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Exhibit 10(ae)
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
BETWEEN FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
AND XXXXX X. XXXXXXXXXX
THIS AMENDMENT (this "Amendment") is made at Cleveland, Ohio, as of the 19th day
of March, 1998, between FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS,
an Ohio business trust (the "Trust"), and XXXXX X. XXXXXXXXXX, XX Xxxxxxxxx
Xxxxxx, Xxxxx 0X, Xxxxxxxxx, Xxxx 00000 ("Xxxxxxxxxx"), and amends the
Employment Agreement entered into between Xxxxxxxxxx and the Trust that is dated
July 13, 1994 (the "Employment Agreement").
WITNESSETH:
WHEREAS, Xxxxxxxxxx holds the offices of Chairman of the Board of Trustees,
Chairman of the Executive Committee of the Board of Trustee, President, and
Chief Executive Officer of the Trust;
WHEREAS, Section 12 of the Employment Agreement, as originally executed by the
parties, provided that, if it was determined that any payment by the Trust to
Xxxxxxxxxx (whether under the Employment Agreement or otherwise) would not be
deductible by the Trust for federal income tax purposes because of Section 280G
of the Internal Revenue Code of 1986, as amended (the "Code"), then the
aggregate present value of amounts payable under the Employment Agreement would
be reduced to the maximum amount that would be deductible;
WHEREAS, the Trust is party to certain Change of Control Agreements with other
officers of the Trust that were entered into in November 1997 and each of these
Change of Control Agreements provides for additional payments to be made to the
officer if it is determined that any other payment to the officer will be
subject to the 20% excise tax imposed by Section 4999 of the Code so that, after
receipt of the additional payments, the officer will be in the same position on
an after-tax basis as the officer would have been in had the other payments not
been subject to the 20% excise tax;
WHEREAS, the Employment Agreement, as originally executed, did not require
Xxxxxxxxxx to continue as an employee for a period of at least 90 days after the
occurrence of a Change of Control or Shift in Ownership before voluntary
termination by him for "Good Reason"; and
WHEREAS, this Board of Trustees has determined that it would be in the best
interest of the Trust and its shareholders to amend the Employment Agreement to
remove from the Employment
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Agreement the limitation based on Section 280G of the Code, to provide for
additional payments to Xxxxxxxxxx with respect to the 20% excise tax payable
under Section 4999 of the Code, and to require Xxxxxxxxxx to provide at least 90
days notice before any voluntary termination by him for "Good Reason" after the
occurrence of a Change of Control or Shift in Ownership;
WHEREAS, the Trust and Xxxxxxxxxx desire to enter into this Amendment and to
otherwise reaffirm the Employment Agreement in all respects;
NOW, THEREFORE, the Trust and Xxxxxxxxxx, in consideration of the premises and
the mutual covenants contained in this Amendment and in the Employment Agreement
as amended by this Amendment, agree as follows:
1. AMENDMENT TO SUBSTITUTE NEW SECTION 12 FOR ORIGINAL SECTION 12. Section 12 of
the Employment Agreement as originally executed is hereby deleted in its
entirety and there is substituted therefore the following new Section 12:
12. ADDITIONAL PAYMENTS.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it is determined (as hereinafter provided) that any
payment or distribution to or for the benefit of Xxxxxxxxxx, whether
paid or payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement or similar right (any
such payment or distribution, a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Code (or any successor
provision thereto), or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise
Tax"), then Xxxxxxxxxx shall be entitled to receive an additional
payment or payments (a "Gross-Up Payment") in an amount such that,
after payment by Xxxxxxxxxx of all taxes and including any Excise Tax)
imposed upon the Gross-Up Payment, Xxxxxxxxxx retains (or has withheld
and credited on his behalf for tax purposes) an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 12(e) hereof, all
determinations required to be made under this Section 12 (including
whether an Excise Tax is payable by Xxxxxxxxxx, the amount of such
Excise Tax, whether a Gross-Up Payment is required, and the amount of
such Gross-Up Payment), shall be made by a nationally recognized legal
or accounting firm (the "Firm") selected by Xxxxxxxxxx in his sole
discretion. Xxxxxxxxxx agrees to direct the Firm to submit its
determination and detailed supporting calculations to both Xxxxxxxxxx
and the Trust within 15 calendar days after the Date of Termination, if
applicable, or such earlier time or times as may be requested by
Xxxxxxxxxx or the Trust. If the Firm determines that any Excise Tax is
payable by Xxxxxxxxxx and that a Gross-Up Payment is required, the
Trust shall pay Xxxxxxxxxx the required Gross-Up Payment within five
business days after receipt of such determination and
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calculations. If the Firm determines that no Excise Tax is payable by
Xxxxxxxxxx, it shall, at the same time as it makes such determination,
furnish Xxxxxxxxxx with an opinion that Xxxxxxxxxx has substantial
authority not to report any Excise Tax on his federal income tax
return. Any determination by the Firm as to the amount of the Gross-Up
Payment shall be binding upon Xxxxxxxxxx and the Trust. As a result of
the uncertainty in the application of Section 4999 of the Code (or any
successor provision thereto) at the time of the initial determination
by the Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Trust should have been made (an
"Underpayment"). In the event that the Trust exhausts its remedies
pursuant to Section 12(e) hereof and Xxxxxxxxxx thereafter is required
to make a payment of any Excise Tax, Xxxxxxxxxx may direct the Firm to
determine the amount of the Underpayment (if any) that has occurred and
to submit its determination and detailed supporting calculations to
both Xxxxxxxxxx and the Trust as promptly as possible. Any such
Underpayment shall be promptly paid by the Trust to Xxxxxxxxxx, or for
his benefit, within five business days after receipt of such
determination and calculations.
(c) Xxxxxxxxxx and the Trust shall each provide the Firm access
to and copies of any books, records and documents in the possession of
the Trust or Xxxxxxxxxx, as the case may be, reasonably requested by
the Firm, and otherwise cooperate with the Firm in connection with the
preparation and issuance of the determination contemplated by Section
12(b) hereof.
(d) The fees and expenses of the Firm for its services in
connection with the determinations and calculations contemplated by
Section 12(b) hereof shall be borne by the Trust. If such fees and
expenses are initially paid by Xxxxxxxxxx, the Trust shall reimburse
him the full amount of such fees and expenses within five business days
after receipt from Xxxxxxxxxx of a statement therefor and reasonable
evidence of his payment thereof.
(e) Xxxxxxxxxx agrees to notify the Trust in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Trust of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later
than ten business days after Xxxxxxxxxx actually receives notice of
such claim. Xxxxxxxxxx agrees to further apprise the Trust of the
nature of such claim and the date on which such claim is requested to
be paid (in each case, to the extent known by Xxxxxxxxxx). Xxxxxxxxxx
agrees not to pay such claim prior to the earlier of (i) the expiration
of the 30-calendar-day period following the date on which Xxxxxxxxxx
gives such notice to the Trust and (ii) the date that any payment or
amount with respect to such claim is due. If the Trust notifies
Xxxxxxxxxx in writing at least five business days prior to the
expiration of such period that it desires to contest such claim,
Xxxxxxxxxx agrees to:
(i) provide the Trust with any written records or documents in
Xxxxxxxxxx'x possession relating to such claim reasonably
requested by the Trust;
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(ii) take such action in connection with contesting such claim
as the Trust shall reasonably request in writing from time
to time, including without limitation accepting legal
representation with respect to such claim by an attorney
competent in respect of the subject matter and reasonably
selected by the Trust;
(iii) cooperate with the Trust in good faith in order
effectively to contest such claim; and
(iv) permit the Trust to participate in any proceedings
relating to such claim;
provided, however, that the Trust shall bear and pay directly all costs
and expenses (including interest and penalties) incurred in connection
with such contest and shall indemnify and hold Xxxxxxxxxx harmless, on
an after-tax basis, for and against any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a
result of such representation and payment of costs and expenses.
Without limiting the foregoing provisions of this Section 12(e), the
Trust shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 12(e) and , at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in
respect of such claim (provided, however, that Xxxxxxxxxx may
participate therein at his own cost and expense) and may, at its
option, either direct Xxxxxxxxxx to pay the tax claimed and xxx for a
refund or contest the claim in any permissible manner, and Xxxxxxxxxx
agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Trust shall determine; provided,
however, that if the Trust directs Xxxxxxxxxx to pay the tax claimed
and xxx for a refund, the Trust shall advance the amount of such
payment to Xxxxxxxxxx on an interest-free basis and shall indemnify and
hold Xxxxxxxxxx harmless, on an after-tax basis, from any Excise Tax or
income tax including interest or penalties with respect thereto,
imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of
taxes for Xxxxxxxxxx'x taxable year with respect to which the contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Trust's control of any such contested claim shall be
limited to issues with respect to which a Gross-Up Payment would be
payable hereunder and Xxxxxxxxxx shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(f) If, after the receipt by Xxxxxxxxxx of an amount advanced by
the Trust pursuant to Section 12(e) hereof, Xxxxxxxxxx receives any
refund with respect to such claim, Xxxxxxxxxx agrees (subject to the
Trust's complying with the requirements of Section 12(e) hereof) to
promptly pay to the Trust the amount of such refund (together with any
interest paid or credited thereon after any taxes
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applicable thereto). If, after Xxxxxxxxxx'x receipt of an amount
advanced by the Trust pursuant to Section 12(e) hereof, a determination
is made that Xxxxxxxxxx is not entitled to any refund with respect to
such claim and the Trust does not notify Xxxxxxxxxx in writing of its
intent to contest such denial of refund prior to the expiration of 30
calendar days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid pursuant to this Section 12.
2. AMENDMENT TO ADD 90-DAY NOTICE REQUIREMENT TO TERMINATION FOR "GOOD REASON"
PROVISION.
(a) ADDITION OF PARENTHETICAL. The parenthetical phrase "(but only if the
termination is effective on a day that does not fall within the "90-Day Notice
Period," as defined below)" is added to Section 8(d) of the Employment Agreement
so that the portion of Section 8(d) ending with the first colon now reads as
follows:
(d) By Xxxxxxxxxx for Good Reason. Xxxxxxxxxx may terminate his
employment hereunder (but, if the termination is to be effective after
the occurrence of a Change of Control or Shift in Ownership, only if
the termination is effective on a day that does not fall within the
"90-day Notice Period," as defined below) for "Good Reason" if one or
more of the events listed in (i) through (vi) of this Section 8(d)
occurs:
(b) ADDITION OF DEFINITION OF "90-DAY NOTICE PERIOD." There is hereby added to
the end of Section 8(d), after clause (vi) thereof and all the way to the left
margin, the following definition of the term "90-day Notice Period:"
For purposes of this Section 8(d), the term "90-day Notice Period"
shall mean the single period of 90 consecutive days that commences on
the first day on which Xxxxxxxxxx gives notice to the Trust of his
intention to terminate his employment for Good Reason after a Change of
Control or a Shift in Ownership if any of the events set forth in
clause (i) through (vi) of this Section 8(d) occurs, provided that the
notice by Xxxxxxxxxx for this purpose cannot be given until after there
has occurred either a Change of Control or Shift in Ownership.
Xxxxxxxxxx may give the notice that will start the 90-day Notice Period
at any time after a Change of Control or a Shift in Ownership has
occurred, whether or not any of the events set forth in clause (i)
through (vi) of this Section 8(d) has occurred by the time Xxxxxxxxxx
gives that notice. The effect of the 90-day Notice Period is that
Xxxxxxxxxx cannot terminate his employment for Good Reason for at least
90 days after the first occurrence of a Change of Control or Shift in
Ownership. For purposes of determining the date on which Xxxxxxxxxx can
give the notice that will start the 90-day Notice Period, only the
first Change of Control or Shift in Ownership, as the case may be, will
have any significance and no later occurring Change of Control or Shift
in Ownership will have any effect.
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3. REAFFIRMATION OF EMPLOYMENT AGREEMENT. The Trust and Xxxxxxxxxx hereby
reaffirm the Employment Agreement as amended by this Amendment and in all other
respects.
IN WITNESS WHEREOF, this Amendment has been executed on behalf of the Trust by a
duly authorized representative thereof and by Xxxxxxxxxx, all as of the date
first above written.
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
By /s/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx, Trustee
/s/ Xxxxx X. Xxxxxxxxxx
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XXXXX X. XXXXXXXXXX
