-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Kn6ZORwxYpNy5US4neqgk90hLXeOtJx51kE3DOYl7mRoKPd4pxqGQ7CWl/Clp6+J t9K50qR2yN0gbhrJitnucQ== 0000898822-97-000527.txt : 19970617 0000898822-97-000527.hdr.sgml : 19970617 ACCESSION NUMBER: 0000898822-97-000527 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 19970616 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION REAL ESTATE EQUITY & MORTGAGE INVESTMENTS CENTRAL INDEX KEY: 0000037008 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 346513657 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-19676 FILM NUMBER: 97624721 BUSINESS ADDRESS: STREET 1: 55 PUBLIC SQUARE STREET 2: STE 1900 CITY: CLEVELAND STATE: OH ZIP: 44113 BUSINESS PHONE: 2167814030 MAIL ADDRESS: STREET 1: 55 PUBLIC SQUARE SUITE 1910 CITY: CLEVELAND STATE: OH ZIP: 44113 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION REALTY DATE OF NAME CHANGE: 19691012 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: GOTHAM PARTNERS LP /NY/ CENTRAL INDEX KEY: 0000899983 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 363593298 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 110 EAST 42ND ST 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2122860300 MAIL ADDRESS: STREET 1: 110 EAST 42 ND ST 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 SC 13D 1 SCHEDULE 13D SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 First Union Real Estate Equity and Mortgage Investments (NAME OF ISSUER) Shares of Beneficial Interest, $1.00 par value (TITLE OF CLASS OF SECURITIES) 337400105 (CUSIP NUMBER) David S. Klafter, Esq. Gotham Partners Management Co., LLC 110 East 42nd Street New York, New York 10017 (212) 286-0300 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS) June 4, 1997 (DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT) If the filing person has previously filed a statement on Sched- ule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-- 1(b)(3) or (4), check the following box [ ]. Check the following box if a fee is being paid with the state- ment [ ]. (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial own- ership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) Note: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. SCHEDULE 13D CUSIP No. 337400105 Page 2 of 9 Pages ------------------------------------------------------------------ 1 NAME OF PERSON GOTHAM PARTNERS, L.P. S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON 13-3700768 ------------------------------------------------------------------ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) /x/ (b) / / ------------------------------------------------------------------ 3 SEC USE ONLY ------------------------------------------------------------------ 4 SOURCE OF FUNDS* WC ------------------------------------------------------------------ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) / / ------------------------------------------------------------------ 6 CITIZENSHIP OR PLACE OF ORGANIZATION NEW YORK ------------------------------------------------------------------ 7 SOLE VOTING POWER NUMBER OF 1,897,305 (INCLUDING OPTIONS TO SHARES PURCHASE 1,183,150 SHARES) BENEFICIALLY ----------------------------------------- OWNED BY 8 SHARED VOTING POWER EACH -0- REPORTING ----------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 1,897,305 (INCLUDING OPTIONS TO PURCHASE 1,183,150 SHARES) ----------------------------------------- 10 SHARED DISPOSITIVE POWER -0- ------------------------------------------------------------------ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 1,897,305 (INCLUDING OPTIONS TO PURCHASE 1,183,150 SHARES) ------------------------------------------------------------------ 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / ------------------------------------------------------------------ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 6.64% ------------------------------------------------------------------ 14 TYPE OF PERSON REPORTING* PN ------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT SCHEDULE 13D CUSIP No. 337400105 Page 3 of 9 Pages ------------------------------------------------------------------ 1 NAME OF PERSON GOTHAM PARTNERS II, L.P. S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON 13-3863925 ------------------------------------------------------------------ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) /x/ (b) / / ------------------------------------------------------------------ 3 SEC USE ONLY ------------------------------------------------------------------ 4 SOURCE OF FUNDS* WC ------------------------------------------------------------------ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) / / ------------------------------------------------------------------ 6 CITIZENSHIP OR PLACE OF ORGANIZATION NEW YORK ------------------------------------------------------------------ 7 SOLE VOTING POWER NUMBER OF 24,395 (INCLUDING OPTIONS TO SHARES PURCHASE 16,850 SHARES) BENEFICIALLY ----------------------------------------- OWNED BY 8 SHARED VOTING POWER EACH -0- REPORTING ----------------------------------------- PERSON 9 SOLE DISPOSITIVE POWER WITH 24,395 (INCLUDING OPTIONS TO PURCHASE 16,850 SHARES) ----------------------------------------- 10 SHARED DISPOSITIVE POWER -0- ------------------------------------------------------------------ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 24,395 (INCLUDING OPTIONS TO PURCHASE 16,850 SHARES) ------------------------------------------------------------------ 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / / ------------------------------------------------------------------ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.09% ------------------------------------------------------------------ 14 TYPE OF PERSON REPORTING* PN ------------------------------------------------------------------ *SEE INSTRUCTIONS BEFORE FILLING OUT Page 4 of 9 Pages 1. SECURITY AND ISSUER This statement on Schedule 13D (the "Statement") re- lates to the shares of Beneficial Interest, par value $1.00 per share (the "Shares"), of First Union Real Estate Equity and Mortgage Investments, an Ohio business trust (the "Company"). The principal executive offices of the Company are located at 55 Public Square, Suite 1900, Cleveland, Ohio 44113-1937. ITEM 2. IDENTITY AND BACKGROUND This Statement is being filed by Gotham Partners, L.P., a New York limited partnership ("Gotham"), and Gotham Partners II, L.P., a New York limited partnership ("Gotham II" and together with Gotham, the "Reporting Persons"). Each of Gotham and Gotham II was formed to engage in the buying and selling of securities for investment for its own account. Section H Partners, L.P., a New York limited partner- ship ("Section H"), is the sole general partner of Gotham and Gotham II. Karenina Corp., a New York corporation ("Karenina"), and DPB Corp., a New York corporation ("DPB"), are the sole general partners of Section H. Karenina is wholly owned by Mr. William A. Ackman. DPB is wholly owned by Mr. David P. Berkowitz. Messrs. Ackman and Berkowitz are citizens of the United States of America, and their principal occupation is managing the affairs of Karenina and DPB, respectively, and through such entities the affairs of Section H, Gotham and Gotham II. The business address of each of Gotham, Gotham II, Section H, Karenina, DPB and Messrs. Ackman and Berkowitz is 110 East 42nd Street, 18th Floor, New York, New York 10017. During the last five years, none of Gotham, Gotham II, Section H, Karenina, DPB, Mr. Ackman or Berkowitz (i) has been convicted in a criminal proceeding (excluding traffic vio- lations or similar misdemeanors), or (ii) has been a party to a civil proceeding of a judicial or administrative body of compe- tent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION The aggregate purchase price of the Shares and the Options (as defined below) purchased by Gotham was $14,034,225 and the aggregate purchase price of the Shares and the Options purchased by Gotham II was $163,693. All of the funds required for these purchases were obtained from the general funds of Gotham and Gotham II, respectively. Page 5 of 9 Pages ITEM 4. PURPOSE OF THE TRANSACTION The Reporting Persons acquired the Shares and Options for investment purposes, and for the reasons set forth in the following paragraphs. In general, the Reporting Persons pursue an investment objective that seeks capital appreciation. In pursuing this investment objective, the Reporting Persons analyze and evaluate the performance of securities owned by them, including the Shares and the Options, and the operations, capital structure and markets of companies in which they invest, including the Company, on a continuous basis through analysis of documentation on and discussions with knowledgeable industry and market observers and with representatives of such companies (often at the invitation of management). The Reporting Persons believe that the Company has significant unrealized equity potential which can be realized if the Company is able to execute a substantial number of sizable acquisitions of real-estate-intensive operating businesses at attractive prices. The Reporting Persons are concerned that existing management may not have the requisite background and experience to implement such a value-maximizing strategy. The Reporting Persons are concerned that the Company's management, over the past eight months, has raised equity capital in a manner which has been unnecessarily dilutive to existing shareholders of the Company. Each Reporting Person will continuously assess the Company's business, financial condition, results of operations and prospects, general economic conditions, the securities mar- kets in general and those for the Company's securities in par- ticular, other developments and other investment opportunities. Depending on such assessments, and based on, among other rea- sons, the matters set forth in the preceding paragraph, the Reporting Persons may seek to actively influence the management and affairs of the Company, including, without limitation, by making proposals and taking other actions as to, among other things, new management for the Company, a new slate of directors, an extraordinary corporate transaction such as a merger or reorganization, modification of the Company's Declaration of Trust or By-laws, or other similar or related matters. In addition, one or more of the Reporting Persons may acquire additional Shares or Options or may determine to sell or otherwise dispose of all or some of its holdings of Shares or Options. Such actions, and any action of the nature referred to in the preceding sentence, will depend upon a variety of factors, including, without limitation, current and anticipated future trading prices for such common stock, the financial condition, results of operations and prospects of the Company, alternative investment opportunities, general economic financial market and industry conditions, and future actions of the Company and its management. Except as set forth above, none of the Reporting Per- sons has any plans or proposals which would relate to or result in any of the matters set forth in items (a) through (j) of Item 4 of Schedule 13D. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER (a) Gotham owns 1,897,305 Shares (including Options to purchase 1,183,150 Shares as described below) as of the date Page 6 of 9 Pages of this Statement, representing an aggregate of approximately 6.64% of the outstanding Shares of the Company. The percentage used in the immediately preceding sentence is calculated based upon 27,134,169 outstanding Shares, as reported in the Company's Prospectus, dated May 28, 1997. Gotham II owns 24,395 Shares (including Options to purchase 16,850 Shares as de- scribed below) as of the date of this Statement, representing an aggregate of approximately 0.09% of the outstanding Shares of the Company. The percentage used in the immediately preced- ing sentence is calculated based upon 27,134,169 outstanding Shares, as reported in the Company's Prospectus, dated May 28, 1997. None of Section H, Karenina, DPB, Mr. Ackman or Mr. Berkowitz beneficially own any Shares (other than the Shares beneficially owned by Gotham and Gotham II). As noted above, Gotham owns Options to purchase 1,183,150 Shares and Gotham II owns Options to purchase 16,850 Shares (the "Options"). The Options are pursuant to agreements entered into on June 4, 1997 with Bankers Trust Company and J.P. Morgan Securities Inc., each of which is attached hereto as an Exhibit and specifically incorporated herein by refer- ence, and the description herein of each such agreement is qualified in its entirety by reference thereto. (b) Each of Gotham and Gotham II has sole power to vote and to dispose of all of the Shares beneficially owned by it, other than the Shares represented by Options, as to which Gotham and Gotham II will have such power at such time, if ever, as the Options are exercised and the underlying Shares actually acquired by Gotham and Gotham II. (c) The table below sets forth information with re- spect to all purchases and sales of Shares and Options by Gotham and Gotham II. Except as otherwise noted, in each case, the transactions as to Shares were effected in open-market transactions on the New York Stock Exchange, the transactions as to Options were private transactions in accordance with the agreements attached hereto as Exhibits, and the price per Share or Option includes commissions. Page 7 of 9 Pages Gotham Number of Shares Price per Share Date Purchased/(Sold) or Option 12/24/96 690,000(1) $ 3.38000 2/03/97 493,150(2) $ 4.31635 4/11/97 6,410 $13.36730 4/14/97 157,810 $13.90610 4/25/97 56,500 $13.72260 4/29/97 55,000 $13.80000 4/30/97 30,930 $13.79480 5/01/97 39,700 $13.58150 5/06/97 40,000 $13.56000 5/29/97 127,680 $12.79760 5/30/97 77,585 $12.78330 6/02/97 23,740 $13.05000 6/10/97 98,800 $13.31000 Gotham II Number of Shares Price per Share Date Purchased/(Sold) or Option 12/24/96 10,000(3) $3.38000 2/03/97 6,850(4) $4.31635 4/11/97 90 $13.36733 4/14/97 2,190 $13.90610 4/30/97 370 $13.79481 5/29/97 1,520 $12.79760 5/30/97 915 $12.78330 6/02/97 1,260 $13.05000 6/10/97 1,200 $13.31000 Except as described above, none of Gotham, Gotham II, Section H, Karenina, DPB, Mr. Ackman or Mr. Berkowitz has ef- fected any transactions in the securities of the Company during the past sixty days. (d) and (e). Not applicable. -------------------------- (1) Currently exercisable options to purchase 690,000 Shares at $8.80 per Share. (2) Currently exercisable options to purchase 493,150 Shares at $10.80 per Share. (3) Currently exercisable options to purchase 10,000 Shares at $8.80 per Share. (4) Currently exercisable options to purchase 6,850 Shares at $10.80 per Share. Page 8 of 9 Pages ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATION- SHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Except as described above, none of Gotham, Gotham II, Section H, Karenina, DPB, Mr. Ackman or Mr. Berkowitz is a party to any contract, arrangement, understanding or relation- ship with respect to any securities of the Company, including but not limited to transfer or voting of any of the securities, finder's fees, joint ventures, loan or option agreements, puts or calls, guarantees of profits, divisions of profit or losses or the giving or withholding of proxies. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS The following exhibits are being filed with this Schedule: 1. A written agreement relating to the filing of joint acquisition statements as required by Rule 13d-1(f)(1) promulgated under the Securities Exchange Act of 1934, as amended. 2. Letter Agreement, dated as of January 24, 1997, by and between Gotham Partners, L.P. and J.P. Morgan Securities Inc. as agent for Morgan Guaranty Trust Company of New York, as supplemented by Letter Agreement, dated as of June 10, 1997, by and between Gotham Partners, L.P. and J.P. Morgan Securities Inc. as agent for Morgan Guaranty Trust Company of New York. 3. Letter Agreement, dated as of January 24, 1997, by and between Gotham Partners II, L.P. and J.P. Morgan Securi- ties Inc. as agent for Morgan Guaranty Trust Company of New York, as supplemented by Letter Agreement, dated as of June 10, 1997, by and between Gotham Partners II, L.P. and J.P. Morgan Securities Inc. as agent for Morgan Guaranty Trust Company of New York. 4. Option Agreement, dated as of January 29, 1997, by and between Gotham Partners, L.P. and Bankers Trust Company, as amended and restated by Option Agreement, dated as of Janu- ary 29, 1997, by and between Gotham Partners, L.P. and Bankers Trust Company (reflecting First Transaction Amendment, dated as of June 4, 1997). 5. Option Agreement, dated as of January 29, 1997, by and between Gotham Partners II, L.P. and Bankers Trust Com- pany, as amended and restated by Option Agreement, dated as of January 29, 1997, by and between Gotham Partners II, L.P. and Bankers Trust Company (reflecting First Transaction Amendment, dated as of June 4, 1997). Page 9 of 9 Pages After reasonable inquiry and to the best of our knowledge and belief, the undersigned certify that the informa- tion set forth in this statement is true, complete and correct. June 16, 1997 GOTHAM PARTNERS, L.P. By: SECTION H PARTNERS, L.P., its general partner By: KARENINA CORP., a general partner By: /s/ William A. Ackman William A. Ackman President GOTHAM PARTNERS II, L.P. By: SECTION H PARTNERS, L.P., its general partner By: KARENINA CORPORATION, a general partner By: /s/ William A. Ackman William A. Ackman President EX-99 2 EXHIBIT 1 EXHIBIT 1 JOINT ACQUISITION STATEMENT PURSUANT TO RULE 13d-1(f)1 The undersigned acknowledge and agree that the foregoing state- ment on Schedule 13D, as amended, is filed on behalf of each of the undersigned and that all subsequent amendments to this statement on Schedule 13D, as amended, shall be filed on behalf of each of the undersigned without the necessity of filing ad- ditional joint acquisition statements. The undersigned ac- knowledge that each shall be responsible for the timely filing of such amendments, and for the completeness and accuracy of the information concerning him or it contained therein, but shall not be responsible for the completeness and accuracy of the information concerning the other, except to the extent that he or it knows or has reason to believe that such information is inaccurate. DATED: June 16, 1997 GOTHAM PARTNERS, L.P. By: SECTION H PARTNERS, L.P., its general partner By: KARENINA CORP., a general partner By: /s/ William A. Ackman William A. Ackman President GOTHAM PARTNERS II, L.P. By: SECTION H PARTNERS, L.P., its general partner By: KARENINA CORPORATION, a general partner By: /s/ William A. Ackman William A. Ackman President EX-99 3 EXHIBIT 2 Exhibit 2 JPMORGAN Morgan Guaranty Trust Company of New York P.O. Box 161 60 Victoria Embankment London EC4Y OJP Direct: 0171-325-4050 Operator: 0171-600-2300 Fax: 0171-325-8205 January 24, 1997 Gotham Partners, L.P. 110 East 42nd Street 18th Floor New York, NY 10017 Att: Bill Ackman Reference: 529518 Re: Equity Single Stock Option Transaction The purpose of this letter is to confirm the terms and conditions of the equity single stock option transaction (the "Transaction") entered into between us on 19th December, 1996 (the "Trade Date"). This Confirmation shall replace any previ- ous letter and shall serve as the final documentation for this Transaction. This Confirmation evidences a complete binding agreement between the Parties (as defined hereof) as to the terms of the Transaction to which this Confirmation relates. The parties agree to incorporate by reference the 1994 ISDA Equity Option Definitions (as published by the International Swaps and De- rivatives Association, Inc.) (the "1994 Definitions"). Any reference in the 1994 Definitions to a Share Transaction shall be deemed to be a reference to a Share Transaction which is to be settled by payment of cash for the purpose of this Confirma- tion. 1. All provisions set forth in the 1994 ISDA Equity Option Definitions shall govern this confirmation except as expressly modified below. In the event of any inconsistency between the 1994 Definitions and this Confirmation, this Confirmation will prevail for the purpose of this Transaction. It is our inten- tion to have this Confirmation serve as the final documentation for this trade and accordingly, no letter Confirmation will follow. A subsidiary of Incorporated with Limited Liability J.P. Morgan & Co. in the State of New York, USA Incorporated 1 Member of the Securities and Futures January 24, 1997 Authority and of the Investment 12:29 PM Management Regulatory Organization Ref: 529518 JPMORGAN 2. The terms of the Transaction to which this Confirmation relates are as follows: (1) Parties (a) MORGAN GUARANTY TRUST COMPANY OF NEW YORK. ("Morgan") (b) GOTHAM PARTNERS, L.P. ("the Counterparty") (2) General Terms "Effective Date": 19 December, 1996. "Expiration Date": 22 December, 1997. "Expiration Time" means the Valuation Time. "Option Style": American Option. "Option Type": Call. "Seller": Morgan. "Buyer": the Counterparty. "Exchange(s)": The New York Stock Exchange. "Related Exchange": the principal options exchange for options contracts related to the Shares. (3) Procedure for Exercise "Automatic Exercise": applicable. "Commencement Date": 19 December, 1996. "Latest Exercise Time" means 2:00 P.M. New York Time. "Multiple Exercise": not applicable. (4) Premium Payment The Buyer shall pay to the Seller an amount equal to the Premium on the Premium Payment Date as follows: (i) "Premium": USD 2,332,200.00. (ii) "Premium per Option": USD 3.38. (iii) "Premium Payment Date": 23 December, 1996. 2 January 24, 1997 12:29 PM Ref: 529518 JPMORGAN (5) Cash Settlement On the Cash Settlement Payment Date, the Seller shall pay the Buyer an amount in USD as determined by the Calculation Agent in accordance with the following formula (the "Cash Set- tlement Amount"), provided that if the Cash Settlement Amount is equal to zero, no amount will be so payable: Cash Number Option Strike Price Settlement = of Options x Entitlement x Differential Amount (a) "Share" means the First Union Real Estate Investments (the "Issuer") common stock (the "Shares"). (b) "Strike Price": 8.80. (c) "Number of Options": 690,000.00. (d) "Option Entitlement": one Share per Option. (e) "Settlement Currency": USD. (f) "Settlement Price" means the level of the Share at the Valuation Time on the Valuation Date. (g) "Strike Price Differential" means a number equal to the greater of (A) the excess of the Settlement Price over the Strike Price and (B) zero. (h) "Cash Settlement Payment Date": two Currency Business Days immediately following the Valuation Date. (6) Valuation Terms (a) "Valuation Date" means the Exercise Date, unless a Market Disruption Event occurs on such day, in which case subsection 2(6)(c) shall apply. (b) "Valuation Time" means the close of trading on the Exchange. (c) Adjustment following a Market Disruption Event. (i) If there is a Market Disruption Event on the original date that, but for the Market Dis- ruption Event, would have been the Valuation Date then in that case the Valuation Date shall be the first succeeding Exchange Business Day on which there is no Market Disruption Event. (ii) If there is a Market Disruption Event on each of the five Exchange Business Days immedi- ately following the original date that, but for the Market Disruption Event, would have been the Valuation Date then in that case, (i) that fifth Exchange Business Day shall be deemed to be the Valuation Date notwithstanding the Market Dis- ruption Event, and (ii) the Calculation Agent shall determine the level of the Share as of the Valuation Time on that fifth Exchange Business Day. (iii) "Market Disruption Event" means in rela- tion to any Valuation Date as determined by the Calculation Agent, the occurrence or existence on any Exchange Business Day during the one-half hour period that ends at the Valuation Time of any suspension of or limitation imposed on trad- ing on (i) the Exchange or (ii) any Related Exchange in options contracts on the Shares, provided that a limitation on the hours and num- ber of days of trading resulting from a change in 3 January 24, 1997 12:29 PM Ref: 529518 JPMORGAN the regular business hours of the Exchange (or the Related Exchange) will not constitute a Market Disruption Event. (iv) Notice of Market Disruption Event. The Calculation Agent shall as soon as practicable (and in no event later than the next Exchange Business Day) notify the other party of the existence of a Market Disruption Event on any Exchange Business Day which would have been a Valuation Date, but for the occurrence of such Market Disruption Event. (d) Adjustments following a Potential Adjustment Event or an Extraordinary Event. (i) Terms. All the terms used in this sub- section 2(6)(d) but not defined herein shall have the meaning therefore set forth in the 1994 ISDA Equity Option Definitions (as published by the International Swaps and Derivatives Associa- tion, Inc.) (the "1994 Definitions"). (ii) Meaning of a Potential Adjustment Event and an Extraordinary Event. The occurrence of a Potential Adjustment Event or an Extraordinary Event including Merger Event, Nationalization or Insolvency all within the meaning of Article 10 of the 1994 Definitions or other events having in the determination of the Calculation Agent, a diluting or concentrative effect on the theo- retical value of the underlying Shares of this Transaction shall trigger a Calculation Agent Adjustment within the meaning of Article 10 sub- section 10.1(c) of the 1994 Definitions. (iii) Adjustment. If there is a Potential Adjustment Event or an Extraordinary Event on the original date that, but for the occurrence of a Potential Adjustment Event or an Extraordi- nary Event would have been the Valuation Date, then in that case (i) the Valuation Date shall be the Business Day on which the Calculation Agent shall determine the level of the Share as specified in subsection 2(6)(d)(ii) and (ii) the Calculation Agent shall determine the level of the Share as of such Business Day. (e) Adjustment following Corrections to Shares. If the level of the Share published on a given day and used or to be used by the Calculation Agent to deter- mine the initial or/and final value of the underlying equity is subsequently corrected and the correction published by the Exchange within 30 days of the original announcement, either party may notify the other party of (A) that correction and (B) the amount that is payable as a result of that correction. If not later than 30 days after publication of that cor- rection a party gives notice that an amount is so payable, the party that originally either received or retained such amount shall, not later than three Cur- rency Business Days after the effectiveness of that notice, pay to the other party that amount, together with interest on that amount at a rate per annum equal to the cost (without proof or evidence of any actual cost) to the other party (as certified by it) of funding that amount from the period from and in- cluding the day on which a payment originally was (or was not) made to, but excluding, the day of payment of the refund or payment resulting from that correc- tion. 3. "Calculation Agent" means Morgan, the determinations and calculations of which shall be binding in the absence of mani- fest error. 4 January 24, 1997 12:29 PM Ref: 529518 JPMORGAN 4. Accounts Details: (a) Account for payments to Morgan: Pay: Morgan Guaranty Trust Co. of NY, New York Favour: Morgan Guaranty Trust Co. of NY, London A/C No. 670-07-054 Further A/C: 10005035 (b) Account for payments to the Counterparty: Please advise. 5. Offices (1) The Office of Morgan for the Transaction is: Morgan Guaranty Trust Company of New York London Branch P.O. Box 161 60 Victoria Embankment London EC4Y 0JP Attention: MGT EDG Middle Office Telex: 8954804 Answer back: JPM Telecopy No.: (0171) 325-8205 Telephone No.: (0171) 325-4050 (2) The Office of the Counterparty for the Transaction is: Gotham Partners LP 110 East 42nd Street 18th Floor New York, NY 10017 Attention: Bill Ackman Telex: Answer back: Telecopy No.: 286-1133 Telephone No.: 286-0300 5 January 24, 1997 12:29 PM Ref: 529518 JPMORGAN 6. Other provisions No Reliance, etc. Each party represents that (i) it is enter- ing into the Transaction evidenced hereby as principal (and not as agent or in any other capacity); (ii) the other party is not acting as a fiduciary for it; (iii) it is not relying upon any representations except those expressly set forth in the Agree- ment or this Confirmation; (iv) it has consulted with its own legal, regulatory, tax, business, investment, financial, and accounting advisers to the extent it has deemed necessary, and it has made its own investment, hedging, and trading decisions based upon its own judgement and upon any advice from such ad- visers as it has deemed necessary and not upon any view ex- pressed by the other party; and (v) it is entering into this Transaction with a full understanding of the terms, conditions and risks thereof and it is capable of and willing to assume those risks. 7. Representations. Each party hereby represents to the other party as follows: (a) Status. It is duly organised and validly existing under the laws of the jurisdiction or its organisation or incorpora- tion and, if relevant under such laws, in good standing; (b) Powers. It has the power to execute and deliver this Con- firmation and to perform its obligations under this Transaction and has taken all necessary action to authorise such execution, delivery and performance; (c) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgement of any court of other agency or government appli- cable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (d) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Transaction have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (e) Obligations Binding. Its obligations under this Transac- tion constitute its legal, valid and binding obligations, en- forceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally and sub- ject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). 8. Events of Default. The occurrence at any time with respect to a party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party: (a) Misrepresentation. A representation contained herein proves to have been incorrect or misleading in any material respect when made; (b) Bankruptcy. A party (i) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (ii) becomes in- solvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (iii) makes a general assignment, arrangement or composi- tion with or for the benefit of its creditors; (iv) institutes or has instituted against it a proceeding seeking a judgement of insolvency or bankruptcy or any other relief under any bank- ruptcy or insolvency law or other similar law affecting credi- tors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgement of insolvency or bankruptcy or the entry of an order for relief or the making of an order for the winding-up or liquidation of the party or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (v) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or 6 January 24, 1997 12:29 PM Ref: 529518 JPMORGAN merger); (vi) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (vii) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (viii) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (i) to (vii) (inclusive); or (ix) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; and (c) Merger Without Assumption. The party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets, to, another entity and, at the time of such consolidation, amalgamation, merger or transfer the resulting, surviving or transferee entity fails to assume all the obligations of such party under this Transaction to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Transaction. 9. Early Termination. (a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Default- ing Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of this Transaction. Upon the effectiveness of notice designating an Early Termination Date, the obligations of the parties to make any further payments or deliveries under this Transaction will terminate, but without prejudice to the other provisions of this Confirmation. The amount, if any, payable in respect of an Early Termination Date shall be determined by the Non- defaulting Party pursuant to Section 9(b). (b) Calculations. (i) Statement. Following the occurrence of an Early Termination Date, the Calculation Agent will make the cal- culations contemplated by Section 9(c) and will provide to each of the parties a statement (A) showing in reasonable detail, such calculations (including all relevant quota- tions) and (B) giving details of the relevant account to which any payment due to it under Section 9(c) is to be made. In the absence of written confirmation of a quota- tion obtained in determining a Market Quotation, from the source providing such quotation, the records of the Calcu- lation Agent will be conclusive evidence of the existence and accuracy of such quotation. (ii) Due Date. The amount calculated as being payable under Section 9(c) will be due on the day that notice of the amount payable is effective. Such amount will be paid together with (to the extent permitted under applicable law) interest thereon from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid at the Default Rate. Such amount will be calculated on the basis of the daily compounding and the actual number of days elapsed. (iii) Default Rate. A rate per annum equal to the cost (without proof or evidence of any actual cost) to the rel- evant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. (iv) Market Quotation. With respect to this Transaction and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consid- eration of an agreement between such party and the quoting Reference Market-maker and subject to such documentation as they may in good faith agree, with the relevant Early Termination Date as the date of commencement of such agreement, that would have the effect of preserving for such party the economic equivalent of the obligations of the parties under the Transaction that would, but for the occurrence of the relevant Early Termination 7 January 24, 1997 12:29 PM Ref: 529518 JPMORGAN Date, have been required after such date. For purposes of this Transaction, Unpaid Amounts are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been re- quired (assuming satisfaction of each condition precedent) after that Early Termination Date is to be included. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent practicable as of the same time (without regard to different time zones) on the relevant Early Termination Date (or, if an Early Termination Date is deemed to occur, as of a time as soon thereafter as practicable). The time as of which such quotations are to be obtained will be selected in good faith by the party making the determina- tion. If more than three such quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, expressed in the currency of the Transaction without regard to the quotations having the highest and lowest values. If exactly three such quotations are pro- vided, the Market Quotation will be the quotation remain- ing after disregarding the quotations having the highest and lowest values. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of the Transaction cannot be determined in which case the Market Quotation shall be determined on the basis of Loss. For purposes hereof, "Unpaid Amounts" with re- spect to a party means the amounts that became payable to such party on or prior to the Early Termination Date and which remain unpaid at such Early Termination Date. (v) Reference Market-makers. Four leading dealers in the relevant market for transactions of this type selected by the party determining a Market Quotation in good faith (i) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (ii) to the extent practicable, from among such dealers having an office in the same city. (vi) Loss. With respect to this Transaction and a party, an amount that party reasonably determines in good faith to be the total losses and costs (or gain, in which case expressed as a negative number) in connection with this Transaction, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or re- establishing any hedge or related trading position (or any gain resulting from any of them). (c) Payments on Early Termination. If notice is given desig- nating an Early Termination Date, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the sum of the Market Quotation, the Unpaid Amounts owing to the Default- ing Party and the Unpaid Amounts owing to the Non-defaulting Party. If such amount is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the De- faulting Party. The amount, if any, payable in respect of an Early Termination Date will be subject to any set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount hereunder is entitled or subject (whether arising under this Transaction, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. The parties agree that the amount recoverable hereunder are a reasonable pre-estimate of loss and not a penalty. Such amounts are pay- able for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Confirma- tion neither party will be entitled to recover any additional damages as a consequence of such losses. 10. Expenses. If an Event of Default has occurred, the Defaulting Party will, on demand, indemnify and hold harmless the Non-defaulting, Party for and against all reasonable out- of-pocket expenses, including legal fees and any stamp, regis- tration, documentation or other similar tax, incurred by the Non-defaulting Party by reason of the enforcement and protec- tion of its rights under this Transaction or by reason of the early termination of this Transaction, including, but not lim- ited to costs of collection. 11. Jurisdiction. With respect to any suit, action or pro- ceedings relating to this Transaction ("Proceedings"), each party irrevocably submits to the jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City 8 January 24, 1997 12:29 PM Ref: 529518 JPMORGAN and waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over such party. The taking of Proceedings in a United States jurisdiction shall not preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not, to the extent permitted by the law of such other jurisdic- tion. 12. No Deduction. All payments under this Transaction shall be made without any deduction or withholding for or on account of any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties, and additions thereto) that is imposed by any government or taxing authority in respect of any payment under this Transac- tion. 13. Payments. Payments under this Transaction shall be made on the due date for value on that date in the place of the account specified herein, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by pay- ment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless oth- erwise specified herein. 14. Transfer. This Confirmation shall be binding upon and inure to the benefit of the parties and their respective suc- cessors and permitted assigns. If this Confirmation specifies that a party shall act through a particular office for the pur- poses of this Confirmation, such office may not be changed without the prior written consent of the other party except to another office in the same tax and legal jurisdiction. Neither the rights nor obligations of a party hereunder may be assigned without the prior written consent of the other party; provided, however, that the Buyer may, with the consent of Morgan (such consent not to be unreasonably withheld) assign its rights and obligations to any financial institution which makes the repre- sentations contained in Section 7 hereof. Any such assignment or transfer by Morgan shall be fully effective to transfer all the transferred rights and obligations of Morgan upon notice to the other party. 15. Governing Law. This Confirmation will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine). 9 January 24, 1997 12:29 PM Ref: 529518 JPMORGAN Please confirm your agreement to be bound by the terms of the foregoing by executing the copy of this Confirmation enclosed for that purpose and returning it to us. Very truly yours, J.P. MORGAN SECURITIES INC. AS AGENT FOR MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Adam Green Name: Adam Green Vice President Accepted and confirmed as of the date first above written by GOTHAM PARTNERS LP By: /s/ David P. Berkowitz Name: David P. Berkowitz Title: President of DPB Corp., or GP of Section H Partners, LP, the GP of Gotham Partners, LP 10 January 24, 1997 12:29 PM Ref: 529518 JPMORGAN Morgan Guaranty Trust Company of New York P.O. Box 161 60 Victoria Embankment London EC4Y OJP Direct: 0171-325-4050 Operator: 0171-600-2300 Fax: 0171-325-8205 June 10, 1997 Gotham Partners, L.P. 110 East 42nd Street 18th Floor New York, NY 10017 Att: Bill Ackman Reference: 529518 RE: EQUITY SHARE OPTION TRANSACTION-AMENDMENT The purpose of this letter is to confirm the terms and conditions of the equity single stock option transaction (the "Transaction") entered into between us on 19th December, 1996 (the "Trade Date"). This Confirmation shall replace any previ- ous letter and shall serve as the final documentation for this Transaction. This Confirmation evidences a complete binding agreement between the Parties (as defined hereof) as to the terms of the Transaction to which this Confirmation relates. The parties agree to incorporate by reference the 1994 ISDA Equity Option Definitions (as published by the International Swaps and De- rivatives Association, Inc.) (the "1994 Definitions"). 1. All provisions set forth in the 1994 ISDA Equity Option Definitions shall govern this confirmation except as expressly modified below. In the event of any inconsistency between the 1994 Definitions and this Confirmation, this Confirmation will prevail for the purpose of this Transaction. It is our inten- tion to have this Confirmation serve as the final documentation for this trade and accordingly, no letter Confirmation will follow. A subsidiary of Incorporated with Limited Liability in J.P. Morgan & Co. the State of New York, USA Incorporated Member of the Securities and Futures Authority and of the Investment Management Regulatory Organization 1 June 10, 1997 5:20 PM Ref: 529518 JPMORGAN 2. The terms of the Transaction to which this Confirmation relates are as follows: (1) Parties (a) MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Morgan") (b) GOTHAM PARTNERS, L.P. ("the Counterparty") (2) General Terms "Effective Date": December 19, 1996. "Expiration Date": December 22, 1997. "Expiration Time" means the Valuation Time. "Option Style": American. "Option Type": Call. "Seller": Morgan. "Buyer": the Counterparty. "Exchange": the New York Stock Exchange. "Related Exchange(s)": the principal options exchange for option contracts on the Shares. "Clearance System": the Clearance System used by the Exchange. (3) Procedure for Exercise "Automatic Exercise": applicable. "Commencement Date": December 19, 1996. "Latest Exercise Time" means 2 hours prior to the Valuation Time. "Multiple Exercise": inapplicable. (4) Payments Premium Payment The Buyer shall pay to the Seller an amount equal to the Premium on the Premium Payment Date as follows: (i) "Premium": USD 2,332,200.00. (ii) "Premium per Option": USD 3.38. (iii) "Premium Payment Date": December 23, 1996. 2 June 10, 1997 5:20 PM Ref: 529518 JPMORGAN (5) Physical Settlement Upon the exercise by the Buyer of this Transaction pursuant to the provisions of Exercise in Section 2(3) of this Confirmation, on the Settlement Date the Seller hall deliver to the Buyer at the account specified hereto and in the manner customary for the Clearance System, the Number of Shares to be Delivered against payment of the Settlement Price by the Buyer to the Seller. Pursuant to the provision of Assignment in Section 5 hereof, Morgan may assign the obligation to deliver any securities which are subject to this Transaction to any of its affiliates. (i) "Share" means the common stock of First Union Real Estate Investments (the "Issuer"). (ii) "Strike Price": 8.80. (iii) "Number of Options": 690,000.00. (iv) "Option Entitlement": one Share per Option. (v) "Failure to Deliver": Applicable. (vi) "Valuation Time" means the close of trading on the Exchange. (6) Adjustments "Method of Adjustment": Calculation Agent Adjustment. (7) Extraordinary Events Consequence of Merger Events: (i) "Share-for-Share": Calculation Agent Adjust- ment. Section 10 (1)(c) of the 1994 Definitions shall be modified as following. Upon the declaration by the Issuer of a Merger Event pursuant to sections 10(1)(e) and 10(2), the Calculation Agent shall determine the consequences of such event in respect of this Transaction and such determination shall be effective as of the effective date of such declara- tion. In making such determination, the Calculation Agent may refer to the general rules and principles regarding Merger Events on the Options Exchange to the extent that such reference is reasonably neces- sary. (ii) "Share-for-Other": Cancellation and Payment. (iii) "Share-for-Combined": Calculation Agent Adjustment. Section 10 (1)(c) of the 1994 Definitions shall be modified as following. Upon the declaration by the Issuer of a Merger Event pursuant to sections 10(1)(e) and 10(2), the Calculation Agent shall determine the consequences of such event in respect of this Transaction and such determination shall be effective as of the effective date of such declaration. In making such determination, the Calculation Agent may refer to the general rules and principles regarding Merger Events on the Options Exchange to the extent that such reference is reasonably necessary. (iv) "Options Exchange": the principal options exchange for option contracts on the Shares. (8) "Nationalisation or Insolvency": Cancellation and Payment. 3 June 10, 1997 5:20 PM Ref: 529518 JPMORGAN 3. "Calculation Agent" means Morgan, the determinations and calculations of which shall be binding in the absence of mani- fest error. 4. Accounts Details: (a) Account for payments to Morgan: Pay: Morgan Guaranty Trust Co. of NY, New York Favour: Morgan Guaranty Trust Co. of NY, London A/C No: 670-07-054 Further A/C: 10005035 Account for delivery of Shares to Morgan: DTC No.: 060 J.P. Morgan Securities, Inc. Att: Ed White (b) Account for payments to the Counterparty: Please advise. Account for delivery of Shares to the Counterparty: Please advise. 5. Assignment by Morgan Notwithstanding any other provision in this Confirmation to the contrary requiring Morgan to purchase, sell, receive or deliver any shares or other securities to or from the Counter- party, Morgan may designate any of its affiliates to purchase, sell, receive or deliver such shares or other securities and otherwise to perform Morgan's obligations in respect of this Transaction and any such designee may assume such obligations. Morgan shall be discharged of its obligations to the Counter- party to the extent of any such performance. 6. Offices (1) The Office of Morgan for the Transaction is: Morgan Guaranty Trust Company Of New York London Branch P.O. Box 161 60 Victoria Embankment London EC4Y 0JP Attention: MGT EDG Middle Office Telex: 8954804 Answer back: JPM For Notices: Telecopy No.: (212) 648-56504 Telephone No.: (212) 648-2510 (2) The Office of the Counterparty for the Transaction is: Gotham Partners LP 110 East 42nd Street 4 June 10, 1997 5:20 PM Ref: 529518 JPMORGAN 18th Floor New York, NY 10017 Attention: Bill Ackman Telex: Answer back: Telecopy No.: 286-1133 Telephone No.: 286-0300 7. Representations. Each party hereby represents to the other party as follows: (a) Status. It is duly organised and validly existing under the laws of the jurisdiction or its organisation or incorpora- tion and, if relevant under such laws, in good standing; (b) Powers. It has the power to execute and deliver this Con- firmation and to perform its obligations under this Transaction and has taken all necessary action to authorise such execution, delivery and performance; (c) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgement of any court of other agency or government appli- cable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (d) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Transaction have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (e) Obligations Binding. Its obligations under this Transac- tion constitute its legal, valid and binding obligations, en- forceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally and sub- ject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). 8. Events of Default. The occurrence at any time with respect to a party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party: (a) Misrepresentation. A representation contained herein proves to have been incorrect or misleading in any material respect when made; (b) Bankruptcy. A party (i) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (ii) becomes in- solvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (iii) makes a general assignment, arrangement or composi- tion with or for the benefit of its creditors; (iv) institutes or has instituted against it a proceeding seeking a judgement of insolvency or bankruptcy or any other relief under any bank- ruptcy or insolvency law or other similar law affecting credi- tors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or peti- tion instituted or presented against it, such proceeding or petition (A) results in a judgement of insolvency or bankruptcy or the entry of an order for relief or the making of an order for the winding-up or liquidation of the party or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (v) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgama- tion or merger); (vi) seeks or becomes subject to the appoint- ment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (vii) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such 5 June 10, 1997 5:20 PM Ref: 529518 JPMORGAN process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (viii) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (i) to (vii) (inclusive); or (ix) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; and (c) Merger Without Assumption. The party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets, to, another entity and, at the time of such consolidation, amalgamation, merger or transfer the resulting, surviving or transferee entity fails to assume all the obligations of such party under this Transaction to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Transaction. 9. Early Termination: (a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Default- ing Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of this Transaction. Upon the effectiveness of notice designating an Early Termination Date, the obligations of the parties to make any further payments or deliveries under this Transaction will terminate, but without prejudice to the other provisions of this Confirmation. The amount, if any, payable in respect of an Early Termination Date shall be determined by the Non- defaulting Party pursuant to Section 9(b). (b) Calculations: (i) Statement. Following the occurrence of an Early Termination Date, the Calculation Agent will make the cal- culations contemplated by Section 9(c) and will provide to each of the parties a statement (A) showing, in reasonable detail, such calculations (including all relevant quota- tions) and (B) giving details of the relevant account to which any payment due to it under Section 9(c) is to be made. In the absence of written confirmation of a quota- tion obtained in determining a Market Quotation, from the source providing such quotation, the records of the Calcu- lation Agent will be conclusive evidence of the existence and accuracy of such quotation. (ii) Due Date. The amount calculated as being payable under Section 9(c) will be due on the day that notice of the amount payable is effective. Such amount will be paid together with (to the extent permitted under applicable law) interest thereon from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid at the Default Rate. Such amount will be calculated on the basis of the daily compounding and the actual number of days elapsed. (iii) Default Rate. A rate per annum equal to the cost (without proof or evidence of any actual cost) to the rel- evant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. (iv) Market Quotation. With respect to this Transaction and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consid- eration of an agreement between such party and the quoting Reference Market-maker and subject to such documentation as they may in good faith agree, with the relevant Early Termination Date as the date of commencement of such agreement, that would have the effect of preserving for such party the economic equivalent of the obligations of the parties under the Transaction that would, but for the occurrence of the relevant Early Termination Date, have been required after such date. For purposes of this Transaction, Unpaid Amounts are to be excluded but, with- out limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been re- quired (assuming satisfaction of each condition 6 June 10, 1997 5:20 PM Ref: 529518 JPMORGAN precedent) after that Early Termination Date is to be included. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent practicable as of the same time (without regard to different time zones) on the relevant Early Termination Date (or, if an Early Termination Date is deemed to occur, as of a time as soon thereafter as practicable). The time as of which such quotations are to be obtained will be selected in good faith by the party making the determination. If more than three such quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, expressed in the currency of the Transaction without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the quotations having the highest and lowest values. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of the Transaction cannot be determined in which case the Market Quotation shall be determined on the basis of Loss. For purposes hereof, "Unpaid Amounts" with respect to a party means the amounts that became payable to such party on or prior to the Early Termination Date and which remain unpaid at such Early Termination Date. (v) Reference Market-makers. Four leading dealers in the relevant market for transactions of this type selected by the party determining a Market Quotation in good faith (i) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (ii) to the extent practi- cable, from among such dealers having an office in the same city. (vi) Loss. With respect to this Transaction and a party, an amount that party reasonably determines in good faith to be the total losses and costs (or gain, in which case expressed as a negative number) in connection with this Transaction, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or re- establishing any hedge or related trading position (or any gain resulting from any of them). (c) Payments on Early Termination. If notice is given designating an Early Termination Date, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the sum of the Market Quotation, the Unpaid Amounts owing to the Defaulting Party and the Unpaid Amounts owing to the Non-defaulting Party. If such amount is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. The amount, if any, payable in respect of an Early Termi- nation Date will be subject to any set-off, offset, combi- nation of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount hereunder is entitled or subject (whether arising under this Transaction, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. The parties agree that the amount recoverable hereunder are a reasonable pre-estimate of loss and not a penalty. Such amounts are payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Confirmation neither party will be entitled to recover any additional damages as a consequence of such losses. 10. Expenses. If an Event of Default has occurred, the Defaulting Party will, on demand, indemnify and hold harmless the Non-defaulting Party for and against all reasonable out-of-pocket expenses, including legal fees and any stamp, registration, documentation or other similar tax, incurred by the Non-defaulting Party by reason of the enforcement and protection of its rights under this Transaction or by reason of the early termination of this Transaction, including, but not lim- ited to costs of collection. 11. Jurisdiction. With respect to any suit, action or pro- ceedings relating to this Transaction ("Proceedings"), each party irrevocably submits to the jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City and waives any objection which it may have at any time to the laying of venue of any Proceedings 7 June 10, 1997 5:20 PM Ref: 529518 JPMORGAN brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over such party. The taking of Proceedings in a United States jurisdiction shall not preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not, to the extent permitted by the law of such other jurisdiction. 12. No Deduction. All payments under this Transaction shall be made without any deduction or withholding for or on account of any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties, and additions thereto) that is imposed by any government or taxing authority in respect of any payment under this Transaction. 13. Payments. Payments under this Transaction shall be made on the due date for value on that date in the place of the account specified herein, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified herein. 14. Transfer. Neither party may transfer any or all of its rights or obligations under this Transaction without the prior written consent of the non-transferring party. 15. Governing Law. This Confirmation will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine). 16. Amendment. This Amendment shall be governed by, and con- strued in accordance with the laws of the State of New York (without reference to the choice of law doctrine). Upon the execution of this Amendment, this Amendment will amend, restate and supersede the Equity Single Stock Option Transaction dated as of December 16, 1996 between Morgan and the Counterparty. 8 June 10, 1997 5:20 PM Ref: 529518 JPMORGAN Please confirm your agreement to be bound by the terms of the foregoing by executing the copy of this Confirmation enclosed for that purpose and returning it to us. Very truly yours, J.P. MORGAN SECURITIES INC. AS AGENT FOR MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: Name: Title: Accepted and confirmed as of the date first above written GOTHAM PARTNERS, L.P. By: Name: Title: 9 June 10, 1997 5:20 PM Ref: 529518 EX-99 4 EXHIBIT 3 Exhibit 3 JP MORGAN Morgan Guaranty Trust Company of New York P.O. Box 161 60 Victoria Embankment London EC4Y OJP Direct: 0171-325-4050 Operator: 0171-600-2300 Fax: 0171-325-8205 January 24, 1997 Gotham Partners, L.P. 110 East 42nd Street 18th Floor New York, NY 10017 Att: Bill Ackman Reference: 529541 RE: EQUITY SINGLE STOCK OPTION TRANSACTION The purpose of this letter is to confirm the terms and conditions of the equity single stock option transaction (the "Transaction") entered into between us on 19th December, 1996 (the "Trade Date"). This Confirmation shall replace any previ- ous letter and shall serve as the final documentation for this Transaction. This Confirmation evidences a complete binding agreement between the Parties (as defined hereof) as to the terms of the Transaction to which this Confirmation relates. The parties agree to incorporate by reference the 1994 ISDA Equity Option Definitions (as published by the International Swaps and De- rivatives Association, Inc.) (the "1994 Definitions"). Any reference in the 1994 Definitions to a Share Transaction shall be deemed to be a reference to a Share Transaction which is to be settled by payment of cash for the purpose of this Confirma- tion. 1. All provisions set forth in the 1994 ISDA Equity Option Definitions shall govern this confirmation except as expressly modified below. In the event of any inconsistency between the 1994 Definitions and this Confirmation, this Confirmation will prevail for the purpose of this Transaction. It is our inten- tion to have this Confirmation serve as the final documentation for this trade and accordingly, no letter Confirmation will follow. A subsidiary of Incorporated with Limited Liability J.P. Morgan & Co. in the State of New York, USA Incorporated Member of the Securities and Futures January 24, 1997 Authority and of the Investment 12:30 PM Management Regulatory Organisation Ref: 529541 JP MORGAN 2. The terms of the Transaction to which this Confirmation relates are as follows: (1) Parties (a) MORGAN GUARANTY TRUST COMPANY OF NEW YORK. ("Morgan") (b) GOTHAM PARTNERS II, L.P. ("the Counterparty") (2) General Terms "Effective Date": 19 December, 1996. "Expiration Date": 22 December, 1997. "Expiration Time" means the Valuation Time. "Option Style": American Option. "Option Type": Call. "Seller": Morgan. "Buyer": the Counterparty. "Exchange(s)": The New York Stock Exchange. "Related Exchange": the principal options exchange for options contracts related to the Shares. (3) Procedure for Exercise "Automatic Exercise": applicable. "Commencement Date": 19 December, 1996. "Latest Exercise Time" means 2:00 P.M. New York Time. "Multiple Exercise": not applicable. (4) Premium Payment The Buyer shall pay to the Seller an amount equal to the Premium on the Premium Payment Date as follows: (i) "Premium": USD 33,800.00. (ii) "Premium per Option": USD 3.38. (iii) "Premium Payment Date": 23 December, 1996. 2 January 24, 1997 12:30 PM Ref: 529541 JP MORGAN (5) Cash Settlement On the Cash Settlement Payment Date, the Seller shall pay the Buyer an amount in USD as determined by the Calculation Agent in accordance with the following formula (the "Cash Settlement Amount"), provided that if the Cash Settlement Amount is equal to zero, no amount will be so payable: Cash Number Option Strike Price Settlement = of Options x Entitlement x Differential Amount (a) "Share" means the First Union Real Estate Investments (the "Issuer") common stock (the "Shares"). (b) "Strike Price": 8.80. (c) "Number of Options": 10,000.00. (d) "Option Entitlement": one Share per Option. (e) "Settlement Currency": USD. (f) "Settlement Price" means the level of the Share at the Valuation Time on the Valuation Date. (g) "Strike Price Differential" means a number equal to the greater of (A) the excess of the Settlement Price over the Strike Price and (B) zero. (h) "Cash Settlement Payment Date": two Currency Business Days immediately following the Valuation Date. (6) Valuation Terms (a) "Valuation Date" means the Exercise Date, unless a Market Disruption Event occurs on any such day, in which case subsection 2(6)(c) shall apply. (b) "Valuation Time" means the close of trading on the Exchange. (c) Adjustment following a Market Disruption Event. (i) If there is a Market Disruption Event on the original date that, but for the Market Dis- ruption Event, would have been the Valuation Date then in that case the Valuation Date shall be the first succeeding Exchange Business Day on which there is no Market Disruption Event. (ii) If there is a Market Disruption Event on each of the five Exchange Business Days immedi- ately following the original date that, but for the Market Disruption Event, would have been the Valuation Date then in that case, (i) that fifth Exchange Business Day shall be deemed to be the Valuation Date notwithstanding the Market Dis- ruption Event, and (ii) the Calculation Agent shall determine the level of the Share as of the Valuation Time on that fifth Exchange Business Day. (iii) "Market Disruption Event" means in rela- tion to any Valuation Date as determined by the Calculation Agent, the occurrence or existence on any Exchange Business Day during the one-half hour period that ends at the Valuation Time of any suspension of or limitation imposed on trad- ing on (i) the Exchange or (ii) any Related Exchange in options contracts on the Shares, provided that a limitation on the hours and num- ber of days of trading resulting from a change in 3 January 24, 1997 12:30 PM Ref: 529541 JP MORGAN the regular business hours of the Exchange (or the Related Exchange) will not constitute a Market Disruption Event. (iv) Notice of Market Disruption Event. The Calculation Agent shall as soon as practicable (and in no event later than the next Exchange Business Day) notify the other party of the existence of a Market Disruption Event on any Exchange Business Day which would have been a Valuation Date, but for the occurrence of such Market Disruption Event. (d) Adjustments following a Potential Adjustment Event or an Extraordinary Event. (i) Terms. All the terms used in this sub- section 2(6)(d) but not defined herein shall have the meaning therefore set forth in the 1994 ISDA Equity Option Definitions (as published by the International Swaps and Derivatives Associa- tion, Inc.) (the "1994 Definitions"). (ii) Meaning of a Potential Adjustment Event and an Extraordinary Event. The occurrence of a Potential Adjustment Event or an Extraordinary Event including Merger Event, Nationalization or Insolvency all within the meaning of Article 10 of the 1994 Definitions or other events having in the determination of the Calculation Agent, a diluting or concentrative effect on the theo- retical value of the underlying Shares of this Transaction shall trigger a Calculation Agent Adjustment within the meaning of Article 10 sub- section 10.1(c) of the 1994 Definitions. (iii) Adjustment. If there is a Potential Adjustment Event or an Extraordinary Event on the original date that, but for the occurrence of a Potential Adjustment Event or an Extraordi- nary Event would have been the Valuation Date, then in that case (i) the Valuation Date shall be the Business Day on which the Calculation Agent shall determine the level of the Share as specified in subsection 2(6)(d)(ii) and (ii) the Calculation Agent shall determine the level of the Share as of such Business Day. (e) Adjustment following Corrections to Shares. If the level of the Share published on a given day and used or to be used by the Calculation Agent to deter- mine the initial or/and final value of the underlying equity is subsequently corrected and the correction published by the Exchange within 30 days of the original announcement, either party may notify the other party of (A) that correction and (B) the amount that is payable as a result of that correction. If not later than 30 days after publication of that cor- rection a party gives notice that an amount is so payable, the party that originally either received or retained such amount shall, not later than three Cur- rency Business Days after the effectiveness of that notice, pay to the other party that amount, together with interest on that amount at a rate per annum equal to the cost (without proof or evidence of any actual cost) to the other party (as certified by it) of funding that amount from the period from and including the day on which a payment originally was (or was not) made to, but excluding, the day of pay- ment of the refund or payment resulting from that correction. 3. "Calculation Agent" means Morgan, the determinations and calculations of which shall be binding in the absence of mani- fest error. 4 January 24, 1997 12:30 PM Ref: 529541 JP MORGAN 4. Accounts Details: (a) Account for payments to Morgan: Pay: Morgan Guaranty Trust Co, of NY, New York Favour: Morgan Guaranty Trust Co. of NY, London A/C No: 670-07-054 Further A/C: 10005035 (b) Account for payments to the Counterparty: Please advise. 5. Offices (1) The Office of Morgan for the Transaction is: Morgan Guaranty Trust Company of New York London Branch P.O. Box 161 60 Victoria Embankment London EC4Y 0JP Attention: MGT EDG Middle Office Telex: 8954804 Answer back: JPM Telecopy No.: (0171) 325-8205 Telephone No.: (0171) 325-4050 (2) The Office of the Counterparty for the Transaction is: Gotham Partners II LP 110 East 42nd Street 18th Floor New York, NY 10017 Attention: Bill Ackman Telex: Answer back: Telecopy No.: 286-1133 Telephone No.: 286-0300 6. Other provisions No Reliance, etc. Each party represents that (i) it is enter- ing into the Transaction evidenced hereby as principal (and not as agent or in any other capacity); (ii) the other party is not acting as a fiduciary for it; (iii) it is not relying upon any representations except those expressly set forth in the Agree- ment or this Confirmation; (iv) it has consulted with its own legal, regulatory, tax, business, investment, financial, and accounting advisers to the extent it has deemed necessary, and it has made its own investment, hedging, and trading decisions based upon its own judgement and upon any advice from such ad- visers as it has deemed necessary and not upon any view ex- pressed by the other party; and (v) it is entering into this Transaction with a full understanding of the terms, conditions and risks thereof and it is capable of and willing to assume those risks. 5 January 24, 1997 12:30 PM Ref: 529541 JP MORGAN 7. Representations. Each party hereby represents to the other party as follows: (a) Status. It is duly organised and validly existing under the laws of the jurisdiction or its organisation or incorpora- tion and, if relevant under such laws, in good standing; (b) Powers. It has the power to execute and deliver this Con- firmation and to perform its obligations under this Transaction and has taken all necessary action to authorise such execution, delivery and performance; (c) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgement of any court of other agency or government appli- cable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (d) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Transaction have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (e) Obligations Binding. Its obligations under this Transac- tion constitute its legal, valid and binding obligations, en- forceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally and sub- ject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). 8. Events of Default. The occurrence at any time with respect to a party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party: (a) Misrepresentation. A representation contained herein proves to have been incorrect or misleading in any material respect when made; (b) Bankruptcy. A party (i) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (ii) becomes in- solvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (iii) makes a general assignment, arrangement or composi- tion with or for the benefit of its creditors; (iv) institutes or has instituted against it a proceeding seeking a judgement of insolvency or bankruptcy or any other relief under any bank- ruptcy or insolvency law or other similar law affecting credi- tors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or peti- tion instituted or presented against it, such proceeding or petition (A) results in a judgement of insolvency or bankruptcy or the entry of an order for relief or the making of an order for the winding-up or liquidation of the party or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (v) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgama- tion or merger); (vi) seeks or becomes subject to the appoint- ment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (vii) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (viii) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (i) to (vii) (inclusive); or (ix) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; and (c) Merger Without Assumption. The party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets, to, another entity and, at the time of such consolidation, amalgamation, merger or transfer the resulting, surviving or transferee entity fails to assume all the 6 January 24, 1997 12:30 PM Ref: 529541 JP MORGAN obligations of such party under this Transaction to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Transaction. 9. Early Termination. (a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Default- ing Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of this Transaction. Upon the effectiveness of notice designating an Early Termination Date, the obligations of the parties to make any further payments or deliveries under this Transaction will terminate, but without prejudice to the other provisions of this Confirmation. The amount, if any, payable in respect of an Early Termination Date shall be determined by the Non- defaulting Party pursuant to Section 9(b). (b) Calculations. (i) Statement. Following the occurrence of an Early Termination Date, the Calculation Agent will make the cal- culations contemplated by Section 9(c) and will provide to each of the parties a statement (A) showing, in reasonable detail, such calculations (including all relevant quota- tions) and (B) giving details of the relevant account to which any payment due to it under Section 9(c) is to be made. In the absence of written confirmation of a quota- tion obtained in determining a Market Quotation, from the source providing such quotation, the records of the Calcu- lation Agent will be conclusive evidence of the existence and accuracy of such quotation. (ii) Due Date. The amount calculated as being payable under Section 9(c) will be due on the day that notice of the amount payable is effective. Such amount will be paid together with (to the extent permitted under applicable law) interest thereon from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid at the Default Rate. Such amount will be calculated on the basis of the daily compounding and the actual number of days elapsed. (iii) Default Rate. A rate per annum equal to the cost (without proof or evidence of any actual cost) to the rel- evant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. (iv) Market Quotation. With respect to this Transaction and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consid- eration of an agreement between such party and the quoting Reference Market-maker and subject to such documentation as they may in good faith agree, with the relevant Early Termination Date as the date of commencement of such agreement, that would have the effect of preserving for such party the economic equivalent of the obligations of the parties under the Transaction that would, but for the occurrence of the relevant Early Termination Date, have been required after such date. For purposes of this Transaction, Unpaid Amounts are to be excluded but, with- out limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been re- quired (assuming satisfaction of each condition precedent) after that Early Termination Date is to be included. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent practicable as of the same time (without regard to different time zones) on the relevant Early Termination Date (or, if an Early Termination Date is deemed to occur, as of a time as soon thereafter as practicable). The time as of which such quotations are to be obtained will be selected in good faith by the party making the determina- tion. If more than three such quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, expressed in the currency of the Transaction without regard to the quotations having the highest and lowest values. If exactly three such quotations are pro- vided, the Market Quotation will be the quotation remain- ing after disregarding the quotations having the highest and lowest values. If fewer than three quotations are provided, it will be deemed that the 7 January 24, 1997 12:30 PM Ref: 529541 JP MORGAN Market Quotation in respect of the Transaction cannot be determined in which case the Market Quotation shall be determined on the basis of Loss. For purposes hereof, "Unpaid Amounts" with respect to a party means the amounts that became payable to such party on or prior to the Early Termination Date and which remain unpaid at such Early Termination Date. (v) Reference Market-makers. Four leading dealers in the relevant market for transactions of this type selected by the party determining a Market Quotation in good faith (i) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (ii) to the extent practi- cable, from among such dealers having an office in the same city. (vi) Loss. With respect to this Transaction and a party, an amount that party reasonably determines in good faith to be the total losses and costs (or gain, in which case expressed as a negative number) in connection with this Transaction, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or re- establishing any hedge or related trading position (or any gain resulting from any of them). (c) Payments on Early Termination. If notice is given desig- nating an Early Termination Date, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the sum of the Market Quotation, the Unpaid Amounts owing to the Default- ing Party and the Unpaid Amounts owing to the Non-defaulting Party. If such amount is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the De- faulting Party. The amount, if any, payable in respect of an Early Termination Date will be subject to any set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount hereunder is entitled or subject (whether arising under this Transaction, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. The parties agree that the amounts recoverable hereunder are a reasonable pre-estimate of loss and not a penalty. Such amounts are pay- able for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Confirma- tion neither party will be entitled to recover any additional damages as a consequence of such losses. 10. Expenses. If an Event of Default has occurred, the Defaulting Party will, on demand, indemnify and hold harmless the Non-defaulting Party for and against all reasonable out-of- pocket expenses, including legal fees and any stamp, registra- tion, documentation or other similar tax, incurred by the Non- defaulting Party by reason of the enforcement and protection of its rights under this Transaction or by reason of the early termination of this Transaction, including, but not limited to costs of collection. 11. Jurisdiction. With respect to any suit, action or pro- ceedings relating to this Transaction ("Proceedings"), each party irrevocably submits to the jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City and waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an incon- venient forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over such party. The taking of Proceedings in a United States jurisdiction shall not preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not, to the extent permitted by the law of such other jurisdic- tion. 12. No Deduction. All payments under this Transaction shall be made without any deduction or withholding for or on account of any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties, and additions thereto) that is imposed by any government or taxing authority in respect of any payment under this Transac- tion. 8 January 24, 1997 12:30 PM Ref: 529541 JP MORGAN 13. Transfer. This Confirmation shall be binding upon and inure to the benefit of the parties and their respective suc- cessors and permitted assigns. If this Confirmation specifies that a party shall act through a particular office for the pur- poses of this Confirmation, such office may not be changed without the prior written consent of the other party except to another office in the same tax and legal jurisdiction. Neither the rights nor obligations of a party hereunder may be assigned without the prior written consent of the other party; provided, however, that the Buyer may, with the consent of Morgan (such consent not to be unreasonably withheld) assign its rights and obligations to any financial institution which makes the repre- sentations contained in Section 7 hereof. Any such assignment or transfer by Morgan shall be fully effective to transfer all the transferred rights and obligations of Morgan upon notice to the other party. 15. Governing Law. This Confirmation will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine). 9 January 24, 1997 12:30 PM Ref: 529541 JP MORGAN Please confirm your agreement to be bound by the terms of the foregoing by executing the copy of this Confirmation enclosed for that purpose and returning it to us. Very truly yours, J.P. MORGAN SECURITIES INC. AS AGENT FOR MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Adam Green Name: Adam Green Vice President Accepted and confirmed as of the date first above written by GOTHAM PARTNERS II LP By: /s/ David P. Berkowitz Name: /s/ David P. Berkowitz Title: President of DPB Corp., a GP of Section H Partners, LP, the GP of Gotham Partners II, LP 10 January 24, 1997 12:30 PM Ref: 529541 JP MORGAN Morgan Guaranty Trust Company of New York P.O. Box 161 60 Victoria Embankment London EC4Y OJP Direct: 0171-325-4050 Operator: 0171-600-2300 Fax: 0171-325-8205 June 10, 1997 Gotham Partners II, L.P. 110 East 42nd Street 18th Floor New York, NY 10017 Att: Bill Ackman Reference: 529541 RE: EQUITY SHARE OPTION TRANSACTION-AMENDMENT The purpose of this letter is to confirm the terms and conditions of the dequity single stock option transactions (the "Transaction") entered into between us on 19th December, 1996 (the "Trade Date"). This Confirmation shall replace any previous letter and shall serve as the final documentation for this Transaction. This Confirmation evidences a complete binding agreement between the Parties (as defined hereof) as to the terms of the Transaction to which this Confirmation relates. The parties agree to incorporate by reference the 1994 ISD Equity Option Definitions (as published by the International Swaps and Derivatives Association, Inc.)(the "1994 Definitions"). 1. All provisions set forth in the 1994 ISDA Equity Option Definitions shall govern this confirmaion except as expressly modified below. In the event of any Inconsistency between the 1994 Definitions and this Confirmation, this Confirmation will prevail for the purpose of this Transaction. It is our inten- tion to have this Confirmation serve as the final documentation for this trade and accordingly, no letter Confirmation will follow. A subsidiary of Incorporated with Limited Liability J.P. Morgan & Co. in the State of New York, USA Incorporated Member of the Securities and Futures Authority and of the Investment Management Regulatory Organization 1 June 10, 1997 5:20 PM Ref: 529541 JP MORGAN 2. The terms of the Transaction to which this Confirmation relates are as follows: (1) Parties (a) MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("Morgan") (b) GOTHAM PARTNERS II, L.P. ("the Counterparty") (2) General Terms "Effective Date": December 19, 1996. "Expiration Date": December 22, 1997. "Expiration Time" means the Valuation Time. "Option Style": American. "Option Type": Call. "Seller": Morgan. "Buyer": the Counterparty. "Exchange": the New York Stock Exchange. "Related Exchange(s)": the principal options ex- change for option contracts on the Shares. "Clearance System": the Clearance System used by the Exchange. (3) Procedure for Exercise "Automatic Exercise": applicable. "Commencement Date": December 19, 1996. "Latest Exercise Time": means 2 hours prior to the Valuation Time. "Multiple Exercise": inapplicable. (4) Payments Premium Payment The Buyer shall pay to the Seller an amount equal to the Premium on the Premium Payment Date as follows: (i) "Premium": USD 33,800. (ii) "Premium per Option": USD 3.38. (iii) "Premium Payment Date": December 23, 1996. 2 June 10, 1997 5:20 PM Ref: 529541 JP MORGAN (5) Physical Settlement Upon the exercise by the Buyer of this Transaction pursuant to the provisions of Exercise in Section 2(3) of this Confirmation, on the Settlement Date the Seller shall deliver to the Buyer at the account specified hereto and in the manner customary for the Clearance System, the Number of Shares to be Delivered against payment of the Settlement Price by the Buyer to the Seller. Pursuant to the provision of Assignment in Sec- tion 5 hereof. Morgan may assign the obligation to deliver any securities which are subject to this Transaction to any of its affiliates. (i) "Share" means the common stock of First Union Real Estate Investments (the "Issuer"). (ii) "Strike Price": 8.80. (iii) "Number of Options": 10,000.00. (iv) "Option Entitlement": one Share per Option. (v) "Failure to Deliver": Applicable. (vi) "Valuation Time" means the close of trading on the Exchange. (6) Adjustments "Method of Adjustment": Calculation Agent Adjust- ment. (7) Extraordinary Events Consequence of Merger Events: (i) "Share-for-Share": Calculation Agent Adjust- ment. Section 10(1)(c) of the 1994 Definitions shall be modified as following. Upon the declaration by the Issuer of a Merger Event pursuant to sections 10(1)(e) and 10(2), the Calculation Agent shall determine the consequences of such event in respect of this Transaction and such determination shall be effective as of the effective date of such declara- tion. In making such determination, the Calculation Agent may refer to the general rules and principles regarding Merger Events on the Option Exchange to the extent that such reference is reasonably necessary. (ii) "Share-for-Other": Cancellation and Payment. (iii) "Share-for-Combined": Calculation Agent Ad- justment. Section 10(1)(c) of the 1994 Definitions shall be modified as following. Upon the declaration by the issuer of a Merger Event pursuant to sections 10(1)(e) and 10(2), the Calculation Agent shall de- termine the consequences of such event in respect of this Transaction and such determination shall be ef- fective as of the effective date of such declaration. In making such determination, the Calculation Agent may refer to the general rules and principles re- garding Merger Events on the Options Exchange to the extent that such reference is reasonably necessary. (iv) "Options Exchange": the principal options ex- change for option contracts on the Shares. (8) "Nationalisation or Insolvency": Cancellation and Payment. 3 June 10, 1997 5:20 PM Ref: 529541 JP MORGAN 3. "Calculation Agent" means Morgan, the determinations and calculations of which shall be binding in the absence of mani- fest error. 4. Accounts Details: (a) Account for payments to Morgan: Pay: Morgan Guaranty Trust Co. of NY, New York Favour: Morgan Guaranty Trust Co. of NY, London A/C No.: 670-07-054 Further A/C: 10005035 Account for delivery of Shares to Morgan: DTC No.: 060 J.P. Morgan Securities, Inc. Att: Ed White (b) Account for payments to the Counterparty. Please advise. Account for delivery of Shares to the Counterparty. Please advise. 5. Assignment by Morgan Notwithstanding any other provision in this Confirmation to the contrary requiring Morgan to purchase, sell, receive or deliver any shares or other securities to or from the Counter- party, Morgan may designate any of its affiliates to purchase, sell, receive or deliver such shares or other securities and otherwise to perform Morgan's obligations in respect of this Transaction and any such designee may assume such obligations. Morgan shall be discharged of its obligations to the Counter- party to the extent of any such performance. 6. Offices (1) The Office of Morgan for the Transaction is: Morgan Guaranty Trust Company of New York London Branch P.O. Box 161 60 Victoria Embankment London EC4Y 0JP Attention: MGT EDG Middle Office Telex: 8954804 Answer back: JPM For Notices: Telecopy No.: (212) 648-56504 Telephone No.: (212) 648-2510 (2) The Office of the Counterparty for the Transaction is: Gotham Partners II LP 110 East 42nd Street 4 June 10, 1997 5:20 PM Ref: 529541 JP MORGAN 18th Floor New York, NY 10017 Attention: Bill Ackman Telex: Answer back: Telecopy No.: 286-1133 Telephone No.: 286-0300 7. Representations. Each party hereby represents to the other party as follows: (a) Status. It is duly organised and validly existing under the laws of the jurisdiction or its organisation or incorpora- tion and, if relevant under such laws, in good standing; (b) Powers. It has the power to execute and deliver this Con- firmation and to perform its obligations under the Transaction and has taken all necessary action to authorise such execution, delivery and performance; (c) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgement of any court of other agency or government ap- plicable to it or any of its assets or any contractual restric- tion binding on or affecting it or any of its assets; (d) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Transaction have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (e) Obligations Binding. Its obligations under this Transac- tion constitute its legal, valid and binding obligations, en- forceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors' rights generally and sub- ject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). 8. Events of Default. The occurrence at any time with re- spect to a party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party: (a) Misrepresentation. A representation contained herein proven to have been incorrect or misleading in any material respect when made; (b) Bankruptcy. A party (i) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (ii) becomes in- solvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (iii) makes a general assignment, arrangement or composi- tion with or for the benefit of its creditors; (iv) institutes or has instituted against it a proceeding seeking a judgement of insolvency or bankruptcy or any other relief under any bank- ruptcy or insolvency law or other similar law affecting credi- tors' rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or peti- tion instituted or presented against it, such proceeding or petition (A) results in a judgement of insolvency or bankruptcy or the entry of an order for relief or the making of an order for the winding-up or liquidation of the party or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (v) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amal- gamation or merger); (vi) seeks or becomes subject to the ap- pointment of an administrator, provisional liquidator, conser- vator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (vii) has a secured party take possession of all or substantially all its assets or has a distress execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such 5 June 10, 1997 5:20 PM Ref: 529541 JP MORGAN process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (viii) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (i) to (vii) (inclusive); or (ix) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; and (c) Merger without Assumption. The party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets, to, another entity and, at the time of such consolidation, amalgamation, merger or transfer the resulting, surviving or transferee entity fails to assume all the obligations of such party under this Transaction to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Transaction. 9. Early Termination: (a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the "Default- ing Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of this Transaction. Upon the effectiveness of notice designating an Early Termination Date, the obligations of the parties to make any further payments or deliveries under this Transaction will terminate, but without prejudice to the other provisions of this Confirmation. The amount, if any, payable in respect of an Early Termination Date shall be determined by the Non- defaulting Party pursuant to Section 9(b) (b) Calculations: (i) Statement. Following the occurrence of an Early Termination Date, the Calculation Agent will make the cal- culations contemplated by Section 9(c) and will provide to each of the parties a statement (A) showing, in reasonable detail, such calculations (including all relevant quota- tions) and (B) giving details of the relevant account to which any payment due to it under Section 9(c) is to be made. In the absence of written confirmation of a quota- tion obtained in determining a Market Quotation, from the source providing such quotation, the records of the Calcu- lation Agent will be conclusive evidence of the existence and accuracy of such quotation. (ii) Due Date. The amount calculated as being payable under Section 9(c) will be due on the day that notice of the amount payable is effective. Such amount will be paid together with (to the extent permitted under applicable law) interest thereon from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid at the Default Rate. Such amount will be calculated on the basis of the daily compounding and the actual number of days elapsed. (iii) Default Rate. A rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. (iv) Market Quotation. With respect to this Transaction and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consid- eration of an agreement between such party and the quoting Reference Market-maker and subject to such documentation as they may in good faith agree, with the relevant Early Termination Date as the date of commencement of such agreement, that would have the affect of preserving for such party the economic equivalent of the obligations of the parties under the Transaction that would, but for the occurrence of the relevant Early Termination Date, have been required after such date. For purposes of this Transaction, Unpaid Amounts are to be excluded but, with- out limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been re- quired (assuming satisfaction of each condition 6 June 10, 1997 5:20 PM Ref: 529541 JP MORGAN precedent) after that Early Termination Date is to be included. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent practicable as of the same time (without regard to different time zones) on the relevant Early Termination Date (or, if an Early Termination Date is deemed to occur, as of a time as soon thereafter as practicable). The time as of which such quotations are to be obtained will be selected in good faith by the party making the determination. If more than three such quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, expressed in the currency of the Transaction without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market quotation will be the quotation remaining after disregarding the quotations having the highest and lowest values. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of the Transaction cannot be determined in which case the Market Quotation shall be determined on the basis of Loss. For purposes hereof, "Unpaid Amounts" with respect to a party means the amounts that became payable to such party on or prior to the Early Termination Date and which remain unpaid at such Early Termination Date. (v) Reference Market-makers. Four leading dealers in the relevant market for transactions of this type selected by the party determining a Market Quotation in good faith (i) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (ii) to the extent practi- cable, from among such dealers having an office in the same city. (vi) Loss. With respect to this Transaction and a party, an amount that party reasonably determines in good faith to be the total losses and costs (or gain, in which case expressed as a negative number) in connection with this Transaction, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or re- establishing any hedge or related trading position (or any gain resulting from any of them). (c) Payments on Early Termination. If notice is given designating an Early Termination Date, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the sum of the Market Quotation, the Unpaid Amounts owing to the Defaulting Party and the Unpaid Amounts owing to the Non-defaulting Party. If such amount is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. The amount, if any, payable in respect of an Early Termi- nation Date will be subject to any set-off, offset, combi- nation of accounts, right of retention or withholding or similar right or requirement to which the payor of an amount hereunder is entitled or subject (whether arising under this Transaction, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payor. The parties agree that the amount recoverable hereunder are a reasonable pre-estimate of loss and not a penalty. Such amounts are payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Confirmation neither party will be entitled to recover any additional damages as a consequence of such losses. 10. Expenses. If an Event of Default has occurred, the De- faulting Party will, on demand, indemnify and hold harm- less the Non-defaulting Party for and against all reason- able out-of-pocket expenses, including legal fees and any stamp, registration, documentation or other similar tax, incurred by the Non-defaulting Party by reason of the en- forcement and protection of its rights under this Transac- tion or by reason of the early termination of this Trans- action, including, but not limited to costs of collection. 11. Jurisdiction. With respect to any suit, action or pro- ceedings relating to this Transaction ("Proceedings"), each party irrevocably submits to the jurisdiction of the courts of the State of New York and the United States Dis- trict Court located in the Borough of Manhattan in New York City and waives any objection which it may have at any time to the laying of venue of any Proceedings 7 June 10, 1997 5:20 PM Ref: 529541 JP MORGAN brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over such party. The taking of Proceedings in a United States jurisdiction shall not preclude the taking of Proceedings in any other jurisdiction, whether concurrently or not, to the extent permitted by the law of such other jurisdiction. 12. No Deduction. All payments under this Transaction shall be made without any deduction or withholding for or on account of any present or future tax, levy, import, duty, charge, assessment or fee of any nature (including inter- est, penalties, and additions thereto) that is imposed by any government or taxing authority in respect of any pay- ment under this Transaction. 13. Payments. Payments under this Transaction shall be made on the due date for value on that date in the place of the account specified herein, in freely transferable funds and in the manner customary for payments in the required cur- rency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified herein. 14. Transfer. Neither party may transfer any or all of its rights or obligations under this Transaction without the prior written consent of the non-transferring party. 15. Governing Law. This confirmation will be governed by and construed in accordance with the laws of the State of New York (without reference to choice of law doctrine). 16. Amendment. This Amendment shall be governed by, and con- strued in accordance with the laws of the State of New York (without reference to the choice of law doctrine). Upon the execution of this Amendment, this Amendment will amend, restate and supersede the Equity Single Stock Op- tion Transaction dated as of December 16, 1996 between Morgan and the Counterparty. 8 June 10, 1997 5:20 PM Ref: 529541 JP MORGAN Please confirm your agreement to be bound by the terms of the foregoing by executing the copy of this Confirmation enclosed for that purpose and returning it to us. Very truly yours, J.P. MORGAN SECURITIES INC. AS AGENT FOR MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: Name: Title: Accepted and confirmed as of the date first above written GOTHAM PARTNERS II, L.P. By: Name: Title: 9 June 10, 1997 5:20 PM Ref: 529541 EX-99 5 EXHIBIT 4 Exhibit 4 BT REFERENCE NO.: NY-4912 THIS OPTION AGREEMENT (the "Agreement") dated as of Janu- ary 29, 1997 is made by and between GOTHAM PARTNERS, L.P. (the "Buyer") and BANKERS TRUST COMPANY, LONDON BRANCH, (the "Seller" or "BTCO"). 1. PURPOSE; PAYMENTS (a) In consideration of the payment by the Buyer to the Seller of a Premium (all capitalized terms used herein without definition shall have the respective meanings assigned to such terms in Section 2) of USD 2,128,608.00 for value February 3, 1997 (to Seller's Account specified below), the Seller hereby grants to the Buyer a cash-settled call option (the "Option") with respect to 493,150 shares (the "Shares") of the common stock ("Stock") of First Union Real Estate Investments (the "Issuer"). The Option is exercisable by the Buyer between the hours of 9:00 A.M. and 12:00 P.M., New York City time, on any Business Day during the Exercise Period upon notice given in writing, or telephonically, confirmed in writing, to the Seller. The Seller shall deem this Option to have been auto- matically exercised on the Expiration Date if the Option is "in-the-money" (as defined below) at the close of trading on the Stock Exchange, unless the Seller receives notification to the contrary from the Buyer before 1:00 P.M., New York City time on the Expiration Date. For purposes of this Option, the Option shall be deemed "in-the-money" if, at the time of the determination, the Valuation Price exceeds the Exercise Price. (b) Upon exercise of this Option, the Seller shall pay to the Buyer an amount (the "Settlement Amount") equal to the pro- duct of (1) the excess, if any, of the Valuation Price over the Exercise Price and (2) the number of Shares. Settlement of this Option shall be by cash payment only, and the Settlement Amount shall be due and payable on the date (the "Settlement Date") which is three Banking Days after the Exercise Date. 2. DEFINITIONS "Banking Day" shall mean any day which is both (1) a day other than a Saturday, Sunday or other day on which banks in New York or London are authorized or required under applicable law to remain closed and (2) an Exchange Business Day. "Buyers Account" shall mean the account of Gotham Part- ners, L.P. which account details are to be provided by the Buyer to the Seller in writing as soon as possible as the Seller will otherwise be unable to make any payments to Buyer. "Calculation Agent" shall mean BTCO. "Exchange Business Day" shall mean a day other than a Sat- urday or Sunday on which exchanges are open for the trading of securities in New York and for the trading of options or futures relating to the Stock in Chicago. "Expiration Date" shall mean February 13, 1998. "Exercise Date" shall mean the day, during the Exercise Period, if any, on which the Option is or is deemed exercised. 1 BT REFERENCE NO.: NY-4912 "Exercise Period" shall mean the period from and including January 29, 1997 to and including the Expiration Date. "Exercise Price" shall mean $10.80, subject to adjustment as specified in Section 6. "Premium" shall mean the amount specified in Section 1(a) hereof as payable by the Buyer to the Seller as Consideration for this Option. "Seller's Termination Amount" shall have the meaning specified in Exhibit A. "Settlement Date" shall have the meaning set forth in Sec- tion 1(b). "Stock Exchange" shall mean the New York Stock Exchange. "U.S. Dollar" and "$" shall mean the lawful currency of the United States of America. "Valuation Dates" means each of the first ten Banking Days during the Valuation Period on which there is no Market Disrup- tion Event, subject to the provisions of Section 7 hereof. "Valuation Period" means (i) with respect to any Exercise Date up to, and including the 10th Exchange Business Day prior to the Expiration Date, each of the ten (10) Exchange Business Days from and including that Exercise Date, and (ii) with respect to any other Exercise Date, each of the ten (10) Exchange Business Days prior to and including the Expiration Date. "Valuation Price" shall mean the arithmetic average or the closing price for one share of Stock (as determined by the Cal- culation Agent), as calculated and published by the Stock Exchange, on each of the Valuation Dates. 3. REPRESENTATIONS AND WARRANTIES (a) The Seller hereby represents and warrants to the Buyer as follows: (i) it is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorpora- tion; (ii) neither the execution and delivery of this Agreement, nor the consummation of the transactions contem- plated hereby, nor the performance of its obligations hereunder violates (i) any law, regulation, decree or other legal re- striction applicable to it, (ii) its charter, by-laws or other constitutional documents or (iii) any material instrument or agreement to which it or any of its assets is subject or by which it is bound; (iii) there is no legal requirement of any govern- mental authority (including any requirement to make any decla- ration, filing or registration or to obtain any consent, approval, license or order) which is necessary to be met in connection with its execution, delivery or performance of this Agreement (any such legal requirement being herein called a "Legal Requirement"); (iv) this Agreement has been duly authorized, executed and delivered on its behalf and constitutes its legal, valid and binding obligation, enforceable against it in accor- dance with its terms 2 BT REFERENCE NO.: NY-4912 except as such enforceability may be limited by bankruptcy, insolvency or other laws of general applicability relating to or affecting the rights of creditors and by general equitable principles; (v) no Event of Default (as defined in Section 5), and no condition, event or act which with notice or the lapse of time, or both, would constitute an Event of Default has occurred and is continuing or will occur by reason of its entering into or performing its obligations under this Agree- ment; and (vi) it is not on the date of execution of this Agreement required to deduct or withhold any Taxes (as defined in Section 8) with respect to any payment which is or could be required to be made by it pursuant to this Agreement. (b) The Buyer represents and warrants to the Seller as follows: (i) it is a sophisticated institutional investor and is purchasing the Option for its own account for investment and not with a view to any distribution or any other disposi- tion thereof; (ii) in the normal course of its business, the Buyer invests in and purchases securities similar to the Option; (iii) the Buyer has had access to such information concerning the Option and the Seller as it has requested and has such knowledge and experience as to be able to evaluate the merits and risks of purchasing the Option; 4. COVENANTS The Seller hereby covenants and agrees that it will use reasonable efforts to comply in all material respects with all Legal Requirements which may arise from time to time after the date of the Agreement if failure so to comply would materially impair its ability to perform its obligations under this Agree- ment. 5. EVENTS OF DEFAULT (a) Each of the following events shall constitute an Event of Default: (i) the Seller shall fail to pay when due any amount due and owing under this Agreement and such failure shall continue for three Banking Days after receipt of notice of such failure from the Buyer; (ii) the Seller shall fail to perform, observe or comply with any other term, covenant, condition or provision contained in this Agreement and such failure shall continue for 30 days after receipt of notice of such failure from the Buyer; (iii) any representation or warranty of the Seller shall prove to have been incorrect or misleading in any mate- rial respect when made or repeated or deemed to have been made or repeated; (iv) the occurrence of any event of default in respect of the Seller under any other option agreement with the Buyer or any affiliates of the Buyer; 3 BT REFERENCE NO.: NY-4912 (v) (1) the occurrence or existence of any event or condition in respect of the Seller under one or more agree- ments or instruments relating to indebtedness for borrowed money (excluding obligations in respect of deposits received in the ordinary course of business) in an aggregate amount of not less than 3% of the Seller's stockholders' equity as at the end of its last fiscal year (the "Threshold Amount") which has resulted in such indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agree- ments or instruments, before it would otherwise have been due and payable or (2) the failure by such party to make one or more payments at maturity in an aggregate amount of not less than the Threshold Amount under such agreements or instruments (after giving effect to any applicable grace period); (vi) the Seller (1) is dissolved; (2) becomes insolvent or fails or is unable or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has insti- tuted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for the winding-up or liqui- dation of the party and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or liquidation of the party or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up or liquidation; (6) seeks or becomes subject to the appointment of an administrator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets (regardless of how brief such appointment may be, or whether any obligations are promptly assumed by another entity or whether any other event described in this clause (6) has occurred and is continuing); (7) any event occurs with respect to the Seller which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (6) (inclusive); or (8) takes any action in furtherance of, or indicating its consent to, ap- proval of, or acquiescence in, any of the foregoing acts; other than in the case of clause (1) or (5) or, to the extent it relates to those clauses, clause (8), for the purpose of a con- solidation, amalgamation or merger which would not constitute an event described in (vii) below; or (vii) the Seller consolidates or amalgamates with, or merges with or transfers all or substantially all its assets to, another entity and (1) at the time of such consolidation, amalgamation, merger or transfer the resulting, surviving or transferee entity fails to assume all the obligations of the Seller under this Agreement by operation of law or pursuant to an agreement reasonably satisfactory to the Buyer or (2) the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of the Seller immediately prior to the taking of such action. (b) If any Event of Default shall have occurred and be continuing, the Buyer shall have the right to terminate this Agreement by the giving of a notice declaring such termination and specifying the Banking Day on which such early termination shall occur (the "Early Termination Date"). Notwithstanding the foregoing, if an Event of Default specified in clause (vi) of Section 5(a) shall have occurred, the date of the occurrence of such Event of Default shall be deemed to be an Early Termi- nation Date without any action or notice from the Buyer. (c) If this Agreement shall have been terminated pursuant to the provisions of Section 5(b), on the Early Termination Date (or, in the case of the deeming of an Early Termination Date pursuant to the last sentence of Section 5(b), on demand thereafter) the Seller shall pay to the Buyer the Seller's Ter- mination Amount determined as set forth in Exhibit A plus any amounts then due and payable hereunder by the Seller to the Buyer (with interest as provided in Section 12, if applicable). 4 BT REFERENCE NO.: NY-4912 (d) The parties agree that the amounts recoverable pursu- ant to Section 5(c) are reasonable pre-estimates of loss and are not penalties. Such amounts are payable as liquidated dam- ages for the loss of a bargain and the loss of protection against future risks and, without prejudice to the rights and remedies of either party in respect of any other breach of this Agreement or as otherwise specified herein, the Buyer shall not be entitled to recover any additional damages hereunder as a consequence of such losses. (e) The Seller shall indemnify and hold harmless the Buyer on demand from and against all legal fees and other out- of-pocket expenses incurred by the Buyer in enforcing its rights hereunder or as the result of the occurrence of an Early Termination Date. 6. ORDINARY CASH DIVIDEND AND ANTI-DILUTION ADJUSTMENTS All adjustments to be made by the Calculation Agent pursuant to these Ordinary Cash Dividend and Anti-Dilution Adjustments pro- visions will be subject to agreement by Buyer. In the event that Buyer disagrees with any such adjustment (and notifies the Seller of such disagreement on or before the relevant Exercise Date), each of the Buyer and Seller will select a Reference Market-maker to act as alternate Calculation Agent with respect to such adjustment and each of those alternate Calculation Agents will, independently of Buyer and Seller, select a third Reference Market-maker to act as alternate Calculation Agent with respect to such adjustment and the joint determination of these three alternate Calculation Agents with respect to such adjustment shall be binding in the absence of manifest error. "Reference Market-maker" means a leading dealer in the relevant market selected by a party from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit. In the event that, with respect to an Exercise Date, more than one of the events described below has occurred during the period from the Trade Date through, and including, the relevant Exercise Date, the settlement terms of this Transaction shall be adjusted as necessary to preserve the economic equivalent of this Transaction including, without limitation, these adjust- ment provisions, as it existed immediately prior to the occur- rence of such events. (a) Ordinary Cash Dividend Adjustments On the Exercise Date, the Exercise Price shall be subject to adjustment as follows: If, Aggregate Dividends for the relevant Dividend Period is greater than or equal to the relevant Divi- dend Strike, the Exercise Price shall be decreased by an amount equal to the Aggregate Dividend minus the Dividend Strike. If, Aggregate Dividends for the relevant Dividend Period is less than the relevant Dividend Strike, the Exercise Price shall be increased by an amount equal to the Dividend Strike minus the Aggregate Dividend. "DIVIDEND STRIKE" means, with respect to the Exercise Date, the Dividend Strike specified in the table below for period in which the Exercise Date occurs: 5 BT REFERENCE NO.: NY-4912 EXERCISE DATE DIVIDEND FROM, BUT TO, AND STRIKE EXCLUDING INCLUDING $0.11 1/29/97 5/15/97 $0.22 5/15/97 8/15/97 $0.33 8/15/97 11/15/97 $0.44 11/15/97 2/2/98 "AGGREGATE DIVIDENDS" means, with respect to the Dividend Period, the amount equal to the sum of the USD values of all ordinary cash dividends per share which are declared by the issuer dur- ing the Dividend Period, provided that an ex- dividend date with respect to such shares occurs during the Dividend Period. "DIVIDEND PERIOD" means, with respect to the Exercise Date, the period from, but excluding, the Trade Date to, and including the Exercise Date. (b) Anti-Dilution Adjustments The Exercise Price, the Dividend Strike, and the number of Shares subject to this Option shall be subject to adjustment as follows: (a) If prior to the Exercise Date any adjustment is made by the Options Clearing Corporation or its successors ("OCC") in the terms of outstanding OCC-issued options ("OCC Options") on the Stock, an equivalent adjustment shall be made by the Calculation Agent in the terms of this Option. Except as pro- vided below, no adjustment shall be made in the terms of this Option for any event that does not result in an adjustment to the terms of such outstanding OCC Options. Without limiting the generality of the foregoing, other than pursuant to the Ordinary Cash Dividend Adjustments provision above, NO ADJUST- MENT SHALL BE MADE IN THE TERMS OF THIS OPTION FOR ORDINARY CASH DIVIDENDS. For indicative purposes, a summary of the terms under which adjustments may be made by the OCC as in effect on the date hereof is set forth below: (i) Whenever there is a stock dividend, stock dis- tribution, stock split, reverse stock split, rights offering, distribution, reorganization, recapitalization, reclassifica- tion, extraordinary cash dividend or similar event in respect of the Stock, or a merger, consolidation, dissolution or liqui- dation of the Issuer, the number of option contracts, the unit of trading, the exercise price and the underlying amount of Stock, or any of them, with respect to all outstanding option contracts open for trading in the Stock may be adjusted. (ii) All adjustments are made by the Securities Committee of the OCC. The Securities Committee determines whether to make adjustments to reflect particular events in respect of the Stock, and the nature and extent of any such adjustment, based on its judgement as to what is appropriate for the protection of investors and the public interest, taking into account such factors as fairness to holders and writers of option contracts on the Stock, the maintenance of a fair and orderly market in options on the Stock, consistency of inter- pretation and practice, efficiency of exercise settlement pro- cedures and the coordination with other clearing agencies of the clearance and settlement of transactions in the Stock. 6 BT REFERENCE NO.: NY-4912 (iii) In the case of a stock dividend, stock distri- bution or stock split whereby one or more whole numbers of shares are issued with respect to each outstanding share, each option contract covering that share shall be increased by the same number of additional option contracts as the number of shares issued with respect to each share, the exercise price per share in effect immediately prior to such event shall be proportionately reduced, and the unit of trading shall remain the same. (iv) In the case of a stock dividend, stock distri- bution or stock split whereby other than a whole number of shares is issued in respect of each outstanding share, the exercise price in effect immediately prior to such event shall be proportionately reduced, and con- versely, in the case of a reverse stock split or combination of shares, the exercise price in effect immediately prior to such event shall be proportionately increased. Whenever the exer- cise price with respect to an option contract has been reduced or increased, the unit of trading shall be proportionately increased or reduced, as the case may be. (v) In the case of any distribution made with respect to shares, other than cash dividends and other than distributions for which adjustments are provided in subsections (iii) or (iv) above, if an adjustment is determined by the Securities Committee to be appropriate, (i) the exercise price in effect immediately prior to such event shall be reduced by the value per share of the distributed property, in which event the unit of trading shall not be adjusted, or (ii) the unit of trading in effect immediately prior to such event shall be adjusted so as to include the amount of property distributed with respect to the number of shares represented by such unit of trading, in which event the exercise price shall not be adjusted. (vi) In the case of any event for which adjustment is not provided in any of the foregoing paragraphs, the Securi- ties Committee may make such adjustments, if any, it determines to be reasonable under the circumstances. (vii) Adjustments shall as a general rule become effective on the "ex-date" established by the principal stock exchange or market on which the Shares are open for trading. (viii) All adjustments of the exercise price of an outstanding option contract shall be rounded to the nearest 1/8 of a dollar, and all adjustments of the unit of trading shall be rounded down to eliminate any fraction, and if the unit of trading is rounded down to eliminate a fraction, the adjusted exercise price shall be further adjusted, to the nearest 1/8 of a dollar, to reflect any diminution in the value of the option contract resulting from the elimination of the fraction. (b) If at any time prior to the Exercise Date there shall be no outstanding OCC Options on Stock, and an event shall occur for which an adjustment might have been required under the By-laws, Rules and stated policies of OCC applicable to the adjustment of OCC Options, as described above (the "OCC Adjust- ment Rules"), the Calculation Agent shall determine, in its sole discretion, but applying the principles set forth in the OCC Adjustment Rules then in effect, whether to adjust the terms of this Option, and the nature of any such adjustment. (c) The Calculation Agent shall notify the Buyer/Seller of any adjustment pursuant to this Section 6 and the date of its effectiveness. (d) The Calculation Agent is not obligated to verify whether the prerequisites for an adjustment pursuant to this Section 6 exist or whether such adjustment has been correctly calculated or 7 BT REFERENCE NO.: NY-4912 whether the date of effectiveness has been correctly fixed. In this connection, the Calculation Agent does not assume any liability of any nature. (e) Upon the consummation of a Merger Event in respect of the Shares (as defined below), the Calculation Agent shall make such adjustments (including, without limitation, cancelation and payment) to this Option as it, in its sole discretion, deems appropriate. "Merger Event" means, in respect of the Shares, as of the date upon which holders become bound to transfer such Shares held by them, any (i) reclassification or change of such Shares (other than a change in par value, if any, as a result of a subdivision or combination), (ii) con- solidation, amalgamation or merger of the issuer of the rel- evant Shares with or into another corporation (other than a consolidation, amalgamation or merger in which that issuer of Shares is the continuing corporation and which does not result in any such reclassification or change of Shares) or (iii) other takeover offer for such Shares that results in a transfer of all such Shares (other than the Shares owned or controlled by the offeror) on or before the Expiration Date. 7. VALUATION; MARKET DISRUPTION EVENTS (a) If, in the opinion of the Calculation Agent, a Market Disruption Event (as defined below) has occurred and is con- tinuing on any Banking Day during the Valuation Period, then such day shall not be deemed to be a Valuation Date; provided, however, that if there have been five such days on which Market Disruption Events have occurred, then, notwithstanding such Market Disruption Event, such day shall be deemed to be a Valu- ation Date and the Calculation Agent shall determine the price of one Share as of the normal closing time for the Stock Exchange to be the price announced at such time by the Stock Exchange (or, if trading in the Shares has been materially lim- ited, its good faith estimate of the closing price for one Share on the Stock Exchange that would have prevailed on such date but for the Market Disruption Event). The Calculation Agent shall use its reasonable efforts to give notice to the Seller and the Buyer that a Market Disruption Event has occurred. (b) "Market Disruption Event" means the occurrence or continuance on any Exchange Business Day of any suspension of or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant exchange or otherwise) (i) on the Stock Exchange, in the Shares or securi- ties generally or (ii) on the primary options exchange on which options on the Shares are traded, in such options, in each case if, in the determination of the Calculation Agent, such suspen- sion or limitation is material. 8. TAXATION; ILLEGALITY (a) All payments hereunder shall be made free and clear of and without deduction or withholding for any Taxes (as here- inafter defined) whatsoever. If applicable law should require that any payment due from the Seller hereunder be subject to withholding with respect to any Taxes whatsoever, the Seller will, to the full extent then permitted by law, pay (i) the full amount of such Taxes required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amounts paid pursuant to this Section 8(a)) and (ii) such additional amounts as may be necessary in order that every net payment to the Buyer of all amounts due and owing hereunder will not be less than the full amount the Buyer would have received had no such deduction or withholding been required. The Seller will furnish to the Buyer within 30 days after the date on which the payment of any Taxes is due pursu- ant to applicable law a written statement or other evidence sufficient to document the fact and amount of withholding by the Seller. As used in this Section 8, "Taxes" means any present or future taxes, levies, duties, charges, fees, deduc- tions or witholdings of any nature now or hereafter 8 BT REFERENCE NO.: NY-4912 imposed, levied, collected, withheld or assessed by any taxing authority whatsoever and all interest penalties and other similar liabilities with respect thereto, other than (A) taxes in respect of the overall net income of the payee imposed by the jurisdic- tion in which its principal office is located or the jurisdic- tion in which the relevant payment is received or (B) taxes imposed as a result of such recipient being or having been a citizen or resident of the jurisdiction of the government or taxing authority imposing such tax, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or any similar agreement with the Seller. (b) In the event that the Seller (i) is obligated at any time to make any payment of additional amounts pursuant to this Section 8 or (ii) shall have determined that its performance under this Agreement shall have become unlawful in whole or in part as a result of compliance in good faith by the Seller with any applicable present or future law, rule, regulation, judg- ment, order or directive of any governmental, administrative, legislative or judicial authority, then the Seller shall give notice thereof to the Buyer, and the parties hereto shall thereupon promptly negotiate in good faith with a view to find- ing a satisfactory alternative method of payment or performance to avoid such illegality or such payment of additional amounts. If at the end of a period of 30 days after the giving of such notice (or such shorter period as may be reasonable under the circumstances then prevailing) the parties have not agreed upon such a satisfactory alternative method, either party may termi- nate this Agreement within 30 days thereafter by designating an Early Termination Date and otherwise following the procedures for termination set forth in Section 5. (c) If either party is required at any time to execute any form of document in order for payments to it hereunder to qualify for exemption from withholding tax or for withholding tax at a reduced rate, such party shall execute such form or document and deliver it on demand to the party required to make such payments. 9. PAYMENT IN U.S. DOLLARS It is of the essence of this Agreement that the payments required hereunder be made in U.S. Dollars. The obligation of either party to make each payment in U.S. Dollars shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment, which is expressed in or converted into any other currency until and except to the extent such tender or recovery shall result in the actual receipt by the other party in U.S. Dollars of the amount expressed to be payable hereun- der. The obligation of either party to make payments in U.S. Dollars shall be enforceable as an alternative or additional cause of action for the purpose of recovery in U.S. Dollars of the amount (if any) by which such actual receipt shall fall short of the full amount of U.S. Dollars required to be paid hereunder and shall not be affected by judgment being obtained for any other sums due under this Agreement. 10. JURISDICTION; SERVICE OF PROCESS; IMMUNITY (a) With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevo- cably submits to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City and waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient 9 BT REFERENCE NO.: NY-4912 forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. (b) Each party confirms, if it does not have a place of business in New York, that it has irrevocably appointed a pro- cess agent in New York to receive, for it and on its behalf, service of process in any Proceedings, and will provide evi- dence of such appointment on request. If for any reason the party's process agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process in the manner provided for notices in Section 14. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law. (c) Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other simi- lar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific perfor- mance; or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 11. DATES; COMPUTATIONS (a) Whenever the Exercise Date would in accordance with the terms hereof otherwise occur on a day which is not an Exchange Business Day, such date shall be postponed to the next succeeding Exchange Business Day. (b) All percentages calculated pursuant to this Agreement shall, if necessary, be rounded upwards to the next higher one hundred thousandth of a percentage point and all currency amounts will be rounded to the nearest whole currency unit (with 1/2 of such unit being rounded up). 12. PAYMENTS All payments to be made by the Seller hereunder shall be made without offset or counterclaim in immediately available funds by wire transfer to the account specified pursuant to Section 14 below. Computations hereunder shall be on the basis of a year of 360 days for the actual number of days elapsed. Any amount not paid when due hereunder shall be payable on demand and, to the extent permitted by law, will bear interest from the due date until paid at a rate per annum which shall be 1% in excess of the Buyer's cost of funding such amount, as certified by the Buyer. 13. ASSIGNMENT This Confirmation shall be binding upon and inure to the parties and their respective successors and permitted assigns. Neither the rights nor obligations of a party hereunder may be assigned without the prior written consent of the other party; provided that Buyer may, with the prior consent of BTCO (such consent not to be unreasonably withheld), assign its rights and obligations to any financial institution which makes the repre- sentations contained in Section 1(b)(i-iv) and Section i(b)(vii-viii) hereof; provided further that BTCO may at any time, without consent being required, assign its rights, duties and obligations in respect of this Transaction to any affiliate of BTCO (the rights, duties and 10 BT REFERENCE NO.: NY-4912 obligations so assigned to be guaranteed by BTCO). Any such assignment or transfer by BTCO shall be fully effective to transfer all the transferred rights and obligations of BTCO upon notice to Buyer. 14. NOTICES Notices hereunder shall be in writing and may be given by personal delivery, by mail or by telex, effective upon receipt (if given by personal delivery), five days after mailing, first class postage pre-paid (if given by mail), or one Banking Day after dispatch (if given by telex), addressed to the recipient as follows or to such other address as the relevant party shall have advised the other in writing: - If to BTCO: Bankers Trust Company 1 Bankers Trust Plaza 130 Liberty Street New York, NY 10006 Attention: Equity Operations Fax No.: (212) 250-1467 - If to the Buyer: Gotham Partners, L.P. Attention: Bill Ackman, David Berkowitz Fax No.: 212-286-1133 15. AMENDMENTS No amendment or waiver of any provision of this Agreement nor consent to any departure therefrom by either party shall in any event be effective unless the same shall be in writing and signed by the other party, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given and only for the specific time period, if any, contemplated therein. 11 BT REFERENCE NO.: NY-4912 16. NON-WAIVER OF RIGHTS No failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver and any explicit waiver of any breach of this Agreement shall be without prejudice to any rights of such party to any other or further breach. 17. COUNTERPARTS This Agreement may be executed in counterparts, which taken together shall be deemed to constitute one and the same agreement. 18. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without ref- erence to choice of law doctrine. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective representatives as of the date specified in the first sentence above. BANKERS TRUST COMPANY, LONDON BRANCH By: /s/ Tarana Oommen Name: Tarana Oommen Title: Vice President GOTHAM PARTNERS, L.P. By Section M Partners, L.P. By Karenina Corp. By: /s/ William A. Ackman Name: William A. Ackman Title: President 12 BT REFERENCE NO.: NY-4912 EXHIBIT A SELLER'S TERMINATION AMOUNT "Seller's Termination Amount" means the amount in U.S. Dollars equal to the arithmetic mean of the respective on-time all-in fees (including documentation costs) communicated to the Buyer not more than two Banking Days before an Early Termina- tion Date (or, in the case of the deeming of an Early Termina- tion Date pursuant to the last sentence of Section 5(b), on the earliest practicable Banking Day following such deemed Early Termination Date) by each of four leading commercial banks or investment banking firms in London or New York selected in good faith by the Buyer as the fee, payable on or as of such Early Termination Date, as the case may be, that it would charge to assume as of such Early Termination Date all of the obligations of the Seller under this Option Agreement that would become due and payable after such Early Termination Date (assuming that this Option Agreement were to continue in effect until the Exercise Date and that no Early Termination Date had occurred) provided, however, that if any one such entity fails so to com- municate such a fee, the Buyer is not required to seek another such entity to obtain a quote and "Seller's Termination Amount" shall be determined on the basis of the fee or fees so communi- cated to the Buyer by the other three entities. In the event that less than three such entities are able to provide such quotes or that the "Seller's Termination Amount" cannot other- wise be determined in accordance with the preceding sentence, "Seller's Termination Amount" shall mean such amount, computed in good faith by the Buyer, as may be required to compensate the Buyer for any losses, costs and expenses whatsoever that the Buyer may incur as a result of the early termination of this Option Agreement. 13 GOTHAM PARTNERS, L.P. First Transaction Amendment BT Transaction Reference No.: NY-4912 Dear Sir/Madam: The purpose of this letter is to set forth the terms and condi- tions of the First Transaction Amendment (the "Amendment") dated as of June 4, 1997 which has been agreed to between Gotham Partners, L.P. (the "Counterparty") and Bankers Trust Company, London Branch. This Amendment relates to the above- referenced transaction with an Expiration Date of February 13, 1998 (the "Amended Transaction"). In consideration of the mutual benefits to be derived from this Amendment, BT and the Counterparty have agreed to amend the above-referenced transaction to provide for physical settlement of the underlying shares, to delete the 10-day averaging period at maturity and to change the Expiration Date to February 2, 1998. As specifically modified by this Amendment, all of the terms and provisions of the Amended Transaction are hereby reaffirmed and shall remain in full force and effect. If the foregoing correctly states your understanding of these matters, please indicate your agreement to this Amendment by signing and returning the attached Confirmation which amends and restates the terms of the Transaction to reflect the changes set forth in this Amendment. Yours Truly, Bankers Trust Company, London Branch By: _______________________ Name: Title: DATE: June 4, 1997 TO: GOTHAM PARTNERS, L.P. ATTENTION: Bill Ackman FAX: 212 286-1133 FROM: BANKERS TRUST COMPANY, London Branch FAX: 212 250-1467 BT REF: NY-4912 (as amended and restated to reflect the changes specified in the First Transaction Amendment dated as of June 4, 1997) RE: Equity Derivative Transaction As specifically modified by this Amendment, all of the terms and provisions of the Amended Transaction and the Master Agree- ment are hereby reaffirmed and shall remain in full force and effect. THIS OPTION AGREEMENT (the "Agreement") dated as of January 29, 1997 is made by and between GOTHAM PARTNERS, L.P. (the "Buyer") and BANKERS TRUST COMPANY, London Branch, (the "Seller" or "BTCO"). 1. Purpose; Payments (a) In consideration of the payment by the Buyer to the Seller of a Premium (all capitalized terms used herein without definition shall have the respective meanings assigned to such terms in Section 2) of USD 2,128,608.00 for value February 3, 1997 (to Seller's Account specified below), the Seller hereby grants to the Buyer a physically-settled call option (the "Option") with respect to 493,150 shares (the "Shares") of the common stock ("Stock") of First Union Real Estate Investments (the "Issuer"). The Option is exercisable by the Buyer between the hours of 9:00 A.M. and 12:00 P.M., New York City time, on any Business Day during the Exercise Period upon notice given in writing, or telephonically, confirmed in writing, to the Seller. (b) Upon exercise of this Option, Seller will deliver or cause to be delivered to Buyer on the third Exchange Business Day (the Settlement Date) a number of Shares (and the documen- tation necessary to evidence transfer of legal and beneficial ownership of such Shares) equal the number of Shares specified in paragraph 1(a) above in accordance with the instructions delivered with the notice of exercise against payment by Buyer on the Settlement Date, in immediately available funds, of an amount equal to the product of the number of Shares to be delivered on such Settlement Date and the Exercise Price. 2. Definitions "Banking Day" shall mean any day which is both (1) a day other than a Saturday, Sunday or other day on which banks in New York or London are authorized or required under applicable law to remain closed and (2) an Exchange Business Day. Buyers Account shall mean the account of Gotham Partners, L.P. which account details are to be provided by the Buyer to the Seller in writing as soon as possible as the Seller will otherwise be unable to make any payments to Buyer. -2- "Calculation Agent" shall mean BTCO. "Exchange Business Day" shall mean a day other than a Saturday or Sunday on which exchanges are open for the trading of securities in New York and for the trading of options or futures relating to the Stock in Chicago. "Expiration Date" shall mean February 2, 1998. Exercise Date shall mean the day, during the Exercise Period, if any, on which the Option is or is deemed exercised. Exercise Period shall mean the period from and including January 29, 1997 to and including the Expiration Date. "Exercise Price" shall mean $10.80, subject to adjustment as specified in Section 6. "Premium" shall mean the amount specified in Section 1(a) hereof as payable by the Buyer to the Seller as Consideration for this Option. "Seller's Termination Amount" shall have the meaning specified in Exhibit A. "Settlement Date" shall have the meaning set forth in Sec- tion 1(b). "Stock Exchange" shall mean the New York Stock Exchange. "U.S. Dollar" and "$" shall mean the lawful currency of the United States of America. 3. Representations and Warranties (a) The Seller hereby represents and warrants to the Buyer as follows: (i) it is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorpora- tion; (ii) neither the execution and delivery of this Agree- ment, nor the consummation of the transactions contemplated hereby, nor the performance of its obligations hereunder vio- lates (i) any law, regulation, decree or other legal restric- tion applicable to it, (ii) its charter, by-laws or other con- stitutional documents or (iii) any material instrument or agreement to which it or any of its assets is subject or by which it is bound; (iii) there is no legal requirement of any governmental authority (including any requirement to make any declaration, filing or registration or to obtain any consent, approval, license or order) which is necessary to be met in connection with its execution, delivery or performance of this Agreement (any such legal requirement being herein called a "Legal Requirement"); (iv) this Agreement has been duly authorized, executed and delivered on its behalf and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency or other laws of general applicability -3- relating to or affecting the rights of creditors and by general equitable principles; (v) no Event of Default (as defined in Section 5), and no condition, event or act which with notice or the lapse of time, or both, would constitute an Event of Default has occurred and is continuing or will occur by reason of its entering into or performing its obligations under this Agree- ment; and (vi) it is not on the date of execution of this Agree- ment required to deduct or withhold any Taxes (as defined in Section 8) with respect to any payment which is or could be required to be made by it pursuant to this Agreement. (b) The Buyer represents and warrants to the Seller as follows: (i) it is a sophisticated institutional investor and is purchasing the Option for its own account for investment and not with a view to any distribution or any other disposition thereof; (ii) in the normal course of its business, the Buyer invests in and purchases securities similar to the Option; (iii) the Buyer has had access to such information con- cerning the Option and the Seller as it has requested and has such knowledge and experience as to be able to evaluate the merits and risks of purchasing the Option; 4. Covenants The Seller hereby covenants and agrees that it will use reasonable efforts to comply in all material respects with all Legal Requirements which may arise from time to time after the date of the Agreement if failure so to comply would materially impair its ability to perform its obligations under this Agree- ment. 5. Events of Default (a) Each of the following events shall constitute an Event of Default: (i) the Seller shall fail to pay when due any amount due and owing under this Agreement and such failure shall con- tinue for three Banking Days after receipt of notice of such failure from the Buyer; (ii) the Seller shall fail to perform, observe or comply with any other term, covenant, condition or provision contained in this Agreement and such failure shall continue for 30 days after receipt of notice of such failure from the Buyer; (iii) any representation or warranty of the Seller shall prove to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (iv) the occurrence of any event of default in respect of the Seller under any other option agreement with the Buyer or any affiliate of the Buyer; -4- (v) (1) the occurrence or existence of any event or condition in respect of the Seller under one or more agreements or instruments relating to indebtedness for borrowed money (ex- cluding obligations in respect of deposits received in the ordinary course of business) in an aggregate amount of not less than 3% of the Seller's stockholders' equity as at the end of its last fiscal year (the "Threshold Amount") which has re- sulted in such indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agree- ments or instruments, before it would otherwise have been due and payable or (2) the failure by such party to make one or more payments at maturity in an aggregate amount of not less than the Threshold Amount under such agreements or instruments (after giving effect to any applicable grace period); (vi) the Seller (1) is dissolved; (2) becomes insolvent or fails or is unable or admits in writing its inability gener- ally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for the winding-up or liquidation of the party and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or liquidation of the party or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up or liquidation; (6) seeks or becomes subject to the appointment of an administra- tor, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets (regardless of how brief such appointment may be, or whether any obligations are promptly assumed by another entity or whether any other event described in this clause (6) has occurred and is continu- ing); (7) any event occurs with respect to the Seller which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (6) (inclusive); or (8) takes any action in furtherance of, or in- dicating its consent to, approval of, or acquiescence in, any of the foregoing acts; other than in the case of clause (1) or (5) or, to the extent it relates to those clauses, clause (8), for the purpose of a consolidation, amalgamation or merger which would not constitute an event described in (vii) below; or (vii) the Seller consolidates or amalgamates with, or merges with or transfers all or substantially all its assets to, another entity and (1) at the time of such consolidation, amalgamation, merger or transfer the resulting, surviving or transferee entity fails to assume all the obligations of the Seller under this Agreement by operation of law or pursuant to an agreement reasonably satisfactory to the Buyer or (2) the creditworthiness of the resulting, surviving or transferee en- tity is materially weaker than that of the Seller immediately prior to the taking of such action. (b) If any Event of Default shall have occurred and be continuing, the Buyer shall have the right to terminate this Agreement by the giving of a notice declaring such termination and specifying the Banking Day on which such early termination shall occur (the "Early Termination Date"). Notwithstanding the foregoing, if an Event of Default specified in clause (vi) of Section 5(a) shall have occurred, the date of the occurrence of such Event of Default shall -5- be deemed to be an Early Termination Date without any action or notice from the Buyer. (c) If this Agreement shall have been terminated pursuant to the provisions of Section 5(b), on the Early Termination Date (or, in the case of the deeming of an Early Termination Date pursuant to the last sentence of Section 5(b), on demand thereafter) the Seller shall pay to the Buyer the Seller's Ter- mination Amount determined as set forth in Exhibit A plus any amounts then due and payable hereunder by the Seller to the Buyer (with interest as provided in Section 12, if applicable). (d) The parties agree that the amounts recoverable pursu- ant to Section 5(c) are reasonable pre-estimates of loss and are not penalties. Such amounts are payable as liquidated dam- ages for the loss of a bargain and the loss of protection against future risks and, without prejudice to the rights and remedies of either party in respect of any other breach of this Agreement or as otherwise specified herein, the Buyer shall not be entitled to recover any additional damages hereunder as a consequence of such losses. (e) The Seller shall indemnify and hold harmless the Buyer on demand from and against all legal fees and other out- of-pocket expenses incurred by the Buyer in enforcing its rights hereunder or as the result of the occurrence of an Early Termination Date. 6. Ordinary Cash Dividend and Anti-Dilution Adjustments All adjustments to be made by the Calculation Agent pursu- ant to these Ordinary Cash Dividend and Anti-Dilution Adjust- ments provisions will be subject to agreement by Buyer. In the event that Buyer disagrees with any such adjustment (and noti- fies the Seller of such disagreement on or before the relevant Exercise Date), each of the Buyer and Seller will select a Ref- erence Market-maker to act as alternate Calculation Agent with respect to such adjustment and each of those alternate Calcula- tion Agents will, independently of Buyer and Seller, select a third Reference Market-maker to act as alternate Calculation Agent with respect to such adjustment and the joint determina- tion of these three alternate Calculation Agents with respect to such adjustment shall be binding in the absence of manifest error. Reference Market-maker means a leading dealer in the relevant market selected by a party from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit. In the event that, with respect to an Exercise Date, more than one of the events described below has occurred during the period from the Trade Date through, and including, the relevant Exercise Date, the settlement terms of this Transaction shall be adjusted as necessary to preserve the economic equivalent of this Transaction including, without limitation, these adjust- ment provisions, as it existed immediately prior to the occur- rence of such events. (a) Ordinary Cash Dividend Adjustments -6- On the Exercise Date, the Exercise Price shall be subject to adjustment as follows: If, Aggregate Dividends for the relevant Dividend Period is greater than or equal to the relevant Dividend Strike, the Exercise Price shall be decreased by an amount equal to the Aggregate Dividend minus the Dividend Strike. If, Aggregate Dividends for the relevant Dividend Period is less than the relevant Dividend Strike, the Exercise Price shall be increased by an amount equal to the Dividend Strike minus the Aggregate Dividend. Dividend Strike means, with respect to the Exercise Date, the Dividend Strike specified in the table below for period in which the Exercise Date occurs: EXERCISE DATE DIVIDEND FROM, BUT TO, AND STRIKE EXCLUDING INCLUDING $0.11 1/29/97 5/15/97 $0.22 5/15/97 8/15/97 $0.33 8/15/97 11/15/97 $0.44 11/15/97 2/2/98 Aggregate Dividends means, with respect to the Divi- dend Period, the amount equal to the sum of the USD values of all ordinary cash dividends per share which are declared by the issuer during the Dividend Period, provided that an ex-dividend date with respect to such shares occurs during the Dividend Period. Dividend Period means, with respect to the Exercise Date, the period from, but excluding, the Trade Date to, and including the Exercise Date. (b) Anti-Dilution Adjustments The Exercise Price, the Dividend Strike, and the number of Shares subject to this Option shall be subject to adjustment as follows: a) If prior to the Exercise Date any adjustment is made by the Options Clearing Corporation or its successors ("OCC") in the terms of outstanding OCC-issued options ("OCC Options") on the Stock, an equivalent adjustment shall be made by the Calculation Agent in the terms of this Option. Except as provided below, no adjustment shall be made in the terms of this Option for any event that does not result in an adjustment to the terms of such outstanding OCC Options. Without limiting the generality of the foregoing, other than pursuant to the Ordinary Cash Dividend Adjustments provision above, NO ADJUSTMENT SHALL BE MADE IN THE TERMS OF THIS OPTION FOR ORDINARY CASH DIVIDENDS. For indicative purposes, a summary of the terms under which adjustments may be made by the OCC as in effect on the date hereof is set forth below: (i) Whenever there is a stock dividend, stock distribution, stock split, reverse stock split, rights offering, distribution, reorganization, recapitalization, reclassification, extraordinary cash dividend or similar event in respect of the Stock, or a merger, consolidation, dissolution or liquidation of the Issuer, the number of option contracts, the unit of trading, -7- the exercise price and the underlying amount of Stock, or any of them, with respect to all outstanding option contracts open for trading in the Stock may be adjusted. (ii) All adjustments are made by the Securities Committee of the OCC. The Securities Committee determines whether to make adjustments to reflect particular events in respect of the Stock, and the nature and extent of any such adjustment, based on its judgment as to what is appropriate for the protection of investors and the public interest, taking into account such factors as fairness to holders and writers of option contracts on the Stock, the maintenance of a fair and orderly market in options on the Stock, consistency of interpretation and practice, efficiency of exercise settlement procedures and the coordination with other clearing agencies of the clearance and settlement of transactions in the Stock. (iii) In the case of a stock dividend, stock distribution or stock split whereby one or more whole numbers of shares are issued with respect to each outstanding share, each option contract covering that share shall be increased by the same number of additional option contracts as the number of shares issued with respect to each share, the exercise price per share in effect immediately prior to such event shall be proportionately reduced, and the unit of trading shall remain the same. (iv) In the case of a stock dividend, stock distribution or stock split whereby other than a whole number of shares is issued in respect of each outstanding share, the exercise price in effect immediately prior to such event shall be proportionately reduced, and conversely, in the case of a reverse stock split or combination of shares, the exercise price in effect immediately prior to such event shall be proportionately increased. Whenever the exercise price with respect to an option contract has been reduced or increased, the unit of trading shall be proportionately increased or reduced, as the case may be. (v) In the case of any distribution made with respect to shares, other than cash dividends and other than distributions for which adjustments are provided in subsections (iii) or (iv) above, if an adjustment is determined by the Securities Committee to be appropriate, (i) the exercise price in effect immediately prior to such event shall be reduced by the value per share of the distributed property, in which event the unit of trading shall not be adjusted, or (ii) the unit of trading in effect immediately prior to such event shall be adjusted so as to include the amount of property distributed with respect to the number of shares represented by such unit of trading, in which event the exercise price shall not be adjusted. (vi) In the case of any event for which adjustment is not provided in any of the foregoing paragraphs, the Securities Committee may make such adjustments, if any, it determines to be reasonable under the circumstances. (vii) Adjustments shall as a general rule become effective on the "ex-date" established by the principal stock exchange or market on which the Shares are open for trading. -8- (viii) All adjustments of the exercise price of an outstanding option contract shall be rounded to the nearest 1/8 of a dollar, and all adjustments of the unit of trading shall be rounded down to eliminate any fraction, and if the unit of trading is rounded down to eliminate a fraction, the adjusted exercise price shall be further adjusted, to the nearest 1/8 of a dollar, to reflect any diminution in the value of the option contract resulting from the elimination of the fraction. (b) If at any time prior to the Exercise Date there shall be no outstanding OCC Options on Stock, and an event shall occur for which an adjustment might have been required under the By-laws, Rules and stated policies of OCC applicable to the adjustment of OCC Options, as described above (the "OCC Adjustment Rules"), the Calculation Agent shall determine, in its sole discretion, but applying the principles set forth in the OCC Adjustment Rules then in effect, whether to adjust the terms of this Option, and the nature of any such adjustment. (c) The Calculation Agent shall notify the Buyer/Seller of any adjustment pursuant to this Section 6 and the date of its effectiveness. (d) The Calculation Agent is not obligated to verify whether the prerequisites for an adjustment pursuant to this Section 6 exist or whether such adjustment has been correctly calculated or whether the date of effectiveness has been correctly fixed. In this connection, the Calculation Agent does not assume any liability of any nature. (e) Upon the consummation of a Merger Event in respect of the Shares (as defined below), the Calculation Agent shall make such adjustments (including, without limitation, cancellation and payment) to this Option as it, in its sole discretion, deems appropriate. "Merger Event" means, in respect of the Shares, as of the date upon which holders become bound to transfer such Shares held by them, any (i) reclassification or change of such Shares (other than a change in par value, if any, as a result of a subdivision or combination), (ii) consolidation, amalgamation or merger of the issuer of the relevant Shares with or into another corporation (other than a consolidation, amalgamation or merger in which that issuer of Shares is the continuing corporation and which does not result in any such reclassification or change of Shares) or (iii) other takeover offer for such Shares that results in a transfer of all such Shares (other than the Shares owned or controlled by the offeror) on or before the Expiration Date. 7. Valuation; Market Disruption Events (a) If, in the opinion of the Calculation Agent, a Market Disruption Event (as defined below) has occurred and is continuing on any Banking Day during the Valuation Period, then such day shall not be deemed to be a Valuation Date; provided, however, that if there have been five such days on which Market Disruption Events have occurred, then, notwithstanding such Market Disruption Event, such day shall be deemed to be a Valuation Date and the Calculation Agent shall determine the price of one Share as of the normal closing time for the Stock Exchange to be the price announced at such time by the Stock Exchange (or, if trading in the Shares has been materially limited, its good faith estimate of the closing price for one Share on the Stock Exchange that would -9- have prevailed on such date but for the Market Disruption Event). The Calculation Agent shall use its reasonable efforts to give notice to the Seller and the Buyer that a Market Disruption Event has occurred. (b) "Market Disruption Event" means the occurrence or continuance on any Exchange Business Day of any suspension of or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant exchange or otherwise) (i) on the Stock Exchange, in the Shares or securities generally or (ii) on the primary options exchange on which options on the Shares are traded, in such options, in each case if, in the determination of the Calculation Agent, such suspension or limitation is material. 8. Taxation; Illegality (a) All payments hereunder shall be made free and clear of and without deduction or withholding for any Taxes (as hereinafter defined) whatsoever. If applicable law should require that any payment due from the Seller hereunder be subject to withholding with respect to any Taxes whatsoever, the Seller will, to the full extent then permitted by law, pay (i) the full amount of such Taxes required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amounts paid pursuant to this Section 8(a)) and (ii) such additional amounts as may be necessary in order that every net payment to the Buyer of all amounts due and owing hereunder will not be less than the full amount the Buyer would have received had no such deduction or withholding been required. The Seller will furnish to the Buyer within 30 days after the date on which the payment of any Taxes is due pursuant to applicable law a written statement or other evidence sufficient to document the fact and amount of withholding by the Seller. As used in this Section 8, "Taxes" means any present or future taxes, levies, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed, levied, collected, withheld or assessed by any taxing authority whatsoever and all interest penalties and other similar liabilities with respect thereto, other than (A) taxes in respect of the overall net income of the payee imposed by the jurisdiction in which its principal office is located or the jurisdiction in which the relevant payment is received or (B) taxes imposed as a result of such recipient being or having been a citizen or resident of the jurisdiction of the government or taxing authority imposing such tax, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or any similar agreement with the Seller. (b) In the event that the Seller (i) is obligated at any time to make any payment of additional amounts pursuant to this Section 8 or (ii) shall have determined that its performance under this Agreement shall have become unlawful in whole or in part as a result of compliance in good faith by the Seller with any applicable present or future law, rule, regulation, judgment, order or directive of any governmental, administrative, legislative or judicial authority, then the Seller shall give notice thereof to the Buyer, and the parties hereto shall thereupon promptly negotiate in good faith with a view to -10- finding a satisfactory alternative method of payment or performance to avoid such illegality or such payment of additional amounts. If at the end of a period of 30 days after the giving of such notice (or such shorter period as may be reasonable under the circumstances then prevailing) the parties have not agreed upon such a satisfactory alternative method, either party may terminate this Agreement within 30 days thereafter by designating an Early Termination Date and otherwise following the procedures for termination set forth in Section 5. (c) If either party is required at any time to execute any form of document in order for payments to it hereunder to qualify for exemption from withholding tax or for withholding tax at a reduced rate, such party shall execute such form or document and deliver it on demand to the party required to make such payments. 9. Payment in U.S. Dollars It is of the essence of this Agreement that the payments required hereunder be made in U.S. Dollars. The obligation of either party to make each payment in U.S. Dollars shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment, which is expressed in or converted into any other currency until and except to the extent such tender or recovery shall result in the actual receipt by the other party in U.S. Dollars of the amount expressed to be payable hereunder. The obligation of either party to make payments in U.S. Dollars shall be enforceable as an alternative or additional cause of action for the purpose of recovery in U.S. Dollars of the amount (if any) by which such actual receipt shall fall short of the full amount of U.S. Dollars required to be paid hereunder and shall not be affected by judgment being obtained for any other sums due under this Agreement. 10. Jurisdiction; Service of Process; Immunity (a) With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City and waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. (b) Each party confirms, if it does not have a place of business in New York, that it has irrevocably appointed a process agent in New York to receive, for it and on its behalf, service of process in any Proceedings, and will provide evidence of such appointment on request. If for any reason the party's process agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process in the manner -11- provided for notices in Section 14. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law. (c) Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance; or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 11. Dates; Computations (a) Whenever the Exercise Date would in accordance with the terms hereof otherwise occur on a day which is not an Exchange Business Day, such date shall be postponed to the next succeeding Exchange Business Day. (b) All percentages calculated pursuant to this Agreement shall, if necessary, be rounded upwards to the next higher one hundred thousandth of a percentage point and all currency amounts will be rounded to the nearest whole currency unit (with 1/2 of such unit being rounded up). 12. Payments All payments to be made by the Seller hereunder shall be made without offset or counterclaim in immediately available funds by wire transfer to the account specified pursuant to Section 14 below. Computations hereunder shall be on the basis of a year of 360 days for the actual number of days elapsed. Any amount not paid when due hereunder shall be payable on demand and, to the extent permitted by law, will bear interest from the due date until paid at a rate per annum which shall be 1% in excess of the Buyer's cost of funding such amount, as certified by the Buyer. 13. Assignment This Confirmation shall be binding upon and inure to the parties and their respective successors and permitted assigns. Neither the rights nor obligations of a party hereunder may be assigned without the prior written consent of the other party; provided that Buyer may, with the prior consent of BTCO (such consent not to be unreasonably withheld), assign its rights and obligations to any financial institution which makes the representations contained in Section 1(b)(i-iv) and Section 1(b)(vii-viii) hereof; provided further that BTCO may at any time, without consent being required, assign its rights, duties and obligations in respect of this Transaction to any affiliate of BTCO (the rights, duties and obligations so assigned to be guaranteed by BTCO). Any such assignment or transfer by BTCO shall be fully effective to transfer all the transferred rights and obligations of BTCO upon notice to Buyer. -12- 14. Notices Notices hereunder shall be in writing and may be given by personal delivery, by mail or by telex, effective upon receipt (if given by personal delivery), five days after mailing, first class postage pre-paid (if given by mail), or one Banking Day after dispatch (if given by telex), addressed to the recipient as follows or to such other address as the relevant party shall have advised the other in writing: - If to BTCO: Bankers Trust Company 1 Bankers Trust Plaza 130 Liberty Street New York, NY 10006 Attention: Equity Operations Fax No.: (212) 250-1467 - If to the Buyer: Gotham Partners, L.P. Attention: Bill Ackman, David Berkowitz Fax No.: 212-286-1133 15. Amendments No amendment or waiver of any provision of this Agreement nor consent to any departure therefrom by either party shall in any event be effective unless the same shall be in writing and signed by the other party, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given and only for the specific time period, if any, contemplated therein. 16. Non-Waiver of Rights No failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver and any explicit waiver of any breach of this Agreement shall be without prejudice to any rights of such party to any other or further breach. 17. Counterparts This Agreement may be executed in counterparts, which taken together shall be deemed to constitute one and the same agreement. 18. Governing Law -13- This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to choice of law doctrine. 19. Performance by Designee In the event that BTCO is required to purchase, sell, receive or deliver any shares or other securities in accordance with the terms of this Transaction, BTCO may designate any BTCO Affiliate to exercise such rights and/or to perform such obligations, as the case may be, in place of BTCO. Buyer need not be notified of such designation. Upon performance of any such obligation by any such designee, BTCO shall be discharged of its obligations to Buyer to the extent of such performance. In the event any such designee of BTCO fails to perform any such obligation, BTCO shall remain liable for such non- performance provided, however, that Buyer hereby waives the equitable remedy of specific performance by BTCO of any such purchase, sale, receipt or delivery obligation. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective representatives as of the date specified in the first sentence above. BANKERS TRUST COMPANY, London Branch By: Name: Title: GOTHAM PARTNERS, L.P. By: Name: Title: Exhibit A SELLER'S TERMINATION AMOUNT "Seller's Termination Amount" means the amount in U.S. Dollars equal to the arithmetic mean of the respective one-time all-in fees (including documentation costs) communicated to the Buyer not more than two Banking Days before an Early Termination Date (or, in the case of the deeming of an Early Termination Date pursuant to the last sentence of Section 5(b), on the earliest practicable Banking Day following such deemed Early Termination Date) by each of four leading commercial banks or investment banking firms in London or New York -14- selected in good faith by the Buyer as the fee, payable on or as of such Early Termination Date, as the case may be, that it would charge to assume as of such Early Termination Date all of the obligations of the Seller under this Option Agreement that would become due and payable after such Early Termination Date (assuming that this Option Agreement were to continue in effect until the Exercise Date and that no Early Termination Date had occurred) provided, however, that if any one such entity fails so to communicate such a fee, the Buyer is not required to seek another such entity to obtain a quote and "Seller's Termination Amount" shall be determined on the basis of the fee or fees so communicated to the Buyer by the other three entities. In the event that less than three such entities are able to provide such quotes or that the "Seller's Termination Amount" cannot otherwise be determined in accordance with the preceding sentence, "Seller's Termination Amount" shall mean such amount, computed in good faith by the Buyer, as may be required to compensate the Buyer for any losses, costs and expenses whatsoever that the Buyer may incur as a result of the early termination of this Option Agreement. -15- EX-99 6 EXHIBIT 5 Exhibit 5 BT REFERENCE NO.: NY-4913 THIS OPTION AGREEMENT (the "Agreement") dated as of Janu- ary 29,1997 is made by and between GOTHAM PARTNERS II, L.P. (the "Buyer") and BANKERS TRUST COMPANY, LONDON BRANCH, (the "Seller" or "BTCO"). 1. PURPOSE; PAYMENTS (a) In consideration of the payment by the Buyer to the Seller of a Premium (all capitalized terms used herein without definition shall have the respective meanings assigned to such terms in Section 2) of USD 29,567.00 for value February 3, 1997 (to Seller's Account specified below), the Seller hereby grants to the Buyer a cash-settled call option (the "Option") with respect to 6,850 shares (the "Shares") of the common stock ("Stock") of First Union Real Estate Investments (the "Issuer"). The Option is exercisable by the Buyer between the hours of 9;00 A.M. and 12:00 P.M., New York City time, on any Business Day during the Exercise Period upon notice given in writing, or telephonically, confirmed in writing, to the Seller. The Seller shall deem this Option to have been auto- matically exercised on the Expiration Date if the Option is "in-the-money" (as defined below) at the close of trading on the Stock Exchange, unless the Seller receives notification to the contrary from the Buyer before 1:00 P.M., New York City time on the Expiration Date. For purposes of this Option, the Option shall be deemed "in-the-money" if, at the time of the determination, the Valuation Price exceeds the Exercise Price. (b) Upon exercise of this Option, the Seller shall pay to the Buyer an amount (the "Settlement Amount") equal to the pro- duct of (1) the excess, if any, of the Valuation Price over the Exercise Price and (2) the number of Shares. Settlement of this Option shall be by cash payment only, and the Settlement Amount shall be due and payable on the date (the "Settlement Date") which is three Banking Days after the Exercise Date. 2. DEFINITIONS "Banking Day" shall mean any day which is both (1) a day other than a Saturday, Sunday or other day on which banks in New York or London are authorized or required under applicable law to remain closed and (2) an Exchange Business Day. "Buyers Account" shall mean the account of Gotham Partners II, L.P. which account details are to be provided by the Buyer to the Seller in writing as soon as possible as the Seller will otherwise be unable to make any payments to Buyer. "Calculation Agent" shall mean BTCO. "Exchange Business Day" shall mean a day other than a Sat- urday or Sunday on which exchanges are open for the trading of securities in New York and for the trading of options or futures relating to the Stock in Chicago. "Expiration Date" shall mean February 13, 1998. "Exercise Date" shall mean the day, during the Exercise Period, if any, on which the Option is or is deemed exercised. 1 BT REFERENCE NO.: NY-4913 "Exercise Period" shall mean the period from and including January 29, 1997 to and including the Expiration Date. "Exercise Price" shall mean $10.80, subject to adjustment as specified in Section 6. "Premium" shall mean the amount specified in Section 1(a) hereof as payable by the Buyer to the Seller as Consideration for this Option. "Seller's Termination Amount" shall have the meaning specified in Exhibit A. "Settlement Date" shall have the meaning set forth in Sec- tion 1(b). "Stock Exchange" shall mean the New York Stock Exchange. "U.S. Dollar" and "$" shall mean the lawful currency of the United States of America. "Valuation Dates" means each of the first ten Banking Days during the Valuation Period on which there is no Market Disrup- tion Event, subject to the provisions of Section 7 hereof. "Valuation Period" means (i) with respect to any Exercise Date up to, and including the 10th Exchange Business Day prior to the Expiration Date, each of the ten (10) Exchange Business Days from and including that Exercise Date, and (ii) with respect to any other Exercise Date, each of the ten (10) Exchange Business Days prior to and including the Expiration Date. "Valuation Price" shall mean the arithmetic average or the closing price for one share of Stock (as determined by the Cal- culation Agent), as calculated and published by the Stock Exchange, on each of the Valuation Dates. 3. REPRESENTATIONS AND WARRANTIES (a) The Seller hereby represents and warrants to the Buyer as follows: (i) it is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorpora- tion; (ii) neither the execution and delivery of this Agreement, nor the consummation of the transactions contem- plated hereby, nor the performance of its obligations hereunder violates (i) any law, regulation, decree or other legal re- striction applicable to it, (ii) its charter, by-laws or other constitutional documents or (iii) any material instrument or agreement to which it or any of its assets is subject or by which it is bound; (iii) there is no legal requirement of any govern- mental authority (including any requirement to make any decla- ration, filing or registration or to obtain any consent, approval, license or order) which is necessary to be met in connection with its execution, delivery or performance of this Agreement (any such legal requirement being herein called a "Legal Requirement"); (iv) this Agreement has been duly authorized, exe- cuted and delivered on its behalf and constitutes its legal, valid and binding obligation, enforceable against it in accor- dance with its terms 2 BT REFERENCE NO.: NY-4913 except as such enforceability may be limited by bankruptcy, insolvency or other laws of general applicability relating to or affecting the rights of creditors and by general equitable principles; (v) no Event of Default (as defined in Section 5), and no condition, event or act which with notice or the lapse of time, or both, would constitute an Event of Default has occurred and is continuing or will occur by reason of its entering into or performing its obligations under this Agree- ment; and (vi) it is not on the date of execution of this Agreement required to deduct or withhold any Taxes (as defined in Section 8) with respect to any payment which is or could be required to be made by it pursuant to this Agreement. (b) The Buyer represents and warrants to the Seller as follows: (i) it is a sophisticated institutional investor and is purchasing the Option for its own account for investment and not with a view to any distribution or any other disposi- tion thereof; (ii) in the normal course of its business, the Buyer invests in and purchases securities similar to the Option; (iii) the Buyer has had access to such information concerning the Option and the Seller as it has requested and has such knowledge and experience as to be able to evaluate the merits and risks of purchasing the Option; 4. COVENANTS The Seller hereby covenants and agrees that it will use reasonable efforts to comply in all material respects with all Legal Requirements which may arise from time to time after the date of the Agreement if failure so to comply would materially impair its ability to perform its obligations under this Agree- ment. 5. EVENTS OF DEFAULT (a) Each of the following events shall constitute an Event of Default: (i) the Seller shall fail to pay when due any amount due and owing under this Agreement and such failure shall continue for three Banking Days after receipt of notice of such failure from the Buyer; (ii) the Seller shall fail to perform, observe or comply with any other term, covenant, condition or provision contained in this Agreement and such failure shall continue for 30 days after receipt of notice of such failure from the Buyer; (iii) any representation or warranty of the Seller shall prove to have been incorrect or misleading in any mate- rial respect when made or repeated or deemed to have been made or repeated; (iv) the occurrence of any event of default in respect of the Seller under any other option agreement with the Buyer or any affiliates of the Buyer; 3 BT REFERENCE NO.: NY-4913 (v) (1) the occurrence or existence of any event or condition in respect of the Seller under one or more agree- ments or instruments relating to indebtedness for borrowed money (excluding obligations in respect of deposits received in the ordinary course of business) in an aggregate amount of not less than 3% of the Seller's stockholders' equity as at the end of its last fiscal year (the "Threshold Amount") which has resulted in such indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agree- ments or instruments, before it would otherwise have been due and payable or (2) the failure by such party to make one or more payments at maturity in an aggregate amount of not less than the Threshold Amount under such agreements or instruments (after giving effect to any applicable grace period); (vi) the Seller (1) is dissolved; (2) becomes insolvent or fails or is unable or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has insti- tuted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or in- solvency law or other similar law affecting creditors' rights, or a petition is presented for the winding-up or liquidation of the party and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or liquidation of the party or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up or liquidation; (6) seeks or becomes subject to the appointment of an administrator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets (regardless of how brief such appointment may be, or whether any obligations are promptly assumed by another entity or whether any other event described in this clause (6) has occurred and is continuing); (7) any event occurs with respect to the Seller which, under the applicable laws of any jurisdic- tion, has an analogous effect to any of the events specified in clauses (1) to (6) (inclusive); or (8) takes any action in fur- therance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; other than in the case of clause (1) or (5) or, to the extent it relates to those clauses, clause (8), for the purpose of a consolidation, amal- gamation or merger which would not constitute an event described in (vii) below; or (vii) the Seller consolidates or amalgamates with, or merges with or transfers all or substantially all its assets to, another entity and (1) at the time of such consolidation, amalgamation, merger or transfer the resulting, surviving or transferee entity fails to assume all the obligations of the Seller under this Agreement by operation of law or pursuant to an agreement reasonably satisfactory to the Buyer or (2) the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of the Seller immediately prior to the taking of such action. (b) If any Event of Default shall have occurred and be continuing, the Buyer shall have the right to terminate this Agreement by the giving of a notice declaring such termination and specifying the Banking Day on which such early termination shall occur (the "Early Termination Date"). Notwithstanding the foregoing, if an Event of Default specified in clause (vi) of Section 5(a) shall have occurred, the date of the occurrence of such Event of Default shall be deemed to be an Early Termi- nation Date without any action or notice from the Buyer. (c) If this Agreement shall have been terminated pursuant to the provisions of Section 5(b), on the Early Termination Date (or, in the case of the deeming of an Early Termination Date pursuant to the last sentence of Section 5(b), on demand thereafter) the Seller shall pay to the Buyer the Seller's Ter- mination Amount determined as set forth in Exhibit A plus any amounts then due and payable hereunder by the Seller to the Buyer (with interest as provided in Section 12, if applicable). 4 BT REFERENCE NO.: NY-4913 (d) The parties agree that the amounts recoverable pursu- ant to Section 5(c) are reasonable pre-estimates of loss and are not penalties. Such amounts are payable as liquidated dam- ages for the loss of a bargain and the loss of protection against future risks and, without prejudice to the rights and remedies of either party in respect of any other breach of this Agreement or as otherwise specified herein, the Buyer shall not be entitled to recover any additional damages hereunder as a consequence of such losses. (e) The Seller shall indemnify and hold harmless the Buyer on demand from and against all legal fees and other out- of-pocket expenses incurred by the Buyer in enforcing its rights hereunder or as the result of the occurrence of an Early Termination Date. 6. ORDINARY CASH DIVIDEND AND ANTI-DILUTION ADJUSTMENTS All adjustments to be made by the Calculation Agent pursuant to these Ordinary Cash Dividend and Anti-Dilution Adjustments pro- visions will be subject to agreement by Buyer. In the event that Buyer disagrees with any such adjustment (and notifies the Seller of such disagreement on or before the relevant Exercise Date), each of the Buyer and Seller will select a Reference Market-maker to act as alternate Calculation Agent with respect to such adjustment and each of those alternate Calculation Agents will, independently of Buyer and Seller, select a third Reference Market-maker to act as alternate Calculation Agent with respect to such adjustment and the joint determination of these three alternate Calculation Agents with respect to such adjustment shall be binding in the absence of manifest error. "Reference Market-maker" means a leading dealer in the relevant market selected by a party from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit. In the event that, with respect to an Exercise Date, more than one of the events described below has occurred during the period from the Trade Date through, and including, the relevant Exercise Date, the settlement terms of this Transaction shall be adjusted as necessary to preserve the economic equivalent of this Transaction including, without limitation, these adjust- ment provisions, as it existed immediately prior to the occur- rence of such events. (a) Ordinary Cash Dividend Adjustments On the Exercise Date, the Exercise Price shall be subject to adjustment as follows: If, Aggregate Dividends for the relevant Dividend Period is greater than or equal to the relevant Divi- dend Strike, the Exercise Price shall be decreased by an amount equal to the Aggregate Dividend minus the Dividend Strike, If, Aggregate Dividends for the relevant Dividend Period is less than the relevant Dividend Strike, the Exercise Price shall be increased by an amount equal to the Dividend Strike minus the Aggregate Dividend. "DIVIDEND STRIKE" means, with respect to the Exercise Date, the Dividend Strike specified in the table below for period in which the Exercise Date occurs: 5 BT REFERENCE NO.: NY-4913 EXERCISE DATE DIVIDEND FROM, BUT TO, AND STRIKE EXCLUDING INCLUDING $0.11 1/29/97 5/16/97 $0.22 5/15/97 8/15/97 $0.33 8/15/97 11/15/97 $0.44 11/15/97 2/2/98 "AGGREGATE DIVIDENDS" means, with respect to the Dividend Period, the amount equal to the sum of the USD values of all ordinary cash dividends per share which are declared by the issuer dur- ing the Dividend Period, provided that an ex- dividend date with respect to such shares occurs during the Dividend Period. "DIVIDEND PERIOD" means, with respect to the Exercise Date, the period from, but excluding, the Trade Date to, and including the Exercise Date. (b) Anti-Dilution Adjustments The Exercise Price, the Dividend Strike, and the number of Shares subject to this Option shall be subject to adjustment as follows: (a) If prior to the Exercise Date any adjustment is made by the Options Clearing Corporation or its successors ("OCC") in the terms of outstanding OCC-issued options ("OCC Options") on the Stock, an equivalent adjustment shall be made by the Calculation Agent in the terms of this Option. Except as pro- vided below, no adjustment shall be made in the terms of this Option for any event that does not result in an adjustment to the terms of such outstanding OCC Options. Without limiting the generality of the foregoing, other than pursuant to the Ordinary Cash Dividend Adjustments provision above, NO ADJUST- MENT SHALL BE MADE IN THE TERMS OF THIS OPTION FOR ORDINARY CASH DIVIDENDS. For indicative purposes, a summary of the terms under which adjustments may be made by the OCC as in effect on the date hereof is set forth below: (i) Whenever there is a stock dividend, stock dis- tribution, stock split, reverse stock split, rights offering, distribution, reorganization, recapitalization, reclassifica- tion, extraordinary cash dividend or similar event in respect of the Stock, or a merger, consolidation, dissolution or liqui- dation of the Issuer, the number of option contracts, the unit of trading, the exercise price and the underlying amount of Stock, or any of them, with respect to all outstanding option contracts open for trading in the Stock may be adjusted. (ii) All adjustments are made by the Securities Committee of the OCC. The Securities Committee determines whether to make adjustments to reflect particular events in respect of the Stock, and the nature and extent of any such adjustment, based on its judgement as to what is appropriate for the protection of investors and the public interest, taking into account such factors as fairness to holders and writers of option contracts on the Stock, the maintenance of a fair and orderly market in options on the Stock, consistency of inter- pretation and practice, efficiency of exercise settlement pro- cedures and the coordination with other clearing agencies of the clearance and settlement of transactions in the Stock. 6 BT REFERENCE NO.: NY-4913 (iii) In the case of a stock dividend, stock distri- bution or stock split whereby one or more whole numbers of shares are issued with respect to each outstanding share, each option contract covering that share shall be increased by the same number of additional option contracts as the number of shares issued with respect to each share, the exercise price per share in effect immediately prior to such event shall be proportionately reduced, and the unit of trading shall remain the same. (iv) In the case of a stock dividend, stock distri- bution or stock split whereby other than a whole number of shares is issued in respect of each outstanding share, the exercise price in effect immediately prior to such event shall be proportionately reduced, and conversely, in the case of a reverse stock split or combination of shares, the exercise price in effect immediately prior to such event shall be pro- portionately increased. Whenever the exercise price with respect to an option contract has been reduced or increased, the unit of trading shall be proportionately increased or reduced, as the case may be. (v) In the case of any distribution made with respect to shares, other than cash dividends and other than distributions for which adjustments are provided in subsections (iii) or (iv) above, if an adjustment is determined by the Securities Committee to be appropriate, (i) the exercise price in effect immediately prior to such event shall be reduced by the value per share of the distributed property, in which event the unit of trading shall not be adjusted, or (ii) the unit of trading in effect immediately prior to such event shall be adjusted so as to include the amount of property distributed with respect to the number of shares represented by such unit of trading, in which event the exercise price shall not be adjusted. (vi) In the case of any event for which adjustment is not provided in any of the foregoing paragraphs, the Securi- ties Committee may make such adjustments, if any, it determines to be reasonable under the circumstances. (vii) Adjustments shall as a general rule become effective on the "ex-date" established by the principal stock exchange or market on which the Shares are open for trading. (viii) All adjustments of the exercise price of an outstanding option contract shall be rounded to the nearest 1/8 of a dollar, and all adjustments of the unit of trading shall be rounded down to eliminate any fraction, and if the unit of trading is rounded down to eliminate a fraction, the adjusted exercise price shall be further adjusted, to the nearest 1/8 of a dollar, to reflect any diminution in the value of the option contract resulting from the elimination of the fraction. (b) If at any time prior to the Exercise Date there shall be no outstanding OCC Options on Stock, and an event shall occur for which an adjustment might have been required under the By-laws, Rules and stated policies of OCC applicable to the adjustment of OCC Options, as described above (the "OCC Adjust- ment Rules"), the Calculation Agent shall determine, in its sole discretion, but applying the principles set forth in the OCC Adjustment Rules then in effect, whether to adjust the terms of this Option, and the nature of any such adjustment. (c) The Calculation Agent shall notify the Buyer/Seller of any adjustment pursuant to this Section 6 and the date of its effectiveness. (d) The Calculation Agent is not obligated to verify whether the prerequisites for an adjustment pursuant to this Section 6 exist or whether such adjustment has been correctly calculated or 7 BT REFERENCE NO.: NY-4913 whether the date of effectiveness has been correctly fixed. In this connection, the Calculation Agent does not assume any liability of any nature. (e) Upon the consummation of a Merger Event in respect of the Shares (as defined below), the Calculation Agent shall make such adjustments (including, without limitation, cancelation and payment) to this Option as it, in its sole discretion, deems appropriate. "Merger Event" means, in respect of the Shares, as of the date upon which holders become bound to transfer such Shares held by them, any (i) reclassification or change of such Shares (other than a change in par value, if any, as a result of a subdivision or combination), (ii) con- solidation, amalgamation or merger of the issuer of the rel- evant Shares with or into another corporation (other than a consolidation, amalgamation or merger in which that issuer of Shares is the continuing corporation and which does not result in any such reclassification or change of Shares) or (iii) other takeover offer for such Shares that results in a transfer of all such Shares (other than the Shares owned or controlled by the offeror) on or before the Expiration Date. 7. VALUATION; MARKET DISRUPTION EVENTS (a) If, in the opinion of the Calculation Agent, a Market Disruption Event (as defined below) has occurred and is con- tinuing on any Banking Day during the Valuation Period, then such day shall not be deemed to be a Valuation Date provided, however, that if there have been five such days on which Market Disruption Events have occurred, then, notwithstanding such Market Disruption Event, such day shall be deemed to be a Valu- ation Date and the Calculation Agent shall determine the price of one Share as of the normal closing time for the Stock Exchange to be the price announced at such time by the Stock Exchange (or, if trading in the Shares has been materially lim- ited, its good faith estimate of the closing price for one Share on the Stock Exchange that would have prevailed on such date but for the Market Disruption Event). The Calculation Agent shall use its reasonable efforts to give notice to the Seller and the Buyer that a Market Disruption Event has occurred. (b) "Market Disruption Event" means the occurrence or continuance on any Exchange Business Day of any suspension of or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant exchange or otherwise) (i) on the Stock Exchange, in the Shares or securi- ties generally or (ii) on the primary options exchange on which options on the Shares are traded, in such options, in each case if, in the determination of the Calculation Agent, such suspen- sion or limitation is material. 8. TAXATION; ILLEGALITY (a) All payments hereunder shall be made free and clear of and without deduction or withholding for any Taxes (as here- inafter defined) whatsoever. If applicable law should require that any payment due from the Seller hereunder be subject to withholding with respect to any Taxes whatsoever, the Seller will, to the full extent then permitted by law, pay (i) the full amount of such Taxes required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amounts paid pursuant to this Section 8(a)) and (ii) such additional amounts as may be necessary in order that every net payment to the Buyer of all amounts due and owing hereunder will not be less than the full amount the Buyer would have received had no such deduction or withholding been required. The Seller will furnish to the Buyer within 30 days after the date on which the payment of any Taxes is due pursu- ant to applicable law a written statement or other evidence sufficient to document the fact and amount of withholding by the Seller. As used in this Section 8, "Taxes" means any present or future taxes, levies, duties, charges, fees, deduc- tions or witholdings of any nature now or hereafter 8 BT REFERENCE NO.: NY-4913 imposed, levied, collected, withheld or assessed by any taxing authority whatsoever and all interest penalties and other similar liabilities with respect thereto, other than (A) taxes in respect of the overall net income of the payee imposed by the jurisdic- tion in which its principal office is located or the jurisdic- tion in which the relevant payment is received or (B) taxes imposed as a result of such recipient being or having been a citizen or resident of the jurisdiction of the government or taxing authority imposing such tax, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient having exe- cuted, delivered, performed its obligations or received a pay- ment under, or enforced, this Agreement or any similar agree- ment with the Seller. (b) In the event that the Seller (i) is obligated at any time to make any payment of additional amounts pursuant to this Section 8 or (ii) shall have determined that its performance under this Agreement shall have become unlawful in whole or in part as a result of compliance in good faith by the Seller with any applicable present or future law, rule, regulation, judg- ment, order or directive of any governmental, administrative, legislative or judicial authority, then the Seller shall give notice thereof to the Buyer, and the parties hereto shall thereupon promptly negotiate in good faith with a view to find- ing a satisfactory alternative method of payment or performance to avoid such illegality or such payment of additional amounts. If at the end of a period of 30 days after the giving of such notice (or such shorter period as may be reasonable under the circumstances then prevailing) the parties have not agreed upon such a satisfactory alternative method, either party may termi- nate this Agreement within 30 days thereafter by designating an Early Termination Date and otherwise following the procedures for termination set forth in Section 5. (c) If either party is required at any time to execute any form of document in order for payments to it hereunder to qualify for exemption from withholding tax or for withholding tax at a reduced rate, such party shall execute such form or document and deliver it on demand to the party required to make such payments. 9. PAYMENT IN U.S. DOLLARS It is of the essence of this Agreement that the payments required hereunder be made in U.S. Dollars. The obligation of either party to make each payment in U.S. Dollars shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment, which is expressed in or converted into any other currency until and except to the extent such tender or recovery shall result in the actual receipt by the other party in U.S. Dollars of the amount expressed to be payable hereun- der. The obligation of either party to make payments in U.S. Dollars shall be enforceable as an alternative or additional cause of action for the purpose of recovery in U.S. Dollars of the amount (if any) by which such actual receipt shall fall short of the full amount of U.S. Dollars required to be paid hereunder and shall not be affected by judgment being obtained for any other sums due under this Agreement. 10. JURISDICTION; SERVICE OF PROCESS; IMMUNITY (a) With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevo- cably submits to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City and waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconve- nient 9 BT REFERENCE NO.: NY-4913 forum and further waives the right to object, with respect to such Proceedings, that such court does not have jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction nor will the bringing of Proceedings in any one or more juris- dictions preclude the bringing of Proceedings in any other jurisdiction. (b) Each party confirms, if it does not have a place of business in New York, that it has irrevocably appointed a pro- cess agent in New York to receive, for it and on its behalf, service of process in any Proceedings, and will provide evi- dence of such appointment on request. If for any reason the party's process agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process in the manner provided for notices in Section 14. Nothing in this Agreement will affect the right of either party to serve pro- cess in any other manner permitted by law. (c) Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other simi- lar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific perfor- mance; or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 11. DATES; COMPUTATIONS (a) Whenever the Exercise Date would in accordance with the terms hereof otherwise occur on a day which is not an Exchange Business Day, such date shall be postponed to the next succeeding Exchange Business Day. (b) All percentages calculated pursuant to this Agreement shall, if necessary, be rounded upwards to the next higher one hundred thousandth of a percentage point and all currency amounts will be rounded to the nearest whole currency unit (with 1/2 of such unit being rounded up). 12. PAYMENTS All payments to be made by the Seller hereunder shall be made without offset or counterclaim in immediately available funds by wire transfer to the account specified pursuant to Section 14 below. Computations hereunder shall be on the basis of a year of 360 days for the actual number of days elapsed. Any amount not paid when due hereunder shall be payable on demand and, to the extent permitted by law, will bear interest from the due date until paid at a rate per annum which shall be I% in excess of the Buyer's cost of funding such amount, as certified by the Buyer. 13. ASSIGNMENT This Confirmation shall be binding upon and inure to the parties and their respective successors and permitted assigns. Neither the rights nor obligations of a party hereunder may be assigned without the prior written consent of the other party; provided that Buyer may, with the prior consent of BTCO (such consent not to be unreasonably withheld), assign its rights and obligations to any financial institution which makes the repre- sentations contained in Section 1(b)(i-iv) and Section 1(b)(vii-viii) hereof; provided further that BTCO may at any time, without consent being required, assign its rights, duties and obligations in respect of this Transaction to any affiliate of BTCO (the rights, duties and 10 BT REFERENCE NO.: NY-4913 obligations so assigned to be guaranteed by BTCO). Any such assignment or transfer by BTCO shall be fully effective to transfer all the transferred rights and obligations of BTCO upon notice to Buyer. 14. NOTICES Notices hereunder shall be in writing and may be given by personal delivery, by mail or by telex, effective upon receipt (if given by personal delivery), five days after mailing, first class postage pre-paid (if given by mail), or one Banking Day after dispatch (if given by telex), addressed to the recipient as follows or to such other address as the relevant party shall have advised the other in writing: - If to BTCO: Bankers Trust Company 1 Bankers Trust Plaza 130 Liberty Street New York, NY 10006 Attention: Equity Operations Fax No.: (212) 250-1467 - If to the Buyer: Gotham Partners, L.P. Attention: Bill Ackman, David Berkowitz Fax No.: 212-286-1133 15. AMENDMENTS No amendment or waiver of any provision of this Agreement nor consent to any departure therefrom by either party shall in any event be effective unless the same shall be in writing and signed by the other party, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given and only for the specific time period, if any, contemplated therein. 11 BT REFERENCE NO.: NY-4913 16. NON-WAIVER OF RIGHTS No failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver and any explicit waiver of any breach of this Agreement shall be without prejudice to any rights of such party to any other or further breach. 17. COUNTERPART This Agreement may be executed in counterparts, which taken together shall be deemed to constitute one and the same agreement. 18. GOVERNING LAW This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without ref- erence to choice of law doctrine. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective representatives as of the date specified in the first sentence above. BANKERS TRUST COMPANY, LONDON BRANCH By: /s/ Tarana Oommen Name: Tarana Oommen Title: Vice President GOTHAM PARTNERS II, L.P. By Section M Partners, L.P. By Karenina Corp. By: /s/ William A. Ackman Name: William A. Ackman Title: President 12 BT REFERENCE NO.: NY-4913 EXHIBIT A SELLER'S TERMINATION AMOUNT "Seller's Termination Amount" means the amount in U.S. Dollars equal to the arithmetic mean of the respective one-time all-in fees (including documentation costs) communicated to the Buyer not more than two Banking Days before an Early Termina- tion Date (or, in the case of the deeming of an Early Termina- tion Date pursuant to the last sentence of Section 5(b), on the earliest practicable Banking Day following such deemed Early Termination Date) by each of four leading commercial banks or investment banking firms in London or New York selected in good faith by the Buyer as the fee, payable on or as of such Early Termination Date, as the case may be, that it would charge to assume as of such Early Termination Date all of the obligations of the Seller under this Option Agreement that would become due and payable after such Early Termination Date (assuming that this Option Agreement were to continue in effect until the Exercise Date and that no Early Termination Date had occurred) provided, however, that if any one such entity fails so to com- municate such a fee, the Buyer is not required to seek another such entity to obtain a quote and "Seller's Termination Amount" shall be determined on the basis of the fee or fees so communi- cated to the Buyer by the other three entities. In the event that less than three such entities are able to provide such quotes or that the "Seller's Termination Amount" cannot other- wise be determined in accordance with the preceding sentence, "Seller's Termination Amount" shall mean such amount, computed in good faith by the Buyer, as may be required to compensate the Buyer for any losses, costs and expenses whatsoever that the Buyer may incur as a result of the early termination of this Option Agreement. 13 GOTHAM PARTNERS, L.P. First Transaction Amendment BT Transaction Reference No.: NY-4913 Dear Sir/Madam: The purpose of this letter is to set forth the terms and condi- tions of the First Transaction Amendment (the "Amendment") dated as of June 4, 1997 which has been agreed to between Gotham Partners II, L.P. (the "Counterparty") and Bankers Trust Company, London Branch. This Amendment relates to the above- referenced transaction with an Expiration Date of February 13, 1998 (the "Amended Transaction"). In consideration of the mutual benefits to be derived from this Amendment, BT and the Counterparty have agreed to amend the above-referenced transaction to provide for physical settlement of the underlying shares, to delete the 10-day averaging period at maturity and to change the Expiration Date to February 2, 1998. As specifically modified by this Amendment, all of the terms and provisions of the Amended Transaction are hereby reaffirmed and shall remain in full force and effect. If the foregoing correctly states your understanding of these matters, please indicate your agreement to this Amendment by signing and returning the attached Confirmation which amends and restates the terms of the Transaction to reflect the changes set forth in this Amendment. Yours Truly, Bankers Trust Company, London Branch By: _______________________ Name: Title: DATE: June 4, 1997 TO: GOTHAM PARTNERS, L.P. ATTENTION: Bill Ackman FAX: 212 286-1133 FROM: BANKERS TRUST COMPANY, London Branch FAX: 212 250-1467 BT REF: NY-4913 (as amended and restated to reflect the changes specified in the First Transaction Amendment dated as of June 4, 1997) RE: Equity Derivative Transaction As specifically modified by this Amendment, all of the terms and provisions of the Amended Transaction and the Master Agree- ment are hereby reaffirmed and shall remain in full force and effect. THIS OPTION AGREEMENT (the "Agreement") dated as of January 29, 1997 is made by and between GOTHAM PARTNERS II, L.P. (the "Buyer") and BANKERS TRUST COMPANY, London Branch, (the "Seller" or "BTCO"). 1. Purpose; Payments (a) In consideration of the payment by the Buyer to the Seller of a Premium (all capitalized terms used herein without definition shall have the respective meanings assigned to such terms in Section 2) of USD 29,567.00 for value February 3, 1997 (to Seller's Account specified below), the Seller hereby grants to the Buyer a physically-settled call option (the "Option") with respect to 6,850 shares (the "Shares") of the common stock ("Stock") of First Union Real Estate Investments (the "Issuer"). The Option is exercisable by the Buyer between the hours of 9:00 A.M. and 12:00 P.M., New York City time, on any Business Day during the Exercise Period upon notice given in writing, or telephonically, confirmed in writing, to the Seller. (b) Upon exercise of this Option, Seller will deliver or cause to be delivered to Buyer on the third Exchange Business Day (the Settlement Date) a number of Shares (and the documen- tation necessary to evidence transfer of legal and beneficial ownership of such Shares) equal the number of Shares specified in paragraph 1(a) above in accordance with the instructions delivered with the notice of exercise against payment by Buyer on the Settlement Date, in immediately available funds, of an amount equal to the product of the number of Shares to be delivered on such Settlement Date and the Exercise Price. -2- 2. Definitions "Banking Day" shall mean any day which is both (1) a day other than a Saturday, Sunday or other day on which banks in New York or London are authorized or required under applicable law to remain closed and (2) an Exchange Business Day. Buyers Account shall mean the account of Gotham Partners II, L.P. which account details are to be provided by the Buyer to the Seller in writing as soon as possible as the Seller will otherwise be unable to make any payments to Buyer. "Calculation Agent" shall mean BTCO. "Exchange Business Day" shall mean a day other than a Saturday or Sunday on which exchanges are open for the trading of securities in New York and for the trading of options or futures relating to the Stock in Chicago. "Expiration Date" shall mean February 2, 1998. Exercise Date shall mean the day, during the Exercise Period, if any, on which the Option is or is deemed exercised. Exercise Period shall mean the period from and including January 29, 1997 to and including the Expiration Date. "Exercise Price" shall mean $10.80, subject to adjustment as specified in Section 6. "Premium" shall mean the amount specified in Section 1(a) hereof as payable by the Buyer to the Seller as Consideration for this Option. "Seller's Termination Amount" shall have the meaning specified in Exhibit A. "Settlement Date" shall have the meaning set forth in Sec- tion 1(b). "Stock Exchange" shall mean the New York Stock Exchange. "U.S. Dollar" and "$" shall mean the lawful currency of the United States of America. 3. Representations and Warranties (a) The Seller hereby represents and warrants to the Buyer as follows: (i) it is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorpora- tion; (ii) neither the execution and delivery of this Agree- ment, nor the consummation of the transactions contemplated hereby, nor the performance of its obligations hereunder vio- lates (i) any law, regulation, decree or other legal restric- tion applicable to it, (ii) its charter, by-laws or other -3- constitutional documents or (iii) any material instrument or agreement to which it or any of its assets is subject or by which it is bound; (iii) there is no legal requirement of any governmental authority (including any requirement to make any declaration, filing or registration or to obtain any consent, approval, license or order) which is necessary to be met in connection with its execution, delivery or performance of this Agreement (any such legal requirement being herein called a "Legal Re- quirement"); (iv) this Agreement has been duly authorized, executed and delivered on its behalf and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency or other laws of general applicability relating to or affecting the rights of creditors and by general equitable principles; (v) no Event of Default (as defined in Section 5), and no condition, event or act which with notice or the lapse of time, or both, would constitute an Event of Default has oc- curred and is continuing or will occur by reason of its enter- ing into or performing its obligations under this Agreement; and (vi) it is not on the date of execution of this Agree- ment required to deduct or withhold any Taxes (as defined in Section 8) with respect to any payment which is or could be required to be made by it pursuant to this Agreement. (b) The Buyer represents and warrants to the Seller as follows: (i) it is a sophisticated institutional investor and is purchasing the Option for its own account for investment and not with a view to any distribution or any other disposition thereof; (ii) in the normal course of its business, the Buyer invests in and purchases securities similar to the Option; (iii) the Buyer has had access to such information con- cerning the Option and the Seller as it has requested and has such knowledge and experience as to be able to evaluate the merits and risks of purchasing the Option; 4. Covenants The Seller hereby covenants and agrees that it will use reasonable efforts to comply in all material respects with all Legal Requirements which may arise from time to time after the date of the Agreement if failure so to comply would materially impair its ability to perform its obligations under this Agree- ment. 5. Events of Default (a) Each of the following events shall constitute an Event of Default: -4- (i) the Seller shall fail to pay when due any amount due and owing under this Agreement and such failure shall con- tinue for three Banking Days after receipt of notice of such failure from the Buyer; (ii) the Seller shall fail to perform, observe or comply with any other term, covenant, condition or provision contained in this Agreement and such failure shall continue for 30 days after receipt of notice of such failure from the Buyer; (iii) any representation or warranty of the Seller shall prove to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (iv) the occurrence of any event of default in respect of the Seller under any other option agreement with the Buyer or any affiliate of the Buyer; (v) (1) the occurrence or existence of any event or condition in respect of the Seller under one or more agreements or instruments relating to indebtedness for borrowed money (ex- cluding obligations in respect of deposits received in the ordinary course of business) in an aggregate amount of not less than 3% of the Seller's stockholders' equity as at the end of its last fiscal year (the "Threshold Amount") which has re- sulted in such indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agree- ments or instruments, before it would otherwise have been due and payable or (2) the failure by such party to make one or more payments at maturity in an aggregate amount of not less than the Threshold Amount under such agreements or instruments (after giving effect to any applicable grace period); (vi) the Seller (1) is dissolved; (2) becomes insolvent or fails or is unable or admits in writing its inability gener- ally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for the winding-up or liquidation of the party and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or liquidation of the party or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up or liquidation; (6) seeks or becomes subject to the appointment of an administra- tor, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets (regardless of how brief such appointment may be, or whether any obligations are promptly assumed by another entity or whether any other event described in this clause (6) has occurred and is continu- ing); (7) any event occurs with respect to the Seller which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (6) (inclusive); or (8) takes any action in furtherance of, or in- dicating its consent to, approval of, or acquiescence in, any of the foregoing acts; other than in the case of clause (1) or (5) or, to the extent it relates to those clauses, clause (8), for the purpose of a consolidation, amalgamation or merger which would not constitute an event described in (vii) below; or -5- (vii) the Seller consolidates or amalgamates with, or merges with or transfers all or substantially all its assets to, another entity and (1) at the time of such consolidation, amalgamation, merger or transfer the resulting, surviving or transferee entity fails to assume all the obligations of the Seller under this Agreement by operation of law or pursuant to an agreement reasonably satisfactory to the Buyer or (2) the creditworthiness of the resulting, surviving or transferee en- tity is materially weaker than that of the Seller immediately prior to the taking of such action. (b) If any Event of Default shall have occurred and be continuing, the Buyer shall have the right to terminate this Agreement by the giving of a notice declaring such termination and specifying the Banking Day on which such early termination shall occur (the "Early Termination Date"). Notwithstanding the foregoing, if an Event of Default specified in clause (vi) of Section 5(a) shall have occurred, the date of the occurrence of such Event of Default shall be deemed to be an Early Termi- nation Date without any action or notice from the Buyer. (c) If this Agreement shall have been terminated pursuant to the provisions of Section 5(b), on the Early Termination Date (or, in the case of the deeming of an Early Termination Date pursuant to the last sentence of Section 5(b), on demand thereafter) the Seller shall pay to the Buyer the Seller's Ter- mination Amount determined as set forth in Exhibit A plus any amounts then due and payable hereunder by the Seller to the Buyer (with interest as provided in Section 12, if applicable). (d) The parties agree that the amounts recoverable pursu- ant to Section 5(c) are reasonable pre-estimates of loss and are not penalties. Such amounts are payable as liquidated dam- ages for the loss of a bargain and the loss of protection against future risks and, without prejudice to the rights and remedies of either party in respect of any other breach of this Agreement or as otherwise specified herein, the Buyer shall not be entitled to recover any additional damages hereunder as a consequence of such losses. (e) The Seller shall indemnify and hold harmless the Buyer on demand from and against all legal fees and other out- of-pocket expenses incurred by the Buyer in enforcing its rights hereunder or as the result of the occurrence of an Early Termination Date. 6. Ordinary Cash Dividend and Anti-Dilution Adjustments All adjustments to be made by the Calculation Agent pursu- ant to these Ordinary Cash Dividend and Anti-Dilution Adjust- ments provisions will be subject to agreement by Buyer. In the event that Buyer disagrees with any such adjustment (and noti- fies the Seller of such disagreement on or before the relevant Exercise Date), each of the Buyer and Seller will select a Ref- erence Market-maker to act as alternate Calculation Agent with respect to such adjustment and each of those alternate Calcula- tion Agents will, independently of Buyer and Seller, select a third Reference Market-maker to act as alternate Calculation Agent with respect to such adjustment and the joint determina- tion of these three alternate Calculation Agents with respect to such adjustment shall be binding in the absence of manifest error. -6- Reference Market-maker means a leading dealer in the relevant market selected by a party from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit. In the event that, with respect to an Exercise Date, more than one of the events described below has occurred during the period from the Trade Date through, and including, the relevant Exercise Date, the settlement terms of this Transaction shall be adjusted as necessary to preserve the economic equivalent of this Transaction including, without limitation, these ad- justment provisions, as it existed immediately prior to the occurrence of such events. (a) Ordinary Cash Dividend Adjustments On the Exercise Date, the Exercise Price shall be subject to adjustment as follows: If, Aggregate Dividends for the relevant Dividend Period is greater than or equal to the relevant Dividend Strike, the Exercise Price shall be decreased by an amount equal to the Aggregate Dividend minus the Dividend Strike. If, Aggregate Dividends for the relevant Dividend Period is less than the relevant Dividend Strike, the Exercise Price shall be increased by an amount equal to the Dividend Strike minus the Aggregate Dividend. Dividend Strike means, with respect to the Exercise Date, the Dividend Strike specified in the table below for period in which the Exercise Date occurs: Exercise Date Dividend From, but To, and Strike excluding including $0.11 1/29/97 5/15/97 $0.22 5/15/97 8/15/97 $0.33 8/15/97 11/15/97 $0.44 11/15/97 2/2/98 Aggregate Dividends means, with respect to the Divi- dend Period, the amount equal to the sum of the USD values of all ordinary cash dividends per share which are declared by the issuer during the Dividend Period, provided that an ex-dividend date with respect to such shares occurs during the Dividend Period. Dividend Period means, with respect to the Exercise Date, the period from, but excluding, the Trade Date to, and including the Exercise Date. (b) Anti-Dilution Adjustments The Exercise Price, the Dividend Strike, and the number of Shares subject to this Option shall be subject to adjustment as follows: a) If prior to the Exercise Date any adjustment is made by the Options Clearing Corporation or its successors ("OCC") in the terms of outstanding OCC-issued options ("OCC Options") on the Stock, an equivalent adjustment shall be made by the Calculation Agent in the terms of this Option. Except as -7- provided below, no adjustment shall be made in the terms of this Option for any event that does not result in an adjustment to the terms of such outstanding OCC Options. Without limiting the generality of the foregoing, other than pursuant to the Ordinary Cash Dividend Adjustments provision above, NO ADJUST- MENT SHALL BE MADE IN THE TERMS OF THIS OPTION FOR ORDINARY CASH DIVIDENDS. For indicative purposes, a summary of the terms under which adjustments may be made by the OCC as in effect on the date hereof is set forth below: (i) Whenever there is a stock dividend, stock dis- tribution, stock split, reverse stock split, rights offering, distribution, reorganization, recapitalization, reclassifica- tion, extraordinary cash dividend or similar event in respect of the Stock, or a merger, consolidation, dissolution or liqui- dation of the Issuer, the number of option contracts, the unit of trading, the exercise price and the underlying amount of Stock, or any of them, with respect to all outstanding option contracts open for trading in the Stock may be adjusted. (ii) All adjustments are made by the Securities Committee of the OCC. The Securities Committee determines whether to make adjustments to reflect particular events in respect of the Stock, and the nature and extent of any such adjustment, based on its judgment as to what is appropriate for the protection of investors and the public interest, taking into account such factors as fairness to holders and writers of option contracts on the Stock, the maintenance of a fair and orderly market in options on the Stock, consistency of inter- pretation and practice, efficiency of exercise settlement pro- cedures and the coordination with other clearing agencies of the clearance and settlement of transactions in the Stock. (iii) In the case of a stock dividend, stock distri- bution or stock split whereby one or more whole numbers of shares are issued with respect to each outstanding share, each option contract covering that share shall be increased by the same number of additional option contracts as the number of shares issued with respect to each share, the exercise price per share in effect immediately prior to such event shall be proportionately reduced, and the unit of trading shall remain the same. (iv) In the case of a stock dividend, stock distri- bution or stock split whereby other than a whole number of shares is issued in respect of each outstanding share, the exercise price in effect immediately prior to such event shall be proportionately reduced, and con- versely, in the case of a reverse stock split or combination of shares, the exercise price in effect immediately prior to such event shall be proportionately increased. Whenever the exer- cise price with respect to an option contract has been reduced or increased, the unit of trading shall be proportionately increased or reduced, as the case may be. (v) In the case of any distribution made with respect to shares, other than cash dividends and other than distributions for which adjustments are provided in subsections (iii) or (iv) above, if an adjustment is determined by the Securities Committee to be appropriate, (i) the exercise price in effect immediately prior to such event shall be reduced by the value per share of the distributed property, in which event the unit of trading shall not be adjusted, -8- or (ii) the unit of trading in effect immediately prior to such event shall be adjusted so as to include the amount of property distributed with respect to the number of shares represented by such unit of trading, in which event the exercise price shall not be adjusted. (vi) In the case of any event for which adjustment is not provided in any of the foregoing paragraphs, the Securi- ties Committee may make such adjustments, if any, it determines to be reasonable under the circumstances. (vii) Adjustments shall as a general rule become effective on the "ex-date" established by the principal stock exchange or market on which the Shares are open for trading. (viii) All adjustments of the exercise price of an outstanding option contract shall be rounded to the nearest 1/8 of a dollar, and all adjustments of the unit of trading shall be rounded down to eliminate any fraction, and if the unit of trading is rounded down to eliminate a fraction, the adjusted exercise price shall be further adjusted, to the nearest 1/8 of a dollar, to reflect any diminution in the value of the option contract resulting from the elimination of the fraction. (b) If at any time prior to the Exercise Date there shall be no outstanding OCC Options on Stock, and an event shall occur for which an adjustment might have been required under the By-laws, Rules and stated policies of OCC applicable to the adjustment of OCC Options, as described above (the "OCC Adjust- ment Rules"), the Calculation Agent shall determine, in its sole discretion, but applying the principles set forth in the OCC Adjustment Rules then in effect, whether to adjust the terms of this Option, and the nature of any such adjustment. (c) The Calculation Agent shall notify the Buyer/Seller of any adjustment pursuant to this Section 6 and the date of its effectiveness. (d) The Calculation Agent is not obligated to verify whether the prerequisites for an adjustment pursuant to this Section 6 exist or whether such adjustment has been correctly calculated or whether the date of effectiveness has been cor- rectly fixed. In this connection, the Calculation Agent does not assume any liability of any nature. (e) Upon the consummation of a Merger Event in respect of the Shares (as defined below), the Calculation Agent shall make such adjustments (including, without limitation, cancellation and payment) to this Option as it, in its sole discretion, deems appropriate. "Merger Event" means, in respect of the Shares, as of the date upon which holders become bound to transfer such Shares held by them, any (i) reclassification or change of such Shares (other than a change in par value, if any, as a result of a subdivision or combination), (ii) con- solidation, amalgamation or merger of the issuer of the rele- vant Shares with or into another corporation (other than a con- solidation, amalgamation or merger in which that issuer of Shares is the continuing corporation and which does not result in any such reclassification or change of Shares) or (iii) other takeover offer for such Shares that results in a transfer of all such Shares (other than the Shares owned or controlled by the offeror) on or before the Expiration Date. -9- 7. Valuation; Market Disruption Events (a) If, in the opinion of the Calculation Agent, a Market Disruption Event (as defined below) has occurred and is con- tinuing on any Banking Day during the Valuation Period, then such day shall not be deemed to be a Valuation Date; provided, however, that if there have been five such days on which Market Disruption Events have occurred, then, notwithstanding such Market Disruption Event, such day shall be deemed to be a Valu- ation Date and the Calculation Agent shall determine the price of one Share as of the normal closing time for the Stock Ex- change to be the price announced at such time by the Stock Ex- change (or, if trading in the Shares has been materially limited, its good faith estimate of the closing price for one Share on the Stock Exchange that would have prevailed on such date but for the Market Disruption Event). The Calculation Agent shall use its reasonable efforts to give notice to the Seller and the Buyer that a Market Disruption Event has oc- curred. (b) "Market Disruption Event" means the occurrence or continuance on any Exchange Business Day of any suspension of or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the relevant exchange or otherwise) (i) on the Stock Exchange, in the Shares or securi- ties generally or (ii) on the primary options exchange on which options on the Shares are traded, in such options, in each case if, in the determination of the Calculation Agent, such suspen- sion or limitation is material. 8. Taxation; Illegality (a) All payments hereunder shall be made free and clear of and without deduction or withholding for any Taxes (as here- inafter defined) whatsoever. If applicable law should require that any payment due from the Seller hereunder be subject to withholding with respect to any Taxes whatsoever, the Seller will, to the full extent then permitted by law, pay (i) the full amount of such Taxes required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amounts paid pursuant to this Section 8(a)) and (ii) such additional amounts as may be necessary in order that every net payment to the Buyer of all amounts due and ow- ing hereunder will not be less than the full amount the Buyer would have received had no such deduction or withholding been required. The Seller will furnish to the Buyer within 30 days after the date on which the payment of any Taxes is due pursu- ant to applicable law a written statement or other evidence sufficient to document the fact and amount of withholding by the Seller. As used in this Section 8, "Taxes" means any present or future taxes, levies, duties, charges, fees, deduc- tions or withholdings of any nature now or hereafter imposed, levied, collected, withheld or assessed by any taxing authority whatsoever and all interest penalties and other similar lia- bilities with respect thereto, other than (A) taxes in respect of the overall net income of the payee imposed by the jurisdic- tion in which its principal office is located or the jurisdic- tion in which the relevant payment is received or (B) taxes imposed as a result of such recipient being or having been a citizen or resident of the jurisdiction of the government or taxing authority imposing such tax, or being or having been organized, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such -10- recipient having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or any similar agreement with the Seller. (b) In the event that the Seller (i) is obligated at any time to make any payment of additional amounts pursuant to this Section 8 or (ii) shall have determined that its performance under this Agreement shall have become unlawful in whole or in part as a result of compliance in good faith by the Seller with any applicable present or future law, rule, regulation, judg- ment, order or directive of any governmental, administrative, legislative or judicial authority, then the Seller shall give notice thereof to the Buyer, and the parties hereto shall thereupon promptly negotiate in good faith with a view to find- ing a satisfactory alternative method of payment or performance to avoid such illegality or such payment of additional amounts. If at the end of a period of 30 days after the giving of such notice (or such shorter period as may be reasonable under the circumstances then prevailing) the parties have not agreed upon such a satisfactory alternative method, either party may termi- nate this Agreement within 30 days thereafter by designating an Early Termination Date and otherwise following the procedures for termination set forth in Section 5. (c) If either party is required at any time to execute any form of document in order for payments to it hereunder to qualify for exemption from withholding tax or for withholding tax at a reduced rate, such party shall execute such form or document and deliver it on demand to the party required to make such payments. 9. Payment in U.S. Dollars It is of the essence of this Agreement that the payments required hereunder be made in U.S. Dollars. The obligation of either party to make each payment in U.S. Dollars shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment, which is expressed in or converted into any other currency until and except to the extent such tender or recovery shall result in the actual receipt by the other party in U.S. Dollars of the amount expressed to be payable hereun- der. The obligation of either party to make payments in U.S. Dollars shall be enforceable as an alternative or additional cause of action for the purpose of recovery in U.S. Dollars of the amount (if any) by which such actual receipt shall fall short of the full amount of U.S. Dollars required to be paid hereunder and shall not be affected by judgment being obtained for any other sums due under this Agreement. 10. Jurisdiction; Service of Process; Immunity (a) With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irre- vocably submits to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City and waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconve- nient forum and further waives the right to object, with respect to such Proceedings, that such court does not have -11- jurisdiction over such party. Nothing in this Agreement pre- cludes either party from bringing Proceedings in any other jurisdiction nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. (b) Each party confirms, if it does not have a place of business in New York, that it has irrevocably appointed a pro- cess agent in New York to receive, for it and on its behalf, service of process in any Proceedings, and will provide evi- dence of such appointment on request. If for any reason the party's process agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process in the manner provided for notices in Section 14. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law. (c) Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other simi- lar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific perfor- mance; or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 11. Dates; Computations (a) Whenever the Exercise Date would in accordance with the terms hereof otherwise occur on a day which is not an Ex- change Business Day, such date shall be postponed to the next succeeding Exchange Business Day. (b) All percentages calculated pursuant to this Agreement shall, if necessary, be rounded upwards to the next higher one hundred thousandth of a percentage point and all currency amounts will be rounded to the nearest whole currency unit (with 1/2 of such unit being rounded up). 12. Payments All payments to be made by the Seller hereunder shall be made without offset or counterclaim in immediately available funds by wire transfer to the account specified pursuant to Section 14 below. Computations hereunder shall be on the basis of a year of 360 days for the actual number of days elapsed. Any amount not paid when due hereunder shall be payable on demand and, to the extent permitted by law, will bear interest from the due date until paid at a rate per annum which shall be 1% in excess of the Buyer's cost of funding such amount, as certified by the Buyer. 13. Assignment -12- This Confirmation shall be binding upon and inure to the parties and their respective successors and permitted assigns. Neither the rights nor obligations of a party hereunder may be assigned without the prior written consent of the other party; provided that Buyer may, with the prior consent of BTCO (such consent not to be unreasonably withheld), assign its rights and obligations to any financial institution which makes the repre- sentations contained in Section 1(b)(i-iv) and Section 1(b)(vii-viii) hereof; provided further that BTCO may at any time, without consent being required, assign its rights, duties and obligations in respect of this Transaction to any affiliate of BTCO (the rights, duties and obligations so assigned to be guaranteed by BTCO). Any such assignment or transfer by BTCO shall be fully effective to transfer all the transferred rights and obligations of BTCO upon notice to Buyer. 14. Notices Notices hereunder shall be in writing and may be given by personal delivery, by mail or by telex, effective upon receipt (if given by personal delivery), five days after mailing, first class postage pre-paid (if given by mail), or one Banking Day after dispatch (if given by telex), addressed to the recipient as follows or to such other address as the relevant party shall have advised the other in writing: - If to BTCO: Bankers Trust Company 1 Bankers Trust Plaza 130 Liberty Street New York, NY 10006 Attention: Equity Operations Fax No.: (212) 250-1467 - If to the Buyer: Gotham Partners II, L.P. Attention: Bill Ackman, David Berkowitz Fax No.: 212-286-1133 as follows or to such other address as the relevant party shall have advised the other in writing: 15. Amendments No amendment or waiver of any provision of this Agreement nor consent to any departure therefrom by either party shall in any event be effective unless the same shall be in writing and signed by the other party, and then any such waiver or consent shall be effective only in the specific instance and for the -13- specific purpose for which given and only for the specific time period, if any, contemplated therein. 16. Non-Waiver of Rights No failure or delay by either party in exercising any right, power or privilege hereunder shall operate as a waiver and any explicit waiver of any breach of this Agreement shall be without prejudice to any rights of such party to any other or further breach. 17. Counterparts This Agreement may be executed in counterparts, which taken together shall be deemed to constitute one and the same agreement. 18. Governing Law This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without reference to choice of law doctrine. 19. Performance by Designee In the event that BTCO is required to purchase, sell, receive or deliver any shares or other securities in accordance with the terms of this Transaction, BTCO may designate any BTCO Affiliate to exercise such rights and/or to perform such obli- gations, as the case may be, in place of BTCO. Buyer need not be notified of such designation. Upon performance of any such obligation by any such designee, BTCO shall be discharged of its obligations to Buyer to the extent of such performance. In the event any such designee of BTCO fails to perform any such obligation, BTCO shall remain liable for such non-performance provided, however, that Buyer hereby waives the equitable remedy of specific performance by BTCO of any such purchase, sale, receipt or delivery obligation. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective representatives as of the date specified in the first sentence above. BANKERS TRUST COMPANY, London Branch By: Name: Title: -14- GOTHAM PARTNERS II, L.P. By: Name: Title: Exhibit A SELLER'S TERMINATION AMOUNT "Seller's Termination Amount" means the amount in U.S. Dollars equal to the arithmetic mean of the respective one-time all-in fees (including documentation costs) communicated to the Buyer not more than two Banking Days before an Early Termination Date (or, in the case of the deeming of an Early Termination Date pursuant to the last sentence of Section 5(b), on the earliest practicable Banking Day following such deemed Early Termination Date) by each of four leading commercial banks or investment banking firms in London or New York selected in good faith by the Buyer as the fee, payable on or as of such Early Termination Date, as the case may be, that it would charge to assume as of such Early Termination Date all of the obligations of the Seller under this Option Agreement that would become due and payable after such Early Termination Date (assuming that this Option Agreement were to continue in effect until the Exercise Date and that no Early Termination Date had occurred) provided, however, that if any one such entity fails so to communicate such a fee, the Buyer is not required to seek another such entity to obtain a quote and "Seller's Termination Amount" shall be determined on the basis of the fee or fees so communicated to the Buyer by the other three entities. In the event that less than three such entities are able to provide such quotes or that the "Seller's Termination Amount" cannot otherwise be determined in accordance with the preceding sentence, "Seller's Termination Amount" shall mean such amount, computed in good faith by the Buyer, as may be required to compensate the Buyer for any losses, costs and expenses whatsoever that the Buyer may incur as a result of the early termination of this Option Agreement. -15- -----END PRIVACY-ENHANCED MESSAGE-----