INFORMATION CONCERNING VOTING AND SOLICITATIONSUMMARY | 1 |
Why did I receive this Proxy Statement? | 1 |
Why did I receive a Notice of Internet Availability of Proxy Materials? | 1 |
Who is Soliciting my Vote? | 1 |
Who is entitled to vote at the Annual Meeting? | 1 |
What am I voting on? | 2 |
How many votes do I have? | 2 |
How do I vote my Common Shares that are held of record by me? | 2 |
What if I hold my Common Shares through my broker? | 2 |
Can I Attend the Annual Meeting in Person? | 3 |
Will there be any other items of business on the agenda? | 3 |
What constitutes a Quorum? | 3 |
How many votes are required to act on the proposals? | 3 |
What happens if I authorize my proxy without voting on all proposals? | 3 |
Can I change my vote after I return my proxy? | 3 |
Will anyone contact me regarding this vote? | 3 |
Who has paid for this proxy solicitation? | 4 |
How do I submit a proposal for the 2014 Annual Meeting of Shareholders? | 4 |
What does it mean if I receive more than one proxy card? | 4 |
Can I find additional information on the Company’s web site? | 4 |
PROPOSAL NO. 1 – ELECTION OF TRUSTEES | 4 |
General | 4 |
Information as to TrusteesQUESTIONS AND ANSWERS | 5 |
RecommendationRISKS FACTORS | 13 |
Risks that May Delay or Reduce Our Liquidating Distributions | 13 |
Other Risks Relating to the Proposals | 15 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS | 17 |
THE SPECIAL MEETING | 18 |
| Date, Time and Place | 18 |
| Purposes | 18 |
| Record Date for Voting; Number of Votes | 18 |
| Quorum | 19 |
| Voting Methods and Proxies | 19 |
| Required Vote | 19 |
| Revocation of Proxies | 19 |
| Information Regarding Tabulation of the BoardVote | 7 |
PROPOSAL NO. 2 – SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
| 8 |
Recommendation of the Board | 8 |
Procedures for Audit Committee Pre-Approval of Audit and Permissible | 20 |
Non-Audit Services | Solicitation of Independent Registered Public AccountantProxies and Expense | 920 |
PROPOSAL NO. 3 – AMENDMENTBACKGROUND OF THE TRUST'S DECISION TO 2007 LONG TERM INCENTIVE PLANLIQUIDATE | 920 |
Recommendation | Background | 20 |
| Net Asset Value Analysis | 21 |
| Chronology of Events | 21 |
REASONS FOR APPROVING THE LIQUIDATION AND RECOMMENDATION OF THE BOARD | 24 |
THE PROPOSAL - PLAN OF LIQUIDATION | 26 |
| The Proposal | 26 |
| Key Provisions of the BoardPlan of Liquidation | 926 |
Plan Awards | 9Liquidating Trust | 27 |
Number | Estimate of Amount and Timing of Distributions to be Paid to Shareholders | 28 |
| Cancellation of Shares | 929 |
Restrictions on Issued | Economic Interests in the Proposed Liquidation Other than Common SharesShareholders | 1029 |
The Plan | 10NYSE Listing | 29 |
PurposeCERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF LIQUIDATION | 1029 |
Administration | 11 |
Eligibility | 11 |
Awards under the Plan | 11 |
Amendment, Suspension or Termination of the Plan | 12 |
Certain Federal Income Tax Consequences ofto the PlanTrust | 1230 |
Effective Date | 13Liquidating Distributions to U.S. Shareholders | 30 |
EXECUTIVE OFFICERS | 14Liquidating Distributions to Tax-Exempt U.S. Shareholders | 31 |
| Liquidating Distributions to Non-U.S. Shareholders | 31 |
| Liquidating Trust | 32 |
| State and Local Income Tax | 33 |
| Transfer Taxes | 33 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 33 |
SELECTED HISTORICAL FINANCIAL DATA | 35 |
WHERE YOU CAN FIND MORE INFORMATION | 36 |
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE | 36 |
SHAREHOLDER PROPOSALS | 37 |
OTHER MATTERS | 37 |
WHO CAN HELP ANSWER YOUR QUESTIONS | 37 |
EXHIBITS | 38 |
Exhibit A - Plan of Liquidation | A-1 |
Exhibit B - March 31, 2014 Estimated Net Asset Value | B-1 |
THE BOARD, ITS COMMITTEES AND OTHER CORPORATE GOVERNANCE INFORMATION | 14 |
Board Leadership Structure | 14 |
Lead Independent Trustee and Meetings of Independent Trustees | 14 |
Board’s Role in Risk Oversight | 15 |
Board Meetings | 15 |
Board Committees | 15 |
Audit Committee | 16 |
Compensation Committee | 16 |
Nominating and Corporate Governance Committee | 17 |
Conflicts Committee | 17 |
Independence of Trustees | 18 |
Trustee Nominating Process | 18 |
Communication with Trustees | 19 |
Compensation of Trustees | 20 |
CODE OF ETHICS | 20 |
AUDIT COMMITTEE REPORT | 20 |
COMPENSATION DISCUSSION AND ANALYSIS | 21 |
General | 21 |
Executive Compensation Principles | 21 |
Share Options/Grants | 22 |
COMPENSATION COMMITTEE REPORT | 22 |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION | 22 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 23 |
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | 24 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | 24 |
SHAREHOLDER PROPOSALS | 25 |
MISCELLANEOUS | 25 |
SUMMARY
Unless otherwise indicated or the context otherwise requires, in this proxy statement, the following defined terms have the following meanings: (1) “us”, “we”, “our” and the “Trust” refers to Winthrop Realty Trust and our direct and indirect subsidiaries including WRT Realty, L.P., our operating partnership; (2) “Common Shares” refers to our Common Shares of Beneficial Interest, (3) “Senior Notes” refers to our 7.75% Senior Notes due 2022, (4) “Series D Preferred Shares” refers to our 9.25% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, (5) “board” refers to our board of trustees, (6) “shareholders” refers to holders of our common shares, (7) “special meeting” refers to the Special Meeting of Shareholders to which this proxy statement relates,(8) “FUR Advisors” refers to FUR Advisors LLC, our external advisor, (9) “the “plan of liquidation” refers to the plan of liquidation and dissolution attached hereto as Exhibit A; and (10) the “plan of liquidation proposal” refers to the proposal for both the approval of the sale of all of our assets in accordance with the plan of liquidation and the approval of our dissolution in accordance with the plan of liquidation.
This summary highlights selected information from this proxy statement and may not contain all of the information that is important to you. For additional information concerning the plan of liquidation, you should read this entire proxy statement, including the exhibits, and the other documents referenced in this proxy statement. A copy of the plan of liquidation is included as Exhibit A to this proxy statement. The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information appearing elsewhere in this proxy statement.
Our Company
We are a real estate investment trust, commonly referred to as a REIT, formed under the laws of the State of Ohio. Our operations are managed by FUR Advisors pursuant to an advisory agreement. Our common shares are traded on the New York Stock Exchange, or NYSE, under the symbol “FUR.” We conduct our business through the operating partnership. We are the sole general partner of, and own, directly and indirectly, all of the limited partnership interests in, the operating partnership.
We are engaged in the business of owning and managing real property and real estate related assets. Our business objective has been to maximize long-term shareholder value through a total return value approach to real estate investing. As a result of our emphasis on total return we have not selected or managed our investments for short-term dividend growth, but rather towards achieving overall superior total return. Our approach has focused on opportunistic investments and has provided us with both the ability to capitalize on evolving market conditions and the flexibility to pursue diverse opportunities.
As a diversified REIT, we currently operate in three strategic business segments: (i) the ownership of investment properties, including properties in joint ventures consolidated or accounted for on an equity method basis, which we refer to as operating properties; (ii) the origination and acquisition of senior loans, mezzanine loans and debt collateralized directly or indirectly by commercial and multi-family real property, which we refer to as loan assets; and (iii) the ownership of equity and debt securities in other REITs, which we refer to as REIT securities.
As of March 31, 2014 we had interests in (i) 50 operating properties, (ii) 18 loan assets, and (iii) the collateral managers and equity holders of two collateralized debt obligation vehicles.
Our Company Information
Our executive offices are located at 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114-9507 and Two Jericho Plaza, Jericho, New York 11753. Our telephone numbers are (617) 570-4614 and (516) 822-0022 and our website is located at http:/www.winthropreit.com. None of the information on our website that is not otherwise expressly set forth in or incorporated by reference in this proxy statement is a part of this proxy statement.
WINTHROP REALTY TRUST
7 Bulfinch Place
Suite 500
Boston, Massachusetts 02114
(617) 570-4614The Special Meeting
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
MAY 21, 2013
______________
INFORMATON CONCERNING VOTING AND SOLICITATION
Why did I receive this Proxy Statement?
We are furnishing this Proxy Statement in connection with the solicitation of proxies by our Board of Trustees, which we refer to as the “Board”, for the 2013 Annual Meeting of Shareholders toThe special meeting will be held at 1:00 P.M., local time, on August 5, 2014, at the offices of Katten Muchin Rosenman LLP, 575 Madison Avenue, 11th Floor, New York, New York 10022,10022. At the meeting you will be requested to approve a plan of liquidation for the Trust. In order for the plan of liquidation to be approved, the affirmative vote of the holders of at least a majority of our common shares then outstanding and entitled to vote on Tuesday May 21, 2013the proposal is required. Therefore, in order for the plan of liquidation to be approved, the holders of at 11:00 A.M., localleast a majority of our common shares then outstanding and entitled to vote on the plan of liquidation proposal must vote “FOR” the proposal. Our senior management and FUR Holdings LLC, an entity controlled and partially owned by our senior management, collectively hold 3,419,946 common shares representing approximately 9.4% of the outstanding common shares. They have agreed to vote their common shares FOR the plan of liquidation. Accordingly, the affirmative vote of approximately an additional 40.7% of our outstanding common shares will be sufficient to approve the plan of liquidation
Only shareholders of record on June 19, 2014, the record date for determining eligibility to vote at the special meeting, will be entitled to vote. Each shareholder at that time will be entitled to one vote per share. On the record date, there were 36,417,584 common shares entitled to vote at the special meeting. See “THE SPECIAL MEETING” below.
The Plan of Liquidation
At the special meeting, you will be asked to consider and atvote upon a proposal to approve the plan of liquidation, attached to this proxy statement as Exhibit A. The plan of liquidation provides that we will sell all of our assets (including, without limitation, the assets of the operating partnership and our subsidiaries) for cash, notes, redemption of equity, or such other assets as may be conveniently liquidated or distributed. We will distribute the proceeds of all sales of our assets (after satisfying any adjournmentasset specific debt and costs associated with such sale) in accordance with the provisions of our governing documents and those of our operating partnership and subsidiaries and the laws of all applicable jurisdictions including paying all amounts due to FUR Advisors, if any, pursuant to the terms of the advisory agreement. In addition, prior to paying any dividends or adjournments thereof,making other distributions on account of our common shares from such net proceeds, we are required to satisfy the liquidation preference on our Series D Preferred Shares and it is also our intention to retire (or establish a sufficient reserve to retire) our Senior Notes. Any remaining proceeds will then be distributed to our shareholders. Our board presently believes that based on current market conditions the amount ultimately distributable on account of each common share in connection with a liquidation would exceed $13.79, the low range of our most recently reported net asset value, after taking into account our costs, expenses and other obligations. See “THE PROPOSAL-PLAN OF LIQUIDATION-Estimate of Amount and Timing of Distributions to be Paid to Shareholders” below.
We intend to sell all of our assets during the 24 month period following approval by our shareholders of the plan of liquidation. At that point, we expect to terminate our registration under the Securities Exchange Act of 1934, as amended, which we refer to as the “Annual Meeting”.
In this Proxy Statement, all references toExchange Act, cease filing reports with the “Trust,” “we,” “our” and “us” mean Winthrop Realty Trust, an Ohio business trust. All references to “Shareholder” and “you” refer to a holder of record of our beneficial interests designated as common shares, par value $1.00 per share, which we refer to as Common Shares.
Why did I receive a Notice of Internet Availability of Proxy Materials?
Pursuant to certain rules adopted by the U.S. Securities and Exchange Commission, or the SEC, and file a certificate of dissolution with the State of Ohio when appropriate. Furthermore, the plan of liquidation authorizes our board to create a reserve fund for the payment of unknown or contingent liabilities. In the event that we cannot dispose of our assets and pay or provide for our liabilities within 24 months after approval by our shareholders of the plan of liquidation, or if our board otherwise determines that it is advantageous to do so, we intend to transfer our remaining assets and liabilities to a liquidating trust. If we transfer our assets to a liquidating trust, our shareholders will receive beneficial interest in the liquidating trust equivalent to those held in the Trust, which beneficial interests will generally not be transferrable. The liquidating trust would be managed by one or more trustees designated by the board (which may or may not include members of management and/or independent trustees) and would continue the process of selling our assets and paying or providing for payment of our liabilities including through the continued retention of FUR Advisors or, if deemed advisable, another third party advisor. Any proceeds from the sale of our assets remaining after payment of our liabilities would be distributed to you and the other holders of shares of beneficial interest in the liquidating trust. See “THE PROPOSAL-PLAN OF LIQUIDATION-Liquidating Trust” below.
Background of the Plan of Liquidation; Reasons for the Liquidation
The decision of the board to seek your approval for the plan of liquidation followed a lengthy and detailed process during which the board reviewed several different options for ways in which we refercould maximize the value of your investment in the Trust over a reasonable period of time including:
| · | continuing under the current or a revised business plan; |
| · | acquiring through merger or otherwise the assets of another company; |
| · | seeking to dispose of our assets through a merger or a portfolio sale; |
| · | liquidating all of our assets. |
In analyzing the foregoing, our board determined that to asadopt the SEC, we are making this Proxy Statement,plan of liquidation and submit it to you for approval was in the enclosed proxy card,shareholders’ best interest for a number of reasons including:
| · | the limited current liquidity for our shareholders due to the limited trading volume in our common shares; |
| · | the relative continued disparity between our common share price and our estimated net asset value; |
| · | the inability to raise additional capital for investments on a non-dilutive basis to net asset value; |
| · | the current low interest rate environment for commercial real estate loans which is driving higher real estate values; |
| · | the diminished flow of accretive opportunistic investments that satisfy our investment strategy and minimum return parameters; |
| · | the limitation, absent a plan of liquidation, on the number of assets that we can sell in any calendar year due to applicable federal tax law restrictions in order not to be subject to a 100% tax on gains from sales; |
| · | the expectation that all liquidating distributions will be paid in cash thereby eliminating the uncertainty associated with the receipt of non-cash consideration; |
| · | the costs associated with maintaining a public entity; |
| · | the federal income tax benefits to shareholders that may be derived from the adoption of a plan of liquidation. |
In addition to the foregoing, our board considered potential negative effects on our shareholders which could result from implementing the plan of liquidation, including:
| · | there is no assurance that the Trust would be successful in disposing of its assets for values equal to or exceeding those estimated in our net asset value calculation or that these dispositions would occur as early as expected; |
| · | the anticipated expenses and potential for unforeseen expenses that will or may be incurred in connection with the sale of our assets and the continued operation of the Trust; |
| · | the potential for a change in market conditions which could provide substantial opportunity for opportunistic investments that satisfy our investment strategy and minimum return parameters; |
| · | shareholders may, depending on the tax basis in their shares, recognize taxable gain in connection with the completion of the liquidation; |
| · | 24 months after the plan of liquidation is adopted, we may transfer assets to a liquidating trust, which may cause our shareholders to recognize taxable gain at the time of such transfer, and may have adverse tax consequences on tax-exempt and foreign shareholders; |
| · | if the plan is approved and implemented, shareholders will no longer participate in any future earnings or growth of the Trust’s assets or benefit from any increases in their value once such asset is sold; |
See “BACKGROUND OF THE TRUST’S DECISION TO LIQUIDATE” “REASONS FOR APPROVING THE LIQUIDATION AND RECOMMENDATIONS OF THE BOARD” and “CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF LIQUIDATION” below.
Recommendations of Our Board
Our board has unanimously determined that the sale of all of our assets and our Annual Reportdissolution in accordance with the plan of liquidation are fair to you and unanimously recommend that you vote FOR approval of the plan of liquidation proposal. See “BACKGROUND OF THE TRUST’S DECISION TO LIQUIDATE” and “REASONS FOR APPROVING THE LIQUIDATION AND RECOMMENDATIONS OF THE BOARD” below.
Interests in the Liquidation That Differ from Your Interests
In considering our board’s recommendations that you vote in favor of the plan of liquidation proposal, you should be aware that some of our trustees and officers and FUR Advisors have interests in the liquidation that are different from your interests as a shareholder. See “THE PROPOSAL-PLAN OF LIQUIDATION-Economic Interests in the Proposed Liquidation Other Than Common Shareholders” below.
In addition to general risks associated with holding an interest in the Trust which includesare set forth in Item 1A. in our Annual Report on Form 10-K for the year ended December 31, 2012,2013, there a number of risks associated with the plan of liquidation including the risk that our assets will not be sold at prices equal to or exceeding our most recently reported net asset value, that expenses incurred in connection with the sale of our assets will be greater than expected or that there will be additional unforeseen costs incurred by us, all of which would result in the amount of proceeds derived from the liquidation of our assets that are ultimately distributed on account of the common shares to be less than $13.79, the low range of our most recently reported net asset value. See “RISK FACTORS” below.
Tax Consequences of the Plan of Liquidation
We believe the adoption of the plan of liquidation may provide favorable federal tax benefits to our shareholders. We urge you to carefully review “CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF LIQUIDATION” below with your tax advisor.
QUESTIONS AND ANSWERS
What is the purpose of the special meeting?
At the special meeting we will ask you to approve the plan of liquidation and authorize our board to carry it out.
Has the board made a recommendation with respect to the proposed liquidation?
In connection with approving the plan of liquidation on April 28, 2014, our board unanimously determined that the plan is in the overall best interests of shareholders and recommended that you vote "FOR" its approval.
Why was the plan of liquidation adopted?
As noted below, our board explored other options prior to determining to adopt the plan of liquidation. Our board determined that to adopt the plan of liquidation and submit it to you for approval was in the shareholders’ best interest for a number of reasons including:
| · | The relative stagnant price of the common shares over the past three years that was prevalent prior to the announcement of our board’s determination to adopt a plan of liquidation; |
| · | The continued failure of the common share price to approximate the low end of our reported net asset value; |
| · | The limited trading volume in the common shares that was prevalent prior to the announcement of our board’s determination to adopt a plan of liquidation and the certainty of liquidity that a liquidation offers at a value that is expected to be not less than the low end of our reported net asset value of our assets; |
| · | The nature of our business strategy which is to invest in opportunistic real estate investments and the lack of such investments in the current market environment which would be accretive to our shareholders particularly in light of our cost of capital; |
| · | The limitation, absent a plan of liquidation, on the number of assets that we can sell in any calendar year due to applicable federal tax law restrictions in order not to be subject to a 100% tax on the gain from sales; |
| · | Our inability to raise capital through the sale of common shares in a manner that is not dilutive to existing shareholders; |
| · | The inability to obtain an offer for the entire company that our board believed was commensurate with the projected proceeds that could be obtained from a liquidation of our assets; |
| · | The overall return to shareholders during the past five years which is both below the Trust’s peer group (i.e., REITs with a diversity and other property focus and have a current market value as of January 27, 2014 of less than $750 million) and the MSCI US REIT index; |
| · | The board’s estimate that based on current market conditions the amount ultimately distributable on account of each common share in connection with a liquidation would exceed $13.79, the low range of our most recently reported net asset value, after taking into account our costs, expenses and other obligations. We cannot assure you that the Trust will be successful in disposing of its assets for values equaling or exceeding $13.79. If values of the Trust's assets decline or if the costs and expenses related to such asset sales exceed those estimated for purposes of determining net asset value, then the liquidation may not yield distributions which equal or exceed $13.79. No assurances can be made as to the actual amount and timing of distributions which will be made over a substantial period of time. See “RISK FACTORS” below; |
| · | The expectation that all liquidating distributions will be paid in cash thereby eliminating the uncertainty associated with the receipt of non-cash consideration; |
| · | The costs of continuing to operate a public company; |
| · | The federal income tax benefits to our shareholders that may be derived from the adoption of a plan of liquidation. |
The board also considered potentially negative factors in their deliberations concerning the liquidation, including the following:
| · | There could be no assurance that the Trust would be successful in disposing of its assets for values equal to or exceeding the low range of our estimated net asset value or that the dispositions would occur in the time frame expected; |
| · | The anticipated expenses and potential for unforeseen expenses that will or may be incurred in connection with the sale of our assets and the continued operation of the Trust; |
| · | The inability to take advantage of future changes in market conditions which could provide for presently unforeseen opportunistic investments that satisfy our investment strategy and minimum return parameters; |
| · | Depending on their tax basis in their shares, shareholders may recognize taxable gain in connection with the completion of the liquidation; |
| · | We may determine to transfer unsold assets to a liquidating trust, which may cause our shareholders to recognize taxable gain at the time of such transfer and may have adverse tax consequences on tax-exempt and foreign shareholders; |
| · | If the plan is approved and implemented, shareholders will no longer participate in any future earnings or growth of the Trust’s assets or benefit from any increases in their value once the Trust’s assets are sold; |
| · | As opposed to a business combination with a relatively short time frame during which a third party would acquire the Trust, the liquidation process would involve a longer distribution process and will require the Trust to incur potentially larger administrative and other costs; |
| · | Certain conflicts of interest could exist for the Trust’s management in connection with the liquidation. See “THE PROPOSAL – PLAN OF LIQUIDATION- Economic Interests in the Proposed Liquidation Other Than Common Shareholders” below; |
| · | The likelihood that the price of the common shares will decrease as we make distributions to shareholders; |
| · | The potential loss of key personnel who provide services to the Trust and FUR Advisors which could impact adversely on our day-to-day operations as well as the ability to consummate sales of our assets. |
Were other alternatives considered?
Yes, we explored the options of continuing under the current business plan; modifying our current business plan; acquiring another real estate company or a portfolio of assets; raising additional debt financing; seeking to dispose of our assets through a merger or a portfolio sale; or issuing additional equity. In this regard, in late 2013 we engaged Barclays Capital Inc., which we refer to as Barclays, to seek a potential strategic transaction. In connection with Barclays engagement five companies expressed an interest in acquiring us and conducted substantial due diligence on us and our assets. Upon completion of the Annual Report, availabledue diligence, only one written offer was received which provided for consideration in the form of cash and common stock of the offeror, with a then aggregate value at the lower end of our estimated net asset value and which did not provide any downside protection in the event that the offeror’s common share price declined. After significant deliberation by our board, the offer was not accepted.
What is the plan of liquidation?
The plan of liquidation authorizes us to undertake an orderly liquidation. In an orderly liquidation, we would sell all of our assets, pay all of our known liabilities, provide for the payment of our unknown or contingent liabilities, distribute our remaining cash to our Shareholders electronically viashareholders, wind-up our operations and dissolve. Upon dissolution, we will cease to exist.
What are the Internet. Accordingly, Shareholderskey provisions of the plan of liquidation?
The plan of liquidation provides, in pertinent part, that, among other things:
| · | We will be authorized to sell all of our assets, liquidate and dissolve, and distribute the net proceeds of such liquidation in accordance with the provisions of our governing documents and the laws of all applicable jurisdictions. |
| · | We will be authorized to take all necessary or advisable actions to wind-up our business, pay our debts, and distribute the remaining proceeds to our shareholders. |
| · | We will be authorized to provide for the payment of any unascertained or contingent liabilities. We may do so by purchasing insurance, by establishing a reserve fund or in other ways. |
| · | We intend to liquidate our assets within 24 months after the date the plan of liquidation is approved by our shareholders. If, however, we cannot sell our assets and pay our debts within 24 months, or if our board determines that it is otherwise advisable to do so, we are authorized, and intend, to transfer and assign our remaining assets to a liquidating trust. Upon such transfer and assignment, our shareholders will receive interests in the liquidating trust. The liquidating trust will pay or provide for all of our liabilities and distribute any remaining net proceeds from the sale of its assets to the holders of interests in the liquidating trust. The amounts that you would receive from the liquidating trust are included in our estimates described below of the total amount of cash that you will receive in the liquidation. |
| · | Once we make our final distribution, all of our outstanding common shares will be cancelled and we will cease to exist. |
| · | Our board or, if a liquidating trust is established, the trustees of the liquidating trust, may modify or amend the plan of liquidation without further action by our shareholders to the extent permitted under applicable law. |
| · | The plan of liquidation provides that the board and such officers of the Trust as the board may direct are authorized to interpret the provisions of the plan of liquidation and to take such further actions as they deem necessary or desirable to wind up the affairs of the Trust expeditiously and complete the liquidation including, without limitation, entering into or modifying such agreements (including those with FUR Advisors and its affiliates) and retaining such third parties as the board deems advisable. |
Are there any agreements to sell assets?
As of the date of this proxy statement, we have not entered into any binding agreements to sell any of our assets.
What is a liquidating trust?
A liquidating trust is a trust organized for the primary purpose of liquidating and distributing the assets transferred to it. If we form a liquidating trust, we will transfer to our shareholders beneficial interests in the liquidating trust. These interests will generally not be transferable by the holders.
What will I receive in the liquidation?
It is impossible to determine the actual amount or timing of dividends on the common shares. However, as owners of the Trust, shareholders of record on the applicable record dates will receive all net proceeds from the sale of the Trust’s assets then being distributed after satisfying the liquidation preference on the Series D Preferred Shares, to the extent required, the Senior Notes, all of the Trust’s other applicable existing debt, as well as amounts due, if any, to FUR Advisors. At March 31, 2014, we estimated the net asset value of our assets, after satisfying such debt and other obligations, to be $13.79 to $15.79 per common share. Our board presently believes that based on current market conditions the amount ultimately distributable on account of each common share in connection with a liquidation will exceed the low range of our most recently reported net asset value after taking into account our costs, expenses and other obligations. The amount of proceeds received from the disposition of individual assets, however, is dependent upon a Noticenumber of Internet Availabilityconditions, many of Proxy Materials,which are beyond our power to control, including market conditions at the time of each sale, and no assurance can be given as to the actual amount of liquidation proceeds that will be available for distribution. See “RISK FACTORS” and “BACKGROUND OF THE TRUST'S DECISION TO LIQUIDATE-Net Asset Value Analysis” below.
Will I continue to receive regular quarterly dividends?
No. Pursuant to the terms of the certificate of designations as to which we referissued our Series D Preferred Shares, upon adoption of the plan of liquidation we are required to assatisfy the Notice, which was orliquidation preference on our Series D Preferred Shares before any dividends can be paid on our common shares. In addition, we expect that all liquidation proceeds will be sentapplied first to Shareholdersreserves sufficient to satisfy our financial covenants under various loan documents, then to satisfy our obligations including the Series D Preferred Shares and administrative costs. In addition, it is our intention to retire (or establish a sufficient reserve to retire) our Senior Notes which have an outstanding principal balance of $76,322,000 at the date of this proxy statement (after giving effect to Senior Notes recently acquired by the Trust) and which bear interest at 7.75% per annum prior to resuming dividends on our common shares. Accordingly, our ability to pay dividends on or about April 11, 2013 containing instructions on how to access this Proxy Statementcommon shares will be limited until the Series D Preferred Shares are redeemed and the Annual Report viaSenior Notes are retired or provision is made for their retirement. The ability to pay dividends on our common shares may be further limited to the Internetextent we use our cash to repurchase common shares based on market prices.
How often will dividends be paid on common shares?
The actual amount and howtiming of, and record dates for, dividends on our common shares will be determined by the board and will depend upon the timing and proceeds of the sale of our assets, and the amounts deemed necessary by the board to vote online. If you receivedpay or provide for the NoticeTrust’s liabilities and obligations. It is our present expectation that once we have satisfied any priority payments and have cash available for dividend payments, dividends will be paid no less frequently than semi-annually.
Who will oversee the liquidation?
The sale of the Trust’s assets will be administered by mail, youthe board and FUR Advisors in accordance with the plan of liquidation and the advisory agreement and subject to the Trust’s governing documents.
Will the Trust make any new investments?
In accordance with applicable tax law, upon implementation of the plan of liquidation, we will not receive a printed copy of the proxy materials in the mail unless you request a copy in the manner described in the Notice. All Shareholdersbe permitted to make any new investments. We will, however, be able to satisfy any existing contractual obligations including any capital call requirements and acquisitions or dispositions pursuant to buy-sell provisions under existing venture documentation, pay for required tenant improvements and capital expenditures at our real estate properties, to repurchase our existing common shares, Series D Preferred Shares and Senior Notes if we so choose and make protective acquisitions or advances with respect to our existing assets. In addition, we will be able to accessinvest our cash reserves in short-term U.S. Treasuries or other short-term obligations. Accordingly, to the extent that new investment opportunities arise not related to the foregoing, the Trust will not be permitted to make an investment in such opportunity.
What is the anticipated date of the liquidation?
We are working to complete the liquidation in an orderly manner as soon as possible. In order to permit us to deduct liquidating distributions to shareholders for federal income tax purposes, we must dispose of all of our assets within 24 months of shareholder adoption of the plan. Accordingly, we intend to place all our remaining assets (if any) at such time in a liquidating trust through which we would continue disposing of our assets. The liquidating trust would be required to dispose of any remaining assets within the subsequent three year period.
What are the tax consequences of the liquidation?
If the plan of liquidation is approved, distributions to you under the plan of liquidation, including your pro rata share of the fair market value of any assets that are transferred to a liquidating trust, should not be taxable to you for federal income tax purposes until the distributions exceed the tax basis of your shares of common stock, and then should be taxable to you as capital gain (assuming you hold your shares as a capital asset). A summary of these tax consequences begins at page 29 of this proxy materials onstatement. You should consult your own tax advisor for a web site referredfull understanding of the particular tax consequences of the liquidation to you.
Will we continue to maintain our status as a REIT?
We expect to remain qualified as a REIT until such time, if at all, as we transfer any remaining assets and liabilities to a liquidating trust. Nevertheless, due to the changes in the Notice and this Proxy Statement and will be able to request to receive a printed set of the proxy materials by mail or electronically, in either case, free of charge. If you would like to receive a printed or electronic copynature of our proxy materials, you should followassets and the instructions for requesting such materials included insources of our income that may result during this period, we can neither assure that we will remain qualified as a REIT nor that we will not become subject to federal income tax during the Notice. We elected to participate in the notice and access process in order toliquidation process. Any taxes imposed on us could materially reduce the costs associated with printing and mailing documentscash available for distribution to you and reduce the impact of the Annual Meeting on the environment.
Who is Soliciting my Vote?
The Board is soliciting a proxy in the form accompanying this Proxy Statement for use at the Annual Meeting, and will not vote the proxy at any other meeting. Mr. Michael L. Ashner and Ms. Carolyn Tiffany, or each acting individually, are the persons named as proxies on the proxy card accompanying this Proxy Statement, who have been selected by the Board to serve in such capacity. Both Mr. Ashner and Ms. Tiffany are members of the Board and executive officers of the Trust.our shareholders.
Who is entitled to vote at the Annual Meeting?meeting?
All Shareholders asOnly shareholders of record at the close of business on March 28, 2013, which we refer to as the Record Date,record date of June 19, 2014 are entitled to receive notice of the special meeting and to vote atthose common shares that they held on the Annual Meeting. On the Record Date, there were issued andrecord date. Each outstanding 33,128,853 Common Shares. There was no other class of securities outstanding at the Record Datecommon share is entitled to one vote on the matterseach matter to be voted on at the Annual Meeting. In additionmeeting.
What vote is required to approve the plan of liquidation?
The affirmative vote of at least a majority of the outstanding common shares is required to approve our plan of liquidation. Abstention, the failure to vote or a broker non-vote has the same effect as a vote against the plan of liquidation.
Our management owns or controls approximately 9.4% of our outstanding common shares. Our management has agreed to vote these shares FOR the plan of liquidation. Accordingly, the affirmative vote of approximately an additional 40.7% of our outstanding common shares will be sufficient to approve the plan of liquidation.
If any other matter is properly submitted to the Common Shares,shareholders at the Record Date there were outstanding 4,820,000 sharesspecial meeting, it will be adopted by the affirmative vote of our 9.25% Series D Cumulative Redeemable Preferred Sharesthe holders of Beneficial Interest, which we refer to as “Series D Preferred Shares”.a majority of votes cast at the meeting.
What am I voting on?Are there any interests in the liquidation that differ from my own?
AtYes. Under the meeting you willterms of our existing advisory agreement with FUR Advisors, FUR Advisors is entitled to a termination fee equal to the lesser of (i) the base management fee paid to FUR Advisors for the twelve months prior to adoption of the plan of liquidation (approximately $9,545,000 at August 5, 2014, the date of the special meeting) or (ii) 20% of all dividends paid on account of the common shares after such time as we have paid, after the date of this proxy statement, approximately $12.81 of dividends per common share (which amount increases by a per annum rate equal to the greater of (x) 4% or (y) the 5 year U.S. Treasury Yield plus 2.5% per annum). In addition, after we have paid, after the date of this proxy statement, dividends of approximately $15.74 per common share (which amount increases by a per annum rate equal to the greater of (x) 4% or (y) the 5 year U.S. Treasury Yield plus 2.5% per annum), FUR Advisors would be askedentitled to consider and votean incentive fee equal to 20% of all amounts that otherwise would be paid on the following matters:common shares. In addition, the base fee payable to FUR Advisors will decrease at such times as the liquidation preference is paid on our Series D Preferred Shares and liquidating dividends are paid on account of our common shares.
| 1. | To elect seven Trustees to our Board of Trustees to serve for a term of one year and until their respective successors shall be elected and shall qualify; |
Further, to the extent not then forfeited or subsequently modified, upon the earlier of the sale of all or substantially all of our assets or the transfer of all our assets and liabilities to a liquidating trust, the restricted shares issued to members of our management team and other personnel who provide services to FUR Advisors will no longer be subject to forfeiture.
| 2. | To ratify the selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the 2013 fiscal year; |
Will FUR Advisors or its affiliates receive any additional fees in connection with the liquidation?
| 3. | To adopt an amendment to the Winthrop Realty Trust 2007 Long Term Stock Incentive Plan to increase the number of shares issuable thereunder; |
No, FUR Advisors and its affiliates will only be entitled to receive fees in accordance with the terms of the advisory agreement currently in effect. The board, however, reserves the right to enter into modifications to the advisory agreement with FUR Advisors as well as the exclusivity services agreement with Michael L. Ashner, the Trust’s chairman and chief executive officer, to the extent it deems it advisable.
| 4. | To consider and act upon such other matters as may properly come before the Annual Meeting or any adjournment thereof. |
Can the plan of liquidation be abandoned?Yes, prior to shareholder approval of the plan of liquidation, our board reserves the right to cease its pursuit of the plan of liquidation for any reason, including, without limitation, to pursue any other strategic alternatives that are, or may become, available to us.
What if an offer is received for the Trust?
How many votes do I have?If an offer is received for the Trust as a whole the board will analyze the offer in accordance with its obligations. If acceptance of such offer is deemed to be in the best interest of the shareholders and it is received prior to the special meeting, the board may elect to delay or terminate the special meeting. If acceptance of such offer is deemed to be in the best interest of the shareholders after the adoption of the plan of liquidation, depending on the structure of the transaction the board may seek the consent of shareholders to such a transaction. In this regard, subsequent to the announcement of the board’s adoption of the plan of liquidation, we entered into a confidentiality agreement with a creditworthy third-party that expressed a potential interest in acquiring the Trust as a whole.
Each Common Share outstanding onDo I have appraisal rights?
No. Neither our governing documents nor Ohio law (the state in which we are organized) provide appraisal rights to our shareholders in connection with the Record Dateplan of liquidation.
What will happen if the plan of liquidation is entitlednot approved by shareholders?
If the plan of liquidation is not approved by shareholders at the special meeting, the board may explore other alternatives including continuing to one vote on each item submitted for consideration.operate as a publicly-owned entity and making investments and dispositions and conduct its operations in the ordinary course of business. Under the terms of our governing documents our board is permitted to sell any or all of our assets at any time it deems advisable. Accordingly, it is possible that, subject to applicable tax laws, we may sell all or substantially all of our assets.
How do I vote my Common Shares that are held of record by me?
By Mail: | Vote, sign, date your proxy card or voter instruction card and mail it in the postage-paid envelope. |
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In Person: | Vote at the Annual Meeting.special meeting. If you hold your shares through a broker, you must supply a legal proxy assigning you with direct voting power. |
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By Telephone: | If provided, call the telephone number listed on the proxy card or voter instruction card you received and follow the instructions provided. You will be prompted for certain information that can be found on your proxy card. |
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Via Internet: | If provided, log on to the website listed on the proxy card or voter instruction card you received and follow the on-screen instructions. You will be prompted for certain information that can be found on your proxy card. |
What if I hold my Common Sharescommon shares through my broker?
If you hold your Common Sharescommon shares in “street name” through a broker or other nominee, you may instruct your broker to vote your Common Sharescommon shares by following the instructions that the broker provides to you. Most brokers offer voting by mail, telephone and on the Internet. Please note that your broker or nominee may not be permitted to exercise voting discretion with respect to some of the mattersmatter to be acted upon. Under the rules that govern brokers who are voting with respect to Common Shares held in street name, brokers have the discretion to vote such Common Shares on routine matters, but not on non-routine matters. A broker “non-vote” occurs when a nominee holding Common Shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner.
Can I Attend the Annual Meeting in Person?
If you would like to attend the Annual Meeting in person, you will need to bring your admission ticket which is the upper half of the proxy card, an account statement or other evidence acceptable to us of ownership of your Common Shares as of the close of business on the Record Date. If you hold Common Shares in “street name” (i.e., through a bank, broker or other nominee) and wish to voteupon at the Annual Meeting, you will need to contact your nominee and obtain a proxy from your nominee and bring it to the Annual Meeting.
Will there be any other items of business on the agenda?
The Board is not presently aware of any other items of business to be presented for a vote at the Annual Meeting other than the proposals noted above. Nonetheless, in case there is an unforeseen need, your proxy gives discretionary authority to Michael L. Ashner and Carolyn Tiffany with respect to any other matters that might be brought before thespecial meeting.
What constitutes a Quorum?
The holders of a majority of the outstanding Common Shares as of the close of business on the Record Date, present in person or by proxy, will constitute a quorum for the transaction of business at the Annual Meeting. Abstentions and broker “non-votes” are included in the determination of the number of Common Shares present at the Annual Meeting for quorum purposes.
How many votes are required to act on the proposals?
In general, a majority vote of the Common Shares permitted to be voted at the Annual Meeting are required for each Proposal. Abstentions and broker non-votes will not be counted in determining whether or not a matter has been approved by Shareholders other than with respect to Proposal No. 2, which is a routine proposal on which a broker or other nominee is generally empowered to vote.
What happens if I authorize my proxy without voting on all proposals?
A proxy, in the accompanying form, which is properly executed, duly returned to us and not revoked, will be voted in accordance with the instructions contained therein and, in the absence of specific instructions, will be voted as recommended by the Board for each Proposal and in accordance with the judgment of the person or persons voting the proxies on any other matter that may be properly brought before the Annual Meeting.
Can I change my vote after I return my proxy?
You may revoke your proxy at any time before its exercise by (1) executing and submitting a later dated proxy card, (2) subsequently authorizing a proxy through the Internet or by telephone, (3) timely sending a written revocation of proxy to our Secretary at our principal executive office, 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114, or (4) attending the Annual Meetingspecial meeting and voting in person.
Attendance at our Annual Meetingthe special meeting will not constitute a revocation of a proxy unless you affirmatively indicate at our Annual Meetingthe special meeting that you intend to vote your Common Sharescommon shares in person by completing and delivering a written ballot.
Can I Attend the Special Meeting in Person?
If you would like to attend the special meeting in person, you will need to bring your admission ticket which is the upper half of the proxy card, an account statement or other evidence acceptable to us of ownership of your common shares as of the close of business on the record date. If you hold common shares in “street name” (i.e., through a bank, broker or other nominee) and wish to vote at the special meeting, you will need to contact your nominee and obtain a proxy from your nominee and bring it to the special meeting.
What constitutes a Quorum?
The holders of a majority of the outstanding common shares as of the close of business on the record date, present in person or by proxy, will constitute a quorum for the transaction of business at the special meeting. Abstentions and broker “non-votes” are included in the determination of the number of common shares present at the special meeting for quorum purposes.
What happens if I authorize my proxy without voting on all proposals?
A proxy, in the accompanying form, which is properly executed, duly returned to us and not revoked, will be voted in accordance with the instructions contained therein and, in the absence of specific instructions, will be voted as recommended FOR the adoption of the plan of liquidation and in accordance with the judgment of the person or persons voting the proxies on any other matter that may be properly brought before the special meeting.
Will anyone contact me regarding this vote?
We have hired Mackenzie Partners, Inc. to solicit proxies. In addition to solicitation by mail, by telephone and by e-mail or the Internet, arrangements may be made with brokerage houses and other custodians, nominees and fiduciaries to send proxies and proxy materials to their principals and we may reimburse them for their expenses in so doing. If you hold Common Sharescommon shares in “street name” (i.e., through a bank, broker or other nominee), you will receive instructions from your nominee which you must follow in order to have your proxy authorized or you may contact your nominee directly to request these instructions.
Who can answer my questions?
Who has paid forIf you have any questions regarding the liquidation or any other matters discussed in this proxy solicitation?
We will bear the cost of preparing, printing, assembling and mailing the Notice, the proxy card, Proxy Statement and other materials that may be sent to Shareholders in connection with this solicitation. We may also reimburse brokerage houses and other custodians, nominees and fiduciaries for their expenses incurred in forwarding solicitation materials to the beneficial owners of Common Shares held of record by such persons.
How do I submit a proposal for the 2014 Annual Meeting of Shareholders?
In order to be eligible for inclusion in our proxy materials for the 2014 Annual Meeting of Shareholders, any Shareholder proposal to take action at such meeting must be received at our principal executive office located at 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114, Attn: Secretary, no later than January 23, 2014. Any such proposals shall be subject to the terms of our Declaration of Trust, Bylaws and the requirements of the proxy rules adopted by the SEC under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act.
The Board will review any Shareholder proposals that are timely submitted and will determine whether such proposals meet the criteria for inclusion in the proxy solicitation materials or for consideration at the 2014 Annual Meeting of Shareholders. In addition, the persons named in the proxies retain the discretion to vote proxies on matters of which we are not properly notified at our principal executive offices on or before 60 days prior to the 2014 Annual Meeting of Shareholders, and also retain such authority under certain other circumstances.
What does it mean if I receive more than one proxy card?
It means that you have multiple accounts at the transfer agent and/or with brokers. Please complete and return all proxy cards to ensure that all your Common Shares are voted.
Can I find additional information on the Company’s web site?statement, please contact:
Yes. Our web site is located at www.winthropreit.com. Although the information contained on our web site is not part of this Proxy Statement, you can view additional information on the web site, such as our code of business conduct and ethics, corporate governance guidelines, charters of board committees and reports that we file and furnish with the SEC. Copies of our code of business conduct and ethics, corporate governance guidelines and charters of board committees also may be obtained by written request addressed to 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114, Attention: Investor Relations.105 Madison Avenue
PROPOSAL NO. 1New York, NY 10016
ELECTION OF TRUSTEES(212) 929-5500 (Collect)
or
General
The Board currently consists of eight members, all of whom are elected by the holders of Common Shares. On March 5, 2013, Scott Rudolph informed the Board that due to other business commitments he was electing not to stand for re-election as a Trustee. In connection therewith, the Board determined, pursuant to our Declaration of Trust, to decrease the number of members of the Board to seven persons effective May 21, 2013. Accordingly, Shareholders will be voting at the Annual Meeting for seven persons, that constitutes all of the members of the Board, to serve for a term of one year and until their respective successors shall have been elected and shall qualify. The Board has nominated Michael L. Ashner, Arthur Blasberg, Jr., Howard Goldberg, Thomas F. McWilliams, Lee Seidler, Carolyn Tiffany and Steven Zalkind for re-election as Trustees. In connection with the Board’s nomination of Arthur Blasberg, Jr., the Board determined to waive the age restriction in our By-laws. No other persons have been proposed for nomination to serve as a Trustee.
Shareholders do not have cumulative voting rights with respect to the election of Trustees. It is the intention of the persons named in the enclosed Proxy Card to vote such proxy "FOR" the election of the named nominees for Trustee unless authorization is withheld on the Proxy Card. Should any nominee be unable or unwilling to serve as a Trustee, which is not anticipated, it is intended that the named proxies will vote for the election of such other person or persons as they, in their discretion, may choose. Each of the nominees has represented that they are willing to serve as a Trustee if elected.
Information as to Trustees
The following table sets forth certain information with respect to our Trustees, all of whom have been nominated for re-election as a Trustee other than Mr. Rudolph as described above.
Name | Age | | Principal Occupation and Positions Held | Served as Trustee Since |
Michael L. Ashner | 60 | | Mr. Ashner has been our Chief Executive Officer since December 31, 2003 and Chairman since April 2004. Mr. Ashner also served as the Executive Chairman and a trustee of Lexington Realty Trust (“Lexington”), a New York Stock Exchange listed real estate investment trust, from December 31, 2006 when Newkirk Realty Trust, Inc. (“Newkirk”) was merged into Lexington to March 20, 2008. Mr. Ashner previously served as a director and the Chairman and Chief Executive Officer of Newkirk until it was merged into Lexington. Mr. Ashner also currently serves as the Chief Executive Officer of First Winthrop Corporation, a real estate investment and management company, a position he has held since 1996. Mr. Ashner previously served as a director and Chief Executive Officer of Shelbourne Properties I, Inc., Shelbourne Properties II, Inc. and Shelbourne Properties III, Inc. (collectively, the “Shelbourne Entities”), three real estate investment trusts, from August 2002 until their liquidation in April 2004. During the past five years Mr. Ashner has served as a director of NBTY, Inc. a public company that had a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the requirements of Section 15 of such Act. Mr. Ashner’s experience in opportunistic real estate investing, as well as his performance as our chief executive officer and chairman of the Board and his experience as a board member for other large and/or public companies, led the Board to conclude that he should again be nominated as a Trustee. | 2004 |
Arthur Blasberg, Jr. | 85 | | Mr. Blasberg's activities for the past five years include serving as a receiver appointed by the Superior Court in Massachusetts and as a trustee of various businesses, including real estate investment firms and industrial companies. Mr. Blasberg was a director and chairman of the audit committee of each of the Shelbourne Entities from August 2002 to their liquidation in April 2004 and was Chairman of the Trust’s audit committee from January 2004 to the third quarter of 2011. Mr. Blasberg also has served as a director of several private companies. He is an attorney admitted to practice in the Supreme Court of the United States, various federal courts and state courts and served for five years in the general counsel's office of the SEC. Mr. Blasberg’s extensive management experience in various companies including real estate companies, his experience as an audit committee chairperson of several public companies during the past ten years, his performance as our audit committee chairperson, and his understanding of the Trust’s business, led the Board to conclude that the age limitation By-law be waived in order for Mr. Blasberg to again be nominated as a Trustee. | 2003 |
Howard Goldberg | 67 | | Mr. Goldberg has been a private investor in both real estate and start-up companies and has provided consulting services to start-up companies since 1999. From 1994 through 1998, Mr. Goldberg served as President, CEO, and board member of Player’s International, a publicly-traded company in the gaming business prior to its sale to Harrah's Entertainment Inc. From 2003 through 2005, Mr. Goldberg served as a part-time consultant to Laser Lock Technologies, Inc., LLTI.OB, a publicly-traded development stage company, engaged in the development and marketing of technologies for the prevention of product and document counterfeiting and electronic article surveillance. From 1995 through 2000, Mr. Goldberg served on the board of directors and audit committee of Imall Inc., a publicly-traded company that provided on-line shopping prior to its sale to Excite-at-Home. Mr. Goldberg served as a member of the board of directors and the audit committees of the Shelbourne Entities from August 2002 until their liquidation in April 2004. Mr. Goldberg has a law degree from New York University and was previously the managing partner of a New Jersey law firm where he specialized in gaming regulatory law and real estate from 1970 through 1994. Mr. Goldberg’s legal background as well as his experience in senior management of other companies and as a director of other public companies led the Board to conclude that he should again be nominated as a Trustee. | 2003 |
Thomas F. McWilliams | 70 | | Mr. McWilliams is currently a managing partner and member of the investment committee of Court Square Capital Partners, a private equity company that manages approximately $6 billion in capital, a position he has held since 2006 when Court Square Capital Partners was formed. From 1983 to 2006, Mr. McWilliams held a similar position with Citigroup Venture Capital, the private equity arm of Citigroup. Mr. McWilliams’ over 15 years of experience in the supervision of the management of numerous companies either as an investor or as a director together with his capital markets knowledge, led the Board to conclude that he should again be nominated as a Trustee. | 2008 |
Scott Rudolph | 55 | | Mr. Rudolph is currently the President of Piping Rock Health Products (“Piping Rock”), a vitamin and health supplement company which Mr. Rudolph formed in May 2011. Prior to forming Piping Rock, Mr. Rudolph was the Chief Executive Officer and Chairman of NBTY, Inc., a New York Stock Exchange listed company and the world’s largest manufacturer and marketer of nutritional supplements, which was sold to a private equity firm in 2010. Mr. Rudolph served as the President of Dowling College located on Long Island, New York from May 2010 to May 2011 and is currently a member of the Board of Trustees of Washington University in St. Louis, Missouri. Due to his time limitations, Mr. Rudolph elected not to stand for re-election to the Board. | 2012 |
Lee Seidler | 78 | | Dr. Seidler is currently a private investor. Dr. Seidler serves frequently as an expert witness in accounting and finance cases for various plaintiffs and defendants as well as the SEC. He testified in 2002 before the Senate Committee on Banking, Housing and Urban Affairs on regulation of the accounting profession and consulted with staff drafting Sarbanes-Oxley which produced the Public Company Accounting Oversight Board (PCAOB). He was a member of the PCAOB’s Standing Advisory Group. Mr. Seidler served as a General Partner and Senior Managing Director of Bear, Stearns & Co. from 1981 to 1989. Dr. Seidler was elected to Institutional Investor’s All Star first team of financial analysts for 14 consecutive years (until his retirement) for his analysis of the impacts of accounting and financial reporting and taxes on the decisions of investors. He was also director of the firm’s 55 person internal audit staff for two years and represented Bear, Stearns in Washington D.C. on legislative issues. Dr. Seidler has been a member of the boards of directors of numerous public and private companies and has served as chair of the audit committees of these companies. Dr. Seidler was a professor of accounting and the Price Waterhouse professor of auditing at New York University Stern School of Business Administration for 22 years. Dr. Seidler’s recognition as a pre-eminent authority on public accounting and his business experience led the Board to conclude that he should again be nominated as a Trustee. | 2010 |
Carolyn Tiffany | 46 | | Ms. Tiffany has been our President since January 1, 2010 and served as our Chief Operating Officer and Secretary from January 8, 2004 to January 31, 2007. From February 2007 through March 2008 Ms. Tiffany served as a principal and the Chief Operating Officer for High Street Equity Advisors, a private equity real estate firm. From April 2008 to December 31, 2008, Ms. Tiffany was a private investor. In addition, Ms. Tiffany served as the Chief Operating Officer and Secretary of Newkirk and its predecessor entities from 1996 to December 31, 2006. Ms. Tiffany’s real estate experience and her performance as our President led the Board to conclude that she should again be nominated as a Trustee. | 2010 |
Steven Zalkind | 71 | | Since 1975, Mr. Zalkind has been a principal of Resource Investments Limited, LLC (“Resource”), a real estate investment firm, acting as either an officer of the General Partner or Managing Member in the acquisition of over 26,000 multi-family apartment units and 2,000,000 square feet of commercial shopping centers and office buildings. Mr. Zalkind currently serves as the Chairman and Chief Executive Officer of Resource. Mr. Zalkind was a director of each of the Shelbourne Entities from August 2002 to their liquidation in April 2004 and a director of Newkirk from November 2005 until its merger with Lexington in December 2006. Mr. Zalkind’s experience in multi-family and commercial real estate investing since 1975 led the Board to conclude that he should again be nominated as a Trustee. | 2008 |
Recommendation of the Board
The Board unanimously recommends a vote “FOR” the election of Messrs. Ashner, Blasberg, Goldberg, McWilliams, Seidler and Zalkind and Ms. Tiffany to the Board. Unless otherwise indicated, the accompanying form of proxy will be voted for the nominees listed above.
PROPOSAL NO. 2
SELECTION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
At the recommendation of the Trust’s Audit Committee, the Board has selected PricewaterhouseCoopers LLP, which we refer to as PwC, to serve as the independent registered public accounting firm of the Trust for its fiscal year ending December 31, 2013.
During our past two fiscal years, there were: (i) no disagreements with PwC our independent registered public accounting firm for the years ended December 31, 2012 and 2011, on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which disagreements, if not resolved to PwC’s satisfaction, would have caused them to make reference to the subject matter in connection with its report on the Trust’s financial statements for such year; and (ii) no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended. Further, PwC’s report on our consolidated financial statements as of and for the years ended December 31, 2012 and 2011 did not contain any adverse opinion or a disclaimer of opinion nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.
Although Shareholder ratification of the Board’s action in this respect is not required, the Board considers it desirable for Shareholders to pass upon the selection of the independent registered public accounting firm and, if the Shareholders disapprove of the selection, the Board would consider other firms for selection as the independent registered public accounting firm for the current fiscal year.
It is expected that representatives of PwC will be present either in person or by telephone conference at the Annual Meeting and will have the opportunity to make a statement if they so choose and offer questions.
Aggregate fees billed to us for the year ended December 31, 2012 and 2011 represents fees billed by PwC for audit, audit related fees and tax matters.
Type of Fee | | Fiscal 2012 | | | Fiscal 2011 | |
Audit Fees | | $ | 1,404,000 | | | $ | 1,095,000 | |
Audit Related Fees | | | 142,000 | | | | 290,000 | |
Tax Fees | | | 73,000 | | | | 50,000 | |
All Other Fees | | | - | | | | - | |
Total | | $ | 1,619,000 | | | $ | 1,435,600 | |
Audit fees for the years ended December 31, 2012 and 2011 were for professional services rendered in connection with the integrated audit of our consolidated financial statements, internal control over financial reporting, and quarterly reviews of our consolidated financial statements.
Audit Related fees for the year ended December 31, 2012 and 2011 were for services related to comfort letters and review of our Registration Statements on Form S-3 during such years.
Tax fees as of the years ended December 31, 2012 and 2011 were for services related to tax compliance, tax planning and strategies, and state and local tax advice.
Recommendation of the Board
The Board unanimously recommends a vote “FOR” the ratification of the election of PwC to serve as the independent registered public accounting firm of the Trust for its fiscal year ending December 31, 2013.
Procedures for Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Registered Public Accountant
We have a policy of requiring that the Audit Committee pre-approve all audit and non-audit services provided to us by the independent registered public accounting firm. During 2012, the Audit Committee approved all of the fees paid by us to PwC.
PROPOSAL NO. 3 – AMENDMENT TO 2007 LONG TERM INCENTIVE PLAN
In January 2013, the Trust’s Compensation Committee recommended to the Board the adoption, subject to approval by the shareholders, of an amendment to the Winthrop Realty Trust 2007 Long Term Incentive Plan, which we refer to as the Plan, to (i) increase the number of Common Shares issuable under the Plan from 100,000 to 1,000,000 and (ii) to clarify that individuals performing services for FUR Advisors are eligible to receive awards under the Plan to the maximum extent consistent with SEC guidance under Form S-8, which amendments we refer to as the Plan Amendment. The additional 900,000 Common Shares represents approximately 2.7% of our outstanding Common Shares. The Board subsequently ratified the Compensation Committee's recommendation to approve the Plan Amendment and determined to submit the Plan Amendment to the shareholders. The shareholders are now requested to approve the adoption of the Plan Amendment in order to (i) increase the number of Common Shares issuable under the Plan from 100,000 to 1,000,000 and (ii) provide that individuals performing services for FUR Advisors are eligible to receive awards under the Plan to the maximum extent consistent with SEC guidance under Form S-8. To become effective, the Plan Amendment must be approved by the affirmative vote of a majority of the votes cast at the Meeting on this proposal by the holders of the Common Shares entitled to vote there.
Recommendation of the Board
The Board unanimously recommends a vote “FOR” the adoption of the Plan Amendment.
Plan Awards
Number of Shares
On February 1, 2013, Michael L. Ashner and Carolyn Tiffany were granted awards of 66,667 and 33,333 restricted Common Shares, respectively, which Common Shares are subject to the restrictions set forth under “Restrictions on Issued Common Shares” below. The Compensation Committee has approved, subject to the shareholders approving the Plan Amendment, the issuance of an additional 500,000 Common Shares which Common Shares will be issued effective May 21, 2013 if the Plan Amendment is approved. The table below sets forth the dollar value and number of shares awarded on February1, 2013, and to be awarded on May 21, 2013 assuming the Plan Amendment is approved:
Name and Position | | Dollar Value ($)(1) | | | Number of Shares | |
| | | | | | |
Michael L. Ashner, Chairman and CEO(2) | | $ | 2,492,820 | | | | 198,000 | |
Carolyn Tiffany, President(3) | | $ | 1,284,180 | | | | 102,000 | |
John Garilli, Chief Financial Officer | | $ | 944,250 | | | | 75,000 | |
John Alba, Chief Investment Officer | | $ | 944,250 | | | | 75,000 | |
Executive Group | | $ | 5,665,500 | | | | 450,000 | |
Non-Executive Director Group | | | - | | | | - | |
Non-Executive Officer Employee Group | | $ | 1,888,500 | | | | 150,000 | |
| (1) | Based on $12.59 per Common Share, the closing price of Common Shares on April 1, 2013. |
| (2) | Inclusive of 66,667 restricted Common Shares issued to Mr. Ashner in February 2013. |
| (3) | Inclusive of 33,333 restricted Common Shares issued to Ms. Tiffany in February 2013. |
Restrictions on Issued Common Shares
The Common Shares issued to Mr. Ashner and Ms. Tiffany in February 2013 and, if the Plan Amendment is approved, the additional Common Shares to be issued under the Plan, are subject to the following restrictions:
| · | Subject to early vesting as described below, the Common Shares awarded to any person will be forfeited if either (i) the advisory agreement with FUR Advisors is terminated by us for cause or by FUR Advisors without cause or (ii) such person does not remain in continuous service with FUR Advisors through December 31, 2017. |
| · | The Common Shares will immediately vest and no longer be subject to forfeiture on the earlier of (i) January 1, 2018, (ii) upon a Change in Control, (iii) if the advisory agreement with FUR Advisors is terminated by us for any reason other than cause, or by FUR Advisors for cause, or (iv) in the case of Mr. Ashner and Ms. Tiffany, their death or disability. Change in Control is defined as the occurrence of any of the following, in one transaction or a series of related transactions: (1) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) becoming a “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of our securities representing more than 50% of the voting power of our then outstanding securities; (2) a consolidation, equity exchange, reorganization or merger of us resulting in our equity holders immediately prior to such event not owning at least a majority of the voting power of the resulting entity’s securities outstanding immediately following such event; (3) the sale or other disposition of all or substantially all of our assets; or (4) our dissolution. |
| · | So long as the Common Shares awarded are subject to forfeiture, the Trust’s secretary has the sole and exclusive right to exercise all voting rights with respect to the awarded Common Shares. |
| · | Until the Common Shares awarded are no longer subject to forfeiture, all cash dividends payable thereon will be payable as follows: (i) the holder will receive a portion of the dividend equal to (i) five percent, multiplied by (ii) the number of full calendar quarters that have transpired between January 1, 2013 and the applicable dividend payment date, less any required tax withholding and (ii) the remaining portion of the dividend will be held by us in escrow and will only be paid to the holder thereof if and when the Common Shares awarded are no longer subject to forfeiture. If the Common Shares awarded are forfeited, then the dividends held in escrow will similarly be forfeited. |
The Plan
A general description of the basic features of the Plan as in effect on the date hereof is set forth below.
Purpose
The purpose of the Winthrop Realty Trust 2007 Long Term Incentive Plan, which we refer to as the Plan, which was approved at the Trust’s 2007 Annual Meeting of Shareholders is to further and promote the interests of the Trust, its subsidiaries and its shareholders by enabling the Trust and its subsidiaries to attract, retain and motivate trustees, officers, consultants and persons who provide services to the Trust’s advisor, or those who will become trustees, officers, consultants and persons who provide services to the Trust’s advisor (“eligible persons”) and to align the interests of those individuals and the shareholders. To do this, the Plan offers stock options and restricted share awards providing eligible persons with an interest in maximizing the growth, profitability and overall success of the Trust and/or its subsidiaries.
Administration
The administration, interpretation and operation of the Plan is vested in the Compensation Committee. The Compensation Committee may designate persons other than members of the Compensation Committee to carry out the day-to-day administration of the Plan.
Eligibility
Under the Plan, eligible persons are eligible to receive awards. Awards under the Plan are made by the Compensation Committee. Except as indicated under “Plan Awards-Number of Shares,” no determination has been made as to future awards which may be granted under the Plan, although it is anticipated that recipients of awards may include the current trustees (including members of the Compensation Committee).
Awards under the Plan
Introduction. Although awards under the Plan may consist of stock options and restricted shares as described below, to date all awards have been in restricted stock. All awards have been and will be evidenced by an award agreement between the Trust and the individual participant and approved by the Compensation Committee. In the discretion of the Compensation Committee, more than one award may be granted to an eligible participant.
Stock Options. A stock option is an award that entitles a participant to purchase Common Shares at a price fixed at the time the option is granted. Stock options granted under the Plan will be “non-qualified stock options” and the plan does not permit the grant of “incentive stock options.”
The exercise price and other terms and conditions of stock options will be determined by the Compensation Committee at the time of grant, but shall not be less than fair market value. An option grant under the Plan does not provide an optionee any rights as a shareholder, and such rights will accrue only as to shares actually purchased through the exercise of an option.
Stock options granted under the Plan shall become exercisable at such time as designated by the Compensation Committee at the time of grant.
Payment for shares issuable pursuant to the exercise of a stock option may be made either in cash, by certified check, bank draft, or money order, or, if permitted by the Compensation Committee and applicable law, by delivery of Common Shares satisfying such requirements as the Compensation Committee may establish or such other form of payment as is permitted by the Compensation Committee, in its sole discretion.
Restricted Share Awards. Restricted share awards are grants of Common Shares made to a participant subject to conditions established by the Compensation Committee in the relevant award agreement on the date of grant.
Restricted shares will vest in accordance with the conditions and vesting schedule, if any, provided in the relevant award agreement. A participant may not sell or otherwise dispose of restricted shares until the conditions imposed by the Compensation Committee with respect to such shares have been satisfied. Restricted share awards under the Plan may be granted alone or in addition to any other awards under the Plan.
Restricted shares which vest will be reissued as unrestricted Common Shares.
Unless otherwise provided for in the relevant award agreement, each participant who receives a grant of restricted shares will have the right to receive all dividends and vote or execute proxies for such shares. Any share dividends granted with respect to such restricted shares will be treated as additional restricted shares.
Changes in Capital Structure. Stock options granted under the Plan and any agreements evidencing such stock options and the maximum number of Common Shares subject to all stock options shall be subject to adjustment or substitution, as determined by the Compensation Committee in its sole discretion, as to the number, price or kind of a share or other consideration subject to such stock options or as otherwise determined by the Compensation Committee to be equitable (i) in the event of changes in the outstanding shares or in the capital structure of the Trust by reason of share or extraordinary cash dividends, stock splits, reverse stock splits, recapitalization, reorganizations, mergers, consolidations, combinations, exchanges, or other relevant changes in capitalization occurring after the date of grant of any such stock option or (ii) in the event of any change in applicable laws or any change in circumstances which results in or would result in any substantial dilution or enlargement of the rights granted to, or available for, participants, or which otherwise warrants equitable adjustment because it interferes with the intended operation of the Plan. The Trust shall give each participant notice of such adjustment and, upon notice, such adjustment shall be conclusive and binding for all purposes.
Notwithstanding the above, in the event that the Trust is merged or consolidated with another entity, all or substantially all of the assets of the Trust are acquired by another person, or the Trust reorganizes or liquidates, then the Compensation Committee may, in its discretion, cancel any outstanding awards and cause the holders thereof to be paid, in cash or stock (including any stock of a successor or acquirer), or any combination thereof, the value of such awards, as determined by the Compensation Committee; in the case of stock options, that value shall be based upon the excess of the value of a Common Share over the exercise price per share.
Amendment, Suspension or Termination of The Plan
Unless earlier terminated by the Board, the Plan shall terminate on December 31, 2016. The Board may amend, suspend or terminate the Plan (or any portion thereof) at any time and from time to time in such respects as the Board may deem advisable or in the best interests of the Trust or any subsidiary; provided, however, that no such amendment may increase the number of Common Shares available for awards under Section 4.2 of the Plan without first obtaining shareholder approval. In addition, no such amendment, suspension or termination shall materially and adversely affect the rights of any participant under any outstanding stock options, without the consent of such participant. The Compensation Committee may, in its sole discretion, amend or modify at any time and from time to time the restrictions, terms and conditions of any outstanding stock option in any manner to the extent that the Compensation Committee under the Plan or any award agreement could have initially established the restrictions, terms and conditions of such stock option. No such amendment or modification shall, however, materially and adversely affect the rights of any participant under any such stock option without the consent of such participant.
Certain Federal Income Tax Consequences of the Plan
The following summary is based on U.S. federal income tax laws in effect as of January 1, 2013. Such laws and regulations are subject to change. This summary assumes that all awards will be exempt from, or comply with, the rules under Section 409A of the Code regarding nonqualified deferred compensation. If an award fails to comply with Section 409A of the Code, the award may be subject to immediate taxation, interest and tax penalties in the year the award vests or is granted. This summary does not constitute tax advice and does not address possible state, local or foreign tax consequences.
Stock Options. The grant of stock options under the Plan will not result in taxable income to the recipient of the option or an income tax deduction for the Trust. However, because options granted under the Plan are “non-qualified stock options” (and not “incentive stock options”) the transfer of Common Stock to an option holder upon exercise of his or her options will give rise to taxable income to the option holder and tax deductions for the Trust. Specifically, the exercise of an option by an option holder generally results in immediate recognition of taxable ordinary income by the option holder, and a corresponding tax deduction for the Trust, in the amount by which the fair market value of the shares of Common Stock purchased on the date of such exercise exceeds the aggregate exercise price paid. Any appreciation or depreciation in the fair market value of those shares after the date of such exercise will generally result in a capital gain or loss to the holder at the time he or she disposes of those shares.
Effect of Share-for-Share Exercise. If the Compensation Committee permits an option holder to tender Common Shares in partial or full payment of the option price for shares to be acquired through the exercise of an option, and the option holder elects to do so, generally the option holder will not recognize any gain or loss on such tendered shares. However, the option holder will recognize compensation taxable as ordinary income, and the Trust generally will be entitled to a deduction, in an amount equal only to the excess the fair market value of the shares received by the option holder upon exercise over the fair market value of the tendered shares, less any cash paid by the option holder.(800) 322-2885 (Toll-Free)
Restricted Shares. Unless an election is made byRISK FACTORS
In addition to general risks and the recipient under Section 83(b)other information contained in this proxy statement, in evaluating the proposals to be voted on at our special meeting you should carefully consider the “Risk Factors” discussed below in this proxy statement and in our Annual Report on Form 10-K for the year ended December 31, 2013. Each of the Code,risks described could result in a participantdecrease in the proceeds ultimately distributed to you in connection with the plan of liquidation and the timing of distributions. Much of the business information as well as the financial and operational data contained in our risk factors are updated in our periodic reports, certain of which are also incorporated by reference into this proxy statement. Although we have tried to discuss key factors, please be aware that other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance.
Risks that May Delay or Reduce Our Liquidating Distributions
Our board presently believes that based on current market conditions the amount ultimately distributable on account of each common share in connection with a liquidation would exceed $13.79, the low range of our most recently reported net asset value, after taking into account our costs, expenses and other obligations. We currently anticipate that such distributions will not recognize any taxable income uponbe paid within 24 months after shareholder approval of the awardplan of restricted sharesliquidation. Our expectations about the amount of liquidating distributions that we will make and when we will make them are not transferablebased on many estimates and assumptions, one or more of which may prove to be incorrect. As a result, the actual amount of liquidating distributions we pay to you may be more or less than we estimate in this proxy statement. In addition, the liquidating distributions may be paid later than we predict and may take as long as 60 months after shareholder approval of the plan of liquidation. In addition to the risks that we generally face in our business, factors that could cause actual payments to be later or lower than we expect include, among others, the risks set forth below:
If we are unable to find buyers for our assets at our expected sales prices, our liquidating distributions may be delayed or reduced.
As of June 19, 2014, our only asset under contract for sale was our asset located in Amherst, New York which is subject to a substantial riskpurchase agreement with an unaffiliated third party for a sales price of forfeiture. Unless paid$24,500,000. In calculating our estimated range of liquidating distributions, we assumed that we will be able to find buyers for all of our assets at amounts equal to or in excess of the low end or our estimated range of net asset values for each asset. We, however, may have overestimated the sales prices that we will be able to obtain for these assets or underestimated the costs associated with such sales. For example, in order to find buyers in a timely manner, we may be required to lower our asking price below the low end of our current estimate of an asset’s net asset value. If we are not able to find buyers for these assets in a timely manner or if we have overestimated the sales prices we will receive, our liquidating payments to our shareholders would be delayed or reduced. Furthermore, the projected liquidating distribution is based upon our estimated range of net asset value for each asset based on current market conditions and asset operations, but real estate market values are constantly changing and fluctuate with changes in interest rates, supply and demand dynamics, occupancy percentages, lease rates, the availability of suitable buyers, the perceived quality and dependability of income flows from tenancies and a number of other factors, both local and national. The net liquidation proceeds from each asset may also be affected by the terms of prepayment or assumption costs associated with debt encumbering each asset. In addition, minority ownership matters, transactional fees and expenses, environmental contamination at our properties or unknown liabilities, if any, may adversely impact the net liquidation proceeds from those assets.
If any of the parties to our future sale agreements default thereunder, or if these sales do not otherwise close, our liquidating distributions may be delayed or reduced.
If you approve the plan of liquidation, we will seek to sell all of our assets. The consummation of the potential sales for which we will enter into sale agreements in the form of additional restricted shares (which would then be subject to the same restrictions and tax treatment as the restricted shares to which they relate), dividends paid with respect to restricted shares prior to the lapse of restrictions applicable to those shares will be taxable as compensation income to the participant. Generally, the participant will recognize taxable ordinary income at the first time those shares become transferable or are no longer subject to a substantial risk of forfeiture, in an amount equal to the fair market value of those shares when the restrictions lapse, less any amount paid with respect to the award of restricted shares. The recipient’s tax basis will be equal to the sum of the amount of ordinary income recognized upon the lapse of restrictions and any amount paid for such restricted shares. The recipient’s holding period will commence on the date on which the restrictions lapse.
As indicated above, a participant may elect under Section 83(b) of the Code to recognize taxable ordinary income upon the award date of restricted shares (rather than being taxed as described above) based on the fair market value of the shares of Common Stock subject to the award on the date of the award. If a participant makes that election, any dividends paid with respect to those restricted shares (unless paid in the form of additional restricted shares, which would either require a separate election under Section 83(b) of the Code orfuture will be subject to the treatment described in the paragraph above) will not be treated as compensation income, but rather as dividend income, and the participant will not recognize additional taxable income when the restrictions applicable to his or her restricted share award lapse.
Assuming compliance with the applicable tax withholding and reporting requirements, the Trust will be entitled to a tax deduction equal to the amountsatisfaction of ordinary income recognized by a recipient in connection with his or her restricted share award in the taxable year in which that recipient recognizes that income.
Limits on Deductions. Under Section 162(m)closing conditions. If any of the Code,transactions contemplated by these future sale agreements do not close because of a buyer default, failure of a closing condition or for any other reason, we will need to locate a new buyer for the Trustassets which we may be limitedunable to do promptly or at prices or on terms that are as favorable as the original sale agreement. We will also incur additional costs involved in negotiating a new sale agreement for this asset. These additional costs are not included in our projections. In the event that we incur these additional costs, our liquidating payments to Federal income tax deductions to the extent that total annual compensation in excess of $1 million is paid to the chief executive officer or any one of the other three highest paid executive officers of the Trust who are employed by the Trust (other than the chief financial officer) on the last day of the taxable year. However, certain “performance-based compensation,” the material terms of which are disclosed to and approved by the Trust’sour shareholders is not subject to this deduction limitation. As the Plan does not permit grants of awards to any executive officers, the deduction limits of Section 162(m) of the Code should not affect awards under the Plan.
Parachute Payments. Under certain circumstances, accelerated vesting, exercise or payment of awards under the Plan in connection with a “change in control” of the Trust might be deemed an “excess parachute payment” for purposes of the golden parachute payment provisions of Section 280G of the Code. To the extent that it is so considered, the holder of the award would be subject to an excise tax equal to 20% of the amount of the excess parachute payment, and the Trust would be denied a tax deduction for the amount of the excess parachute payment.
Section 409A. Section 409A of the Code applies to amounts that are considered “non-qualified deferred compensation.” If a deferred compensation arrangement, including certain awards that may be issued under the Plan, does not meet the requirements of Section 409A of the Code, the timing of taxation for these amounts could be accelerated (meaning these amounts could become immediately taxable). Also, an additional 20% income tax, as well as penalties and interest, could be imposed upon the applicable participants in the Plan.
Effective Date
The Plan was effective on March 19, 2007, the date of its approval by the Board. The Plan will terminate on December 31, 2016, except with respect to awards then outstanding. After such date no further awards will be granted under the Plan unless the Plan is extended by the Board.delayed or reduced.
EXECUTIVE OFFICERS
All officers serve atIf we are unable to maintain the discretionoccupancy rates of currently leased space and lease currently available space, if tenants default under their leases or other obligations to us during the liquidation process or if our cash flow during the liquidation is otherwise less than we expect, our liquidating distributions may be delayed or reduced.
In calculating our estimated liquidating distributions, we assumed that we would maintain the occupancy rates of currently-leased space, that we would be able to rent certain currently available space and that we would not experience any significant tenant defaults during the liquidation process that were not subsequently cured. Negative trends in one or more of these factors during the liquidation process may adversely affect the resale value of the Board. Set forth belowproperties, which would reduce our liquidating distributions. To the extent that we receive less rental income than we expect during the liquidation process, our liquidating distributions will be reduced. We may also decide in the event of a tenant default to restructure the lease, which could require us to substantially reduce the rent payable to us under the lease, or make other modifications that are unfavorable to us.
If our transaction costs, liquidation costs or unpaid liabilities are greater than we expect, our liquidating distributions may be delayed or reduced.
Before making the liquidating distributions on our common shares, we will need to pay or arrange for the payment of all of our transaction costs in the liquidation, all other costs and all valid claims of our creditors including satisfying the liquidation preference on our Series D Preferred Shares and, retiring (or establishing a sufficient reserve to retire) the Senior Notes. Our board may also decide to acquire one or more insurance policies covering unknown or contingent claims against us or them, for which we would pay a premium which has not yet been determined. Our board may also decide to establish a reserve fund to pay these contingent claims. The amounts of transaction costs in the liquidation are not yet final, so we have used estimates of these costs in calculating the amounts of our projected liquidating distributions. To the extent that we have underestimated these costs in calculating our projections or we incur unforeseen additional costs, our actual net asset value may be lower than our estimated range. In addition, if the claims of our creditors are greater than we have anticipated or we decide to acquire one or more insurance policies covering unknown or contingent claims against us, our liquidating distributions may be delayed or reduced. Further, if a reserve fund is established, payment of liquidating distributions to our shareholders may be delayed or reduced.
If we fail to remain qualified as a REIT, our shareholders would be adversely affected.
Although we expect to remain qualified as a REIT until such time, if at all, as we transfer any remaining assets and liabilities to a liquidating trust, given the changes in the nature of our assets and sources of our income that will result during this period, and the need to retain certain information regardingassets to meet our executive officersliabilities, we cannot assure you that we may continue to qualify as a REIT through the completion of our liquidation. If we fail to remain qualified as a REIT, we would be taxed as a corporation for federal income tax purposes and could not deduct distributions to our shareholders in computing our taxable income. As a result, we would be liable for federal income taxes at March 28, 2013 (biographical informationcorporate tax rates on our taxable income from operations and asset sales for the taxable year in which our qualification as a REIT terminates and any subsequent years, which could materially reduce the cash available for distribution to our shareholders.
Distributing interests in a liquidating trust may cause you to recognize gain.
If we have not sold all of our assets within 24 months of the approval of the plan, the plan of liquidation requires that any remaining assets and liabilities be transferred to a liquidating trust. In that event, you will be treated for federal income tax purposes as if you received a distribution of your pro rata share of the fair market value of any assets that are transferred to a liquidating trust, and will be subject to federal income tax to the extent that such “deemed” distribution exceeds the remaining tax basis of your shares of common stock as reduced by all prior distributions made to you during the liquidation period. As a result, you may recognize taxable gain with respect to Mr. Ashnerassets transferred to a liquidating trust prior to the subsequent sale of such assets and Ms. Tiffany is set forth above on pages 5 and 7):
Name | Age | Current Position |
Michael L. Ashner | 60 | Chairman and Chief Executive Officer |
Carolyn Tiffany | 46 | President |
John Garilli | 48 | Chief Financial Officer |
John Alba | 42 | Chief Investment Officer and Secretary |
Mr. Garilli has been our Chief Financial Officer since June 15, 2012. Mr. Garilli served as the Trust’s Chief Accounting Officer from May 2006distribution to June 2012. Mr. Garilli has been with First Winthrop Corp., a real estate investment and management company and affiliate of FUR Advisors since September 1995 and currently serves as its Chief Financial Officer.
Mr. Alba was appointed our Chief Investment Officer in October 2005 and Secretary in May 2007. He has served as a Vice President of First Winthrop Corp. since January 1998 where his responsibilities included asset management and investment analysis.
THE BOARD, ITS COMMITTEES AND OTHER CORPORATE GOVERNANCE INFORMATIONBoard Leadership Structure
As described in our corporate governance guidelines, the Board is permitted to select its Chairman and our Chief Executive Officer in the manner it considers in our best interests at any given point in time. In this regard, the Board believes that the questions of whether the Chairmanyou of the Boardrelated net cash proceeds, if any. Such transfer also may have adverse tax consequences for tax-exempt and the Chief Executive Officer should be separate, and if separate, whether the Chairman of the Board should be an outside Trustee or an inside Trustee, should be addressed from time to time as circumstances require. At present, the Board believes that the combination of these two roles provides more consistent communication and coordination throughout the organization, which results in a more effective and efficient implementation of corporate strategy. During Mr. Ashner’s tenure, the Board has been satisfied with the Chief Executive Officer performing the functions of the Chairman of the Board because Mr. Ashner has been able to utilize his in-depth knowledge and perspective gained in running the company to effectively and efficiently recommend Board meeting agenda, lead Board discussions on critical issues and create a vital link among the Board, management and Shareholders. Mr. Ashner fulfills his Chairman responsibilities through close interaction with the Lead Independent Trustee, Committee Chairs and other Board members.
Lead Independent Trustee and Meetings of Independent TrusteesTo further ensure balance, the Board determined in 2011 that the Trust should have a Lead Independent Trustee who is elected annually by the independent members of the Board. The duties of the Lead Independent Trustee include:
| · | Calling and chairing meetings of independent Trustees; |
| · | Liaising with the Chairman regarding board-wide issues between independent Trustees and management; |
| · | Reviewing and providing input on Board meeting agenda; |
| · | Serving as the primary recipient for all Shareholder communications and be available, if necessary, for direct communication with Shareholders; and |
| · | Overseeing the annual Board review. |
Mr. Goldberg currently serves as the Lead Independent Trustee and, if he is re-elected at the Annual Meeting is expected to be re-elected as the Lead Independent Trustee.foreign shareholders.
As noted previously, sixYou may not receive any profits resulting from the sale of one or more of our properties, or receive such profits in a timely manner, because we may provide financing to the purchaser of such property.
If you approve the plan of liquidation, you may experience a delay before receiving your share of the eight current Trusteesnet proceeds of such liquidation. In a liquidation, we may sell our assets either subject to or upon the assumption of any then outstanding mortgage debt or, alternatively, may provide financing to purchasers. We do not have any limitations or restrictions on taking such purchase money obligations. To the extent we receive promissory notes or other property in lieu of cash from sales, such proceeds, other than any interest payable on those proceeds, will not be included in net sale proceeds until and fiveto the extent the promissory notes or other property are actually paid, sold, refinanced or otherwise disposed of. We may receive initial down payments in the year of sale in an amount less than the selling price and subsequent payments may be spread over a number of years. In such event, you may experience a delay in the distribution of the seven nominees for electionnet proceeds of a sale until such time as Trusteethe installment payments are independent and all membersreceived.
Other Risks Relating to the Proposals
Our entity value may be adversely affected by adoption of the Audit Committee, Compensation Committee, Conflicts Committee, and Nominating and Governance Committee are independent Trustees. In addition, our current policy regarding the receipt and disseminationplan of Shareholder communications allows our Shareholders to communicate directly with any or all of our Trustees. Further, in addition to formal Board meetings, management holds monthly informal informational calls with the Board at which updates on company matters are provided.liquidation.
BasedOnce our shareholders approve the plan of liquidation, we will be committed to winding-up our operations. This may adversely affect the value that a potential acquirer might place on us or our ability to sell the foregoing, the Board believes that its existing leadership structure provides for an appropriate balance that best serves us andTrust as a whole. It may also preclude other possible courses of action not yet identified by our Shareholders. The Boardboard.
We will periodically review its leadership structurenot be able to ensure that it remains the optimal structure for us and our shareholders.make new investments.
Board’s RoleIn accordance with applicable tax law, upon implementation of the plan of liquidation, we will not be permitted to make any new investments other than those required to satisfy existing contractual obligations and commitments, including any capital call requirements and acquisitions or dispositions pursuant to buy-sell provisions under existing venture documentation, pay for required tenant improvements and capital expenditures at our real estate properties, repurchase our existing common shares, Series D Preferred Shares and Senior Notes if we so choose and make protective acquisitions or advances with respect that our existing assets. Accordingly, in Risk Oversightthe event that market conditions change in a manner such that there is an increase in opportunistic investments that satisfy our investment strategy and minimum return parameters, we will not be able to use our cash to participate in such investments which could generate a greater return to shareholders.
The Board acknowledges its responsibilityadoption of the plan of liquidation may cause our common shares to no longer be listed on the NYSE.
Although we believe that the adoption of the plan of liquidation will not cause our common shares to fail to meet the listing requirement of the NYSE, it is possible that as we reduce our overall assets through the distribution of sales proceeds whether to satisfy debt, expenses, our Series D Preferred Shares, Senior Notes or to make liquidation distributions to our shareholders, we may fail to satisfy the requirement to cause our common shares to remain listed on the NYSE. If this were to occur, the ability to transfer your common shares would be substantially limited which may reduce the market price for reviewingyour common shares.
Certain institutional shareholders may be required to sell their common shares or our common shares may fail to meet the process for assessingrequirements to be on certain indexes as a result of the major risks facing us andplan of liquidation.
Upon the options for their mitigation. Trustees are entitled to rely on management andadoption of the adviceplan of liquidation, the governing documents of certain of our outside advisorsinstitutional investors may prohibit them from holding our common shares. Similarly, any index to which our common shares are a member such as the Russell 2000 may have restrictions that would require our common shares to no longer be part of such index. If either or both of these were to be the case, such institutional investors and auditors, but must at all times have a reasonable basis forother investors who invest in stocks included on such reliance. This responsibility is addressed in a numberindex would be required to divest of ways. First, our Audit Committeethe common shares they hold which would create downward pressure on a quarterly basis reviews and discusses with management, our internal auditor and our independent registered public accounting firm our major risk exposures and the policies management has implemented to monitor such exposures, including our financial risk exposures and risk management policies. Second, we have adopted a Corporate Compliance and Business Ethics Compliance Program which established an Ethics and Compliance Committee, consistingtrading price of our President, Chief Financial Officer, Internal Auditor, Human Resources Director, and general counsel, or such personscommon shares. If this were to occur, shareholders who effectively serve in such capacities or performsell common shares prior to the roles attendant thereto. The Ethics and Compliance Committee conducts an annual compliance risk assessment to include consideration of compliance risk-related information otherwise identified through operationcompletion of the Corporate Compliance and Business Ethics Compliance Program (such as information from internal audit reports; reports of possible violations; and issues raised in connection with training sessions). The Ethics and Compliance Committee also incorporates information aboutliquidation may receive less than the changing nature of our business (such as the development of new services, the acquisition of new business, the entry into a new venture, the imposition of new requirements, or the entry into new geographical markets) into the risk assessments. The results of these reviews are reported directly to Audit Committee and the Board. Third, our Board further oversees risk through provisions of our Declaration of Trust, By-laws and general corporate governance policies which provide that (i) each of our Board Committees consist solely of Trustees who qualify as “independent” under the requirements of the New York Stock Exchange, (ii) a majority of our Trustees qualify as independent, (iii) Board approval is required for any acquisition or disposition in excess of $10,000,000 and (iv) approval of our Conflicts Committee is required for approval of any transactions involving a conflict of interest, or potential thereof.
Board Meetings
During 2012, the Board met or acted through written consent 22 times. Each of the Trustees attended either in person or telephonically 75% or more of the aggregate number of meetings of the Board held in 2012. It is the policy of the Board to have all members of the Board in attendance at the Annual Meeting, or if unavailable to attend in person, to make arrangement, if possible, to participate by telephone or video conference. All members of the Board attended in person the 2012 Annual Meeting of Shareholders.
Board Committees
Our Declaration of Trust and our By-laws give the Board the authority to delegate its powers to a committee appointed by the Board. All committees are required to conduct meetings and take action in accordance with the directions of the Board and the provisions of our By-laws. The Board has appointed four standing committees: an audit committee, a compensation committee, a nominating and corporate governance committee, and a conflicts committee. Certain of the committees' principal functions are described below.estimated liquidation proceeds.
Audit CommitteeThere can be no assurance that our adoption of the plan of liquidation will result in greater returns to you on your investment within a reasonable period of time than you would receive through other alternatives reasonably available to us at this time.
The Audit Committee:
| · | reviews annual and quarterly consolidated financial statements with our management and independent registered public accounting firm; |
| · | recommends the appointment and reviews the performance, independence, and fees of our independent registered public accounting firm and the professional services they provide; |
| · | oversees our system of internal accounting controls and the internal audit function; and |
| · | discharges such other responsibilities specified in the listing standards of the New York Stock Exchange for audit committees. |
The Board has adoptedIf our shareholders approve the plan of liquidation, you will no longer participate in any future earnings or growth of our assets or benefit from any increases in the value of our assets once such assets are sold. While our board believes that a written charter for the Audit Committee, which is availableliquidation at our website www.winthropreit.com, under the link “Corporate Governance”. A printed copythis time will be more likely to provide you with a greater return on your investment within a reasonable period of the charter is alsotime than you would receive through other alternatives reasonably available to any Shareholder who requestsus at this time, such belief relies on certain assumptions and judgments concerning future events. Therefore, it in writing to the Trust’s Secretary at 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114.
The current members of the Audit Committee are Messrs. Blasberg, Goldberg and Seidler. Mr. Seidler serves as the Audit Committee Chairman. The Audit Committee meets periodically throughout the year both through formal meetings and written consents as well as through informal discussions as necessary. During the 2012 fiscal year, the Audit Committee met five times. All members of the Audit Committee attended either in person or by telephone conference call all meetings of the Audit Committee. Representatives of PwC, our independent registered public accounting firm for the year ended December 31, 2012, attended all meetings of the Audit Committee. The Audit Committee met on March 5, 2013 with representatives of PwC to discuss our 2012 consolidated financial statements.
The Board has concludedis possible that each member of the Audit Committee is “financially literate” as such term is defined in the listing standards of the New York Stock Exchange and that Mr. Seidler, the chairman of the Audit Committee, and Mr. Blasberg meet the SEC definition of "audit committee financial expert." We are currently in compliancecontinuing with the listing requirements of the New York Stock Exchange relating to audit committee qualification, and the Board has determined that its Audit Committee possesses sufficient financial expertise to effectively discharge its obligations.
For further information with respect to the Audit Committee, see “AUDIT COMMITTEE REPORT” which begins on page 20 of this Proxy Statement.
Compensation Committee
The Compensation Committee:
| · | recommends to the Board the compensation policies and arrangements for our officers, Trustees, advisors and affiliates; |
| · | discharges such other responsibilities specified in the listing standards of the New York Stock Exchange for compensation committees; and |
| · | reviews the “COMPENSATION DISCUSSION AND ANALYSIS” section of this Proxy Statement commencing on page 21 of this Proxy Statement and issues its report which can be found on page 22 of this Proxy Statement. |
The Board has adopted a written charter for the Compensation Committee, which is available at our website www.winthropreit.com, under the link “Corporate Governance”. A printed copy of the charter is also available to any Shareholder who requests it in writing to the Trust’s Secretary at 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114.
The current members of the Compensation Committee are Messrs. McWilliams, Rudolph, Seidler and Zalkind. Mr. Zalkind serves as the chairman of the Compensation Committee. During the 2012 fiscal year the Compensation Committee met six times. All members of the Compensation Committee attended either in personstatus quo or telephonically 75%pursuing one or more of the aggregate numberother alternatives could provide you with a greater return within a reasonable period of meetingstime. In that case, we will be foregoing those opportunities if we implement the plan of liquidation. If the plan of liquidation is not approved by you and our other shareholders, our board intends to evaluate our remaining strategic alternatives.
Our board may amend the plan of liquidation even if you approve it.
Even if you vote to approve the plan of liquidation, our board may amend the plan of liquidation without further shareholder approval, to the extent permitted by Ohio law.
Approval of the Compensation Committeeplan of liquidation may lead to shareholder litigation which could result in costs and distract our management.
Historically, extraordinary corporate actions by a company, such as our proposed plan of liquidation, sometimes lead to securities class action lawsuits being filed against that company. We may become involved in this type of litigation as a result of our proposal of, or the adoption of, the plan of liquidation. As of the date of this proxy statement no such lawsuits relative to the plan of liquidation were pending or, to our knowledge threatened. If such a lawsuit is filed against us, the litigation may be expensive and, may divert management’s attention from implementing the plan of liquidation and otherwise operating our business. If we do not prevail in such a lawsuit, we may be liable for damages which would reduce (and may significantly reduce) our cash available for distribution.
We may incur a 100% tax on any prohibited transactions.
Assuming that we remain qualified as a REIT, we will incur a 100% tax on our net income and gain derived from our sale of any property that we are treated as holding primarily for sale to customers in the ordinary course of business. We believe, but cannot assure, that all of our properties are held for investment and that none of the asset sales that we intend to make pursuant to the plan of liquidation should be subject to this tax.
Approval of the plan of liquidation will cause our accounting basis to change, which could require us to write-down one or more of our assets.
Once the shareholders approve the proposed plan of liquidation, we must change our basis of accounting from the going-concern basis to that of the liquidation basis of accounting. In order for our financial statements to be in 2012accordance with generally accepted accounting principles under the liquidation basis of accounting, all of our assets must be stated at their estimated net realizable value, and all of our liabilities must be recorded at the estimated amounts at which the liabilities are expected to be settled. Based on the most recent available information, if the plan of liquidation is adopted, we may make liquidating distributions that exceed the carrying amount of our net assets. We, however, cannot assure you what the ultimate amounts of such liquidating distributions will be. Therefore, there is a risk that the liquidation basis of accounting may entail write-downs of certain of our assets to values substantially less than their respective carrying amounts, and may require that certain of our liabilities be increased or certain other than Mr. Rudolph.liabilities be recorded to reflect the anticipated effects of an orderly liquidation.
NominatingUntil the plan of liquidation is approved, we will continue to use the going-concern basis of accounting. If our shareholders do not approve the plan of liquidation, we will continue to account for our assets and Corporate Governance Committeeliabilities under the going-concern basis of accounting. Under the going-concern basis, long-lived assets to be sold or disposed of should be reported at the lower of carrying amount or estimated fair value less cost to sell. For long-lived assets to be held and used, when a change in circumstances occurs, our management must assess whether we can recover the carrying amounts of our long-lived assets. If our management determines that, based on all of the available information, we cannot recover those carrying amounts, an impairment of value of our long-lived assets has occurred and the assets should be written down to their estimated fair value.
Writing down our assets could make it more difficult to negotiate amendments to our credit agreements or result in defaults under any restructured credit agreements that we may enter. In addition, write-downs in our assets could reduce the price that a third party would be willing to pay to acquire your shares or our assets.
We may be unable to sell certain of our assets held in ventures.
We currently hold a number of our assets in ventures with third parties. Pursuant to the terms of certain of these agreements, the consent of our venture partner is required to the sale of the underlying asset or our interest in some of these ventures. If we are unable to obtain our venture partner’s consent we may have difficulty in timely selling such asset or may need to acquire our venture partner’s interest through the exercise of our dispute resolution provisions which, in all such cases, may cause us to incur additional expenses and result in a delay in the sale of such assets which could reduce our liquidating distributions.
We may have underestimated the amount of prepayment fees or defeasance charges on our mortgages.
In calculating our estimated net asset value range, we have assumed that the purchasers of our properties will assume certain mortgages on the underlying property, which contain penalties in the event of the prepayment of those mortgages. The Nominatingsale of our properties pursuant to the plan of liquidation will trigger these penalties unless the purchasers assume (and/or are allowed to assume) the corresponding mortgage. We may be unsuccessful in negotiating the assumption of any underlying mortgages in the sale of any of our properties, which could negatively affect the amount of cash available for distribution pursuant to the plan of liquidation.
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
Any statements included in this proxy statement, including any statements in the documents that are incorporated by reference herein or therein that are not strictly historical are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements contained or incorporated by reference herein should not be relied upon as predictions of future events. Certain forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans, intentions or anticipated or projected events, results or conditions. Such forward-looking statements are dependent on assumptions, data or methods that may be incorrect or imprecise and Corporate Governance Committee:they may be incapable of being realized. Such forward-looking statements include statements with respect to:
| · | reviews the qualificationsdeclaration or payment of current and potential Trustees including determining whether they are “independent” under the listing standards of the New York Stock Exchange;dividends by us; |
| · | reviews each Trustee's continued service on the Board; |
| · | reviews outside activities of Board members and resolves, to the extent not referred to the Conflicts Committee, any issue of possible conflict of interest related thereto; |
| · | considers nominees for Trustees submitted in writing to the Chairman of the Nominating Committee (along with other information submitted in accordance with our By-laws and the Declaration of Trust), which are submitted by our executive officers, current Trustees, search firms engaged by the Nominating Committee, if any, by others in its discretion and, nominees for Trustee proposed by a Shareholder in accordance with the terms of our By-laws and Declaration of Trust; |
| · | considers proposals submitted by Shareholders for inclusion in the Proxy Statement for our Annual Meeting of Shareholders if they are submitted in writing to the Chairman of the Nominating Committee at our principal address in accordance with the provisions of our By-laws and Declaration of Trust and so long as the submitting Shareholder meets the qualifications and complies with the procedures provided in the proxy rules of the SEC. All such proposals shall be accompanied by information with respect to the submitting Shareholder sufficient for the committee to determine whether such qualifications are met; |
| · | reviews any other Shareholder communications intended for our management unless such communication is directed to a specific Trustee or Trustees; |
| · | recommends nominations for members of the Board; |
| · | reviews and assesses the adequacy of the charters of the Audit Committee, Compensation Committee and Conflicts Committee; and |
| · | discharges such other responsibilities specified in the listing standards of the New York Stock Exchange for nominating and corporate governance committees. |
The Board has adopted a written charter for the Corporate Governance and Nominating Committee, which is available at our website www.winthropreit.com, under the link “Corporate Governance”. The Board has also adopted Corporate Governance Guidelines which is also available at our website www.winthropreit.com, under the link “Corporate Governance.” A printed copy of the charter and the guidelines are also available to any Shareholder who requests them in writing to the Trust’s Secretary at 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114.
The current members of the Nominating and Corporate Governance Committee consisted of Messrs. Goldberg, McWilliams and Zalkind. Mr. Goldberg serves as the chairman of the Nominating and Corporate Governance Committee. During the 2012 fiscal year the Nominating and Corporate Governance Committee met once. All members of the Nominating and Corporate Governance Committee attended the meeting.
Conflicts Committee
The Conflicts Committee:
| · | considersthe ownership, management and approves, on behalfoperation of the Trust, all material transactions that relate to conflicts of interests between us and our affiliates, on the one hand, and certain named parties including (i) FUR Advisors (and any successor advisor), Michael Ashner, and any of their affiliates, (ii) a beneficial owner of more than 4.9% of the issued and outstanding Common Shares, either directly or upon the conversion of any of our preferred shares of beneficial interest, or (iii) a beneficial owner of more than 4.9% of any other entity in which we hold a 10% or greater interest; andproperties; |
| · | advisespotential acquisitions or dispositions of our properties, assets or other businesses; |
| · | our policies regarding investments, acquisitions, dispositions, financings and other matters; |
| · | our qualification as a real estate investment trust under the Board on actions to be taken by us or matters related to us upon requestInternal Revenue Code of 1986, as amended; |
| · | the Board or the Nominating or Corporate Governance Committee, which may include conflicts of interest.real estate industry and real estate markets in general; |
The Board has adopted a written charter for the Conflicts Committee, which is available at our website www.winthropreit.com, under the link “Corporate Governance”. A printed copy of the charter is also available to any Shareholder who requests it in writing to the Trust’s Secretary at 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114.
The Conflicts Committee consists of all non-management Trustees of the Board. Mr. McWilliams serves as the chairman of the Conflicts Committee. During the 2012 fiscal year the Conflicts Committee met or acted through unanimous written consent twice.
Independence of Trustees
Pursuant to the Nominating and Corporate Governance Committee’s Charter, the Committee undertook its annual review of Trustee independence in March 2013. During this review, the Committee considered transactions and relationships between each Trustee or any member of his or her immediate family and the Trust and its subsidiaries and affiliates, including those reported under “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” below. The Committee also examined transactions and relationships between Trustees or their affiliates and members of our senior management or their affiliates. The purpose of this review was to determine whether any such relationships or transactions were inconsistent with a determination that the Trustee is independent in accordance with Section 303A.02(a) and (b) of the listing standards of the New York Stock Exchange. In particular, the Committee reviewed with counsel responses given by the Trustees in their Trustee Questionnaires, asked counsel if he was aware of any relationships between the Trustees and us or our affiliates and reviewed the bright-line independence tests set forth in Section 303A.02(b).
As a result of this review, the Board affirmatively determined that each of Messrs. Blasberg, Goldberg, McWilliams, Rudolph, Seidler and Zalkind are independent of the Trust and its management in accordance with Section 303A.02(a) and (b) of the listing standards of the New York Stock Exchange. Mr. Ashner and Ms. Tiffany are not considered independent because they serve as our executive officers as well as their ownership interest in FUR Advisors. See “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” below.
Trustee Nominating Process
The Nominating and Corporate Governance Committee will consider written recommendations from Shareholders for nominees to the Board. A Shareholder who wishes to recommend a person to the Nominating and Corporate Governance Committee for nomination by the Trust must submit a written notice by mail to the Nominating and Corporate Governance Committee c/o the Trust’s Secretary, 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114. Such a written recommendation must be received no later than 120 days in advance of the annual meeting of Shareholders and should include the information required by ARTICLE I, Section 7 of the Trust’s Bylaws including (i) the candidate’s name, business address and other contact information, (ii) a complete description of the candidate’s qualifications, experience, background and compensation (if any) from the Trust, as would be required to be disclosed in the Proxy Statement pursuant to Regulation 14A of the Exchange Act, and (iii) a signed statement by the candidate in which he or she consents to being named in the Proxy Statement as a nominee and to serve as a Trustee if elected.
The Nominating and Corporate Governance Committee recommends nominees for election to the Board based on a number of criteria including: | · | the availability of debt and equity financing; |
| · | Personal qualities and characteristics, accomplishments and reputation in the business community;interest rates; |
| · | Current knowledge of, and contacts in, the Trust's industry or other industries relevant to the Trust's business or the geographic locations of the Trust’s assets;general economic conditions; |
| · | Abilitysupply of real estate investment opportunities and willingness to commit adequate time to Board and committee matters;demand; |
| · | The fit of the individual's skills and personality with those of other Trustees and potential Trustees in building a Board that is effective, collegial and responsive to the needs of the Trust; andtrends affecting us or our assets; |
| · | Diversitythe effect of viewpoints, experienceacquisitions or dispositions on capitalization and other demographics.financial flexibility; |
There | · | the anticipated performance of our assets and of acquired properties and businesses, including, without limitation, statements regarding anticipated revenues, cash flows, funds from operations, earnings before interest, depreciation and amortization, property net operating income, operating or profit margins and sensitivity to economic downturns or anticipated growth or improvements in any of the foregoing; and |
| · | our ability, and that of our assets and acquired properties and businesses, to grow. |
You are no differencescautioned that, while forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance and they involve known and unknown risks and uncertainties. Actual results may differ materially from those in the mannerforward-looking statements as a result of various factors. The information contained or incorporated by reference in whichthis proxy statement, including, without limitation, the Nominatinginformation set forth in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2013, that are incorporated by reference in this proxy statement, identifies important factors that could cause such differences. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may reflect any future events or circumstances, except as required by applicable laws, rules or regulations.
THE SPECIAL MEETING
Date, Time and Corporate Governance Committee evaluate a candidate whoPlace
The special meeting will be held in the 11th Floor Conference Center in the offices of Katten Muchin Rosenman, 575 Madison Avenue, New York, New York 10022 on August 5, 2014 at 1:00 p.m. local time, and any adjournment or postponement of the meeting. This proxy statement and the accompanying Notice of Special Meeting of Shareholders and proxy card are first being mailed to shareholders on or about June 26, 2014.
Purposes
At the special meeting, you will be asked to consider and vote upon the plan of liquidation. The board is recommendednot currently aware of any business to be acted upon at the special meeting other than as described in this proxy statement. If other matters are properly brought before the special meeting, however, the persons appointed as proxies will have authority to vote on those matters according to their discretion.
Record Date for nomination for membershipVoting; Number of Votes
Only shareholders of record at the close of business on June 19, 2014 are entitled to receive notice of and to vote at the Board by a Shareholder. The Nominatingspecial meeting. On such date there were issued and Corporate Governance Committee has not received any recommended nominations from Shareholders in connection with the Annual Meeting.outstanding 36,417,584 common shares.
The Nominating and Corporate Governance Committee identifies potential nominees for Trustee through a variety of business contacts, including current executive officers, Trustees and Shareholders. The Nominating and Corporate Governance Committee may, to the extent it deems appropriate, retain a professional search firm and other advisors to help identify potential nominees for Trustee.Quorum
The Nominating and Corporate Governance Committee evaluates candidates to the Board by reviewing their biographical information and qualifications. If the Nominating and Corporate Governance Committee determines that a candidate is qualified to serve on the Board, such candidate is interviewed by the Lead Independent Trustee, at least one memberA majority of the Nominatingvotes eligible to be cast represented in person or by proxy constitutes a quorum for the meeting. If a quorum is not present, the special meeting may be adjourned without further notice to a date not more than eleven months after the original record date at which a quorum is present, and Corporate Governance Committeeshares represented by proxies may be voted for such adjournment.
Common shares present but abstaining and the Chief Executive Officer. Members of the Board also have an opportunity to interview qualified candidates. As described above, the Nominating and Corporate Governance Committeebroker non-votes will also consider candidates recommended by Shareholders. The Nominating and Corporate Governance Committee then determines, based on the background information and the information obtainedbe included in the interviews, whether to recommend to the Board that the Trust nominate a candidate for approval by the Shareholders to fill a Board position. With respect to an incumbent Trustee whom the Nominating and Corporate Governance Committee is considering as a potential nominee for re-election, the Nominating and Corporate Governance Committee reviews and considers the incumbent Trustee’s service to the Trust during his or her term, including the number of meetings attended, levelshares present at the special meeting for purposes of participation,establishing a quorum. A broker non-vote occurs on a matter when a broker holding stock in street name returns an executed proxy but does not vote on the matter because the broker lacks discretionary authority from the beneficial owner to vote on that matter. The missing votes are deemed to be "broker non-votes."
Voting Methods and overall contributionProxies
You can vote on the matters to come before the special meeting as follows:
By Mail: | Vote, sign, date your proxy card or voter instruction card and mail it in the postage-paid envelope. |
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In Person: | Vote at the special meeting. If you hold your shares through a broker, you must supply a legal proxy assigning you with direct voting power. |
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By Telephone: | If provided, call the telephone number listed on the proxy card or voter instruction card you received and follow the instructions provided. You will be prompted for certain information that can be found on your proxy card. |
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Via Internet: | If provided, log on to the website listed on the proxy card or voter instruction card you received and follow the on-screen instructions. You will be prompted for certain information that can be found on your proxy card. |
Required Vote
Once a quorum is present or represented by proxy at the special meeting, approval of the plan of liquidation requires the affirmative vote of at least a majority of the outstanding common shares. At the close of business on June 19, 2014, the record date, there were 36,417,584 common shares outstanding.
Our senior management owns or controls 3,419,946 common shares representing approximately 9.4% of the votes eligible to be cast at the special meeting and have agreed to vote all such common shares FOR the plan of liquidation. Accordingly, the affirmative vote of approximately an additional 40.7% of the votes eligible to be cast at the special meeting, or common shares, will be sufficient to approve the plan of liquidation.
Revocation of Proxies
A shareholder may revoke a proxy given with respect to the Trust in addition to such person’s biographical information and qualifications. The Nominating and Governance Committee gives consideration to a wide range of diversity factors as a matter of practice when evaluating candidates tospecial meeting at any time before it is voted at the Board and incumbent Trustees, but the Committee does not have a formal policy regarding Board diversity.special meeting by:
In evaluating candidates to the Board, the Nominating and Corporate Governance Committee also takes into account the skill sets that are needed to balance and complement the skill sets of other candidates and members of the Board, and the skills and expertise of a candidate that facilitate the Trust’s compliance with the rules of the SEC and New York Stock Exchange. | · | executing and submitting a later dated proxy card; |
Communication with Trustees | · | subsequently authorizing a proxy through the Internet or by telephone; |
Shareholders and any other interested party wishing to communicate with the Board may do so in one of four ways: in person at our annual Shareholders meeting: by mail: by telephone: or via the internet. Any Shareholder can mail correspondence to any Trustee, or the Board as a whole, by addressing it to our outside general counsel, Post Heymann & Koffler LLP, Two Jericho Plaza, Wing A, Suite 211, Jericho, New York 11753, Attention: David J. Heymann. After the mail is opened and screened for security purposes, it will be logged in, and (other than mail that Mr. Heymann determines to be trivial or obscene) then forwarded to the particular Trustee identified, or the Board as a whole, as requested in the Shareholder's correspondence. Trivial items will be delivered to the Trustees at the next scheduled Board meeting. Obscene items will not be forwarded. | · | timely sending a written revocation of proxy to our Secretary at our principal executive office, 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114; |
Shareholders and any other interested party wishing to communicate only with non-management Trustees may do so in the manner described above or by calling toll free at 866-241-4955 or via the internet through the Governance page on our website, www.winthropreit.com. All communications through the toll-free number or our website are forwarded solely to Mr. Heymann and will be handled in the same manner as written correspondence described above. | · | attending the special meeting and voting in person, but the presence (without further action) of a shareholder at the special meeting will not constitute revocation of a previously delivered proxy. |
CompensationShareholders holding shares in street name at a broker or bank custodian must follow the procedures of Trusteessuch broker or bank custodian if they wish to revoke a previous voting instruction.
The following table sets forth a summaryInformation Regarding Tabulation of the compensation received by our non-officer Trustees during 2012:
Name | | Fees Earned or Paid in Cash | | | Stock Awards | | | Option Awards | | | All Other Compensation | | | Total | |
| | | | | | | | | | | | | | | |
Arthur Blasberg, Jr. | | $ | 62,750 | | | | - | | | | - | | | | - | | | $ | 62,750 | |
Howard Goldberg | | $ | 87,750 | | | | - | | | | - | | | | - | | | $ | 87,750 | |
Thomas F. McWilliams | | $ | 50,500 | | | | - | | | | - | | | | - | | | $ | 50,500 | |
Scott Rudolph | | $ | 32,500 | | | | - | | | | - | | | | - | | | $ | 32,500 | |
Lee Seidler | | $ | 82,750 | | | | - | | | | - | | | | - | | | $ | 82,750 | |
Steven Zalkind | | $ | 50,500 | | | | - | | | | - | | | | - | | | $ | 50,500 | |
Vote
The current non-officer Trustees, Messrs. Blasberg, Goldberg, McWilliams, SeidlerAll proxies, ballots and Zalkind, each receive $50,000 annually for their services as Trustees, $500 for each Board or committeevotes tabulated at a meeting they attend in person,of our shareholders are confidential, and $250 for each Board or committee meeting they attend telephonically. In addition, each memberthe votes will not be revealed to anyone, other than the inspector of elections, unless it is necessary to meet applicable legal requirements. Nevertheless, we intend to issue a press release stating the results of the Audit Committee (other than the chairman) receives $10,000 annually for servingvote on the Audit Committeeplan of liquidation and any other matter that may properly be brought at the chairmanspecial meeting.
Solicitation of Proxies and Expenses
We will bear the Audit Committee receives an additional $30,000 annually. For serving as Lead Independent Trustee, Mr. Goldberg receivesentire cost of solicitation of proxies from our shareholders. We have retained MacKenzie Partners, Inc. to assist in soliciting proxies and will pay approximately $25,000 annually. Trustees who are also our officers receive no compensation for serving on the Board. However, all Trustees are reimbursed for travel expenses and otherplus reasonable out-of-pocket expenses incurred in connection with their service on the Board and its committees. In addition, in recognition of the additional time required and efforts of the Compensation Committee in connection with the January 2013 modificationssolicitation. Copies of solicitation materials will be furnished to the advisory agreement,brokerage houses, fiduciaries and custodians holding in January 2013 the Board votedtheir names common shares beneficially owned by others to pay a one-time fee of $25,000forward to Mr. Zalkind and $2,000 per Compensation Committee meeting attended by the other membersthose beneficial owners. We will reimburse persons representing beneficial owners of the Compensation Committee upcommon shares for their expenses in forwarding solicitation materials to a maximumthose beneficial owners. Original solicitation of $10,000.proxies by mail may be supplemented by telephone or personal solicitation by our trustees, officers or other representatives of the Trust. No additional compensation will be paid to our trustees, officers or other representatives for these services.
CODEBACKGROUND OF ETHICSTHE TRUST’S DECISION TO LIQUIDATE
The decision of the board to seek your approval for the plan of liquidation followed a lengthy and detailed process in which the board, together with the assistance of Barclays, reviewed several different options for ways in which we could maximize the value of your investment in us over a reasonable period of time including:
| · | continuing under the current or a revised business plan; |
| · | acquiring through merger or otherwise the assets of another company; |
| · | seeking to dispose of our assets through a merger or a portfolio sale; |
| · | liquidating all of our assets. |
Background
We are a diversified REIT. As such, in making investments we have adoptedtraditionally not focused on any specific type of real estate asset (i.e., office, retail, apartment, etc.), or any particular geographic area within the United States (i.e., northeast, primary markets, central business districts, etc.), or the asset’s priority in the capital stack (i.e., mortgage debt, mezzanine debt, CUSIP securities, preferred or common equity, fee ownership, etc.). As an opportunistic investor, we have sought to maximize long-term shareholder value through a Codetotal return value approach to real estate investing. As a result of Ethics, which is applicablethis emphasis on total return, we have sought to all Trustees and our executive officers, including the principal executive officer, the principal financial officer and the principal accounting officer,achieve consistent growth in underlying asset value as well as FUR Advisorsa stable, predictable dividend for our shareholders. We have not selected or managed our investments for short-term dividend growth, but rather towards achieving overall superior total risk adjusted return. Our approach has focused on opportunistic investments and its employees. The Code of Ethics can be obtained upon request from our Secretary and at our website www.winthropreit.com in the Governance section under the link “Charters”.
AUDIT COMMITTEE REPORT
The Audit Committee is responsible for providing independent, objective oversight of the Trust’s accounting functions and internal controls. The Audit Committee is comprised of three Trustees, each of whom is “independent” as defined by the existing New York Stock Exchange listing rules and SEC rules. Members of the Audit Committee must also satisfy the independence requirements of Section 10A(m)(3) of the Exchange Act.
Management is responsible for the Trust’s internal controls and financial reporting process. The Trust’s independent registered public accounting firm is responsible for performing an independent audit of the Trust’s consolidated financial statements in accordancehas provided us with the standards of the Public Company Accounting Oversight Board (PCAOB) and to issue a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes.
The Audit Committee has reviewed and discussed the Trust’s audited consolidated financial statements for the fiscal year ended December 31, 2012, with the Trust’s management, and also has discussed with PricewaterhouseCoopers LLP (“PwC”), the matters required to be discussed by Statement on Auditing Standards No. 61 (AICPA, Professional Standards, Vol. 1, AU Section 380) as amended, as adopted by the PCOAB in Rule 3200T. The Audit Committee has received both the written disclosuresability to capitalize on evolving market conditions and the letter from PwC required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with PwC that firm’s independence.flexibility to pursue diverse opportunities.
BasedIn 2007 our common share price, as with other REITs, declined significantly during the recession. Although our common share price initially outperformed the REIT market after the recession, in 2011 our price began to lag as compared to other REITs. In August 2012, responding to investor feedback which described our investments as complex, we began reporting an analysis of a range of our estimated net asset value for each of our assets and deducted corporate liabilities to estimate a range of net asset value per common share. We expected this would assist the market in understanding our company and assets. We updated the net asset value on a quarterly basis. Unfortunately, during the Audit Committee’s discussions with management,period in which we have been reporting our net asset value our common share price has, for the Trust’s internal auditormost part, been below our low case estimated net asset value and PwC,in all cases well below our high case estimated net asset value.
As a REIT we are reliant on raising funds in the Audit Committee recommendedmarket through sales of debt and equity securities as we are required to distribute not less than 90% of our taxable income each year, thereby restricting our ability to retain earnings. When we have sought to issue common shares in the past, most recently September 2013, the newly-issued shares have been sold at a discount not only to the Trust’s Board of Trustees thatthen trading price for our common shares but, more significantly, to our net asset value resulting in the Trust’s audited consolidated financial statementsnecessity to achieve higher returns on investments in order for the fiscal year ended December 31, 2012proceeds derived from such offering to be includedaccretive to shareholders.
In addition to the foregoing, in the Trust’s Annualfourth quarter of 2013 we saw a substantial increase in market demand for real estate equity and debt asset investments thereby increasing purchase prices for assets with a corresponding decrease in expected returns for such assets. This increase in demand is driven by a number of factors including continued low interest rates, an ever increasing supply of equity and debt capital, and a market perception of a growing economy, all of which have combined to depress investment returns relative to risk. Consequently, it has become difficult to accretively deploy our capital relative to its cost. As a result, the number of opportunistic investments that satisfy our investment strategy and minimum return parameters has diminished substantially. Furthermore, we are limited to the number of assets that we can sell in any calendar year due to applicable federal tax law restrictions in order to maintain our status as a REIT.
Net Asset Value Analysis
As previously noted, beginning with the quarterly period ended June 30, 2012, we have been providing a net asset value range in our supplemental financial information available on our website (www.winthropreit.com) and furnished with a Current Report on Form 10-K as8K which is filed with the SEC and available at the SEC’s EDGAR website. See “WHERE YOU CAN FIND MORE INFORMATION” below. The net asset value range provided in our supplemental financial information for the period March 2013.31, 2014 was $13.79 and $15.79 per common share. A copy of our net asset values at March 31, 2014 is attached hereto as Exhibit B.
| Members of the Audit Committee
Lee Seidler (Chairman)
Arthur Blasberg, Jr.
Howard Goldberg
|
In presenting our net asset values, we have provided a low case and high case analysis. In both cases, the net asset value is determined based on an estimate of asset values and liabilities as of the end of the applicable period and without making any adjustments for transaction costs that would be incurred if assets were sold including any prepayment penalty associated with the Trust’s debt. In addition, with respect to specific assets, the net asset value for such assets is based on the assumptions provided in the notes to the net asset value tables. The difference in the low case and high case estimates relate primarily to the capitalization rate used in determining the value of the operating property, the occupancy and leasing assumptions used in certain instances and, in the case of certain loan assets, the difference between par value or a mark-to-market value.�� The net asset value does not include in its range of value any potential profit for the following investments, each of which is valued at our cost basis: the Luxury Residential Portfolio, Urban Center and Quilceda. In addition, the Trust’s investments in 701 Seventh Avenue and Tacoma are valued at our cost basis plus our unpaid 12% priority return through March 31, 2014 with no value added for additional return or profit potential that may result from the completion of construction and/or occupancy of the properties.
Notwithstanding anything to the contrary set forth in anyChronology of our filings under the Securities Act of 1933 or the Exchange Act that might incorporate SEC filings, in whole or in part, the foregoing Audit Committee Report will not be incorporated by reference into any such filings.
COMPENSATION DISCUSSION AND ANALYSIS
GeneralEvents
As described aboveIn view of the foregoing as well as the continuing costs associated with operating a public company, at the November 5, 2013 board meeting our trustees discussed at length the Trust’s options including whether to seek to acquire another company or continue under “Compensation Committee” on page 16 of this Proxy Statement, the Compensation Committee is responsible for recommending to the Board the compensation policies and arrangementscurrent or a revised business plan, seek an acquirer for the Trust's officers, Trustees, advisors and affiliates. The Compensation Committee acts pursuant toTrust or liquidate. At the Compensation Committee Charter and is comprised of four members who are independent within the meaning of Section 303A.02 of the listing standards of the New York Stock Exchange. A copy of the Compensation Committee Charter is available upon request from the Trust’s Secretary at 7 Bulfinch Place, Suite 500, Boston, Massachusetts 02114 and atmeeting our website www.winthropreit.com.
Executive Compensation Principles
We do not provide any remuneration to our executive officers and do not have any direct employees. We retain FUR Advisors to provide substantially all of our assettrustees agreed that management accounting and investor services. Information relating to fees paid to FUR Advisors is set forth under “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” below.
Historically, the Compensation Committee reviewed annually the terms of the advisory agreementshould begin such discussions with FUR Advisorsinvestment banking firms to determine their consistency with market terms and whether the retention of an outside advisor is more favorablea process for sourcing strategic alternatives. In addition, we retained legal counsel to us than retaining direct employees. The Compensation Committee also reviewed annually the fees payable to FUR Advisors in comparison to the general and administration costs of other public real estate investment trusts. In connection with the most recent annual review, the Compensation Committee and FUR Advisors negotiated amendments to the advisory agreement intended to provide appropriate incentives to management to enhance value for our shareholders and to provide additional protections to us. Pursuant to the Compensation Committee's recommendation and with the Board's approval, we entered into an amended and restated advisory agreement effective January 1, 2013 which, among other things, extended the term for five years (subject to earlier termination byassist us in certain events), modified the required return on the threshold amount for which the incentive fee is payable, reduced the amount of the advisory fee on account of certain dividends in the future, and provided for a supplemental fee payable to FUR Advisors in the event of an early termination of the advisory agreement under certain circumstances or on the liquidation or disposition of the Trust.
The Compensation Committee determined, and the Board ratified such determination, that the modifications to the advisory agreement were warranted in order to secure management's services for a period of five years, and provide additional incentive to management based on the current market value of our Common Shares while retaining early termination rights and limiting the situations in which the incentive fee is payable on termination.
If we were to retain our executive officers directly, the Compensation Committee would, in making its compensation recommendations to the Board likely consider (1) the potential holding periods of our assets, (2) the number of individual investments held by us, (3) the amount of asset management required with respect to our assets, (4) our overall investment prospects and our short and long-term business plan, and (5) with respect to a specific executive officer, such officer's responsibilities, experience and overall performance. The Compensation Committee would further seek to attract and retain highly qualified executives and to motivate them to work together as a team to maximize our financial performance on an annual and long-term basis thereby resulting in increase shareholder value.process.
Share Options/GrantsOn November 18, 2013, management reported that it discussed the Trust’s options with two investment banking firms with whom the Trust had an existing relationship and the board and management agreed to retain Barclays to represent us in connection with the pursuit of a strategic transaction. Barclays recommended that after they spend time diligencing the Trust and its reported net asset value, at our direction, they would look for target companies to be acquired by us as well as make inquiries to likely potential acquirers of the Trust. Upon our request, Barclays engaged in this process during November and the early portion of December 2013. In connection with this process, Barclays and our management generated a list of potential interested parties and built-out an electronic data site containing information about us and our assets and operations and to which potential acquirers would be given access.
As a result of Barclays’ efforts, it became evident that the most likely strategic alternative for the Trust was to seek to be acquired and, at our direction, Barclays began informal discussions with selected potential acquirers regarding an acquisition of the Trust. During November and December 2013 Barclays contacted at our direction 12 potential acquirers and received indications of interest from five of them, each of which entered into a confidentiality agreement and were given access to an electronic data site containing detailed information about the Trust and its assets including all relevant legal documentation with respect to the Trust and its assets.
From March 2005late December 2013 through February 7, 2014 each company that signed a confidentiality agreement had access to May 2007, no share option or share grant plans were in effect pursuantthe data site. In addition, four of the five potential acquirers visited certain of our more significant assets and had in-person and telephonic meetings with our asset management team to which we could issue options. In May 2007,discuss our Shareholders approved the Winthrop Realty Trust 2007 Long Term Incentive Plan pursuant to which share options or share grants can be granted. In January 2013 the Board approved the issuance of 66,667assets. Michael Ashner, our Chairman and 33,333 Common Shares to Michael L. AshnerChief Executive Officer, and Carolyn Tiffany, respectively, which shares are subjectour President, also had in-person and telephonic meetings with each of the potential acquirers and, together with other members of management and our legal counsel, made themselves available to certain restrictions and forfeiture as set forth in the grant award. In addition, in January 2013 the Board approved the issuance of an additional 500,000 Common Shares which will also be subjectsuch potential acquirers to restrictions and forfeiture and will only be issued if the Plan Amendment is approved or a subsequent plan is approved. When issued, the 500,000 Common Shares will be allocated as set forth above under “PROPOSAL NO. 3 – AMENDMENT TO 2007 LONG TERM INCENTIVE PLAN-Plan Awards-Number of Shares.”address their questions.
COMPENSATION COMMITTEE REPORTAt the December 23, 2013 board meeting, Mr. Ashner advised the members of the board that one of the potential acquirers was showing strong interest in acquiring the Trust. The board determined that any offers for the Trust would need to be weighed against the potential liquidation value as well as continuing to operate the Trust either under its current business plan or an alternative business plan.
The Compensation Committee is comprised entirely of independent Trustees. The Compensation Committee has reviewedboard met again on January 13, 2014 at which time Mr. Ashner and Ms. Tiffany updated the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
| Members of the Compensation Committee
Steven Zalkind (Chairman)
Thomas F. McWilliams
Lee Seidler
|
Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act of 1933 or the Exchange Act that might incorporate SEC filings, in whole or in part, the foregoing Audit Committee Report will not be incorporated by reference into any such filings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There were no relationships among members of the Compensation Committee,board as to the progress of the interested parties and the nature of meetings and requests of such parties.
On January 17, 2014, a letter which outlined the process for providing a bid for the Trust was made available on the data site. The only parameters for the bid were that it be provided by February 7, 2014, state the per common share price, the type of consideration (i.e., cash, securities), how the Series D Preferred Shares and Senior Notes would be addressed, and any other conditions to the transaction.
On January 24, 2014, the board again met at which time Mr. Ashner and Ms. Tiffany updated the members of the Board or our executive officers who served during our 2012 fiscal year that require disclosure under Item 407(e)(4) of Regulation S-K promulgated underboard on the Securities Exchange Act of 1934, as amended. All current membersstatus of the Compensation Committee are considered independent under our Corporate Governance Guidelines.potential acquirers review of the Trust. In addition, at the meeting the board approved a form of merger agreement that was then made available on the data site to the potential acquirers and on which they were to comment in connection with a bid. Further, the board discussed the terms of an engagement letter with Barclays which was approved by written consent on January 29, 2014.
On February 1, 2014 the board again met and was provided with a further update as to the potential acquirers. Mr. Ashner reported that one of the interested parties had advised Barclays that it would not be making an offer.
At the February 7, 2014 bid date, the Trust received one written offer, which we refer to as the Offer. The Offer provided for aggregate consideration of $14.25 per common share which was to be paid in the form of cash and securities. The securities component was fixed at a specified number of shares of the offeror’s common stock which was to be valued based on the volume weighted average price of the offeror’s common stock for the prior 30 day trading period at the time of the announcement of a transaction, which we refer to as the VWAP. The cash component would then equal the aggregate consideration of $14.25 per common share less the value of the offeror’s common stock. Based on the then current VWAP, the price would have been paid 62% in the offeror’s common stock and the balance ($5.42) in cash. To the extent that the VWAP increased between the offer date and the announcement of the transaction, the cash portion would decrease and to the extent the VWAP decreased between the offer date and the announcement of the transaction, the cash portion would increase. In addition, the Offer provided the offeror with the ability to convert to an all cash price if it chose. Accordingly, if the offeror’s per share stock price increased so that it was in excess of the VWAP at the time the transaction was announced, then the offeror could pay all cash thereby limiting any upside to the shareholders. Conversely, if the offeror’s per share stock price decreased below the VWAP, the ultimate consideration paid to shareholders would be less than $14.25 in total consideration. At the time of the Offer, the VWAP was below the then current trading price of the acquirer’s common stock which would have likely resulted in a higher VWAP at the announcement of the transaction and, therefore, a smaller cash component.
On February 8, 2014 the board met to discuss the Offer. At the meeting the amount and nature of the consideration were discussed. The board determined that there was significant risk in the ultimate proceeds that would be achieved by the shareholders as the offeror was then trading at a price close to its 52 week high. As such, there was an increased potential for the downside risk associated with the stock component as the transaction would likely not close for at least three months following the transaction’s announcement. Based on the board’s discussions, Mr. Ashner was instructed to continue negotiations with the offeror in an effort to limit the downside risk by obtaining either an all cash offer or a downside protection on the stock price.
On February 10, 2014 the board met on two occasions. At the first meeting Mr. Ashner reported that the offeror verbally indicated that it would reduce the stock portion of the consideration (thereby increasing the cash portion) but would not provide any downside protection to the shareholders in the event that the offeror’s stock price dropped below the VWAP at the time the transaction was announced. Our board then analyzed the Offer price and the downside price risk associated with the Offer as compared to the amount shareholders might receive in a liquidation. Our board agreed that downside price risk protection was essential and instructed Mr. Ashner to advise Barclays of this fact. Later that day, at the second meeting, Mr. Ashner reported that Barclays verbally informed him that the offeror would not provide any downside protection on the stock component but would consider an all cash offer of $13.65 per common share, a 4% discount to the original offer price.
From February 10 to February 15, 2014 Barclays continued discussions with the offeror and on February 16, 2014 the board met with counsel and representatives of Barclays to assess the Trust’s options. At the meeting representatives of Barclays detailed the process to date and reviewed with our board management's liquidation analysis (see chart below) which was generally derived from the base and favorable net asset values at December 31, 2013 with management’s adjustments to certain assets for potential increases in value during the liquidation period.
Discount Rate | Value per Share |
| Low | High |
6.0% | $15.12 | $20.06 |
8.0% | $13.98 | $18.53 |
10.0% | $12.98 | $17.17 |
12.0% | $12.08 | $15.96 |
14.0% | $11.27 | $14.88 |
16.0% | $10.55 | $13.91 |
The liquidation analysis assumed that asset sales would be timed to limit the amount of any prepayment premiums and the need to obtain venture partner or lender consents and would occur over a five year period. It further assumed transaction expenses of one percent and that net proceeds would be applied first to pay the liquidation preference on the Series D Preferred Shares and redeem the Senior Notes before being distributed to shareholders. The liquidation analysis assumed that after payment of the Series D Preferred Shares liquidation preference and redemption of the Senior Notes there would be periodic dividend payments made to shareholders from operating cash flow and sales proceeds during the projected five year period and that the last distribution of liquidation proceeds would be December 31, 2018. Further, the liquidation analysis assumes a $9,300,000 termination fee payable to FUR Advisors in 2018 in accordance with the terms of the existing advisory agreement. In addition, at the February 16, 2014 board meeting the sale of the Trust’s Crossroads I and II properties at a price in excess of the December 31, 2013 net asset value for these properties was approved. In the board’s business judgment it determined that shareholders could ultimately receive a better return either through a liquidation or by continuing to operate the Trust as a going concern.
The board met on March 4, 2014 at which time they again discussed whether to continue to operate the Trust in accordance with the existing business plan or under a revised business plan. The board also discussed the implications of adopting a plan of liquidation. The Trust’s management reported that the Trust’s assets that were being marketed for sale (the Jacksonville, Florida and Amherst, New York properties) were receiving bids or strong indications of interest at prices in excess of the low net asset value range. At the meeting, our trustees agreed that if investment opportunities did not increase or the common share price did not trend upwards, they would likely seek to explore a liquidation alternative. Management also informed the board that due to limitations relating to REIT rules which limit the number of dispositions in any taxable year, the Trust’s ability to sell additional assets in 2014 was significantly limited.
At a March 31, 2014 board meeting, management reported that the number of assets that could be sold for the balance of 2014, absent adopting a plan of liquidation, was limited to one in addition to those currently under contract or being marketed for sale in light of applicable REIT rules. The board members were advised that prices for real estate assets continue to be favorable. Management also reported that investment opportunities of the nature that the Trust seeks (i.e., opportunistic) continues to be limited and at prices with substantial downside risk. Further, the board was advised that the announcement of a plan of liquidation would not prevent any potential offers for the Trust to be considered by the board.
On April 7, 2014 the board again met and discussed the tax implications of a liquidation as well as other potential ownership structures for the Trust. In addition, the board discussed the terms of Mr. Ashner’s exclusivity agreement and whether any modification was warranted or advisable in connection with a liquidation. The board determined to discuss any modifications to the exclusivity agreement at such time when, if at all, a formal request for a modification is made by Mr. Ashner.
On April 28, 2014 our board again discussed considerations associated with adopting a plan of liquidation. Counsel discussed with the board the process for adopting a plan of liquidation, the provisions contained in the plan of liquidation as well as those set forth in liquidating trust agreements utilized in prior liquidations. Mr. Ashner discussed with the board potential options to assist FUR Advisors to incentivize certain of its personnel who provide services to the Trust to remain in its employ as well as granting discretion to Mr. Ashner with respect to modifications to the restricted shares previously granted or possible replacement grants. The board unanimously determined, based in part on the all of the information obtained during the preceding five month period, to adopt the plan of liquidation and submit it to the shareholders for approval. The board acknowledged that to the extent an offer would be received for the Trust as a whole, the board would analyze the offer in accordance with its obligations. In this regard, subsequent to the announcement of the board’s adoption of the plan of liquidation, we entered into a confidentiality agreement with a creditworthy third-party that expressed a potential interest in acquiring the Trust as a whole. To date, such third-party has not made a offer to the Trust.
REASONS FOR APPROVING THE LIQUIDATION AND RECOMMENDATION OF THE BOARD
Upon culmination of the foregoing process, adoption of a plan of liquidation was approved by a unanimous vote of the board on April 28, 2014 and the board recommends that shareholders vote FOR the plan of liquidation. In connection with approving the plan, determining that it is fair to, and in the best interest of shareholders, and recommending that shareholders approve the plan, our board consulted with the Trust’s financial and legal advisors and considered the following factors:
| · | The relative stagnant price of the common shares over the past three years that was prevalent prior to the announcement of our board’s determination to adopt a plan of liquidation; |
| · | The continued failure of the common share price to approximate the low end of our reported net asset value; |
| · | The limited trading volume in the common shares that was prevalent prior to the announcement of our board’s determination to adopt a plan of liquidation and the certainty of liquidity that a liquidation offers at a value that is expected to be not less than the low end of our reported net asset value range; |
| · | The nature of our business strategy which is to invest in opportunistic real estate investments and the lack of such investments in the current market environment which would be accretive to our shareholders particularly in light of our cost of capital; |
| · | The limitation, absent a plan of liquidation, on the number of assets that we can sell in any calendar year due to applicable federal tax law restrictions in order not to be subject to a 100% tax on the gain from sales; |
| · | Our inability to raise capital through the sale of common shares in a manner that is not dilutive to existing shareholders; |
| · | The inability to obtain an offer for the entire company that our board believed was commensurate with the projected proceeds that could be obtained from a liquidation of our assets; |
| · | The overall return to shareholders during the past five years which is both below the Trust’s peer group (i.e., REITs with a diversity and other property focus and have a current market value as of January 27, 2014 of less than $750 million) and the MSCI US REIT index; |
| · | The board’s estimate that based on current market conditions the amount ultimately distributable on account of each common share in connection with a liquidation would exceed $13.79, the low range of our most recently reported net asset value, after taking into account our costs, expenses and other obligations. We cannot assure you that the Trust will be successful in disposing of its assets for values equaling or exceeding $13.79. If values of the Trust's assets decline or if the costs and expenses related to such asset sales exceed those estimated for purposes of determining net asset value, then the liquidation may not yield distributions which equal or exceed $13.79. No assurances can be made as to the actual amount and timing of distributions which will be made over a substantial period of time. See “RISK FACTORS” above; |
| · | The expectation that all liquidating distributions will be paid in cash thereby eliminating the uncertainty associated with the receipt of non-cash consideration; |
| · | The costs of continuing to operate a public company; |
| · | The federal income tax benefits to our shareholders that may be derived from the adoption of a plan of liquidation. |
In addition to the risk factors noted above under “RISK FACTORS”, the board also considered potentially negative factors in their deliberations concerning the liquidation, including the following:
| · | There could be no assurance that the Trust would be successful in disposing of its assets for values equal to or exceeding the low range of our estimate of net asset value or that the dispositions would occur in the time frame expected; |
| · | The anticipated expenses and potential for unforeseen expenses that will or may be incurred in connection with the sale of our assets and the continued operation of the Trust; |
| · | The inability to take advantage of future changes in market conditions which could provide for presently unforeseen opportunistic investments that satisfy our investment strategy and minimum return parameters; |
| · | Depending on their tax basis in their shares, shareholders may recognize taxable gain in connection with the completion of the liquidation; |
| · | We may determine to transfer unsold assets to a liquidating trust, which may cause our shareholders to recognize taxable gain at the time of such transfer and may have adverse tax consequences on tax-exempt and foreign shareholders; |
| · | If the plan is approved and implemented, shareholders will no longer participate in any future earnings or growth of the Trust’s assets or benefit from any increases in their value once the Trust’s assets are sold; |
| · | As opposed to a business combination with a relatively short time frame during which a third party would acquire the Trust, the liquidation process would involve a longer distribution process and will require the Trust to incur potentially larger administrative and other costs; |
| · | Certain conflicts of interest could exist for the Trust’s management in connection with the liquidation. See “THE PROPOSAL – PLAN OF LIQUIDATION- Economic Interests in the Proposed Liquidation Other Than Common Shareholders” below; |
| · | The likelihood that the price of the common shares will decrease as we make distributions to shareholders; |
| · | The potential loss of key personnel who provide services to the Trust and FUR Advisors which could impact adversely on our day-to-day operations as well as the ability to consummate sales of our assets. |
THE PROPOSAL — PLAN OF LIQUIDATION
The Proposal
We are requesting that you approve the proposed plan of liquidation which will allow us to commence a formal liquidation of our assets in a manner which, as noted above, our board believes is in the best interest of our shareholders. By voting in favor of the plan of liquidation, you will also approve and ratify the actions described in this proxy statement which the Trust and the board have undertaken in connection with the proposed plan.
Key Provisions of the Plan of Liquidation
The following is a brief description of the key provisions of the plan of liquidation.
| · | Pursuant to applicable REIT rules, in order to be able to deduct liquidating distributions as dividends, we must complete the disposition of our assets within two years after the date the plan of liquidation is adopted by the shareholders. We intend to satisfy this requirement by distributing our unsold assets into a liquidating trust at the end of the two-year period following the adoption by shareholders of the plan of liquidation. The liquidating trust would be required to dispose of any such remaining assets within the subsequent three year period. See “Liquidating Trust” below. |
| · | As soon as reasonably practicable after the approval of the plan of liquidation, FUR Advisors will seek to dispose of all our assets, without further approval of shareholders, on such terms and in a manner FUR Advisors deems to be in our best interest. As to sales equal to or in excess of $10,000,000, FUR Advisors will continue to seek the consent of the board as required by the Trust’s by-laws. |
| · | Cash reserves of the Trust in excess of $500,000 will be invested only in short-term U.S. Treasuries or other short-term obligations. |
| · | We will use reasonable efforts to maintain the listing of the common shares on the NYSE and if the shares are delisted, we will use all reasonable efforts to have the shares listed on another national stock exchange or on the NASDAQ stock market. |
| · | We will not be permitted to make any new investments in real estate or real estate related assets. We will, however, be able to satisfy any existing contractual obligations including any capital call requirements and acquisitions or dispositions pursuant to buy-sell provisions under existing venture documentation, pay for required tenant improvements and capital expenditures at our real estate properties and to repurchase our existing common shares, Series D Preferred Shares and Senior Notes, if we so choose. The only contractual obligation to our existing ventures that we are presently subject to is our agreement to fund up to an additional $31,133,000 to our 701 Seventh Avenue venture. |
| · | Proceeds received from the liquidation of our assets will likely be applied in the following order of priority. |
| o | First, to satisfy our operating expenses including fees payable to FUR Advisors and the cost of any directors and officers insurance policy; |
| o | Second, to be retained as reserves to the extent necessary to satisfy financial covenants to which we are subject. Currently, in order for us not to breach any of our financial covenants under any debt financing to which we are subject we are required to maintain a net worth of not less than $120,000,000 and have liquid assets of not less than $8,500,000; |
| o | Third, to be retained as reserves to satisfy any contractual obligations to which we are subject; |
| o | Fourth, to be retained as reserves for estimated tenant improvement, leasing commissions, capital expenditures and other potential cash needs; |
| o | Fifth, to satisfy the liquidation preference our Series D Preferred Shares; |
| o | Sixth, to satisfy, or establish sufficient reserves to satisfy, our Senior Notes; |
| o | Seventh, for dividend payments to our shareholders and/or repurchase of common shares. |
| · | Until the earlier of the date of final liquidation and six years after we file a certificate of dissolution, we will not amend in any manner any provision relating to the liabilities or indemnification of our trustees, offices, fiduciaries and agents that adversely affects the rights of such persons presently. In addition, we may maintain insurance to cover the same or provide other arrangements with respect thereto. |
| · | The plan of liquidation provides that the board, and such officers of the Trust as the board may direct, are authorized to interpret the provisions of the plan of liquidation and to take such further actions as they deem necessary or desirable to wind up the affairs of the Trust expeditiously and complete the liquidation including, without limitation, entering into or modifying such agreements (including those with FUR Advisors and its affiliates) and retaining such third parties as the board deems advisable. |
| · | Appoint such persons as trustees of the liquidating trust as the board so determines which may or may not include members of management and/or independent trustees. |
Liquidating Trust
If we have not disposed of all our assets within 24 months of the adoption by shareholders of the plan of liquidation, we intend to establish a liquidating trust to which we will distribute in kind our unsold assets. This is necessary in order for us (assuming we remain qualified as a REIT) to be eligible to deduct amounts distributed pursuant to the plan of liquidation as dividends and thereby not be subject to federal income tax on such amounts.
If we establish the liquidating trust, we will distribute to our then shareholders beneficial interests in the liquidating trust in proportion to the number of common shares owned by such shareholders. This distribution generally would be a taxable event to such shareholders, and may subject such shareholders, if tax-exempt or non-U.S. shareholders, to United States federal income tax with respect to the activities of the liquidating trust. The sole purpose of the liquidating trust will be to liquidate any remaining assets and, after paying any remaining liabilities, distribute the proceeds of the sale of assets formerly owned by us to the holders of the interests in the liquidating trust. The liquidating trust, if established, would be managed by one or more trustees designated by our board at such time (which may or may not include members of management and/or independent trustees) and would continue the process of selling our assets including through the continued retention of FUR Advisors or, if deemed advisable, another third party advisor. The liquidating trust will be obligated to pay any of our expenses and liabilities that remain unsatisfied.
Interests in the liquidating trust will not be freely transferable except by will, intestate succession or operation of law. Therefore, the recipients of the interests in the liquidating trust will not realize any value from these interests unless and until the trustees of the liquidating trust distributes cash or other assets to them, which will be solely in the discretion of the liquidating trusts’s trustees. Unlike the Trust which is required to comply with all of the filing requirements of the Securities and Exchange Commission for publicly traded entities, based on current guidance provide by the Securities and Exchange Commission we anticipate that the liquidating trust will be required to file only annual and current reports with the Securities and Exchange Commission.
Any plan to transfer assets to a liquidating trust is only a contingency plan. Therefore, except as noted above our board has not determined the detailed terms or structure for a liquidating trust. The characteristics of any liquidating trust will be determined by our board at a future date depending on factors such as the number and value of assets to be held by the liquidating trust and the number of holders of interests in the liquidating trust. Notwithstanding the foregoing, the terms of the liquidating trust will require that all assets must be disposed of within three years from the date such assets are deposited in the liquidating trust.
Estimate of Amount and Timing of Distributions to be Paid to the Shareholders
After the sale or other liquidation of our assets, and after providing for the payment of our obligations and liabilities and satisfying all preference payments to holders of our Series D Preferred Shares and, to the extent required, the Senior Notes, we will distribute to shareholders the remaining cash proceeds we receive from the sale or other liquidation of our assets in cancellation of all of our outstanding common shares. Subject to the terms of any of our indebtedness, all net property sale proceeds, if any, will be distributed no less frequently than semi-annually and paid to shareholders of record at the close of business on the record dates to be determined by the board, pro rata based on the number of shares owned by each.
Our board presently believes that based on current market conditions the amount ultimately distributable on account of each common share in connection with a liquidation would exceed $13.79, the low range of our most recently reported net asset value, after taking into account our costs, expenses and other obligations. It is impossible to determine with certainty the total liquidation proceeds that may ultimately be available for distribution to shareholders. See "RISK FACTORS” above which detail the risks associated with the realization of the estimated amount of liquidation proceeds distributable to shareholders including the following:
| · | the board’s estimate of liquidation proceeds includes estimates of the costs and expenses of the liquidation. If actual costs and expenses exceed such estimated amount, actual proceeds could be less than estimated; |
| · | if liabilities, unknown or contingent at the time of the mailing of this proxy statement, later arise which must be satisfied or reserved for as part of the plan of liquidation, the aggregate proceeds could be less than estimated; |
| · | delays in consummating the plan of liquidation could result in additional expenses and result in actual proceeds that are less than estimated; and |
| · | the estimates were not audited or reviewed by independent auditors. |
The actual amount and timing of, and record dates for, shareholder distributions will be determined by the board and will depend upon the timing and proceeds of the sale of the Trust’s assets, and the amounts deemed necessary by the board to pay or provide for the Trust’s liabilities and obligations.
Cancellation of Shares
Upon the final distribution on our common shares (including a transfer of our assets to a liquidating trust), you will be required to surrender your share certificates, if any. If we have established a liquidating trust, your interest in the liquidating trust will be in proportion to the number of common shares owned by you at the time of such final distribution.
Economic Interests in the Proposed Liquidation Other Than Common Shareholders
Pursuant to the existing advisory agreement, FUR Advisors is entitled to its base management fee. In addition, the existing advisory agreement provides that FUR Advisors will become entitled to receive a termination fee equal to the lesser of (i) the base management fee paid to FUR Advisors for the twelve months prior to adoption of the plan of liquidation (approximately $9,545,000 at August 5, 2014, the date of the special meeting) or (ii) 20% of all dividends paid on account of the common shares after such time as we have paid, after the date of this proxy statement, approximately $12.81 of dividends per common share (which amount increases by a per annum rate equal to the greater of (x) 4% or (y) the 5 year U.S. Treasury Yield plus 2.5% per annum, such amount, the “growth factor”). Furthermore, after we have paid, after the date of this proxy statement, dividends of approximately $15.74 per common share (which amount increases by the growth factor), FUR Advisors will be entitled to an incentive fee equal to 20% of all amounts that otherwise would be paid on the common shares. It is presently impossible to determine whether either of such fees will be paid, the amount or timing of such payments as the amount and timing of such fees are dependent on the amount and timing of dividends and other distributions paid on the common shares.
Pursuant to the terms of the existing advisory agreement, all liquidating dividend payments paid in excess of the growth factor are deemed a return of capital. As a result, as the liquidation preference is paid on our Series D Preferred Shares and liquidating dividends on our common shares are paid, the base advisory fee will be reduced in accordance with the terms of the existing advisory agreement. Finally, to the extent not then forfeited or subsequently modified, upon the earlier of the sale of all or substantially all of our assets or the transfer of all our assets and liabilities to a liquidating trust, the restricted shares issued to members of our management team and other personnel who provide services to FUR Advisors will no longer be subject to forfeiture.
NYSE Listing
If the plan of liquidation proposal is adopted by our shareholders, we expect that our common shares will continue to be listed on the NYSE under the symbol “FUR”. We anticipate, however, that the market price of our common shares will decline as we make liquidating distributions to shareholders. In this regard, there is a possibility that we will not be able to maintain continued compliance with the NYSE’s listing requirements or that the NYSE will take action to delist our securities.
Within 24 months of the adoption by shareholders of the plan of liquidation, we intend to distribute our remaining assets to a liquidating trust. If our common shares are delisted from the NYSE prior to such time, we may elect to transfer our remaining assets to a liquidating trust following any such delisting.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE PLAN OF LIQUIDATION
The following is a general discussion of certain material U.S. federal income tax consequences of the liquidation to a holder of common shares who holds the shares as a capital asset (within the meaning of section 1221 of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code”). We did not obtain an opinion of legal counsel with respect to the plan of liquidation, and the discussion below is not binding on the Internal Revenue Service (IRS) or the courts. The discussion assumes that we have qualified as a REIT for federal income tax purposes at all times commencing with our taxable year ended December 31, 2004 and will remain qualified as a REIT until such time, if at all, as we transfer any remaining assets and liabilities to a liquidating trust. The discussion does not address all federal income tax consequences that may be relevant to you (including the potential application of the Medicare contribution tax) in light of your particular circumstances, and also does not address any state, local or foreign tax consequences of the liquidation. Your tax treatment may vary depending upon your particular situation. The discussion below does not address the U.S federal income tax consequences of the liquidation to all categories of shareholders, including shareholders subject to special treatment under federal income tax laws, such as financial institutions, dealers in securities, tax-exempt entities (except as discussed under “--- Liquidating Distributions to U.S. Tax-Exempt Shareholders” below), non-U.S. shareholders (except as discussed under “--- Liquidating Distributions to Non-U.S. Shareholders” below), regulated investment companies, and shareholders that are classified as partnerships for U.S. federal income tax purposes.
The discussion is based on current provisions of the Code, the Treasury regulations promulgated thereunder and judicial and administrative authorities. All these authorities are subject to change, and any change may be effective retroactively. The discussion below is not tax advice. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO YOU OF THE LIQUIDATION.
Federal Income Tax Consequences to the Trust
So long as we remain qualified as a REIT, we expect to be able to deduct our liquidating distributions to our shareholders, including the fair market value of any assets that we transfer to a liquidating trust, as dividends (to the extent of our earnings and profits, calculated without reduction for capital losses) in computing our taxable income for the taxable years in which we make liquidating distributions. Accordingly, we do not expect to be subject to federal corporate income tax for the taxable years in which we liquidate. Should we lose our REIT status, we will be subject to federal corporate income tax on our taxable income and gain from operations and liquidating sales for the taxable year in which our qualification as a REIT terminates and any subsequent years, without deduction for distributions made to our shareholders.
So long as we remain qualified as a REIT, any net gain that we realize from "prohibited transactions" will be subject to a 100% tax. "Prohibited transactions" are sales of property held primarily for sale to customers in the ordinary course of a trade or business. Whether a real estate asset is property held primarily for sale to customers in the ordinary course of a trade or business is a highly factual determination. We believe that our properties are held for investment and the production of rental income, and that none of our sales of properties pursuant to the plan of liquidation should constitute a prohibited transaction. However, we cannot assure that the IRS will not successfully challenge our position for purposes of applying the 100% tax.
Liquidating Distributions to U.S. Shareholders
For purposes of the discussion below, a “U.S. shareholder” is a holder of our common shares who, for United States federal income tax purposes, is a citizen or resident of the United States, a domestic corporation (or other entity treated as a corporation for federal income tax purposes), an estate the income of which is subject to U.S. federal income tax regardless of its source, or a trust if a United States court can exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all the substantial decisions of the trust, or the trust has a valid election in effect to be treated as a U.S. person.
Liquidating distributions made by us will not be dividend income to you, notwithstanding our treatment of such distributions as dividends for purposes of computing our taxable income. Distributions in liquidation, including your pro rata share of the fair market value of any assets that we transfer to a liquidating trust, will first reduce the tax basis of your common shares and be non-taxable to you to that extent. Any further liquidating distributions will be taxable to you as capital gain. If the sum of all liquidating distributions made to you is less than your tax basis in your common shares, the difference will constitute a capital loss to you at the time you receive your final liquidating distribution, which will include our distribution of any remaining assets to a liquidating trust. (See “--- Liquidating Trust” below.) Your gain or loss and holding period will be calculated separately for each block of common shares you hold; with a block consisting of shares acquired at the same cost in a single transaction. Capital gain or loss will be long-term or short-term, depending on whether your common shares have been held for more than one year. However, if you recognize a capital loss on the liquidation and have held your common shares for six months or less, your loss will be treated as a long-term capital loss to the extent you previously received capital gain dividends from us with respect to your common shares.
Long-term capital gains of non-corporate U.S. shareholders may qualify for reduced federal income tax rates, while capital gains of corporate U.S. shareholders generally are taxable at regular corporate federal income tax rates. U.S. shareholders who are individuals, estates or trusts may be subject to a 3.8% Medicare tax on their gain from the liquidation, and should consult their tax advisors concerning the applicability of this tax. The deductibility of capital losses is subject to certain limitations.
Backup withholding (currently at a rate of 28%) may apply to payments made to you in connection with the liquidation unless you (i) are a corporation or come within certain other exempt categories and, if required, demonstrate this fact, or (ii) provide your taxpayer identification number and certify as to not being subject to backup withholding, which you generally may do by providing us with a properly completed and signed IRS Form W-9. Any amount withheld will be creditable against your income tax liability. Individual U.S. shareholders who do not provide us with their correct taxpayer identification number may be subject to penalties imposed by the IRS. We may also be required to withhold on liquidating distributions made to any U.S. shareholders who fail to certify their non-foreign status.
Liquidating Distributions to Tax-Exempt U.S. Shareholders
Liquidating distributions made by us generally will not be unrelated business taxable income (“UBTI”) to a tax-exempt U.S. shareholder that does not hold its common shares as “debt-financed property” within the meaning of the Code. (However, tax-exempt U.S. shareholders may recognize UBTI with respect to assets (if any) transferred to a liquidating trust; see “—Liquidating Trust” below.) Tax-exempt U.S. shareholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans exempt from federal income taxation under Code sections 501(c)(7), (c)(9), (c)(17) and (c)(20), respectively, are subject to different UBTI rules which may require them to treat liquidating distributions as UBTI and as to which they should consult their tax advisors.
Liquidating Distributions to Non-U.S. Shareholders
For purposes of the discussion below, a “non-U.S. Shareholder” is any shareholder who is neither a U.S. shareholder nor a partnership or other entity treated as a partnership for U.S. federal income tax purposes. The discussion below assumes that a non-U.S. shareholder’s investment in our common shares is not effectively connected with a trade or business conducted in the United States by the non-U.S. shareholder, or, if an applicable tax treaty so provides, that its investment in our shares is not attributable to a United States permanent establishment maintained by the non-U.S. shareholder. Also, special rules apply to a non-U.S. shareholder who is an individual who has been present in the United States for 183 days or more during the taxable year in which a liquidating distribution is made to him, and such a non-U.S. shareholder should consult his tax advisor concerning these rules. We recommend that non-U.S. shareholders consult their own tax advisors to determine the U.S. federal, state, local and foreign income and other tax consequences to them of the liquidation.
The IRS takes the position that, under the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), liquidating distributions by a REIT that are attributable to gain from the REIT’s sale or exchange of United States real property interests (“FIRPTA distributions”) generally are taxable to non-U.S. shareholders as if such gain were effectively connected with a U.S. trade or business. However, FIRPTA distributions made by us to a non-U.S. shareholder with respect to shares that are regularly traded on an established securities market located in the United States, such as our common shares, generally will not be subject to FIRPTA if the non-U.S. shareholder has not owned more than 5% of our common shares at any time during the one-year period ending on the date of the distribution. Provided our common shares continue to be regularly traded on an established U.S. securities market, non-U.S. shareholders qualifying for this exception generally will not be subject to U.S. federal income tax on liquidating distributions made to them. (However, non-U.S. shareholders may be subject to U.S. taxation with respect to assets (if any) transferred to a liquidating trust; see “—Liquidating Trust” below.) Non-U.S. shareholders not qualifying for this exception will be taxed on FIRPTA distributions at the same capital gain rates applicable to U.S. shareholders (subject to any applicable alternative minimum tax and special alternative minimum tax in the case of nonresident alien individuals), and we will be required to withhold U.S. tax equal to 35% from such distributions. The 35% tax withheld may be claimed by a non-U.S. shareholder as a credit against its reported U.S. federal income tax liability. In addition to regular U.S. income tax, corporate non-U.S. shareholders that do not qualify for the FIRPTA exception may be subject to a 30% branch profits tax on FIRPTA distributions made by us unless the shareholder is entitled to treaty relief or other exemption.
Generally, we will be required to report annually to the IRS the amount of FIRPTA distributions paid to a non-U.S. shareholder, such shareholder’s name and address, and the amount of U.S. tax withheld, if any. Liquidating distributions paid to a non-U.S. shareholder may be subject to backup withholding tax (currently at a 28% rate) unless such shareholder establishes an exemption, for example, by properly certifying its non-U.S. status on an IRS Form W-8BEN or other applicable version of IRS Form W-8.
The Foreign Account Tax Compliance Act (“FATCA”) provisions of the Code and subsequent IRS guidance provide that a 30% withholding tax will be imposed on distributions made after June 30, 2014 to a non-U.S. entity if such entity fails to satisfy certain disclosure and reporting rules. In general, these rules require that (i) in the case of a foreign financial entity, the entity identify and provide information in respect of financial accounts held (directly or indirectly) by U.S. persons and U.S.-owned foreign entities, and (ii) in the case of a non-financial foreign entity, the entity identifies and provides information in respect of substantial U.S. owners of such entity. In the event of noncompliance with the FATCA requirements, withholding at a rate of 30% on our liquidating distributions (other than FIRPTA distributions made to a non-U.S. shareholder that does not qualify for the FIRPTA exemption discussed above) made to the non-complying non-U.S. shareholder which is a foreign financial entity will be required, and such shareholder will be required to seek a refund from the IRS to obtain a refund of any amounts withheld. Non-U.S. shareholders should consult their tax advisors concerning these rules.
Liquidating Trust
If we have not disposed of all our assets within 24 months after the adoption of the plan of liquidation, we intend to establish a liquidating trust to which we will transfer our unsold assets at the end of such 24 month period. A trust will be treated as a liquidating trust if it is organized for the primary purpose of liquidating and distributing the assets transferred to it, and if its activities are all reasonably necessary to and consistent with that purpose. Although neither the Code nor the Treasury regulations thereunder provide any specific guidance as to the length of time a liquidating trust may last, the IRS's ruling guidelines call for a term not to exceed three years, which period may be extended to cover the collection of installment obligations. If we establish a liquidating trust, we intend to comply with such IRS guidelines.
An entity classified as a liquidating trust generally is not subject to tax on any income or gain recognized by it. Instead, if you are a shareholder when a liquidating trust is established, you will be treated as the owner of your pro rata portion of each asset, including cash, received and held by the liquidating trust. Accordingly, you will be treated as having received a liquidating distribution equal to the amount of your share of the sum of any cash and the fair market value of any asset transferred to the liquidating trust, and will recognize gain at that time to the extent such amount is greater than your remaining tax basis in your common shares (as reduced by all prior liquidating distributions) notwithstanding that you may not currently receive a distribution of cash or any other assets with which to satisfy the resulting tax liability. You will recognize taxable gain or loss when all or part of your pro rata portion of an asset held by the liquidating trust is disposed of for an amount greater or less than the fair market value of such asset at the time it was transferred to the liquidating trust. In addition, you will be required to take into account in computing your taxable income, your pro rata share of each item of income, gain and loss of the liquidating trust, the character of which items will pass through to you.
The liquidating trustee will file tax returns for the liquidating trust, and will send to each holder of an interest in the liquidating trust a separate statement setting forth the holder's share of items of income, gain, loss, deduction and credit. Each holder must report such items on its federal income tax return regardless of whether the liquidating trust makes current cash distributions. An individual U.S. shareholder who itemizes deductions may be unable to deduct his pro rata share of fees and expenses of the liquidating trust for regular federal income tax purposes except to the extent that such amount, together with the U.S. shareholder's other miscellaneous itemized deductions, exceeds 2% of his adjusted gross income, and may be unable to deduct such expenses at all for alternative minimum tax purposes.
Because shareholders would be treated as owning their respective shares of the liquidating trust's assets, they would be treated as directly engaging in the operations of the liquidating trust. As such, holders of interests in the liquidating trust that are tax-exempt entities may realize UBTI with respect to the trust’s operations, and non-U.S. holders may be considered to derive income that is effectively connected with a U.S. trade or business. In that event, non-U.S. holders would be subject to U.S. federal income tax and, for non-U.S. corporate holders, branch profits tax. Accordingly, the liquidating trust will withhold 35% of any distributions made to non-U.S. holders. That amount will be creditable against the non-U.S. holder’s U.S. federal income tax liability. Tax-exempt and non-U.S. shareholders should consult their own tax advisors regarding the U.S. federal income tax consequences that would apply to them if we were to transfer assets to a liquidating trust.
If the liquidating trust fails to qualify as such, the resulting tax consequences to the trust and the holders of trust interests will depend upon, among other things, the reasons for the trust’s failure to so qualify. If the board avails itself of the use of a liquidating trust, it is anticipated that every effort will be made to ensure that the liquidating trust will be classified as such for federal income tax purposes.
State and Local Income Tax
You may be subject to state or local taxes with respect to liquidating distributions received from us. The state or local tax treatment of liquidating distributions received from us may differ from the federal income tax treatment described above. If we transfer assets to a liquidating trust, you may be required to file income tax returns in states or localities in which the liquidating trust owns properties. You should consult your tax advisors regarding such taxes.
Transfer Taxes
Transfer taxes may be imposed in certain state and local jurisdictions in connection with sales of properties or in-kind distributions made to a liquidating trust.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of March 28, 2013June 19, 2014 (except as otherwise indicated) regarding the ownership of our Common Sharescommon shares by (i) each person who is known to us to be the beneficial owner of more than 5% of the outstanding Common Shares,common shares, (ii) each Trustee and Trustee nominee,member of the board, (iii) each executive officer named herein, and (iv) all current executive officers and Trusteeseach member of the board as a group. Except as otherwise indicated, each such Shareholdershareholder has sole voting and investment power with respect to the Common Sharescommon shares beneficially owned by such Shareholder.shareholder. As of March 28, 2013,June 19, 2014, there was 33,128,853 Common Shareswere 36,417,584 common shares outstanding.
Name and Address of Beneficial Owner | Position with the Trust | Amount and Nature of Beneficial Ownership | | | Percent of Class | | Position with the Trust | | | Amount and Nature of Beneficial Ownership | | | | | Percent of Class |
| | | | | | | | | | | | | | |
FUR Investors, LLC (1) FUR Holdings LLC WEM-FUR Investors LLC | -- | 3,415,032 | | 10.3% | | | -- | | | | 2,671,369 | | | | | 7.3 | % |
| | | | | | | | | | | | | | |
John Alba (1) | Chief Investment Officer | 3,950 | (5) | | (5) | | Chief Investment Officer | | | | 78,950 | | (4 | ) | | * | |
| | | | | | | | | | | | | |
Michael L. Ashner(1) | Chairman and CEO | 3,766,909 | (2) | | 11.4% | | Chairman and CEO | | | | 3,154,586 | | (2 | ) | | 8.7 | % |
| | | | | | | | | | | | | |
Arthur Blasberg, Jr. (3) | Trustee | 28,000 | | * | | Trustee | | | | 28,000 | | | | | * | |
| | | | | | | | | | | | | |
John Garilli(3) | Chief Financial Officer | -- | (5) | | (5) | | Chief Financial Officer | | | | 75,000 | | (4 | ) | | * | |
| | | | | | | | | | | | | |
Howard Goldberg (3) | Trustee | 74,193 | | * | | Trustee | | | | 75,079 | | | | | * | |
| | | | | | | | | | | | | |
Thomas F. McWilliams(3) | Trustee | 10,000 | | * | | Trustee | | | | 10,287 | | | | | * | |
Scott Rudolph(4) | Trustee | 98,942 | | | |
| | | | | | | | | | | | | |
Lee Seidler(3) | Trustee | 17,071 | | * | | Trustee | | | | 17,071 | | | | | * | |
| | | | | | | | | | | | | |
Carolyn Tiffany(3) | President and Trustee | 9,410 | (5) | | (5) | | President and Trustee | | | | 111,410 | | (4 | ) | | * | |
| | | | | | | | | | | | | |
Steven Zalkind(3) | Trustee | 21,494 | | * | | Trustee | | | | 22,153 | | | | | * | |
| | | | | | | | | | | | | |
All Trustees and executive officers as a group | | 4,029,969 | | 12.2% | | | | | | | 3,572,536 | | | | | 9.8 | % |
Blackrock, Inc.(6) | -- | 2,076,853 | (6) | | 6.3% | |
Morgan Stanley Morgan Stanley Investment Management Inc.(7) | -- | 1,851,234 | (7) | | 5.6% | |
The Vanguard Group Inc.(8) | -- | 3,543,988 | (8) | | 10.7% | |
Vanguard Specialized Funds-Vanguard REIT Index Fund (8) | | 1,971,931 | | 6.0% | |
Wellington Management Company, LLP(9) | | 3,275,786 | (9) | | 9.9% | |
| | | | | | | | | | | | | | |
Blackrock, Inc.(5) | | | | -- | | | | 2,744,688 | | (5 | ) | | 7.5 | % |
| | | | | | | | | | | | | | |
The Vanguard Group Inc.(6) | | | | -- | | | | 3,233,179 | | (6 | ) | | 8.9 | % |
| | | | | | | | | | | | | | |
Vanguard Specialized Funds-Vanguard REIT Index Fund (6) | | | | | | | | 2,211,513 | | (6 | ) | | 6.1 | % |