expenses relating to such automobile will be paid in accordance with
the normal and customary practices of the REIT.
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<PAGE>
(k) Deductions and Withholdings. All amounts payable or which become
payable under any provision of this Agreement shall be subject to all deductions
authorized by the Employee and to all deductions and withholdings required by
law.
4. Covenant Not to Compete or Solicit
(a) Non-Competition.
(i) The Employee agrees that during the Term he will not directly
or indirectly engage in (whether as an employee, consultant,
proprietor, partner, director, member or otherwise), or have any
ownership interest in, or participate in the financing, operation,
management or control of, any person, firm, corporation or business
that engages in or intends to engage in a Restricted Business.
"Restricted Business" shall mean any business that is engaged in or
(to the Employee's knowledge after due inquiry) preparing to engage in
the real estate business of the acquisition, development, management
and operation of principally retail shopping centers; provided,
however, that "Restricted Business" shall not include the operation
and management of those properties listed on Annex B hereto.
(ii) The Employee further agrees that for the eighteen (18) month
period following the end of the Term, he will not directly or
indirectly engage in (whether as an employee, consultant, proprietor,
partner, director, member or otherwise), or have any ownership
interest in, or participate in the financing, operation, management or
control of, any person, firm, corporation or business that engages in
or intends to engage in a Post-Employment Restricted Business.
"Post-Employment Restricted Business" shall mean any business that is
engaged in or (to the Employee's knowledge after due inquiry)
preparing to engage in the real estate business of the acquisition,
development, management and operation of principally retail shopping
centers within twenty-five (25) miles of a retail property owned,
directly or through one or more subsidiaries or otherwise, by the
REIT, the Operating Partnership or FWM at the end of the Term;
provided, however, that "Post-Employment Restricted Business" shall
not include the operation and management of those properties listed on
Annex B hereto.
(iii) Ownership of (A) no more than one percent (1%) of the
outstanding voting stock of a publicly traded entity or (B) any stock
owned by the Employee as of June 26, 1994 shall not constitute a
violation of this Section 4(a).
(iv) This Section 4(a) shall not prohibit the Employee from
working for a division or subsidiary of a company which division or
subsidiary does not engage in a Restricted Business or a
Post-Employment Restricted Business, even though other divisions or
subsidiaries of such company do engage in a Restricted Business or
Post- Employment Restricted Business, provided that the REIT receives
adequate assurances as it may request that the Employee has no
involvement with the divisions or subsidiaries engaged in the
Restricted Business or Post-Employment Restricted Business.
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<PAGE>
(b) Non-Solicitation. The Employee agrees that during the Term he will
not (i) solicit, encourage or take any other action which is intended to induce
any other employee of the REIT to terminate his or her employment with the REIT
or (ii) interfere in any manner with the contractual or other employment
relationship between the REIT and any such employee of the REIT.
(c) Severability. The parties intend that the covenants contained in
the preceding paragraphs of this Section 4 shall be construed as a series of
separate covenants, one for each county of Maryland, Virginia, Pennsylvania,
North Carolina, South Carolina and Delaware, and to the District of Columbia,
each state of the United States of America and each nation. Except for
geographic coverage, each such separate covenant shall be deemed identical in
terms to the covenant contained in the preceding paragraphs. If, in any judicial
proceeding, a court shall refuse to enforce any of the separate covenants (or
any part thereof) deemed included in said paragraphs, then such unenforceable
covenant (or such part) shall be deemed eliminated from this Agreement for the
purpose of those proceedings to the extent necessary to permit the remaining
separate covenants (or portions thereof) to be enforced. In the event that the
provisions of this Section 4 should ever be deemed to exceed the time, scope or
geographic limitation permitted by applicable law, then such provisions shall be
reformed to the maximum time, scope or geographic limitations, as the case may
be, permitted by applicable law.
5. Termination.
(a) If the Employee's employment is terminated by reason of expiration
of the Term without renewal, then the Employee shall be paid, within 90 days
following the date of expiration of the Term, a lump sum amount (the
"Termination Compensation") equal to 300% of the sum of (i) the Employee's rate
of annual base salary at the time of such expiration of the Term (as determined
pursuant to Section 3(a)) and (ii) the average annual bonus (if any) paid to the
Employee (or, if not yet paid, to which the Employee was entitled) with respect
to the last three calendar years of the Term.
(b) If the Employee's employment is terminated in an Early Termination
other than by reason of expiration of the Term without renewal, then the
Employee shall be paid, within 90 days of the effective date of such
termination, a lump sum amount (the "Severance Compensation") equal to the sum
of:
(i) an amount equal to, and computed in the same manner as, the
Termination Compensation set forth in Section 5(a), as if the
Employee's employment were terminated by reason of the expiration of
the Term without renewal, and
(ii) an amount equal to the greater of:
(A) 200% of the sum of (I) the Employee's rate of annual
base salary at the time of such termination (as determined
pursuant to Section 3(a)) and (II) the average annual bonus (if
any) paid to the Employee (or, if not yet paid, to which the
Employee was entitled) with respect to the last three calendar
years of the Term; or
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<PAGE>
(B) the sum of (I) the aggregate annual base salary (as
determined pursuant to Section 3(a)) the Employee would otherwise
be entitled to receive from the effective time of such
termination through the scheduled end of the Term (as determined
pursuant to Section 2(a)) and (II) the average annual bonus (if
any) paid to the Employee (or, if not yet paid, to which the
Employee was entitled) with respect to the last three calendar
years of the Term.
(c) No Termination Compensation shall be paid if the Employee's
employment is terminated during the Term (i) by the REIT with Cause pursuant to
Section 2(c)(ii) hereof or (ii) by the Employee other than in accordance with
Section 2(d) or Section 2(e) or Section 2(f) in connection with the Employee's
failure to be re-elected as a director or his removal as a director without
cause.
(d) If the Employee's employment is terminated prior to the expiration
of the Term for any reason other than pursuant to Section 2(c)(ii) or pursuant
to Section 2(f) in connection with the Employee's removal as a director for
cause under the corporation law of the State of Maryland, the REIT will continue
to provide to the Employee comparable medical, disability and life insurance
benefits as were in effect at the time of termination until such time as the
Term would otherwise have expired if the Employee had not been terminated (but
in no event for a period of less than twenty-four months).
(e) Survival. The expiration or termination of the Term shall not
impair the rights or obligations of any party hereto which shall have accrued
hereunder prior to such expiration, nor shall such expiration or termination
impair the rights and obligations of any party hereto that are intended by their
terms to survive such expiration or termination.
(f) Mitigation of Damages. In the event of any termination of the
Employee's employment with the REIT for any reason, the Employee shall not be
required to seek other employment to mitigate damages, and any income earned by
the Employee from other employment or self-employment shall not be offset
against any obligations of the REIT to the Employee under this Agreement.
6. Excise Taxes
(a) If it is determined (as hereafter provided) that by reason of any
payment or distribution to the Employee, including, without limitation, any
stock option or award of stock or similar right, or the lapse or termination of
any restriction on, or the vesting of, any of the foregoing, occurring pursuant
to the terms of this Agreement (or otherwise under any other agreement, plan or
program) (collectively a "Payment") the Employee would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code) by reason of being considered "contingent on a change in ownership
or control" of the REIT within the meaning of Code Section 280G or to any
similar tax imposed by state or local law or any interest or penalties with
respect to such tax (such taxes, together with any such interest and penalties,
the "Excise Tax"), then the Employee shall be entitled to receive an
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<PAGE>
additional payment or payments (a "Gross-Up Payment") in an amount such that,
after payment by the Employee of all taxes (including any Excise Tax) imposed
upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 6(f) hereof, all
determinations required to be made under this Section 6, including whether an
Excise Tax is payable by the Employee and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
shall be made by a nationally recognized firm of certified public accountants
(the "Accounting Firm") selected by the REIT. The Accounting Firm shall be
directed by the REIT or the Employee to submit its preliminary determination and
detailed supporting calculations to both the REIT and the Employee within 15
calendar days after the determination date. If the Accounting Firm determines
that any Excise Tax is payable by the Employee, the REIT shall pay the required
Gross-Up Payment to, the Employee within five business days after receipt of
such determination and calculations. If the Accounting Firm determines that no
Excise Tax is payable by the Employee, it shall, at the same time as it makes
such determination, furnish the Employee with an opinion that the Employee has
substantial authority not to report any Excise Tax on his federal tax return. As
a result of the uncertainty in the application of Code Section 4999 at the time
of any determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments that will not have been made by the REIT should have been made
(an "Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the REIT exhausts or fails to pursue its remedies
pursuant to Section 6(f) hereof and the Employee thereafter is required to make
a payment of any Excise Tax, the Employee shall direct the Accounting Firm to
determine the amount of the Underpayment that has occurred and to submit its
determination and detailed supporting calculations to both the REIT and the
Employee as promptly as possible. Any such Underpayment shall be promptly paid
by the REIT to, or for the benefit of, the Employee within five business days
after receipt of such determination and calculations.
(c) The REIT and the Employee shall each provide the Accounting Firm
access to and copies of any books, records and documents in the possession of
the REIT or the Employee, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determination contemplated by Section
6(b) hereof. Any final determination by the Accounting Firm as to the amount of
the Gross-Up Payment shall be binding upon the REIT and Employee.
(d) The federal, state and local income or other tax returns filed by
the Employee (or any filing made by a consolidated tax group which includes the
REIT) shall be prepared and filed on a basis consistent with the determination
of the Accounting Firm with respect to the Excise Tax payable by the Employee.
The Employee shall make proper payment of the amount of any Excise Tax, and at
the request of the REIT, provide to the REIT true and correct copies (with any
amendments) of his federal income tax return as filed with the Internal Revenue
Service and corresponding state and local tax returns, if relevant, and such
other documents reasonably requested by the REIT, evidencing such payment. If
prior to the filing of the Employee's federal income tax return, or
corresponding state or local return, if relevant, the Accounting Firm
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<PAGE>
determines in good faith that the amount of the Gross-Up Payment should be
reduced, the Employee shall within five business days pay to the REIT the amount
of such reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section 6(b)
hereof shall be borne by the REIT.
(f) In the event that the Internal Revenue Service or any other taxing
authority claims that any payment or benefit received by the Employee from the
REIT constitutes an "excess parachute payment" within the meaning of Code
Section 280G(b)(1), the Employee shall notify the REIT in writing of such claim.
Such notification shall be given as soon as practicable but not later than 10
business days after the Employee is informed in writing of such claim and shall
apprize the REIT of the nature of such claim and the date on which such claim is
requested to be paid. The Employee shall not pay such claim prior to the
expiration of the 30 day period following the date on which the Employee gives
such notice to the REIT (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the REIT notifies the
Employee in writing prior to the expiration of such period that it desires to
contest such claim, the Employee shall (i) give the REIT any information
reasonably requested by the REIT relating to such claim; (ii) take such action
in connection with contesting such claim as the REIT shall reasonably request in
writing from time to time, including without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the REIT and reasonably satisfactory to the Employee; (iii) cooperate with the
REIT in good faith in order to effectively contest such claim; and (iv) permit
the REIT to participate in any proceedings relating to such claim; provided,
however, that the REIT shall bear and pay directly all costs and expenses
(including, but not limited to, additional interest and penalties and related
legal, consulting or other similar fees) incurred in connection with such
contest and shall indemnify and hold the Employee harmless, on an after-tax
basis, for and against for any Excise Tax or income tax or other tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses.
(g) The REIT shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Employee to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner and the Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the REIT shall determine;
provided, however, that if the REIT directs the Employee to pay such claim and
sue for a refund, the REIT shall advance the amount of such payment to the
Employee on an interest-free basis, and shall indemnify and hold the Employee
harmless, on an after tax basis, from any Excise Tax (or other tax including
interest and penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to such advance; and
provided, further, that if the Employee is required to extend the statue of
limitations to enable the REIT to contest such claim, the Employee may limit
this extension solely to such contested amount. The REIT's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Employee
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<PAGE>
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority. In
addition, no position may be taken nor any final resolution be agreed to by the
REIT without the Employee's consent if such position or resolution could
reasonably be expected to adversely affect the Employee unrelated to matters
covered hereto.
(h) If, after the receipt by Employee of an amount advanced by the REIT
in connection with the contest of the Excise Tax claim, the Employee receives
any refund with respect to such claim, the Employee shall promptly pay to the
REIT the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto); provided, however, if the amount of
that refund exceeds the amount advanced by the REIT the Employee may retain such
excess. If, after the receipt by the Employee of an amount advanced by the REIT
in connection with an Excise Tax claim, a determination is made that the
Employee shall not be entitled to any refund with respect to such claim and the
REIT does not notify the Employee in writing of its intent to contest the denial
of such refund prior to the expiration of 30 days after such determination such
advance shall be forgiven and shall not be required to be repaid, and shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid by the REIT to Employee pursuant to this Section 6.
7. The Employee's Representations. The Employee represents and warrants to the
REIT as follows:
(a) The Employee is familiar with and approves the covenants not to
compete and not to solicit set forth in Section 4, including, without
limitation, the reasonableness of the length of time, scope and geographic
coverage of these covenants.
(b) Notwithstanding any "what-if" scenarios of the future results of
operations and stock prices of the REIT under certain assumptions which the
parties may have discussed, the Employee has not relied on any such scenarios or
any forecasts or projections provided by the REIT and understands that neither
the REIT nor FWM has made any representation or warranty whatsoever regarding
any forecasts or projections to the Employee.
8. Miscellaneous.
(a) Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed given
and received on the date of delivery, if delivered in person, or three days
after mailing, if mailed first-class mail, postage prepaid, to the following
addresses:
If to the Employee:
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
Attn: William J. Wolfe
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<PAGE>
If to the REIT:
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
Attn: General Counsel
or to such other address as any party hereto may designate by notice given as
herein provided.
(b) Entire Agreement. This Agreement contains the entire understanding
and sole and entire agreement between the parties with respect to the subject
matter hereof, and supersedes any and all prior agreements, negotiations and
discussions between the parties hereto with respect to the subject matter
covered hereby. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement or promise not contained
in this Agreement shall be valid or binding. This Agreement may not be modified
or amended by oral agreement, but only by an agreement in writing signed by the
REIT and by the Employee, and which states the intent of the parties to amend
this Agreement.
(c) Assignment and Binding Effect. Neither this Agreement nor the
rights or obligations hereunder shall be assignable by the Employee. The REIT
may assign this Agreement to any successor of the REIT, and upon such assignment
any such successor shall be deemed substituted for the REIT upon the terms and
subject to the conditions hereof, provided, that substantially all of the assets
of the REIT are also transferred to the same party.
(d) Successor to the REIT. The REIT will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all the business and/or assets of the REIT,
as the case may be, by agreement in form and substance reasonably satisfactory
to the Employee, expressly, absolutely and unconditionally to assume and agree
to perform this Agreement in the same manner and to the same extent that the
REIT would be required to perform it if no such succession or assignment had
taken place. Any failure of the REIT to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. This Agreement shall inure to the benefit of and be enforceable
by the Employee's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee should
die while any amounts are still payable to the Employee hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Employee's devisee, legatee or other designee or,
if there be no such designee, to the Employee's estate.
(e) Arbitration. The parties agree that any and all disputes (contract,
tort or statutory, whether under federal, state or local law) between the
Employee and the REIT (including other REIT employees, officers, directors and
representatives) arising out of the Employee's employment with the REIT, the
termination of that employment or this Agreement, shall be submitted to final
and binding arbitration. The arbitration shall take place in the County of
Montgomery, State of Maryland and may be compelled and enforced according to the
Maryland Arbitration Act. Unless the parties mutually agree otherwise, the
arbitration shall be conducted
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<PAGE>
before the American Arbitration Association, according to its Commercial
Arbitration Rules. Judgment on the award the arbitrator renders may be entered
in any court having jurisdiction over the parties. Arbitration shall be
initiated in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
(f) Amendments; Waivers. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, approved by the Board and
signed by the Employee and the REIT. By an instrument in writing similarly
executed, the Employee or the REIT may waive compliance by the other party or
parties with any provision of this Agreement that such other party was or is
obligated to comply with or perform; provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. No failure to exercise and no delay in exercising any right, remedy or
power hereunder shall preclude any other, or further, exercise of any right,
remedy or power provided herein or by law or equity.
(g) Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Maryland as applied to
agreements made and performed in Maryland by residents of Maryland.
(h) Effectiveness. This Agreement shall become effective on January 1,
2000.
(i) Attorneys' Fees. In the event of any arbitration or legal action or
proceeding to enforce or interpret the provisions hereof, the prevailing party
shall be entitled to reasonable attorneys' fees, whether or not the proceeding
results in a final judgment.
(j) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(k) Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
(l) Severability. The provisions of this Agreement are severable. If
any provision of this Agreement shall be held to be invalid or otherwise
unenforceable in whole or in part, the remainder of the provisions or
enforceable parts hereof shall not be affected thereby and shall be enforced to
the fullest extent permitted by law.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third Amended
and Restated Executive Employment Agreement as of the date first written above.
ATTEST: FIRST WASHINGTON REALTY TRUST, INC.,
a Maryland corporation
/s/ Jeffrey S. Distenfeld By: /s/ Stuart D. Halpert
- ------------------------------- -----------------------------
Jeffrey S. Distenfeld, Secretary Stuart D. Halpert
Chairman
EMPLOYEE:
/s/ William J. Wolfe
----------------------------
William J. Wolfe
6211 Kennedy Drive
Chevy Chase, Maryland 20815
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ANNEX A
SENIOR EXECUTIVE INCENTIVE BONUS PROGRAM
APPENDIX TO THIRD 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 REIT'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 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.
<PAGE>
The target annual incentive bonus payable to the Executive under the
Incentive Plan with respect to any fiscal year of the REIT 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 REIT 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 Employee and the REIT. 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
REIT'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 REIT'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.
2
<PAGE>
ANNEX B
LIST OF PROPERTIES AND ENTITIES EMPLOYEE MAY CONTINUE TO OWN AND PARTICIPATE IN
THE OPERATION AND MANAGEMENT OF:
1. 727 15th Street
2. Properties currently owned by Mid-Atlantic Centers Limited Partnership
a. Tarrytown Mall
b. Quality Center
<PAGE>
ANNEX C
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT, dated as of May 1, 1998, is made
by and between First Washington Realty Trust, Inc., a Maryland corporation (the
"Company"), and William J. Wolfe (the "Optionee"), an employee of the Company:
WHEREAS, the Company has adopted The Amended and Restated 1994 Stock
Option Plan for Officers, Directors and Employees of First Washington Realty
Trust, Inc., First Washington Realty Limited Partnership and First Washington
Management, Inc., as amended from time to time (the "Plan"), for the benefit of
its eligible employees and directors; and
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee appointed to administer the Plan has determined
that it would be to the advantage and best interest of the Company and its
stockholders to grant the Incentive Stock Option provided for herein to the
Optionee to enable the Company to obtain and retain the services of the Optionee
considered essential to the long-range success of the Company and to provide an
additional incentive for the Optionee to further the growth, development and
financial success of the Company by rewarding the Optionee for such growth,
development and financial success through the ownership of Company stock;
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
The masculine pronoun shall include the feminine and neuter, and the
singular the plural, unless the context clearly indicates otherwise. Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
them in the Plan. Whenever the following terms are used in this Agreement, they
shall have the meaning specified below unless the context clearly indicates to
the contrary.
<PAGE>
SECTION 1.1 - EMPLOYMENT AGREEMENT
"Employment Agreement" shall mean that certain Second Amended and
Restated Employment Agreement between the Optionee and the Company dated as of
May 1, 1998.
SECTION 1.2 - OFFICER
"Officer" shall mean an officer of the Company, as defined in Rule
16a-1(f) under the Exchange Act, as such Rule may be amended in the future.
SECTION 1.3 - OPTION
"Option" shall mean the incentive stock option to purchase Common Stock
of the Company granted under this Agreement, which option is intended to qualify
as an "incentive stock option" under Section 422 of the Code.
SECTION 1.4 - SECRETARY
"Secretary" shall mean the Secretary of the Company.
SECTION 1.5 - TERMINATION OF EMPLOYMENT
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company or a Company
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
permanent and total disability or retirement, but excluding (i) any termination
where there is a simultaneous reemployment or continuing employment by the
Company or a Company Subsidiary and (ii) at the sole and absolute discretion of
the Committee, a termination that results in a temporary severance of the
employee-employer relationship that does not exceed one (1) year. The Committee,
in its sole and absolute discretion, shall determine the effect of all other
matters and questions relating to Termination of Employment, including, but not
by way of limitation, all questions of whether a particular leave of absence
constitutes a Termination of Employment; provided, however, that a leave of
absence shall constitute a Termination of Employment if, and to the extent that,
such leave of absence interrupts employment for purposes of Section 422(a)(2) of
the Code and the then applicable regulations and rulings under said Section.
Notwithstanding any other provision of the Plan, the right of the Company or any
Company Subsidiary to terminate the Optionee's employment is subject to the
terms of the Employment Agreement.
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<PAGE>
ARTICLE II
GRANT OF OPTION
SECTION 2.1 - GRANT OF OPTION
In partial consideration of the Optionee's past services to the Company
and/or the Optionees' agreement to remain in the employ of the Company or a
Company Subsidiary pursuant to the Employment Agreement and for other good and
valuable consideration, provided that the Optionee is employed by the REIT as of
January 1, 2000, then the Company shall irrevocably grant to the Optionee, and
hereby does grant to the Optionee, effective as of January 1, 2000, the option
to purchase any part or all of an aggregate of two-hundred fifty thousand
(250,000) shares of its Common Stock upon the terms and conditions set forth in
this Agreement.
SECTION 2.2 - PURCHASE PRICE
The purchase price of the shares of stock covered by the Option shall
be a price per share equal to the Fair Market Value (as defined in the Plan) of
a share of Common Stock on January 1, 2000, without commission or other charge.
SECTION 2.3 - CONSIDERATION TO COMPANY
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Company Subsidiary, with such duties and responsibilities as the Company or such
Company Subsidiary shall from time to time prescribe, pursuant to the Employment
Agreement. Nothing in this Agreement or in the Plan shall confer upon the
Optionee any right to continue in the employ of the Company or any Company
Subsidiary.
SECTION 2.4 - ADJUSTMENTS IN OPTION
In the event that the outstanding shares of the stock subject to the
Option 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 merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Optionee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the Option price per share; provided, however, that each such adjustment
shall be made in such manner as not to constitute a "modification" within the
meaning of Section 424(h)(3) of the Code. Any such adjustment made by the
Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
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<PAGE>
ARTICLE III
PERIOD OF EXERCISABILITY
SECTION 3.1 - COMMENCEMENT OF EXERCISABILITY
(a) Subject to Sections 3.4 and 5.6, the Option shall become
exercisable in three (3) cumulative installments as follows:
(1) The first installment shall consist of thirty-three and
one-third percent (33- 1/3%) of the shares covered by the Option
(rounded down to the nearest one (1) share) and shall become
exercisable on the first anniversary of the date that the Option is
granted.
(2) The second installment shall consist of thirty-three and
one-third percent (33-1/3%) of the shares covered by the Option
(rounded down to the nearest one (1) share) and shall become
exercisable on the second anniversary of the date that the Option is
granted.
(3) The third installment shall consist of the balance of the
shares covered by the Option and shall become exercisable on the third
anniversary of the date that the Option is granted.
(b) Except to the extent expressly provided otherwise elsewhere in
writing, no portion of the Option that is unexercisable at Termination of
Employment shall thereafter become exercisable.
SECTION 3.2 - DURATION OF EXERCISABILITY
The installments provided for in Section 3.1 are cumulative. Each such
installment that becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
SECTION 3.3 - EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone after the first
to occur of the following events:
(a) The expiration of ten (10) years from the date that the Option was
granted; or
(b) If the Optionee owned (within the meaning of Section 424(d) of the
Code), at the time the Option was granted, more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any
Company Subsidiary, the expiration of five (5) years from the date that the
Option was granted.
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<PAGE>
SECTION 3.4 - DURATION OF EXERCISABILITY
This Option shall be exercisable as to all of the shares covered
hereby, notwithstanding that this Option may not yet have become fully
exercisable under Section 3.1 (a) in the event the employee-employer
relationship between the Optionee and the Company is terminated (i) by the
Company pursuant to Section 2(c)(i) of the Employment Agreement; (ii) by the
Optionee pursuant to Section 2(d) of the Employment Agreement; (iii) by the
Optionee pursuant to Section 2(e) of the Employment Agreement; (iv) by the
Optionee pursuant to Section 2(f) of the Employment Agreement (other than in
connection with Optionee's removal as a director for cause under the corporation
law of the State of Maryland); or (v) due to the fact that the Employment
Agreement expires and its not renewed pursuant to Section 2(b) of the Employment
Agreement; provided, however, that this acceleration of exercisability shall not
take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation, or a parent or subsidiary of such corporation, so that
such assumption or substitution complies with the provisions of Section 424(a)
of the Code; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 5.6.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction, and terminations regarding whether provisions for
assumption or substitution have been made as defined in subsection (b) above.
SECTION 3.5 - TERMINATION OF EMPLOYMENT PRIOR TO JANUARY 1, 2000
Notwithstanding anything to the contrary contained herein, if the
Optionee's employment with the Company is terminated in an Early Termination (as
defined in the Employment Agreement) prior to January 1, 2000, then the Company
shall irrevocably grant to the Optionee, and hereby does grant to the Optionee,
effective as of January 1, 2000, the Option to purchase
-5-
<PAGE>
any part or all of the 250,000 shares of Common Stock, and this Option shall
become fully exercisable as of the date of grant and shall expire on December
31, 2002.
SECTION 3.6 - SPECIAL TAX CONSEQUENCES
(a) The Optionee acknowledges that, 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), including the Option, are exercisable for the first time by
the 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 not qualifying under Section 422 of the Code
but rather shall be treated as non-qualified options to the extent required by
Section 422 of the Code. The Optionee further acknowledges that 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 these rules, the fair
market value of stock shall be determined as of the time the option with respect
to such stock is granted.
(b) The Optionee acknowledges that if any portion of the Option is not
exercised within the applicable time period specified in Section 422 of the Code
following a Termination of Employment, then such portion shall be treated as not
qualifying under Section 422 of the Code but rather shall be treated as
non-qualified options to the extent required under Section 422 of the Code.
ARTICLE IV
EXERCISE OF OPTION
SECTION 4.1 - PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he or his guardian or legal
representative may exercise the Option or any portion thereof. After the death
of the Optionee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 3.3, be exercised by his
Beneficiary.
SECTION 4.2 - PARTIAL EXERCISE
Any exercisable installment of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
1,000 shares (or the minimum installment set forth in Section 3.1, if a smaller
number of shares) and shall be for whole shares only.
SECTION 4.3 - MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be exercised only
on the first business day of a calendar month and solely by delivery to the
Secretary or his office of all of the following prior to the time when the
Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion, stating that the
Option or portion is thereby exercised, such notice complying with all
applicable rules established by the Committee; and
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<PAGE>
(b) Full payment for the shares with respect to which such Option
or portion thereof is exercised, by:
(1) Cash or check; or
(2) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Optionee duly endorsed for
transfer to the Company or (B) shares of the Company's Common
Stock issuable to the Optionee upon exercise of the Option, with
a fair market value (as determined under Section 1.15 of the
Plan) on the date of Option exercise equal to the aggregate
purchase price of the shares with respect to which such Option or
portion is exercised; or
(3) With the consent of the Committee, any combination of
the consideration provided in the foregoing subparagraphs (1) and
(2) or through delivery of property of any kind which constitutes
good and valuable consideration, consistent with the provisions
of the Plan; and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Optionee or other person
then entitled to exercise such Option or portion, stating that:
(1) the shares of stock are being acquired for his own
account, for investment and without any present intention of
distributing or reselling said shares or any of them except as
may be permitted under the Securities Act and then applicable
rules and regulations thereunder; and
(2) that the Optionee or other person then entitled to
exercise such Option or portion will indemnify the Company
against and hold it free and harmless from any loss, damage,
expense or liability resulting to the Company if any sale or
distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Committee
may, in its absolute discretion, take whatever additional actions
it deems appropriate to insure the observance and performance of
such representation and agreement and to effect compliance with
the Securities Act and any other federal or state securities laws
or regulations. Without limiting the generality of the foregoing,
the Committee may require an opinion of counsel acceptable to it
to the effect that any subsequent transfer of shares acquired on
an Option exercise does not violate the Securities Act, and may
issue stop-transfer orders covering such shares. Share
certificates
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<PAGE>
evidencing stock issued on exercise of this Option shall bear an
appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and
agreement referred to in the first sentence of this subsection
(c) shall, however, not be required if the shares to be issued
pursuant to such exercise have been registered under the
Securities Act, and such registration is then effective in
respect of such shares; and
(d) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to
exercise the Option.
SECTION 4.4 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares that have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the 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; and
(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, that the Committee shall, in its sole
and absolute discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency that the Committee shall, in its
sole and absolute discretion, determine to be necessary or advisable;
and
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<PAGE>
(d) The payment to the Company (or other employer corporation) of
all amounts that, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time
establish for reasons of administrative convenience.
SECTION 4.5 - RIGHTS AS STOCKHOLDER
The holder of the Option shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
SECTION 4.6 - 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, as in effect from time to time.
SECTION 4.7 - RESTRICTIONS ON EXERCISE OF OPTION
An Option is not exercisable if 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 set forth in the Company's Amended and
Restated Charter, as in effect from time to time.
(b) income to the Company that could impair the Company's status
as a real estate investment trust, within the meaning of Section 856
through 860 of the Code; or
(c) a transfer, at any one time, of more than one-tenth of one
percent (0.1%) (measured in value or in number of shares, whichever is
more restrictive) of the Company's total Capital Stock from the
Company to First Washington Management, Inc. or to the Partnership
pursuant to Section 5.5(a) or 5.6(a)(i) of the Plan, respectively.
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<PAGE>
Notwithstanding any other provision of this Agreement, the Optionee
shall have no rights under this Agreement or the Plan to acquire
Common Stock that would otherwise be prohibited under the Company's
Amended and Restated Charter, as in effect from time to time.
ARTICLE V
OTHER PROVISIONS
SECTION 5.1 - ADMINISTRATION
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret 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
Optionee, 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 the Plan or the Option.
SECTION 5.2 - OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee 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; provided, however, that, subject to the Stock
Ownership Limit, this Section 5.2 shall not prevent transfers by will or by the
applicable laws of descent and distribution.
SECTION 5.3 - SHARES TO BE RESERVED
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
SECTION 5.4 - NOTICES
Any notice to be given by the Optionee 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 Optionee shall be addressed to him
at the address given beneath his signature hereto. By a notice given pursuant to
this Section 5.4, either party may hereafter designate a different address for
notices to be given to him. Any notice that is required to be given to the
Optionee shall, if the Optionee is then deceased, be given to the Optionee's
personal representative if such representative has previously informed the
Company of his status and address by written notice under this Section 5.4. Any
notice shall be 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 5.5 - TITLES
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of this Agreement.
SECTION 5.6 - STOCKHOLDER APPROVAL
The Plan will be submitted for approval by the Company's stockholders
within twelve (12) months after the date that the Plan was initially adopted by
the Board. This Option may not be exercised to any extent by anyone prior to the
time when the Plan is approved by the stockholders, and if such approval has not
been obtained by the end of said twelve-month period,
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<PAGE>
this Option shall thereupon be canceled and become null and void. The Company
shall take such actions as may be necessary to satisfy the requirements of Rule
16b-3(b).
SECTION 5.7 - NOTIFICATION OF DISPOSITION
The Optionee shall give prompt notice to the Company of any disposition
or other transfer of any shares of stock acquired under this Agreement if such
disposition or transfer is made (a) within two (2) years from the date of
granting the Option with respect to such shares or (b) within one (1) year after
the transfer of such shares to him. Such notice shall specify the date of such
disposition or other transfer and the amount realized, in cash, other property,
assumption of indebtedness or other consideration, by the Optionee in such
disposition or other transfer.
SECTION 5.8 - GOVERNING LAW
This Agreement shall be administered, interpreted and enforced under
the internal laws of the State of Maryland without regard to conflicts of laws
thereof.
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<PAGE>
SECTION 5.9 - CONFORMITY TO SECURITIES LAWS
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act 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. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the Option
is granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the Plan
and this Agreement shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
FIRST WASHINGTON REALTY TRUST, INC.,
a Maryland corporation
By:_______________________________________
Title: Secretary
- ------------------------------------------
Optionee
- ------------------------------------------
- ------------------------------------------
Address
Optionee's Taxpayer Identification Number:
- ------------------------------------------
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<PAGE>
ANNEX D
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT, dated as of May 1, 1998, is made by
and between First Washington Realty Trust, Inc., a Maryland corporation (the
"Company"), and William J. Wolfe, an officer of the Company (the "Employee"):
WHEREAS, the Company has established the First Washington Trust, Inc.
Restricted Stock Plan, as amended from time to time, (the "Plan"); and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Plan provides for the issuance of shares of the Company's
Common Stock (as defined herein) subject to certain restrictions thereon
(hereinafter referred to as the "Restricted Stock"); and
WHEREAS, 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 issue certain shares of the
Company's Common Stock, par value $0.01 per share (the "Common Stock") to the
Employee in partial consideration of past services to the Company and/or as an
incentive to remain as an employee of the Company, subject to the restrictions
set forth herein, and has advised the Company thereof.
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 -"EMPLOYMENT AGREEMENT" shall mean that certain Second Amended and
Restated Executive Employment Agreement between Employee and the Company dated
as of May 1, 1998.
SECTION 1.2 - "FAIR MARKET VALUE" of a share of the Company's stock as of a
given date shall be: (i) the closing price of the Common Stock on the New York
Stock Exchange on such date, or, if shares were not traded on such date, then on
the next preceding trading day during which a sale occurred; or (ii) if such
stock is not traded on an exchange but is quoted on Nasdaq or a successor
quotation system, (1) the last sales price (if the stock is then listed as a
National Market Issue under the NASD National Market System) or (2) the mean
between the closing representative bid and asked prices (in all other cases) for
the stock on the day previous to such date as reported by Nasdaq or such
successor quotation system; or (iii) if such stock is not publicly traded on an
exchange and not quoted on Nasdaq or a successor quotation system, the mean
between the
<PAGE>
closing bid and asked prices for the stock, on the day previous to such date, as
determined in good faith by the Committee; or (iv) if the Company's stock is not
publicly traded, the fair market value established by the Committee acting in
good faith. In determining the Fair Market Value of the Company's Common Stock
under Paragraph (i) of this Section 1.2, the Committee may rely on the closing
price as reported in the New York Stock Exchange composite transactions
published in the Wall Street Journal.
SECTION 1.3 - "RESTRICTED STOCK" shall mean Common Stock of the Company issued
under this Agreement and subject to the Restrictions imposed hereunder.
SECTION 1.4 - "RESTRICTIONS" shall mean the reacquisition and transferability
restrictions imposed upon Restricted Stock under this Agreement.
SECTION 1.5 - "RULE 16B-3" shall mean that certain Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such Rule
may be amended in the future.
ARTICLE II
ISSUANCE OF RESTRICTED STOCK
SECTION 2.1 - ISSUANCE OF RESTRICTED STOCK. In partial consideration of
Employee's past services to the Company and/or Employee's agreement to remain in
the employ of the Company pursuant to the Employment Agreement and for other
good and valuable consideration which the Committee has determined to be equal
to the par value of its Common Stock provided that the Employee is employed by
the REIT as of January 1, 2000, then the Company shall issue to the Employee,
and hereby does issue to the Employee, effective as of January 1, 2000, one
hundred fifty thousand (150,000) shares of its Common Stock upon the terms and
conditions set forth in this Agreement.
ARTICLE III
RESTRICTIONS
SECTION 3.1 - REACQUISITION OF RESTRICTED STOCK; ACCELERATION; VESTING. (a)
Reacquisition. All shares of Restricted Stock issued to the Employee pursuant to
Section 2.1 are initially subject to reacquisition by the Company immediately if
the employee-employer relationship between the Employee and the Company is
terminated: (i) by the Company pursuant to Section 2(c)(ii) of the Employment
Agreement or (ii) by Employee other than (A) pursuant to Section 2(d) of the
Employment Agreement, (B) pursuant to Section 2(e) of the Employment Agreement
or (C) pursuant to Section 2(f) of the Employment Agreement (other than in
connection with Employee's removal as a director for cause under the corporation
laws of the State of Maryland), or (D) due to the fact that the Employment
Agreement expired and was not renewed pursuant to Section 2(b) of the Employment
Agreement. Following such a reacquisition by the Company, the Company shall
promptly pay to the Employee an amount equal to the product of $.01 times the
number of shares of Restricted Stock reacquired. The restriction that such
shares of
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Restricted Stock be subject to reacquisition by the Company shall not apply to
any "Vested Shares" held by the Employee.
(b) Acceleration. All shares of Restricted Stock shall immediately
fully vest and all Restrictions with respect to such shares of Restricted Stock
shall immediately expire if the employee-employer relationship between the
Employee and the Company is terminated (i) by the Company pursuant to Section
2(c)(i) of the Employment Agreement; (ii) by the Employee pursuant to Section
2(d) of the Employment Agreement; (iii) by the Employee pursuant to Section 2(e)
of the Employment Agreement; or (iv) by the Employee pursuant to Section 2(f) of
the Employment Agreement (other than in connection with Employee's removal as a
director for cause under the corporation law of the State of Maryland); or (v)
due to the fact that the Employment Agreement expires and is not renewed
pursuant to Section 2(b) of the Employment Agreement.
(c) Vesting. The shares of Restricted Stock shall vest, and all
Restrictions with respect to such shares shall expire, in accordance with the
schedule set forth below. "Vested Shares" shall mean that number of shares of
Restricted Stock which have vested and are no longer subject to Restrictions.
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
SECTION 3.2 - LEGEND. (a) Certificates representing shares of Restricted Stock
issued pursuant to this Agreement shall, until all restrictions lapse and new
certificates are issued pursuant to Section 3.3, bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
VESTING REQUIREMENTS AND MAY BE SUBJECT TO REACQUISITION BY THE COMPANY
UNDER THE TERMS OF THAT CERTAIN RESTRICTED STOCK AGREEMENT BY AND
BETWEEN FIRST WASHINGTON REALTY TRUST, INC. (THE "COMPANY") AND THE
HOLDER OF THE SECURITIES. PRIOR TO VESTING OF OWNERSHIP IN THE
SECURITIES, THEY MAY NOT BE, DIRECTLY OR INDIRECTLY, OFFERED,
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNDER ANY CIRCUMSTANCES. COPIES OF THE ABOVE REFERENCED
AGREEMENT ARE ON FILE AT THE OFFICES OF THE COMPANY AT 4350 EAST-WEST
HIGHWAY, SUITE 400, BETHESDA, MARYLAND 20814."
(b) Unless such shares shall have been registered pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
certificates representing
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shares of Restricted Stock issued pursuant to this Agreement shall
also bear the following legend :
"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."
SECTION 3.3 - LAPSE OF RESTRICTIONS. Upon the vesting of the shares of
Restricted Stock as provided in Section 3.1 and subject to Section 4.3, the
Company shall cause new certificates to be issued with respect to such Vested
Shares and delivered to the Employee or his legal representative, free from the
legend provided for in Section 3.2(a) and any of the other Restrictions. Such
Vested Shares shall cease to be considered Restricted Stock subject to the terms
and conditions of this Agreement.
SECTION 3.4 - TERMINATION OF EMPLOYMENT PRIOR TO JANUARY 1, 2000.
Notwithstanding anything to the contrary contained herein, if the Employee's
employment with the Company is terminated in an Early Termination (as defined in
the Employment Agreement) prior to January 1, 2000, then the Company shall issue
to the Employee, and hereby does issue to the Employee, effective as of the date
immediately prior to such Early Termination, the 150,000 shares of Restricted
Stock, and all of such shares of Restricted Stock shall be fully vested on the
date of such issuance.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 - ADMINISTRATION. The Committee shall have the power to interpret
the Plan, this Agreement and all other documents relating to Restricted 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 the Plan or the Restricted
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 the
Plan and this Agreement.
SECTION 4.2 - RESTRICTED STOCK NOT TRANSFERABLE. No Restricted 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
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or equitable proceedings (including bankruptcy) unless and until any such share
of Restricted Stock is a Vested Share, and any attempted disposition thereof
prior to such vesting, shall be null and void and of no effect; provided,
however, that this Section 4.2 shall not prevent transfers by will or by
applicable laws of descent and distribution.
SECTION 4.3 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall
not be required to issue or deliver any certificate or certificates for shares
of 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
(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 absolute 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 absolute
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
Restricted Stock and/or the lapse or removal of any of the Restrictions; 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 4.4 - ESCROW. The Secretary of the Company or such other escrow holder
as the Committee may appoint shall retain physical custody of the certificates
representing Restricted Stock until all of the Restrictions expire or shall have
been removed; provided, however, that in no event shall the Employee retain
physical custody of any certificates representing Restricted Stock issued to
him.
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.
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SECTION 4.6 - RIGHTS AS STOCKHOLDER. Upon delivery of the shares of Restricted
Stock from the escrow holder pursuant to Section 4.4, the Employee shall have
all the rights of a stockholder with respect to said shares, subject to the
restrictions herein, including the right to vote the shares and to receive all
dividends or other distributions paid or made with respect to the 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. Notwithstanding anything herein to the contrary,
this Agreement shall be administered, and the Restricted 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 the Restricted 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.
SECTION 4.10 - APPROVAL OF PLAN BY STOCKHOLDERS. The 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 the Plan. Restricted Stock issued following
the adoption of the Plan but prior to such stockholder approval shall not vest
prior to the time when the Plan is approved by the stockholders; provided, that
if such approval has not been obtained at the end of said twelve- month period,
all Restricted Stock issued during such time period under the Agreement shall
thereupon be cancelled and become null and void. The Company and the Employee
shall take such action with respect to the Plan and this Agreement as may be
necessary to satisfy the requirements of Rule 16b-3(b).
SECTION 4.11 - TAX WITHHOLDING. The Company's obligation (i) to issue or deliver
to the Employee any certificate or certificates for unrestricted shares of stock
or (ii) to pay to the Employee any dividends or make any distributions with
respect to the Restricted Stock, is expressly conditioned upon receipt from the
Employee, on or prior to the date the same is required to be withheld, of:
(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) Subject to the Committee's consent and Section 4.10(c), full
payment by delivery to the Company of unrestricted shares of the Company's
Common Stock previously owned by the Employee duly endorsed for transfer to the
Company by the Employee with an aggregate Fair Market Value (determined, as
applicable, as of the date of the lapse of the restrictions or vesting, or as of
the date of the distribution) equal to the amount that must be withheld by the
Company for federal, state and/or local tax purposes; or
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<PAGE>
(c) With respect to the withholding obligation for shares of Restricted
Stock that become unrestricted shares of stock as of a certain date (the
"Vesting Date"), subject to the Committee's consent and to the timing
requirements set forth in this Section 4.10(c), full payment by retention by the
Company of a portion of such shares of Restricted Stock which become
unrestricted or vested with an aggregate Fair Market Value (determined as of the
Vesting Date) equal to the amount that must be withheld by the Company for
federal, state and/or local tax purposes; or
(d) Subject to the Committee's consent, any combination of payments
provided for in the foregoing subsections (a), (b) or (c).
SECTION 4.12 - CHANGES IN COMPANY'S SHARES. 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 Restricted
Stock which may be issued.
SECTION 4.13 - 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.
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IN WITNESS HEREOF, this Agreement has been executed and delivered by
the parties hereto.
FIRST WASHINGTON REALTY TRUST, INC.
By: ________________________________
Its: _______________________________
___________________________
Employee
___________________________
___________________________
Address
8
EXECUTION COPY
THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS THIRD AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT is dated
as of January 14, 2000, effective as of January 1, 2000, by and between First
Washington Realty Trust, Inc., a Maryland corporation (the "REIT"), and Stuart
D. Halpert (the "Employee").
RECITALS
A. WHEREAS, the REIT and the Employee executed an Executive Employment
Agreement dated as of June 26, 1994, and subsequently executed an Amended and
Restated Executive Employment Agreement dated as of June 30, 1996, and a Second
Amended and Restated Employment Agreement dated as of May 1, 1998 (the "Amended
Agreement");
B. WHEREAS, the REIT and the Employee mutually desire to amend and
restate the Amended Agreement pursuant to the terms set forth herein; and
C. WHEREAS, the REIT wishes to contract for the managerial and business
skills possessed by the Employee and the Employee desires to be employed by the
REIT upon the terms and subject to the conditions herein provided.
NOW, THEREFORE, in consideration of the foregoing premises and mutual
covenants and conditions hereinafter set forth, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereby agree as follows:
AGREEMENT
1. Employment and Duties
(a) Position and Duties. The Employee shall serve as the Chairman of
the Board of the REIT, with such duties and authority as are customary for, and
commensurate with, such position, including developing policy, supervising
staff, directing day-to-day operations, and such other duties as the Board of
Directors of the REIT (the "Board") prescribes. The Employee shall have such
other duties and authority as may from time to time be delegated or assigned to
him by the Board.
(b) Preclusion of Outside Business Activities. During the Term, the
Employee shall devote substantially all of his professional energies, interest,
abilities and productive work time to the performance of duties pursuant to this
Agreement. The Employee shall not, without the prior written consent of the
Board, perform other professional services of any kind or engage in any other
business activity, with or without compensation; provided, however, that the
Employee shall be allowed (i) to continue to engage in the development of First
Washington Management, Inc., a Maryland corporation ("FWM"), at a level
consistent with past duties; (ii) to engage in
<PAGE>
administering the business and activities of First Washington Realty Limited
Partnership, a Maryland limited partnership (the "Operating Partnership"); (iii)
to serve as a director on the boards of up to three (3) non-competing companies;
and (iv) to engage in passive investments that the Employee may make from time
to time for his personal account, so long as the activities described in clauses
(i) through (iv) do not detract or adversely affect the Employee's duties and
responsibilities under this Agreement. The Employee shall not, without the prior
written consent of the Board, engage in any activity adverse to the REIT's
interests.
2. Term of Employment
(a) Term. This Agreement shall continue in full force and effect until
December 31, 2002, unless sooner terminated or extended as hereinafter provided
(the "Term").
(b) Extension of Term. The employment term set forth in a paragraph
2(a) above may be extended by written amendment to this Agreement signed by both
parties. The parties agree that they will use their best efforts to negotiate
the extension of this Agreement, if both parties desire such an extension, not
later than twelve months before the scheduled end of the Term.
(c) Termination by the REIT.
(i) Without Cause. The REIT may terminate the Employee's
employment at any time for any reason other than with Cause (as
hereinafter defined) or for no reason at all upon at least two weeks
prior written notice to the Employee; provided, however, that in
connection with such a termination of employment, the REIT may elect
to require the Employee to continue to perform his duties under this
Agreement for an additional sixty (60) days commencing on the date the
Employee receives notice of such termination. In connection with the
termination of the Employee's employment pursuant to this Section
2(c)(i), the Employee shall (A) be paid salary and any bonus payable
to him in accordance with Sections 3(a) and 3(b) hereof accrued
through the effective date of termination; (B) be entitled to the
benefits set forth in Sections 3(c) through 3(e) hereof in accordance
with the terms thereof ; (C) be entitled to the benefits set forth in
Sections 3(f) through 3(h) hereof accrued through the effective date
of such termination in accordance with such plans, programs and
arrangements; (D) receive the Termination Compensation specified in
Section 5(b) hereof; and (E) be entitled to the continuation of
benefits specified in Section 5(d) hereof.
(ii) With Cause. The REIT may terminate the Employee's employment
with Cause immediately upon delivery of notice thereof. In connection
with the termination of the Employee's employment pursuant to this
Section 2(c)(ii), the Employee shall (A) be paid salary and any bonus
payable to him in accordance with Sections 3(a) and 3(b) hereof
accrued through the effective date of termination; (B) be entitled to
the benefits set forth in Sections 3(c) through 3(e) hereof in
accordance with the terms thereof; and (C) be entitled to the benefits
set forth in Sections 3(f) through 3(h) hereof accrued through the
effective date of such termination in accordance with such plans,
programs and
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arrangements. For purposes of this Agreement, "Cause" shall mean
the Employee's (A) material incompetence in the performance of his
duties or obligations hereunder, including, without limitation, those
duties and obligations specified in Section 1(a) hereof; (B)
commission of any act which is materially injurious to the REIT; (C)
personal dishonesty, willful misconduct, or breach of fiduciary duty
involving personal profit; (D) intentional and material failure to
perform his stated duties for the REIT; (E) willful violation of any
law which violation materially adversely affects his ability to
discharge his duties for the REIT or has an adverse effect on the
REIT's interest or (F) breach in any material respect of any of the
terms of this Agreement or any confidentiality or proprietary
information agreement between the Employee and FWM, the Operating
Partnership or the REIT; provided, however, that "Cause" shall not
exist unless and until the Board provides the Employee with (X) at
least 15 days prior written notice of its intention to terminate his
employment with Cause, together with a certified copy of the
resolution of the Board approving the termination of the Employee's
employment with Cause by the affirmative vote of not less than a
majority of the Board, and a written statement describing the nature
of the Cause, and (Y) a reasonable opportunity and a reasonable period
of time to cure any curable acts or omissions on which the finding of
Cause is based. If the Employee cures the acts or omissions on which
the finding of Cause is based, the REIT shall not have Cause to
terminate the Employee's employment hereunder.
(d) Termination by the Employee.
(i) With Good Reason or After Change of Control. The Employee may
terminate this Agreement prior to the expiration of the Term upon two
weeks prior written notice to the REIT with Good Reason (as
hereinafter defined) at any time (including within twenty-four (24)
months following any Change of Control (as hereinafter defined) of the
REIT). The Employee shall continue to perform, at the election of the
REIT, his duties under this Agreement for an additional thirty (30)
days following the REIT's receipt of his notice of termination in
accordance with this Section 2(d). In connection with termination of
the Employee's employment pursuant to this Section 2(d), the Employee
shall (A) be paid salary and any bonus otherwise payable to him in
accordance with Sections 3(a) and 3(b) hereof accrued through the
effective date of such termination; (B) be entitled to the benefits
set forth in Sections 3(c) through 3(e) hereof in accordance with the
terms thereof; (C) be entitled to the benefits set forth in Sections
3(f) through 3(h) hereof accrued through the effective date of such
termination in accordance with such plans, programs and arrangements;
(D) receive the Termination Compensation specified in Section 5(b)
hereof; and (E) be entitled to the continuation of benefits specified
in Section 5(d) hereof.
(ii) For purposes of this Section 2(d), "Good Reason" shall mean
(A) the breach by the REIT of any of its obligations hereunder and the
failure of the REIT to cure such breach within sixty (60) days after
receipt by the REIT of a written notice of the Employee specifying in
reasonable detail the nature of the alleged breach or (B) any
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<PAGE>
material diminution in the scope of Employee's responsibilities and
duties without his consent.
(iii) For purposes of this Section 2(d), a "Change of Control"
shall mean the first occurrence of any of the following events: (A)
any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), other than a trustee or
other fiduciary holding securities under an employee benefit plan of
the REIT, a corporation owned directly or indirectly by the
stockholders of the REIT in substantially the same proportions as
their ownership of stock of the REIT, the Employee or William J.
Wolfe, or any of their respective affiliates, becomes the "beneficial
owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities representing 50% or more of the total voting
power represented by the then outstanding securities which vote
generally in the election of directors (referred to herein as "Voting
Securities") of the REIT; (B) during any period of two consecutive
years, individuals who at the beginning of such period constitute the
Board and any new directors whose election by the Board or nomination
for election by the REIT's stockholders was approved by a vote of at
least two-thirds (2/3) the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority of the Board; (C) the stockholders of
the REIT approve a merger or consolidation of the REIT with any other
entity, other than a merger or consolidation which would result in the
Voting Securities of the REIT outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into Voting Securities of the surviving entity) at least 50%
of the total voting power represented by the Voting Securities of the
REIT or such surviving entity outstanding immediately after such
merger or consolidation; or (D) the stockholders of the REIT approve a
plan of complete liquidation of the REIT or an agreement for the sale
or disposition by the REIT of (in one transaction or a series of
transactions) all or substantially all of the REIT's assets.
(e) Termination Due to Death or Disability. The Employee's employment
hereunder shall terminate immediately upon his death prior to the expiration of
the Term. In the event that by reason of injury, illness or other physical or
mental impairment the Employee shall be: (i) completely unable to perform his
services hereunder for more than six consecutive months or (ii) unable to
perform his services hereunder for fifty percent or more of the normal working
day throughout twelve consecutive months (each of (i) and (ii) constituting the
"Disability" of the Employee for purposes of this Agreement), then the REIT may
terminate the Employee's employment hereunder immediately upon delivery of
notice thereof. In the event of the termination of the Employee's employment
pursuant to this Section 2(e), the Employee or the Employee's beneficiaries,
estate, heirs, representatives or assigns, as appropriate, shall be (A) be paid
the salary and any other bonus otherwise payable to the Employee in accordance
with Sections 3(a) and 3(b) hereof accrued through the effective date of such
termination; (B) be entitled to the benefits set forth in Sections 3(c) through
3(e) hereof in accordance with the terms thereof; (C) receive the Termination
Compensation specified in Section 5(b) hereof; (D) receive the proceeds, if any,
due under any REIT-paid life insurance policy held by the Employee, as
determined by and in accordance with the terms of any such policy; and (E)
solely in the event of
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<PAGE>
the Employee's Disability, be entitled to the continuation of benefits specified
in Section 5(d) hereof.
(f) Removal as Director. Notwithstanding any other provision of this
Agreement, if the Employee shall be removed from (or fail to be re-elected to)
office as a director of the REIT at any time during the Term, then the Employee
may notify the REIT in writing of his election to terminate this Agreement upon
written notice to the REIT and such notice shall be effective immediately upon
receipt by the REIT. In connection with the Employee's termination of employment
pursuant to this Section 2(f), the Employee shall (A) be paid the salary and any
bonus payable to him in accordance with Sections 3(a) and 3(b) hereof accrued
through the effective date of such termination; (B) be entitled to the benefits
set forth in Sections 3(c) through 3(e) hereof in accordance with the terms
thereof ; (C) be entitled to the benefits set forth in Sections 3(f) through
3(h) hereof accrued through the effective date of such termination in accordance
with such plans, programs and arrangements; (D) receive the Termination
Compensation specified in Section 5(b) hereof and (E) be entitled to the
continuation of benefits specified in Section 5(d) hereof; provided, however,
that the Employee shall not be entitled to the payments and benefits described
in subsections (D) and (E) above if he is removed as a director for cause under
the corporation law of the State of Maryland.
3. Compensation and Related Matters.
(a) Salary. The Employee's annual base salary during the Term shall be
$300,000 per annum effective January 1, 1998. Such salary shall be reviewed by
the Board annually during the first quarter of fiscal year of the REIT during
the Term, and the Employee shall receive such salary increases, if any, as the
Board, in its sole discretion, shall determine; provided, however, that the
Employee's annual base salary shall not be less than $400,000 effective January
1, 2000 and thereafter. Such salary shall be payable in accordance with the
REIT's normal payment practices, but in no event shall such salary be payable
less frequently than monthly in equal installments.
(b) Bonus. Effective January 1, 1999 and thereafter, the Employee shall
be eligible to receive an Annual Incentive Bonus in accordance with the Plan set
forth on Annex A hereto.
(c) Options.
(i) Provided that he is employed by the REIT as of January 1,
2000, effective as of such date the Employee shall be granted, and
hereby is granted, an option to purchase 250,000 shares of Common
Stock at an exercise price equal to the Fair Market Value (as defined
in the Option Plan) of a share of Common Stock on January 1, 2000 (the
"Option") subject to the terms and provisions of the 1994 Stock Option
Plan for Officers, Directors and Employees of First Washington Realty
Trust, Inc., First Washington Realty Limited Partnership and First
Washington Management, Inc. (the "Option Plan") (or a successor option
plan then maintained by the REIT) and a written Stock Option Agreement
between the Employee and the REIT (the "Stock Option Agreement"). The
Stock Option Agreement shall provide that the Option shall become
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<PAGE>
exercisable in equal cumulative installments of one-third each on each
of the first three anniversaries of the date of grant (subject to the
Employee's continued employment by the REIT on such dates) and shall
be subject to immediate vesting in the event of the Employee's
termination of employment pursuant to Section 2(c)(i), 2(d), 2(e) or
2(f) (other than in connection with Employee's removal as a director
for cause under the corporation law of the State of Maryland) or by
reason of expiration of the Term without renewal (collectively an
"Early Termination") and shall be the Stock Option Agreement attached
hereto as Annex C.
(ii) If the Employee's employment is terminated in an Early
Termination prior to January 1, 2000, then, effective as January 1,
2000, the Employee shall be granted, and hereby is granted the Option
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
subject, if permitted by the terms thereof, to the Option Plan (or a
successor option plan then maintained by the REIT), and, in any event,
the written Stock Option Agreement between the Employee and the REIT.
The Stock Option Agreement shall provide that the Option shall be
fully exercisable as of the date of grant and shall expire on the date
specified in Section 2(a) herein and shall be the Stock Option
Agreement attached hereto as Annex C.
(d) Restricted Stock.
(i) Provided that he is employed by the REIT as of January 1,
2000, effective as of such date the Employee shall be granted, and
hereby is granted, 150,000 shares of common stock of the REIT (the
"Restricted Stock") subject to the terms and conditions of the First
Washington Realty Trust, Inc. Restricted Stock Plan (the "Stock Plan")
and a written Restricted Stock Agreement between the Employee and the
REIT (the "Restricted Stock Agreement"). The Restricted Stock
Agreement shall provide that shares of the Restricted Stock shall
become vested in cumulative installments of one-sixth, one-third and
one-half, respectively, on each of the first three anniversaries of
the date of grant (subject to the Employee's continued employment by
the REIT on such dates) and shall be subject to immediate vesting in
the event of the Employee's termination of employment in an Early
Termination and shall be the Restricted Stock Agreement attached
hereto as Annex D.
(ii) If the Employee's employment is terminated in an Early
Termination prior to January 1, 2000, then effective immediately prior
to such termination the Employee shall be granted, and hereby is
granted, the 150,000 shares of Restricted Stock subject to the terms
and conditions of the Stock Plan and, in any event, the written
Restricted Stock Agreement between the Employee and the REIT. The
Restricted Stock Agreement shall provide that shares of the Restricted
Stock shall be fully vested on the date of grant and shall be the
Restricted Stock Agreement attached hereto as Annex D.
(e) Contingent Stock. As provided in the Amended and Restated
Contingent Stock Agreement dated as of May 1, 1998 by and between the REIT and
the Employee attached hereto
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as Annex E, as amended from time to time (the "Contingent Stock Agreement"), the
Employee shall be entitled to receive shares of Contingent Stock (as defined
therein) pursuant to such agreement. In accordance with Section 3.2(a) of the
Contingent Stock Agreement, the Compensation Committee of the Board has
established the "Performance Goals" (as defined therein) for fiscal years 2000
through 2003 applicable to the award of Contingent Stock in the event of the
Employee's termination of employment in an Early Termination during the period
beginning on January 1, 2000 and ending on March 31, 2003 (the "Contingent Stock
Period"). In the event of the Employee's termination of employment in an Early
Termination during the Contingent Stock Period, the Compensation Committee shall
certify in writing, as of the effective date of such Early Termination, whether
the REIT's annual operating income for the portion of the then current fiscal
year completed prior to such date equals or exceeds 80% of the product of (1)
the REIT's annual operating income for fiscal year 1999 and (2) the ratio of (A)
the number of days elapsed in the then current fiscal year prior to the date of
Early Termination to (B) the number 365 (the "Early Termination Performance
Goal"). If the Early Termination Performance Goal has been met, the Employee
shall receive, within 5 days following the effective date of such Early
Termination, that number of shares of Contingent Stock equal to (x) 75,000 minus
(y) the number of shares of Contingent Stock awarded to the Employee under
Section 3.2 of the Contingent Stock Agreement prior to such date.
(f) Benefits. During the Term the Employee shall be entitled to
participate in or receive benefits under any employee benefit plan or other
arrangement (including, but not limited to, any medical, dental, retirement,
disability, life insurance, sick leave and vacation plans or arrangements and
the REIT's executive deferred compensation plan) made available by the REIT to
any of its employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans or arrangements.
(g) Expenses. The REIT shall promptly pay directly or reimburse the
Employee for all reasonable travel and other business expenses incurred by the
Employee in the performance of his duties to the REIT under this Agreement.
(h) Vacation. The Employee shall be entitled to vacation benefits in
accordance with the REIT's normal vacation policies, but in no event shall he
receive less than four weeks of paid vacation each calendar year during the
Term.
(i) Professional Memberships. The REIT shall promptly pay directly or
reimburse the Employee for all reasonable expenses incurred by the Employee with
respect to professional memberships maintained by him during the Term.
(j) Automobile Allowance. During the Term, the REIT shall provide the
Employee with an automobile allowance for a company automobile of comparable
quality as automobiles customarily provided to executive officers in the
industry. Expenses relating to such automobile will be paid in accordance with
the normal and customary practices of the REIT.
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(k) Deductions and Withholdings. All amounts payable or which become
payable under any provision of this Agreement shall be subject to all deductions
authorized by the Employee and to all deductions and withholdings required by
law.
4. Covenant Not to Compete or Solicit
(a) Non-Competition.
(i) The Employee agrees that during the Term he will not directly
or indirectly engage in (whether as an employee, consultant,
proprietor, partner, director, member or otherwise), or have any
ownership interest in, or participate in the financing, operation,
management or control of, any person, firm, corporation or business
that engages in or intends to engage in a Restricted Business.
"Restricted Business" shall mean any business that is engaged in or
(to the Employee's knowledge after due inquiry) preparing to engage in
the real estate business of the acquisition, development, management
and operation of principally retail shopping centers; provided,
however, that "Restricted Business" shall not include the operation
and management of those properties listed on Annex B hereto.
(ii) The Employee further agrees that for the eighteen (18) month
period following the end of the Term, he will not directly or
indirectly engage in (whether as an employee, consultant, proprietor,
partner, director, member or otherwise), or have any ownership
interest in, or participate in the financing, operation, management or
control of, any person, firm, corporation or business that engages in
or intends to engage in a Post-Employment Restricted Business.
"Post-Employment Restricted Business" shall mean any business that is
engaged in or (to the Employee's knowledge after due inquiry)
preparing to engage in the real estate business of the acquisition,
development, management and operation of principally retail shopping
centers within twenty-five (25) miles of a retail property owned,
directly or through one or more subsidiaries or otherwise, by the
REIT, the Operating Partnership or FWM at the end of the Term;
provided, however, that "Post-Employment Restricted Business" shall
not include the operation and management of those properties listed on
Annex B hereto.
(iii) Ownership of (A) no more than one percent (1%) of the
outstanding voting stock of a publicly traded entity or (B) any stock
owned by the Employee as of June 26, 1994 shall not constitute a
violation of this Section 4(a).
(iv) This Section 4(a) shall not prohibit the Employee from
working for a division or subsidiary of a company which division or
subsidiary does not engage in a Restricted Business or a
Post-Employment Restricted Business, even though other divisions or
subsidiaries of such company do engage in a Restricted Business or
Post- Employment Restricted Business, provided that the REIT receives
adequate assurances as it may request that the Employee has no
involvement with the divisions or subsidiaries engaged in the
Restricted Business or Post-Employment Restricted Business.
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(b) Non-Solicitation. The Employee agrees that during the Term he will
not (i) solicit, encourage or take any other action which is intended to induce
any other employee of the REIT to terminate his or her employment with the REIT
or (ii) interfere in any manner with the contractual or other employment
relationship between the REIT and any such employee of the REIT.
(c) Severability. The parties intend that the covenants contained in
the preceding paragraphs of this Section 4 shall be construed as a series of
separate covenants, one for each county of Maryland, Virginia, Pennsylvania,
North Carolina, South Carolina and Delaware, and to the District of Columbia,
each state of the United States of America and each nation. Except for
geographic coverage, each such separate covenant shall be deemed identical in
terms to the covenant contained in the preceding paragraphs. If, in any judicial
proceeding, a court shall refuse to enforce any of the separate covenants (or
any part thereof) deemed included in said paragraphs, then such unenforceable
covenant (or such part) shall be deemed eliminated from this Agreement for the
purpose of those proceedings to the extent necessary to permit the remaining
separate covenants (or portions thereof) to be enforced. In the event that the
provisions of this Section 4 should ever be deemed to exceed the time, scope or
geographic limitation permitted by applicable law, then such provisions shall be
reformed to the maximum time, scope or geographic limitations, as the case may
be, permitted by applicable law.
5. Termination.
(a) If the Employee's employment is terminated by reason of expiration
of the Term without renewal, then the Employee shall be paid, within 90 days
following the date of expiration of the Term, a lump sum amount (the
"Termination Compensation") equal to 300% of the sum of (i) the Employee's rate
of annual base salary at the time of such expiration of the Term (as determined
pursuant to Section 3(a)) and (ii) the average annual bonus (if any) paid to the
Employee (or, if not yet paid, to which the Employee was entitled) with respect
to the last three calendar years of the Term.
(b) If the Employee's employment is terminated in an Early Termination
other than by reason of expiration of the Term without renewal, then the
Employee shall be paid, within 90 days of the effective date of such
termination, a lump sum amount (the "Severance Compensation") equal to the sum
of:
(i) an amount equal to, and computed in the same manner as, the
Termination Compensation set forth in Section 5(a), as if the
Employee's employment were terminated by reason of the expiration of
the Term without renewal, and
(ii) an amount equal to the greater of:
(A) 200% of the sum of (I) the Employee's rate of annual
base salary at the time of such termination (as determined
pursuant to Section 3(a)) and (II) the average annual bonus (if
any) paid to the Employee (or, if not yet paid, to which
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the Employee was entitled) with respect to the last three
calendar years of the Term; or
(B) the sum of (I) the aggregate annual base salary (as
determined pursuant to Section 3(a)) the Employee would otherwise
be entitled to receive from the effective time of such
termination through the scheduled end of the Term (as determined
pursuant to Section 2(a)) and (II) the average annual bonus (if
any) paid to the Employee (or, if not yet paid, to which the
Employee was entitled) with respect to the last three calendar
years of the Term.
(c) No Termination Compensation shall be paid if the Employee's
employment is terminated during the Term (i) by the REIT with Cause pursuant to
Section 2(c)(ii) hereof or (ii) by the Employee other than in accordance with
Section 2(d) or Section 2(e) or Section 2(f) in connection with the Employee's
failure to be re-elected as a director or his removal as a director without
cause.
(d) If the Employee's employment is terminated prior to the expiration
of the Term for any reason other than pursuant to Section 2(c)(ii) or pursuant
to Section 2(f) in connection with the Employee's removal as a director for
cause under the corporation law of the State of Maryland, the REIT will continue
to provide to the Employee comparable medical, disability and life insurance
benefits as were in effect at the time of termination until such time as the
Term would otherwise have expired if the Employee had not been terminated (but
in no event for a period of less than twenty-four months).
(e) Survival. The expiration or termination of the Term shall not
impair the rights or obligations of any party hereto which shall have accrued
hereunder prior to such expiration, nor shall such expiration or termination
impair the rights and obligations of any party hereto that are intended by their
terms to survive such expiration or termination.
(f) Mitigation of Damages. In the event of any termination of the
Employee's employment with the REIT for any reason, the Employee shall not be
required to seek other employment to mitigate damages, and any income earned by
the Employee from other employment or self-employment shall not be offset
against any obligations of the REIT to the Employee under this Agreement.
6. Excise Taxes
(a) If it is determined (as hereafter provided) that by reason of any
payment or distribution to the Employee, including, without limitation, any
stock option or award of stock or similar right, or the lapse or termination of
any restriction on, or the vesting of, any of the foregoing, occurring pursuant
to the terms of this Agreement (or otherwise under any other agreement, plan or
program) (collectively a "Payment") the Employee would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code) by reason of being considered "contingent on a change in ownership
or control" of the REIT within the meaning of Code Section 280G or to any
similar tax imposed by state or local
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law or any interest or penalties with respect to such tax (such taxes, together
with any such interest and penalties, the "Excise Tax"), then the Employee shall
be entitled to receive an additional payment or payments (a "Gross-Up Payment")
in an amount such that, after payment by the Employee of all taxes (including
any Excise Tax) imposed upon the Gross-Up Payment, the Employee retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 6(f) hereof, all
determinations required to be made under this Section 6, including whether an
Excise Tax is payable by the Employee and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
shall be made by a nationally recognized firm of certified public accountants
(the "Accounting Firm") selected by the REIT. The Accounting Firm shall be
directed by the REIT or the Employee to submit its preliminary determination and
detailed supporting calculations to both the REIT and the Employee within 15
calendar days after the determination date. If the Accounting Firm determines
that any Excise Tax is payable by the Employee, the REIT shall pay the required
Gross-Up Payment to, the Employee within five business days after receipt of
such determination and calculations. If the Accounting Firm determines that no
Excise Tax is payable by the Employee, it shall, at the same time as it makes
such determination, furnish the Employee with an opinion that the Employee has
substantial authority not to report any Excise Tax on his federal tax return. As
a result of the uncertainty in the application of Code Section 4999 at the time
of any determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments that will not have been made by the REIT should have been made
(an "Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the REIT exhausts or fails to pursue its remedies
pursuant to Section 6(f) hereof and the Employee thereafter is required to make
a payment of any Excise Tax, the Employee shall direct the Accounting Firm to
determine the amount of the Underpayment that has occurred and to submit its
determination and detailed supporting calculations to both the REIT and the
Employee as promptly as possible. Any such Underpayment shall be promptly paid
by the REIT to, or for the benefit of, the Employee within five business days
after receipt of such determination and calculations.
(c) The REIT and the Employee shall each provide the Accounting Firm
access to and copies of any books, records and documents in the possession of
the REIT or the Employee, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determination contemplated by Section
6(b) hereof. Any final determination by the Accounting Firm as to the amount of
the Gross-Up Payment shall be binding upon the REIT and Employee.
(d) The federal, state and local income or other tax returns filed by
the Employee (or any filing made by a consolidated tax group which includes the
REIT) shall be prepared and filed on a basis consistent with the determination
of the Accounting Firm with respect to the Excise Tax payable by the Employee.
The Employee shall make proper payment of the amount of any Excise Tax, and at
the request of the REIT, provide to the REIT true and correct copies (with any
amendments) of his federal income tax return as filed with the Internal Revenue
Service and corresponding state and local tax returns, if relevant, and such
other documents reasonably
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<PAGE>
requested by the REIT, evidencing such payment. If prior to the filing of the
Employee's federal income tax return, or corresponding state or local return, if
relevant, the Accounting Firm determines in good faith that the amount of the
Gross-Up Payment should be reduced, the Employee shall within five business days
pay to the REIT the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section 6(b)
hereof shall be borne by the REIT.
(f) In the event that the Internal Revenue Service or any other taxing
authority claims that any payment or benefit received by the Employee from the
REIT constitutes an "excess parachute payment" within the meaning of Code
Section 280G(b)(1), the Employee shall notify the REIT in writing of such claim.
Such notification shall be given as soon as practicable but not later than 10
business days after the Employee is informed in writing of such claim and shall
apprise the REIT of the nature of such claim and the date on which such claim is
requested to be paid. The Employee shall not pay such claim prior to the
expiration of the 30 day period following the date on which the Employee gives
such notice to the REIT (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the REIT notifies the
Employee in writing prior to the expiration of such period that it desires to
contest such claim, the Employee shall (i) give the REIT any information
reasonably requested by the REIT relating to such claim; (ii) take such action
in connection with contesting such claim as the REIT shall reasonably request in
writing from time to time, including without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the REIT and reasonably satisfactory to the Employee; (iii) cooperate with the
REIT in good faith in order to effectively contest such claim; and (iv) permit
the REIT to participate in any proceedings relating to such claim; provided,
however, that the REIT shall bear and pay directly all costs and expenses
(including, but not limited to, additional interest and penalties and related
legal, consulting or other similar fees) incurred in connection with such
contest and shall indemnify and hold the Employee harmless, on an after-tax
basis, for and against for any Excise Tax or income tax or other tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses.
(g) The REIT shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Employee to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner and the Employee agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the REIT shall determine;
provided, however, that if the REIT directs the Employee to pay such claim and
sue for a refund, the REIT shall advance the amount of such payment to the
Employee on an interest-free basis, and shall indemnify and hold the Employee
harmless, on an after tax basis, from any Excise Tax (or other tax including
interest and penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to such advance; and
provided, further, that if the Employee is required to extend the statue of
limitations to enable the REIT to contest such claim, the Employee may limit
this
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extension solely to such contested amount. The REIT's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and the Employee shall be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority. In addition, no position may be taken nor any final
resolution be agreed to by the REIT without the Employee's consent if such
position or resolution could reasonably be expected to adversely affect the
Employee unrelated to matters covered hereto.
(h) If, after the receipt by Employee of an amount advanced by the REIT
in connection with the contest of the Excise Tax claim, the Employee receives
any refund with respect to such claim, the Employee shall promptly pay to the
REIT the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto); provided, however, if the amount of
that refund exceeds the amount advanced by the REIT the Employee may retain such
excess. If, after the receipt by the Employee of an amount advanced by the REIT
in connection with an Excise Tax claim, a determination is made that the
Employee shall not be entitled to any refund with respect to such claim and the
REIT does not notify the Employee in writing of its intent to contest the denial
of such refund prior to the expiration of 30 days after such determination such
advance shall be forgiven and shall not be required to be repaid, and shall
offset, to the extent thereof, the amount of Gross-Up Payment required to be
paid by the REIT to Employee pursuant to this Section 6.
7. The Employee's Representations. The Employee represents and warrants to the
REIT as follows:
(a) The Employee is familiar with and approves the covenants not to
compete and not to solicit set forth in Section 4, including, without
limitation, the reasonableness of the length of time, scope and geographic
coverage of these covenants.
(b) Notwithstanding any "what-if" scenarios of the future results of
operations and stock prices of the REIT under certain assumptions which the
parties may have discussed, the Employee has not relied on any such scenarios or
any forecasts or projections provided by the REIT and understands that neither
the REIT nor FWM has made any representation or warranty whatsoever regarding
any forecasts or projections to the Employee.
8. Miscellaneous.
(a) Notices. Any notice, report or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed given
and received on the date of delivery, if delivered in person, or three days
after mailing, if mailed first-class mail, postage prepaid, to the following
addresses:
If to the Employee:
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
Attn: Stuart D. Halpert
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If to the REIT:
4350 East-West Highway, Suite 400
Bethesda, Maryland 20814
Attn: General Counsel
or to such other address as any party hereto may designate by notice given as
herein provided.
(b) Entire Agreement. This Agreement contains the entire understanding
and sole and entire agreement between the parties with respect to the subject
matter hereof, and supersedes any and all prior agreements, negotiations and
discussions between the parties hereto with respect to the subject matter
covered hereby. Each party to this Agreement acknowledges that no
representations, inducements, promises or agreements, oral or otherwise, have
been made by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement, statement or promise not contained
in this Agreement shall be valid or binding. This Agreement may not be modified
or amended by oral agreement, but only by an agreement in writing signed by the
REIT and by the Employee, and which states the intent of the parties to amend
this Agreement.
(c) Assignment and Binding Effect. Neither this Agreement nor the
rights or obligations hereunder shall be assignable by the Employee. The REIT
may assign this Agreement to any successor of the REIT, and upon such assignment
any such successor shall be deemed substituted for the REIT upon the terms and
subject to the conditions hereof, provided, that substantially all of the assets
of the REIT are also transferred to the same party.
(d) Successor to the REIT. The REIT will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all the business and/or assets of the REIT,
as the case may be, by agreement in form and substance reasonably satisfactory
to the Employee, expressly, absolutely and unconditionally to assume and agree
to perform this Agreement in the same manner and to the same extent that the
REIT would be required to perform it if no such succession or assignment had
taken place. Any failure of the REIT to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. This Agreement shall inure to the benefit of and be enforceable
by the Employee's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee should
die while any amounts are still payable to the Employee hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Employee's devisee, legatee or other designee or,
if there be no such designee, to the Employee's estate.
(e) Arbitration. The parties agree that any and all disputes (contract,
tort or statutory, whether under federal, state or local law) between the
Employee and the REIT (including other REIT employees, officers, directors and
representatives) arising out of the Employee's employment with the REIT, the
termination of that employment or this Agreement, shall be submitted to final
and binding arbitration. The arbitration shall take place in the County of
Montgomery, State of Maryland and may be compelled and enforced according to the
Maryland
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Arbitration Act. Unless the parties mutually agree otherwise, the arbitration
shall be conducted before the American Arbitration Association, according to its
Commercial Arbitration Rules. Judgment on the award the arbitrator renders may
be entered in any court having jurisdiction over the parties. Arbitration shall
be initiated in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.
(f) Amendments; Waivers. This Agreement may not be modified, amended,
or terminated except by an instrument in writing, approved by the Board and
signed by the Employee and the REIT. By an instrument in writing similarly
executed, the Employee or the REIT may waive compliance by the other party or
parties with any provision of this Agreement that such other party was or is
obligated to comply with or perform; provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. No failure to exercise and no delay in exercising any right, remedy or
power hereunder shall preclude any other, or further, exercise of any right,
remedy or power provided herein or by law or equity.
(g) Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Maryland as applied to
agreements made and performed in Maryland by residents of Maryland.
(h) Effectiveness. This Agreement shall become effective on January 1,
2000.
(i) Attorneys' Fees. In the event of any arbitration or legal action or
proceeding to enforce or interpret the provisions hereof, the prevailing party
shall be entitled to reasonable attorneys' fees, whether or not the proceeding
results in a final judgment.
(j) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(k) Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
(l) Severability. The provisions of this Agreement are severable. If
any provision of this Agreement shall be held to be invalid or otherwise
unenforceable in whole or in part, the remainder of the provisions or
enforceable parts hereof shall not be affected thereby and shall be enforced to
the fullest extent permitted by law.
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IN WITNESS WHEREOF, the parties hereto have executed this Third Amended
and Restated Executive Employment Agreement as of the date first written above.
ATTEST: FIRST WASHINGTON REALTY TRUST, INC.,
a Maryland corporation
/s/ Jeffrey S. Distenfeld By: /s/ William J. Wolfe
- ------------------------------- --------------------------
Jeffrey S. Distenfeld, Secretary William J. Wolfe
President
EMPLOYEE:
/s/ Stuard D. Halpert
-------------------------------
Stuart D. Halpert
5110 Cape Cod Court
Bethesda, Maryland 20816
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ANNEX A
SENIOR EXECUTIVE INCENTIVE BONUS PROGRAM
APPENDIX TO THIRD 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 REIT'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 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.
<PAGE>
The target annual incentive bonus payable to the Executive under the
Incentive Plan with respect to any fiscal year of the REIT 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 REIT 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 Employee and the REIT. 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
REIT'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 REIT'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.
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ANNEX B
LIST OF PROPERTIES AND ENTITIES EMPLOYEE MAY CONTINUE TO OWN AND PARTICIPATE IN
THE OPERATION AND MANAGEMENT OF:
1. 727 15th Street
2. Properties currently owned by Mid-Atlantic Centers Limited Partnership
a. Tarrytown Mall
b. Quality Center
<PAGE>
ANNEX C
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT, dated as of May 1, 1998, is made
by and between First Washington Realty Trust, Inc., a Maryland corporation (the
"Company"), and Stuart D. Halpert (the "Optionee"), an employee of the Company:
WHEREAS, the Company has adopted The Amended and Restated 1994 Stock
Option Plan for Officers, Directors and Employees of First Washington Realty
Trust, Inc., First Washington Realty Limited Partnership and First Washington
Management, Inc., as amended from time to time (the "Plan"), for the benefit of
its eligible employees and directors; and
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Committee appointed to administer the Plan has determined
that it would be to the advantage and best interest of the Company and its
stockholders to grant the Incentive Stock Option provided for herein to the
Optionee to enable the Company to obtain and retain the services of the Optionee
considered essential to the long-range success of the Company and to provide an
additional incentive for the Optionee to further the growth, development and
financial success of the Company by rewarding the Optionee for such growth,
development and financial success through the ownership of Company stock;
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
The masculine pronoun shall include the feminine and neuter, and the
singular the plural, unless the context clearly indicates otherwise. Capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
them in the Plan. Whenever the following terms are used in this Agreement, they
shall have the meaning specified below unless the context clearly indicates to
the contrary.
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SECTION 1.1 - EMPLOYMENT AGREEMENT
"Employment Agreement" shall mean that certain Second Amended and
Restated Employment Agreement between the Optionee and the Company dated as of
May 1, 1998.
SECTION 1.2 - OFFICER
"Officer" shall mean an officer of the Company, as defined in Rule
16a-1(f) under the Exchange Act, as such Rule may be amended in the future.
SECTION 1.3 - OPTION
"Option" shall mean the incentive stock option to purchase Common Stock
of the Company granted under this Agreement, which option is intended to qualify
as an "incentive stock option" under Section 422 of the Code.
SECTION 1.4 - SECRETARY
"Secretary" shall mean the Secretary of the Company.
SECTION 1.5 - TERMINATION OF EMPLOYMENT
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company or a Company
Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, a termination by resignation, discharge, death,
permanent and total disability or retirement, but excluding (i) any termination
where there is a simultaneous reemployment or continuing employment by the
Company or a Company Subsidiary and (ii) at the sole and absolute discretion of
the Committee, a termination that results in a temporary severance of the
employee-employer relationship that does not exceed one (1) year. The Committee,
in its sole and absolute discretion, shall determine the effect of all other
matters and questions relating to Termination of Employment, including, but not
by way of limitation, all questions of whether a particular leave of absence
constitutes a Termination of Employment; provided, however, that a leave of
absence shall constitute a Termination of Employment if, and to the extent that,
such leave of absence interrupts employment for purposes of Section 422(a)(2) of
the Code and the then applicable regulations and rulings under said Section.
Notwithstanding any other provision of the Plan, the right of the Company or any
Company Subsidiary to terminate the Optionee's employment is subject to the
terms of the Employment Agreement.
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ARTICLE II
GRANT OF OPTION
SECTION 2.1 - GRANT OF OPTION
In partial consideration of the Optionee's past services to the Company
and/or the Optionees' agreement to remain in the employ of the Company or a
Company Subsidiary pursuant to the Employment Agreement and for other good and
valuable consideration, provided that the Optionee is employed by the REIT as of
January 1, 2000, then the Company shall irrevocably grant to the Optionee, and
hereby does grant to the Optionee, effective as of January 1, 2000, the option
to purchase any part or all of an aggregate of two-hundred fifty thousand
(250,000) shares of its Common Stock upon the terms and conditions set forth in
this Agreement.
SECTION 2.2 - PURCHASE PRICE
The purchase price of the shares of stock covered by the Option shall
be a price per share equal to the Fair Market Value (as defined in the Plan) of
a share of Common Stock on January 1, 2000, without commission or other charge.
SECTION 2.3 - CONSIDERATION TO COMPANY
In consideration of the granting of this Option by the Company, the
Optionee agrees to render faithful and efficient services to the Company or a
Company Subsidiary, with such duties and responsibilities as the Company or such
Company Subsidiary shall from time to time prescribe, pursuant to the Employment
Agreement. Nothing in this Agreement or in the Plan shall confer upon the
Optionee any right to continue in the employ of the Company or any Company
Subsidiary.
SECTION 2.4 - ADJUSTMENTS IN OPTION
In the event that the outstanding shares of the stock subject to the
Option 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 merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Committee shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Optionee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
Option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the Option price per share; provided, however, that each such adjustment
shall be made in such manner as not to constitute a "modification" within the
meaning of Section 424(h)(3) of the Code. Any such adjustment made by the
Committee shall be final and binding upon the Optionee, the Company and all
other interested persons.
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ARTICLE III
PERIOD OF EXERCISABILITY
SECTION 3.1 - COMMENCEMENT OF EXERCISABILITY
(a) Subject to Sections 3.4 and 5.6, the Option shall become
exercisable in three (3) cumulative installments as follows:
(1) The first installment shall consist of thirty-three and
one-third percent (33- 1/3%) of the shares covered by the Option
(rounded down to the nearest one (1) share) and shall become
exercisable on the first anniversary of the date that the Option is
granted.
(2) The second installment shall consist of thirty-three and
one-third percent (33-1/3%) of the shares covered by the Option
(rounded down to the nearest one (1) share) and shall become
exercisable on the second anniversary of the date that the Option is
granted.
(3) The third installment shall consist of the balance of the
shares covered by the Option and shall become exercisable on the third
anniversary of the date that the Option is granted.
(b) Except to the extent expressly provided otherwise elsewhere in
writing, no portion of the Option that is unexercisable at Termination of
Employment shall thereafter become exercisable.
SECTION 3.2 - DURATION OF EXERCISABILITY
The installments provided for in Section 3.1 are cumulative. Each such
installment that becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
SECTION 3.3 - EXPIRATION OF OPTION
The Option may not be exercised to any extent by anyone after the first
to occur of the following events:
(a) The expiration of ten (10) years from the date that the Option was
granted; or
(b) If the Optionee owned (within the meaning of Section 424(d) of the
Code), at the time the Option was granted, more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company or any
Company Subsidiary, the expiration of five (5) years from the date that the
Option was granted.
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<PAGE>
SECTION 3.4 - DURATION OF EXERCISABILITY
This Option shall be exercisable as to all of the shares covered
hereby, notwithstanding that this Option may not yet have become fully
exercisable under Section 3.1 (a) in the event the employee-employer
relationship between the Optionee and the Company is terminated (i) by the
Company pursuant to Section 2(c)(i) of the Employment Agreement; (ii) by the
Optionee pursuant to Section 2(d) of the Employment Agreement; (iii) by the
Optionee pursuant to Section 2(e) of the Employment Agreement; (iv) by the
Optionee pursuant to Section 2(f) of the Employment Agreement (other than in
connection with Optionee's removal as a director for cause under the corporation
law of the State of Maryland); or (v) due to the fact that the Employment
Agreement expires and its not renewed pursuant to Section 2(b) of the Employment
Agreement; provided, however, that this acceleration of exercisability shall not
take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation, or a parent or subsidiary of such corporation, so that
such assumption or substitution complies with the provisions of Section 424(a)
of the Code; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 5.6.
The Committee may make such determinations and adopt such rules and
conditions as it, in its absolute discretion, deems appropriate in connection
with such acceleration of exercisability, including, but not by way of
limitation, provisions to ensure that any such acceleration and resulting
exercise shall be conditioned upon the consummation of the contemplated
corporate transaction, and terminations regarding whether provisions for
assumption or substitution have been made as defined in subsection (b) above.
SECTION 3.5 - TERMINATION OF EMPLOYMENT PRIOR TO JANUARY 1, 2000
Notwithstanding anything to the contrary contained herein, if the
Optionee's employment with the Company is terminated in an Early Termination (as
defined in the Employment Agreement) prior to January 1, 2000, then the Company
shall irrevocably grant to the Optionee, and hereby does grant to the Optionee,
effective as of January 1, 2000, the Option to purchase any part or all of the
250,000 shares of Common Stock, and this Option shall become fully exercisable
as of the date of grant and shall expire on December 31, 2002.
SECTION 3.6 - SPECIAL TAX CONSEQUENCES
(a) The Optionee acknowledges that, 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), including the Option, are
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exercisable for the first time by the 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 not
qualifying under Section 422 of the Code but rather shall be treated as
non-qualified options to the extent required by Section 422 of the Code. The
Optionee further acknowledges that 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 these rules, the fair market value of stock shall be
determined as of the time the option with respect to such stock is granted.
(b) The Optionee acknowledges that if any portion of the Option is not
exercised within the applicable time period specified in Section 422 of the Code
following a Termination of Employment, then such portion shall be treated as not
qualifying under Section 422 of the Code but rather shall be treated as
non-qualified options to the extent required under Section 422 of the Code.
ARTICLE IV
EXERCISE OF OPTION
SECTION 4.1 - PERSON ELIGIBLE TO EXERCISE
During the lifetime of the Optionee, only he or his guardian or legal
representative may exercise the Option or any portion thereof. After the death
of the Optionee, any exercisable portion of the Option may, prior to the time
when the Option becomes unexercisable under Section 3.3, be exercised by his
Beneficiary.
SECTION 4.2 - PARTIAL EXERCISE
Any exercisable installment of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
1,000 shares (or the minimum installment set forth in Section 3.1, if a smaller
number of shares) and shall be for whole shares only.
SECTION 4.3 - MANNER OF EXERCISE
The Option, or any exercisable portion thereof, may be exercised only
on the first business day of a calendar month and solely by delivery to the
Secretary or his office of all of the following prior to the time when the
Option or such portion becomes unexercisable under Section 3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Committee; and
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<PAGE>
(b) Full payment for the shares with respect to which such Option or
portion thereof is exercised, by:
(1) Cash or check; or
(2) With the consent of the Committee, (A) shares of the
Company's Common Stock owned by the Optionee duly endorsed for
transfer to the Company or (B) shares of the Company's Common Stock
issuable to the Optionee upon exercise of the Option, with a fair
market value (as determined under Section 1.15 of the Plan) on the
date of Option exercise equal to the aggregate purchase price of the
shares with respect to which such Option or portion is exercised; or
(3) With the consent of the Committee, any combination of the
consideration provided in the foregoing subparagraphs (1) and (2) or
through delivery of property of any kind which constitutes good and
valuable consideration, consistent with the provisions of the Plan;
and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Committee, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that:
(1) the shares of stock are being acquired for his own account,
for investment and without any present intention of distributing or
reselling said shares or any of them except as may be permitted under
the Securities Act and then applicable rules and regulations
thereunder; and
(2) that the Optionee or other person then entitled to exercise
such Option or portion will indemnify the Company against and hold it
free and harmless from any loss, damage, expense or liability
resulting to the Company if any sale or distribution of the shares by
such person is contrary to the representation and agreement referred
to above. The Committee may, in its absolute discretion, take whatever
additional actions it deems appropriate to insure the observance and
performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state
securities laws or regulations. Without limiting the generality of the
foregoing, the Committee may require an opinion of counsel acceptable
to it to the effect that any subsequent transfer of shares acquired on
an Option exercise does not violate the Securities Act, and may issue
stop-transfer orders covering such shares. Share certificates
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<PAGE>
evidencing stock issued on exercise of this Option shall bear
an appropriate legend referring to the provisions of this
subsection (c) and the agreements herein. The written
representation and agreement referred to in the first sentence
of this subsection (c) shall, however, not be required if the
shares to be issued pursuant to such exercise have been
registered under the Securities Act, and such registration is
then effective in respect of such shares; and
(d) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the
Optionee, appropriate proof of the right of such person or persons to
exercise the Option.
SECTION 4.4 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES
The shares of stock deliverable upon the exercise of the Option, or any
portion thereof, may be either previously authorized but unissued shares or
issued shares that have then been reacquired by the Company. Such shares shall
be fully paid and nonassessable. The Company shall not be required to issue or
deliver any certificate or certificates for shares of stock purchased upon the
exercise of the 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; and
(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, that the Committee shall, in its sole
and absolute discretion, deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency that the Committee shall, in its
sole and absolute discretion, determine to be necessary or advisable;
and
(d) The payment to the Company (or other employer corporation) of
all amounts that, under federal, state or local tax law, it is
required to withhold upon exercise of the Option; and
(e) The lapse of such reasonable period of time following the
exercise of the Option as the Committee may from time to time
establish for reasons of administrative convenience.
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SECTION 4.5 - RIGHTS AS STOCKHOLDER
The holder of the Option shall not be, nor have any of the rights or
privileges of, a stockholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
SECTION 4.6 - 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, as in effect from time to time.
SECTION 4.7 - RESTRICTIONS ON EXERCISE OF OPTION
An Option is not exercisable if 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 set forth in the Company's Amended and
Restated Charter, as in effect from time to time.
(b) income to the Company that could impair the Company's status
as a real estate investment trust, within the meaning of Section 856
through 860 of the Code; or
(c) a transfer, at any one time, of more than one-tenth of one
percent (0.1%) (measured in value or in number of shares, whichever is
more restrictive) of the Company's total Capital Stock from the
Company to First Washington Management, Inc. or to the Partnership
pursuant to Section 5.5(a) or 5.6(a)(i) of the Plan, respectively.
Notwithstanding any other provision of this Agreement, the Optionee shall have
no rights under this Agreement or the Plan to acquire Common Stock that would
otherwise be prohibited under the Company's Amended and Restated Charter, as in
effect from time to time.
ARTICLE V
OTHER PROVISIONS
SECTION 5.1 - ADMINISTRATION
The Committee shall have the power to interpret the Plan and this
Agreement and to adopt such rules for the administration, interpretation and
application of the Plan as are consistent therewith and to interpret or revoke
any such rules. All actions taken and all interpretations and determinations
made by the Committee in good faith shall be final and
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binding upon the Optionee, 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 the Plan or the Option.
SECTION 5.2 - OPTION NOT TRANSFERABLE
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee 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; provided, however, that, subject to the Stock
Ownership Limit, this Section 5.2 shall not prevent transfers by will or by the
applicable laws of descent and distribution.
SECTION 5.3 - SHARES TO BE RESERVED
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
SECTION 5.4 - NOTICES
Any notice to be given by the Optionee 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 Optionee shall be addressed to him
at the address given beneath his signature hereto. By a notice given pursuant to
this Section 5.4, either party may hereafter designate a different address for
notices to be given to him. Any notice that is required to be given to the
Optionee shall, if the Optionee is then deceased, be given to the Optionee's
personal representative if such representative has previously informed the
Company of his status and address by written notice under this Section 5.4. Any
notice shall be 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 5.5 - TITLES
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of this Agreement.
SECTION 5.6 - STOCKHOLDER APPROVAL
The Plan will be submitted for approval by the Company's stockholders
within twelve (12) months after the date that the Plan was initially adopted by
the Board. This Option may not be exercised to any extent by anyone prior to the
time when the Plan is approved by the stockholders, and if such approval has not
been obtained by the end of said twelve-month period,
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this Option shall thereupon be canceled and become null and void. The Company
shall take such actions as may be necessary to satisfy the requirements of Rule
16b-3(b).
SECTION 5.7 - NOTIFICATION OF DISPOSITION
The Optionee shall give prompt notice to the Company of any disposition
or other transfer of any shares of stock acquired under this Agreement if such
disposition or transfer is made (a) within two (2) years from the date of
granting the Option with respect to such shares or (b) within one (1) year after
the transfer of such shares to him. Such notice shall specify the date of such
disposition or other transfer and the amount realized, in cash, other property,
assumption of indebtedness or other consideration, by the Optionee in such
disposition or other transfer.
SECTION 5.8 - GOVERNING LAW
This Agreement shall be administered, interpreted and enforced under
the internal laws of the State of Maryland without regard to conflicts of laws
thereof.
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<PAGE>
SECTION 5.9 - CONFORMITY TO SECURITIES LAWS
The Optionee acknowledges that the Plan is intended to conform to the
extent necessary with all provisions of the Securities Act 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. Notwithstanding
anything herein to the contrary, the Plan shall be administered, and the Option
is granted and may be exercised, only in such a manner as to conform to such
laws, rules and regulations. To the extent permitted by applicable law, the Plan
and this Agreement shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
FIRST WASHINGTON REALTY TRUST, INC.,
a Maryland corporation
By:_______________________________________
Title: Secretary
- ------------------------------------
Optionee
- ------------------------------------
- ------------------------------------
Address
Optionee's Taxpayer Identification Number:
- ------------------------------------------
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<PAGE>
ANNEX D
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT, dated as of May 1, 1998, is made by
and between First Washington Realty Trust, Inc., a Maryland corporation (the
"Company"), and Stuart D. Halpert, an officer of the Company (the "Employee"):
WHEREAS, the Company has established the First Washington Trust, Inc.
Restricted Stock Plan, as amended from time to time, (the "Plan"); and
WHEREAS, the Company wishes to carry out the Plan (the terms of which
are hereby incorporated by reference and made a part of this Agreement); and
WHEREAS, the Plan provides for the issuance of shares of the Company's
Common Stock (as defined herein) subject to certain restrictions thereon
(hereinafter referred to as the "Restricted Stock"); and
WHEREAS, 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 issue certain shares of the
Company's Common Stock, par value $0.01 per share (the "Common Stock") to the
Employee in partial consideration of past services to the Company and/or as an
incentive to remain as an employee of the Company, subject to the restrictions
set forth herein, and has advised the Company thereof.
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 -"EMPLOYMENT AGREEMENT" shall mean that certain Second Amended and
Restated Executive Employment Agreement between Employee and the Company dated
as of May 1, 1998.
SECTION 1.2 - "FAIR MARKET VALUE" of a share of the Company's stock as of a
given date shall be: (i) the closing price of the Common Stock on the New York
Stock Exchange on such date, or, if shares were not traded on such date, then on
the next preceding trading day during which a sale occurred; or (ii) if such
stock is not traded on an exchange but is quoted on Nasdaq or a successor
quotation system, (1) the last sales price (if the stock is then listed as a
National Market Issue under the NASD National Market System) or (2) the mean
between the closing representative bid and asked prices (in all other cases) for
the stock on the day previous to such date as reported by Nasdaq or such
successor quotation system; or (iii) if such stock is not publicly traded on an
exchange and not quoted on Nasdaq or a successor quotation system, the mean
between the
<PAGE>
closing bid and asked prices for the stock, on the day previous to such date, as
determined in good faith by the Committee; or (iv) if the Company's stock is not
publicly traded, the fair market value established by the Committee acting in
good faith. In determining the Fair Market Value of the Company's Common Stock
under Paragraph (i) of this Section 1.2, the Committee may rely on the closing
price as reported in the New York Stock Exchange composite transactions
published in the Wall Street Journal.
SECTION 1.3 - "RESTRICTED STOCK" shall mean Common Stock of the Company issued
under this Agreement and subject to the Restrictions imposed hereunder.
SECTION 1.4 - "RESTRICTIONS" shall mean the reacquisition and transferability
restrictions imposed upon Restricted Stock under this Agreement.
SECTION 1.5 - "RULE 16B-3" shall mean that certain Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such Rule
may be amended in the future.
ARTICLE II
ISSUANCE OF RESTRICTED STOCK
SECTION 2.1 - ISSUANCE OF RESTRICTED STOCK. In partial consideration of
Employee's past services to the Company and/or Employee's agreement to remain in
the employ of the Company pursuant to the Employment Agreement and for other
good and valuable consideration which the Committee has determined to be equal
to the par value of its Common Stock provided that the Employee is employed by
the REIT as of January 1, 2000, then the Company shall issue to the Employee,
and hereby does issue to the Employee, effective as of January 1, 2000, one
hundred fifty thousand (150,000) shares of its Common Stock upon the terms and
conditions set forth in this Agreement.
ARTICLE III
RESTRICTIONS
SECTION 3.1 - REACQUISITION OF RESTRICTED STOCK; ACCELERATION; VESTING. (a)
Reacquisition. All shares of Restricted Stock issued to the Employee pursuant to
Section 2.1 are initially subject to reacquisition by the Company immediately if
the employee-employer relationship between the Employee and the Company is
terminated: (i) by the Company pursuant to Section 2(c)(ii) of the Employment
Agreement or (ii) by Employee other than (A) pursuant to Section 2(d) of the
Employment Agreement, (B) pursuant to Section 2(e) of the Employment Agreement
or (C) pursuant to Section 2(f) of the Employment Agreement (other than in
connection with Employee's removal as a director for cause under the corporation
laws of the State of Maryland), or (D) due to the fact that the Employment
Agreement expired and was not renewed pursuant to Section 2(b) of the Employment
Agreement. Following such a reacquisition by the Company, the Company shall
promptly pay to the Employee an amount equal to the product of $.01 times the
number of shares of Restricted Stock reacquired. The restriction that such
shares of
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Restricted Stock be subject to reacquisition by the Company shall not apply to
any "Vested Shares" held by the Employee.
(b) Acceleration. All shares of Restricted Stock shall immediately
fully vest and all Restrictions with respect to such shares of Restricted Stock
shall immediately expire if the employee-employer relationship between the
Employee and the Company is terminated (i) by the Company pursuant to Section
2(c)(i) of the Employment Agreement; (ii) by the Employee pursuant to Section
2(d) of the Employment Agreement; (iii) by the Employee pursuant to Section 2(e)
of the Employment Agreement; or (iv) by the Employee pursuant to Section 2(f) of
the Employment Agreement (other than in connection with Employee's removal as a
director for cause under the corporation law of the State of Maryland); or (v)
due to the fact that the Employment Agreement expires and is not renewed
pursuant to Section 2(b) of the Employment Agreement.
(c) Vesting. The shares of Restricted Stock shall vest, and all
Restrictions with respect to such shares shall expire, in accordance with the
schedule set forth below. "Vested Shares" shall mean that number of shares of
Restricted Stock which have vested and are no longer subject to Restrictions.
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
SECTION 3.2 - LEGEND. (a) Certificates representing shares of Restricted Stock
issued pursuant to this Agreement shall, until all restrictions lapse and new
certificates are issued pursuant to Section 3.3, bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
VESTING REQUIREMENTS AND MAY BE SUBJECT TO REACQUISITION BY THE COMPANY
UNDER THE TERMS OF THAT CERTAIN RESTRICTED STOCK AGREEMENT BY AND
BETWEEN FIRST WASHINGTON REALTY TRUST, INC. (THE "COMPANY") AND THE
HOLDER OF THE SECURITIES. PRIOR TO VESTING OF OWNERSHIP IN THE
SECURITIES, THEY MAY NOT BE, DIRECTLY OR INDIRECTLY, OFFERED,
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNDER ANY CIRCUMSTANCES. COPIES OF THE ABOVE REFERENCED
AGREEMENT ARE ON FILE AT THE OFFICES OF THE COMPANY AT 4350 EAST-WEST
HIGHWAY, SUITE 400, BETHESDA, MARYLAND 20814."
(b) Unless such shares shall have been registered pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
certificates representing
3
<PAGE>
shares of Restricted Stock issued pursuant to this Agreement shall also bear the
following legend :
"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."
SECTION 3.3 - LAPSE OF RESTRICTIONS. Upon the vesting of the shares of
Restricted Stock as provided in Section 3.1 and subject to Section 4.3, the
Company shall cause new certificates to be issued with respect to such Vested
Shares and delivered to the Employee or his legal representative, free from the
legend provided for in Section 3.2(a) and any of the other Restrictions. Such
Vested Shares shall cease to be considered Restricted Stock subject to the terms
and conditions of this Agreement.
SECTION 3.4 - TERMINATION OF EMPLOYMENT PRIOR TO JANUARY 1, 2000.
Notwithstanding anything to the contrary contained herein, if the Employee's
employment with the Company is terminated in an Early Termination (as defined in
the Employment Agreement) prior to January 1, 2000, then the Company shall issue
to the Employee, and hereby does issue to the Employee, effective as of the date
immediately prior to such Early Termination, the 150,000 shares of Restricted
Stock, and all of such shares of Restricted Stock shall be fully vested on the
date of such issuance.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 - ADMINISTRATION. The Committee shall have the power to interpret
the Plan, this Agreement and all other documents relating to Restricted 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 the Plan or the Restricted
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 the
Plan and this Agreement.
SECTION 4.2 - RESTRICTED STOCK NOT TRANSFERABLE. No Restricted 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
4
<PAGE>
or equitable proceedings (including bankruptcy) unless and until any such share
of Restricted Stock is a Vested Share, and any attempted disposition thereof
prior to such vesting, shall be null and void and of no effect; provided,
however, that this Section 4.2 shall not prevent transfers by will or by
applicable laws of descent and distribution.
SECTION 4.3 - CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall
not be required to issue or deliver any certificate or certificates for shares
of 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
(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 absolute 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 absolute
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
Restricted Stock and/or the lapse or removal of any of the Restrictions; 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 4.4 - ESCROW. The Secretary of the Company or such other escrow holder
as the Committee may appoint shall retain physical custody of the certificates
representing Restricted Stock until all of the Restrictions expire or shall have
been removed; provided, however, that in no event shall the Employee retain
physical custody of any certificates representing Restricted Stock issued to
him.
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.
5
<PAGE>
SECTION 4.6 - RIGHTS AS STOCKHOLDER. Upon delivery of the shares of Restricted
Stock from the escrow holder pursuant to Section 4.4, the Employee shall have
all the rights of a stockholder with respect to said shares, subject to the
restrictions herein, including the right to vote the shares and to receive all
dividends or other distributions paid or made with respect to the 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. Notwithstanding anything herein to the contrary,
this Agreement shall be administered, and the Restricted 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 the Restricted 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.
SECTION 4.10 - APPROVAL OF PLAN BY STOCKHOLDERS. The 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 the Plan. Restricted Stock issued following
the adoption of the Plan but prior to such stockholder approval shall not vest
prior to the time when the Plan is approved by the stockholders; provided, that
if such approval has not been obtained at the end of said twelve- month period,
all Restricted Stock issued during such time period under the Agreement shall
thereupon be cancelled and become null and void. The Company and the Employee
shall take such action with respect to the Plan and this Agreement as may be
necessary to satisfy the requirements of Rule 16b-3(b).
SECTION 4.11 - TAX WITHHOLDING. The Company's obligation (i) to issue or deliver
to the Employee any certificate or certificates for unrestricted shares of stock
or (ii) to pay to the Employee any dividends or make any distributions with
respect to the Restricted Stock, is expressly conditioned upon receipt from the
Employee, on or prior to the date the same is required to be withheld, of:
(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) Subject to the Committee's consent and Section 4.10(c), full
payment by delivery to the Company of unrestricted shares of the Company's
Common Stock previously owned by the Employee duly endorsed for transfer to the
Company by the Employee with an aggregate Fair Market Value (determined, as
applicable, as of the date of the lapse of the restrictions or vesting, or as of
the date of the distribution) equal to the amount that must be withheld by the
Company for federal, state and/or local tax purposes; or
6
<PAGE>
(c) With respect to the withholding obligation for shares of Restricted
Stock that become unrestricted shares of stock as of a certain date (the
"Vesting Date"), subject to the Committee's consent and to the timing
requirements set forth in this Section 4.10(c), full payment by retention by the
Company of a portion of such shares of Restricted Stock which become
unrestricted or vested with an aggregate Fair Market Value (determined as of the
Vesting Date) equal to the amount that must be withheld by the Company for
federal, state and/or local tax purposes; or
(d) Subject to the Committee's consent, any combination of payments
provided for in the foregoing subsections (a), (b) or (c).
SECTION 4.12 - CHANGES IN COMPANY'S SHARES. 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 Restricted
Stock which may be issued.
SECTION 4.13 - 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.
7
<PAGE>
IN WITNESS HEREOF, this Agreement has been executed and delivered by
the parties hereto.
FIRST WASHINGTON REALTY TRUST, INC.
By: _______________________________
Its: ______________________________
_____________________________
Employee
_____________________________
_____________________________
Address
8
LIST OF SUBSIDIARIES
Allenbeth Associates Limited Partnership
Branchwood Apartments Limited Partnership
Branchwood, Inc.
Bryans QRS, Inc.
Capitol Place I Investment Limited Partnership
City Line Shopping Center Associates
Cloppers Mill Village Center L.L.C.
Enterprise Associates
First Capital Realty, Inc.
First Washington Management, Inc.
First Washington Realty Limited Partnership
FWR Trust
FW-Bryans Road Limited Partnership
FW-Newark L.L.C.
Greenspring Associates Limited Partnership
JFD, Inc.
JFD Limited Partnership
L&M Development Company Limited Partnership
Northway Limited Partnership
Parkville Shopping Center L.L.C.
Southside Marketplace Limited Partnership
Southside Nominee, Inc.
SP Associates Limited Partnership
Valley Centre, Inc.
Woodholme Properties Limited Partnership
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (File No. 33-83960, 33-93490, 33-94728, 333-4966,
333-24017, 333-24543, 333-44681, 333-51427, 333-66355, 333-70837, 333-74171,
333-80985 and 333-93547) and Form S-8 (File Nos. 33-99246, 333-57237 and
333-57241) of First Washington Realty Trust, Inc. and Subsidiaries of our report
dated February 9, 2000 relating to the financial statements and financial
statement schedules, which appears in the Form 10-K.
/s/ PRICEWATERHOUSECOOPERS LLP
Baltimore, Maryland
March 28, 2000
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