<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PAUL F. LEVIN
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
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PASTE LOGO HERE
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 PUBLIC SQUARE - SUITE 1900 - CLEVELAND, OHIO
44113-1937
NOTICE OF
1994 ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
Notice is hereby given that the 1994 Annual Meeting of the Shareholders of
First Union Real Estate Equity and Mortgage Investments ("First Union" or the
"Trust") will be held in the National City Bank Auditorium, on the fourth floor
of the National City Center Annex Building, 1900 East Ninth Street, Cleveland,
Ohio, on Tuesday, April 12, 1994, at 10:00 A.M., Eastern Daylight Time, for the
following purposes:
1. To elect three Trustees.
2. To adopt the 1994 Long Term Incentive Performance Plan.
3. To consider and take action upon such other matters as may properly come
before the meeting or any adjournment thereof.
Shareholders of record at the close of business on February 11, 1994, are
entitled to notice of and to vote at the meeting. Your invitation, response card
and card of admission are enclosed with this proxy.
By order of the Board of Trustees
PAUL F. LEVIN
Vice President -- General Counsel
and Secretary
March 11, 1994
PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED FORM OF PROXY WHETHER OR
NOT YOU EXPECT TO BE PRESENT AT THE MEETING. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
<PAGE> 3
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 PUBLIC SQUARE - SUITE 1900 - CLEVELAND, OHIO 44113-1937
------------------
PROXY STATEMENT
------------------
ANNUAL MEETING OF SHAREHOLDERS
APRIL 12, 1994
GENERAL INFORMATION
The accompanying proxy is solicited by the Board of Trustees of First Union
for use at the 1994 Annual Meeting to be held on April 12, 1994 and at any
adjournment of that meeting. The Shares of Beneficial Interest, par value $1 per
share ("Shares"), represented by each valid proxy will be voted at the meeting
or any adjournment thereof, and, if a choice is specified in the proxy, the
Shares will be voted in accordance with such specification. If no specification
is made, such Shares will be voted for the Board of Trustees' nominees for
Trustees specified in the proxy card. A shareholder may revoke his proxy,
without affecting any vote previously taken, by giving notice to First Union in
writing or in open meeting. The approximate date on which this Proxy Statement
and the accompanying proxy were sent to shareholders is March 11, 1994.
First Union will bear the cost of preparing and mailing this statement, the
accompanying proxy and any other related materials. First Union has engaged
Corporate Investor Communication Inc. ("CIC") to assist in the solicitation of
proxies from shareholders, at a fee of $5,500 and $3.50 per shareholder
contacted, plus reimbursement of its out-of-pocket expenses. First Union will
also pay the standard charges and expenses of brokerage houses, or other
nominees or fiduciaries, for forwarding such materials to, and obtaining the
proxies from, shareholders and beneficiaries for whose account they hold
registered title to Shares of First Union. In addition to use of the mail,
proxies may be solicited personally, by telephone or by telegram, by Trustees,
officers and regular employees of First Union without receiving additional
compensation, as well as by employees of CIC. First Union will pay the expense
of such solicitation.
The record date for determination of shareholders entitled to vote at the
Annual Meeting is February 11, 1994. On that date, 18,108,725 Shares were
outstanding. Each Share has one vote.
ELECTION OF TRUSTEES
Under the Declaration of Trust, as amended (the "Declaration of Trust") of
First Union, the Board of Trustees is divided into three classes, with each
class as nearly equal in number to the other classes as possible. The term of
office of each class expires in successive years. Accordingly, at each Annual
Meeting successors to the Trustees whose terms expire at that meeting are
elected to three-year terms. In addition, under the Declaration of Trust, the
number of Trustees may be fixed or changed from time to time by the
shareholders, provided that the number in each class is not set at fewer than
one nor more than five. In the event of an increase or decrease in the number of
Trustees, the additional or remaining Trustees, as the case may be, are to be
allocated to classes so as to make the classes as nearly equal as possible. Any
vacancy occurring in a class of Trustees may be filled by a majority vote of the
Trustees remaining in office, effective for the remainder of the term for such
class.
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<PAGE> 4
NOMINEES
Currently, the Board of Trustees is composed of nine Trustees and is
divided into equal classes known as Class I, II and III whose terms expire in
1994, 1995 and 1996, respectively. It is proposed that three Trustees be elected
to Class I of the Board of Trustees at the Annual Meeting.
The Board of Trustees' three nominees for Class I, the terms of office, if
elected, and certain additional information with respect to each nominee, are as
follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
- ---------------------------- ------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
CLASS I
Kenneth K. Chalmers (64) Mr. Chalmers has been Executive Vice President of Con- -- 1997
tinental Bank, Chicago, Illinois, a commercial bank,
since 1984. He was Senior Vice President--Group Head of
the bank from 1977 to 1984 and Vice President --
Division Head from 1972 to 1977. He is also Vice
Chairman and a member of the Executive Committee of St.
Joseph Health Care Foundation, Chicago, Illinois, and
serves on the Advisory Board of the Kellogg Graduate
School of Management, Northwestern University.
William E. Conway (66) Mr. Conway has been Chairman and Chief Executive 1985 to 1997
Officer of Fairmount Minerals, Ltd., a miner and date
processor of industrial minerals, since 1978. Mr.
Conway was a Group Vice President of Midland-Ross
Corporation, a diversified capital goods manufacturer,
from 1974 to 1978, and was Executive Vice President,
Administration of Diamond Shamrock Corporation, a
producer of chemicals, petroleum and related products,
from 1970 to 1974. Mr. Conway is a director of The
Huntington National Bank of Ohio and a trustee of The
Cleveland Clinic Foundation and University School, and
serves on the Advisory Board of the Weatherhead School
of Management of Case Western Reserve University.
Russell R. Gifford (53) Mr. Gifford has been President and Chief Executive 1991 to 1997
Officer of The East Ohio Gas Company, Cleveland, Ohio, date
a distributor of natural gas, since 1988. He is also
President of West Ohio Gas Company, Lima, Ohio; and
River Gas Company, Marietta, Ohio. East Ohio, West Ohio
and River are subsidiaries of Consolidated Natural Gas
Co. of Pittsburgh, Pennsylvania. Mr. Gifford was Senior
Vice President of The East Ohio Gas from 1985 to 1988.
Mr. Gifford is a director of National City Bank and
Bearings, Inc., and a trustee of University Hospitals
of Cleveland, The Cleveland Foundation, Cleveland To-
morrow, Greater Cleveland Roundtable and Playhouse
Square Foundation. Mr. Gifford also serves as Chairman
of the Greater Cleveland Growth Association.
</TABLE>
While the Trustees do not anticipate that any of the nominees will be
unable to serve, if any is not available for election, proxies may be voted for
a substitute as well as for the other persons named.
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<PAGE> 5
REMAINING TRUSTEES
The remaining Trustees, whose present terms of office as Trustees will
continue after the meeting and will expire in the year set forth opposite his
name and upon the election and qualification of his successor, and certain
additional information with respect to each of them, are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
- ---------------------------- ------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
CLASS II
Stephen R. Hardis (58) Mr. Hardis has been Vice Chairman and Chief Financial 1992 to 1995
and Administrative Officer of Eaton Corporation, a man- date
ufacturer of highly engineered products serving the au-
tomotive, industrial, commercial and defense markets,
since 1986. He was Executive Vice President -- Finance
and Administration of Eaton from 1979 to 1986. He has
been a member of the Board of Directors of Eaton since
1983. Mr. Hardis was Executive Vice President -- Fi-
nance and Planning of the Sybron Corporation from 1961
to 1979 and was Assistant to the Controller of General
Dynamics Corporation from 1960 to 1961. Mr. Hardis is a
director of Progressive Companies, Society Corporation,
Society National Bank and Nordson Corporation, is a
trustee of The Cleveland Clinic Foundation and Univer-
sity Circle, Inc., and is Vice President of the
Cleveland Council on Foreign Affairs.
E. Bradley Jones (66) Mr. Jones was Chairman and Chief Executive Officer of 1986 to 1995
LTV Steel Company, an integrated steel company, from date
July 1984 to December 1984. Prior to that he was Chair-
man and Chief Executive Officer from 1982 to 1984, and
President and Chief Operating Officer from 1980 to
1982, of Republic Steel Corporation. Mr. Jones is a
director of TRW Inc., NACCO Industries, Inc.,
Consolidated Rail Corporation, Cleveland-Cliffs, Inc.,
Birmingham Steel Corporation, Hyster-Yale Materials
Handling, Inc. and RPM, Inc., and is a trustee of
Fidelity Funds. He is also a trustee of The Cleveland
Clinic Foundation.
James C. Mastandrea (50) Mr. Mastandrea was President and Chief Operating Of- 1994 to 1995
ficer of the Trust from July 1993 through December date*
1993, and has been Chairman, President and Chief Exec-
utive Officer since January 1994. Mr. Mastandrea was
President and Chief Executive Officer of Triam Corpora-
tion, Chicago, Illinois, an investment adviser to
various real estate investment funds, from 1991 to
1993. He was Chairman, President and Chief Executive
Officer of Midwest Development Corporation, Buffalo
Grove, Illinois from 1978 to 1991. From 1971 to 1978
Mr. Mastandrea served in various capacities in the
field of commercial and real estate lending, including
Vice President of Continental Bank, Chicago, Illinois,
and with Mellon Bank, Pittsburgh, Pennsylvania.
</TABLE>
- ---------------
* The Board elected Mr. Mastandrea to fill the vacancy created by the
resignation from the Board of Mr. Schofield, concurrent with his retirement
from the Trust.
3
<PAGE> 6
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
- ---------------------------- ------------------------------------------------------- ----------- -----------
<S> <C> <C> <C>
CLASS III
Otes Bennett, Jr. (72) Mr. Bennett was Chief Executive Officer from 1970 to 1984 to 1996
1987, Chairman from 1983 to 1992 and is presently a date
director of The North American Coal Corporation, Cleve-
land, Ohio, an independent coal producer and a diversi-
fied manufacturer.
Allen H. Ford (65) Mr. Ford is a consultant and was, from 1981 to 1986, 1983 to 1996
Senior Vice President -- Finance and Administration of date
The Standard Oil Company (BP America), an integrated
domestic petroleum company engaged in all phases of the
petroleum business. Mr. Ford was Corporate Executive
Vice President and Unit President from 1976 to 1980,
Vice President, Finance, from 1969 to 1976, and
Treasurer during 1969 of Diamond Shamrock Corporation,
a producer of chemicals, petroleum and related
products. Mr. Ford is a director of Society Corporation
and Parker Hannifin Corporation, and is a trustee of
Case Western Reserve University, the Musical Arts
Association (Cleveland Orchestra), University Hospitals
of Cleveland, the Western Reserve Historical Society,
and University Circle, Inc. He is also Chairman of the
Edison BioTechnology Center.
Daniel G. DeVos (36) Mr. DeVos is Chairman, President and Chief Executive 1994 to 1996
Officer of Landquest International, L.L.C., a private date*
real estate investment, development and management com-
pany. He is also Vice-President, Corporate Affairs of
Amway Corporation, a direct sales consumer product
business; Vice Chairman, Governing Board of the Or-
lando Magic, a professional NBA basketball franchise;
and Chairman and Chief Executive Officer of Georgian
Enterprises, Ltd., Barrie, Ontario, Canada, a group of
related companies involved in automobile sales,
aircraft leasing, charter and sales, real estate
development and management; LTS Finished Surfaces,
Grand Rapids, Michigan, a wholesale distributor of
floor products; and Appliance Distributors, Inc.,
Detroit, Michigan, a wholesale distributor of high-end
appliances. Mr. DeVos is a member of the Boards of the
Family Outreach Center, Grand Rapids, Michigan, the
Grand Rapids Symphony, and the Mercy Respite Center.
</TABLE>
- ---------------
* The Board elected Mr. DeVos to fill the vacancy created by the resignation
from the Board of Richard N. Theilen on February 1, 1994.
COMPENSATION OF TRUSTEES
Trustees, other than Mr. Mastandrea, receive an annual retainer fee of
$12,000 and are paid an attendance fee of $500 for meetings of the Board and
committees, except for certain committee meetings for which an attendance fee of
$250 is paid.
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<PAGE> 7
ORGANIZATION OF BOARD OF TRUSTEES
The Board of Trustees held five Board meetings during 1993. Each of the
present Trustees attended more than 77% of the aggregate of the meetings of the
Board and the committees of the Board on which he served. The Board has standing
Executive; Audit; Management, Organization and Compensation; and Nominating
Committees.
EXECUTIVE COMMITTEE
The Executive Committee exercises all of the powers and authority of the
Board during intervals between meetings of the Board except the declaration of
dividends and the filling of vacancies among the Trustees or the Executive
Committee and except as its powers and duties may be limited or proscribed by
the Trustees from time to time. Present members are Otes Bennett, Jr., William
E. Conway, Allen H. Ford, Russell R. Gifford, Stephen R. Hardis, E. Bradley
Jones and James C. Mastandrea (Chairman). The Executive Committee held four
meetings during 1993.
AUDIT COMMITTEE
The Audit Committee is composed entirely of Trustees who are not employees
of First Union. The Committee recommends to the Board the appointment of
auditors to examine and report on the combined financial statements, reviews
with the independent auditors the arrangements for and results of the audit
engagement, reviews the independence of the auditors, considers the range of
audit and non-audit fees and reviews the reports of First Union's internal
auditor and its system of internal accounting controls. Present members are
Allen H. Ford and Stephen R. Hardis (Chairman). The Audit Committee held two
meetings during 1993.
MANAGEMENT, ORGANIZATION AND COMPENSATION COMMITTEE
The Management, Organization and Compensation Committee, composed entirely
of Trustees who are not employees of First Union, recommends to the Board on
matters involving management succession, the compensation of officers with
salaries of $50,000 per year or more and the retainer and attendance fees for
Trustees, makes recommendations and determinations concerning First Union's
Executive Incentive Compensation Plan, administers Share option plans and will
administer the 1994 Long Term Incentive Performance Plan if it is adopted at the
1994 Annual Meeting, and reviews compensation arrangements as they relate to key
employees. Present members are Otes Bennett, Jr., (Chairman), William E. Conway
and Russell R. Gifford. The Management, Organization and Compensation Committee
held four meetings in 1993.
NOMINATING COMMITTEE
The Nominating Committee recommends qualified candidates for election as
Trustees and considers the performance of incumbent Trustees to determine
whether to recommend them for nomination to stand for re-election. Present
members are Allen H. Ford, E. Bradley Jones and James C. Mastandrea (Chairman).
The Committee held one meeting in 1993. The Nominating Committee will consider
persons for election as Trustees who are recommended to it in writing by any
shareholder. Any shareholder wishing to submit a recommendation to the Committee
5
<PAGE> 8
should send a signed letter of recommendation to the following address: First
Union Real Estate Equity and Mortgage Investments, Suite 1900, 55 Public Square,
Cleveland, Ohio, 44113-1937, Attention: Chairman. Recommendation letters should
state the reasons for the recommendation and contain the full name and address
of each proposed nominee as well as a brief biographical history setting forth
past and present directorships, employment and civic activities.
SECURITY OWNERSHIP OF TRUSTEES AND OFFICERS
The table below sets forth, with respect to Trustees and nominees, certain
named executive officers, and as to all Trustees and executive officers as a
group, information relating to their beneficial ownership of Shares of First
Union as of January 1, 1994:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL SHARES BENEFICIALLY PERCENT
OR IDENTITY OF GROUP OWNED(1) OF CLASS
- ------------------------------ ------------------- --------
<S> <C> <C>
TRUSTEES
Otes Bennett, Jr. 5,000 .028%
Kenneth K. Chalmers 1,000 .006
William E. Conway 7,147 .039
Daniel G. DeVos -0- -0-
Allen H. Ford 8,840 .049
Russell R. Gifford 300 .002
Stephen R. Hardis 2,000 .011
E. Bradley Jones 6,331 .035
James C. Mastandrea 1,000 .006
(also an Executive
Officer)
William A. Parker, Jr. 31,200 .172
Donald S. Schofield(2) 105,085(3) .571
Richard N. Thielen 6,780 .037
EXECUTIVE OFFICERS
Joseph O. Shuman 63,322(4) .349
Paul F. Levin 19,150(5) .106
All Trustees and executive 331,917(6) 1.808
officers (16 in number) as a
group
</TABLE>
- ---------------
(1) Pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, a person is
deemed to be a beneficial owner if he has or shares voting power or
investment authority in respect of such security or has the right to acquire
beneficial ownership within 60 days. The amounts shown in the above table do
not purport to represent beneficial ownership except as determined in
accordance with this Rule. Each Trustee and executive officer has sole
voting and investment power with respect to the amounts shown or shared
voting and investment powers with his spouse.
(2) Mr. Schofield was a Trustee and Executive Officer during 1993. He retired
and concurrently resigned from the Board effective December 31, 1993.
(3) Includes 105,000 Shares which Mr. Schofield has the vested right to acquire
through the exercise of options.
(4) Includes 54,060 Shares which Mr. Shuman has the vested right to acquire
through the exercise of options.
(5) Represents Shares which Mr. Levin has the vested right to acquire through
the exercise of options.
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<PAGE> 9
(6) Includes 248,192 Shares which executive officers have the vested right to
acquire through the exercise of options.
Gene W. Newman, President of First Union Management, Inc., and a Section 16
reporting person for purposes of the Trust, inadvertently reported one
transaction late.
EXECUTIVE COMPENSATION
The table below sets forth the compensation paid or earned for services to
First Union during each of the last three years by the executive officers of the
Trust whose total cash compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
-------------------- ------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
- --------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Donald S. Schofield 1993 $310,440 $ 89,490 0 $12,422
Chairman and Chief 1992 310,440 139,210 15,000 12,067
Executive Officer 1991 310,440 137,842 15,000 11,731
James C. Mastandrea 1993* 91,026 40,000 25,000 0
President and Chief
Operating Officer
Joseph O. Shuman 1993 97,000 24,375 0 8,620
Executive Vice President 1992 97,000 51,094 7,500 7,184
1991 97,000 50,482 7,500 8,512
Paul F. Levin 1993 82,700 20,735 0 3,955
Vice President-General 1992 80,700 12,022 4,000 4,190
Counsel and Secretary 1991 80,700 16,878 5,000 4,250
</TABLE>
- ---------------
(1) Amounts shown are solely composed of annual contributions made to a defined
contribution pension plan for each participant equal to the sum of (i) 3% of
the participant's total cash compensation paid for such year, and (ii) 3% of
the portion, if any, of the participant's cash compensation paid for such
year which is in excess of that year's Social Security taxable wage base.
The contributions made by First Union on behalf of the above named
individuals are based on salary earned and paid in that year, plus executive
incentive compensation paid in that year. The pension contribution for Mr.
Schofield is limited to the maximum amount for qualified plans by the
Internal Revenue Code. At December 31, 1993, Mr. Mastandrea did not meet the
12-month employment and pension plan entrance date requirements in order to
receive a contribution. The 1993 pension contribution for Mr. Shuman is
based on salary plus the 1992 and 1993 bonuses both of which were paid in
1993.
* Employed July 19, 1993.
EMPLOYMENT AND CONSULTING AGREEMENTS
As of September 1, 1991, the Trust entered into an Employment and
Consulting Agreement with Mr. Schofield to serve as Chairman (and also as
President and Chief Executive Officer at the discretion of the Board of
Trustees) at an annual base salary of at least $310,440 through December 31,
1993. Mr. Schofield retired from active employment with the Trust effective
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<PAGE> 10
December 31, 1993. He will be retained as a consultant during 1994 and 1995 at
an annual fee of $250,000. If Mr. Schofield dies before December 31, 1994, the
Trust will pay a death benefit of $8,333 per month for 60 months. If he dies
before December 31, 1995, this death benefit will be paid for a period of 30
months. The Trust has purchased insurance to provide funds to cover this
obligation. If Mr. Schofield's engagement as consultant is terminated due to
disability, the Trust will provide a disability benefit of at least $12,500 per
month through 1995, or his earlier death. If the Trust terminates Mr.
Schofield's engagement as consultant for reasons other than death, disability or
breach of his obligations, the Trust will pay his annual fee for 1994 and 1995,
so long as he complies with certain conditions.
As of July 19, 1993, the Trust entered into an Employment Agreement with
James C. Mastandrea to serve as President and Chief Operating Officer at an
annual base salary of $200,000. The Agreement also provides, among other things,
for Mr. Mastandrea to be elected to the Board of Trustees and to be named Chief
Executive Officer, upon Mr. Schofield's retirement. Mr. Mastandrea was elected
to the Board, and named Chairman and Chief Executive Officer effective January
1, 1994. If Mr. Mastandrea's employment is terminated, other than for cause, his
annual salary at the time of termination will continue until July 19, 1995.
OPTION GRANTS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF SHARE
--------------------------------------------------------- PRICE APPRECIATION
% OF TOTAL FOR
OPTIONS 10 YEAR OPTION
GRANTED TERM(2)
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION ---------------------
NAME GRANTED(1) IN 1993 PRICE DATE 5% 10%
- ------------------------- ---------- ------------ --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James C. Mastandrea...... 25,000 100% $ 10.50 7-19-03 $165,113 $418,425
</TABLE>
- ---------------
(1) Options granted under the Share Option Plan adopted in 1981 (the "Option
Plan") may be in the form of Incentive Stock Options (qualifying as such
under Section 422A of the Internal Revenue Code, as amended) and
Nonstatutory Stock Options. Options granted are at prices not less than the
fair market value of the Shares at the date of grant and expire not later
than ten years after the date granted. Options are exercisable only after
the optionee has been continuously employed by the Trust for twelve months
from the date of grant and thereafter to the extent of 25% during the second
year, 50% during the third year, 75% during the fourth year and 100% during
the fifth through tenth years. In the event of any change in control of the
Trust, a defined term in the Option Plan, including liquidation or
dissolution of the Trust, or a merger or consolidation with respect to which
the Trust shall not be the surviving entity, all options become exercisable
immediately. Incentive Stock Options granted prior to January 1, 1987 must
be exercised in the order granted pursuant to the Internal Revenue Code.
(2) The appreciation calculation is a required disclosure. The appreciation
examples shown above do not reflect past experience of the Trust's options
granted, nor can they be expected to predict future performance.
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<PAGE> 11
AGGREGATED SHARE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT FISCAL YEAR END AT FISCAL YEAR END
ON VALUE ------------------------------- -------------------------------
NAME EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------------------- --------- -------- -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Donald S. Schofield...... 11,550 $14,176 22,650 105,000 $ 10,313 $5,156
James C. Mastandrea...... 0 0 25,000 0 0 0
Joseph O. Shuman......... 1,875 5,859 11,325 54,060 5,156 2,578
Paul F. Levin............ 1,250 3,594 6,800 19,150 3,438 1,719
</TABLE>
MANAGEMENT, ORGANIZATION AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Management, Organization and Compensation Committee (the "Committee")
is composed of Messrs. Bennett, Conway and Gifford, all outside trustees. The
Committee recommends to the Board: (i) compensation of officers with salaries of
$50,000 per year or more, (ii) cash awards to employees under the Executive
Incentive Compensation Plan (the "EIC Plan") and (iii) grants of Share options
under the Option Plan.
COMPENSATION OF THE CEO
Mr. Schofield served as Chairman and Chief Executive Officer ("CEO") during
1993 (and President until July 1993). His base salary of $310,440 for 1993 was
determined in accordance with the Employment and Consulting Agreement entered
into as of September 1, 1991, and described earlier in this Proxy Statement.
Mr. Schofield's annual base salary under the Agreement was based on his
salary at the time the Agreement was entered into, his past performance as
Chairman, President and CEO of the Trust, comparable executive salaries both
within and outside the real estate industry, his overall compensation package
including the EIC Plan and the Option Plan, and historical performance of the
Trust.
Mr. Schofield's participation in the EIC Plan discussed later in this
section was also determined in accordance with his Employment and Consulting
Agreement, and his allocation of points in the EIC Plan was based on the same
evaluation criteria discussed above.
Mr. Schofield's pension contributions are determined in accordance with the
provisions of the defined contribution pension plan, noted elsewhere in this
Proxy Statement.
Mr. Schofield retired effective December 31, 1993.
COMPENSATION OF OTHER NAMED EXECUTIVE OFFICERS
On July 19, 1993, Mr. Mastandrea was employed as President and Chief
Operating Officer. The Trust utilized the services of an executive search
consultant in the recruitment and hiring of Mr. Mastandrea. An ad hoc Management
Succession Committee of the Board, consisting of Messrs. Ford (Chairman),
Bennett, Conway and Jones, conferred with the consultant regarding
9
<PAGE> 12
typical recruitment benefits, as well as compensation levels for comparable
positions in the real estate industry. The Management Succession Committee
presented its recommendation to the Compensation Committee. Mr. Mastandrea's
employment as President and Chief Operating Officer at the rate of $200,000 per
year, and the bonus he was awarded for 1993, in the discretion of the Board,
were based on his position and responsibilities in the Trust and the anticipated
contribution he will make in the future as Chief Executive Officer; his
extensive real estate experience; and compensation paid for comparable positions
in the real estate investment trust industry and in other segments of the real
estate industry.
The other executive officers named in the Summary Compensation Table
receive annual salaries based on recommendations of the CEO to the Committee.
Each officer is reviewed annually, in writing, by his superior on the basis of
individual achievement and accomplishments and contribution to the Trust. Salary
recommendations are based on individual and company performance. Salary is
measured in terms of the officer's position in the Trust and comparable
positions within the real estate industry and in other industries in which the
executive might be employed, all of which criteria necessarily involve a degree
of subjective judgment by the Committee. This is done in order to attract and
retain the most qualified individuals and reward them for performance and
dedication to the Trust.
Awards to executive officers under the EIC Plan are determined based on a
point system. Total EIC Plan awards in each year are equal to the product of
total cash flow, a defined term under the EIC Plan, less 10% of average
shareholders' investment, also a defined term under the EIC Plan, times 5%. The
annual amount accrued cannot exceed $1 million. At least 50% of the amount
accrued is distributed pro rata to participants based on the number of points
awarded for the year. The remaining 50% may be distributed at the discretion of
the Committee. Any amount remaining after discretionary awards is then
distributed pro rata based on the number of points awarded.
Participation in the Plan and allocation of points is reviewed annually,
for the succeeding Plan year, and is based on similar criteria used to determine
base salary. In addition, part of the EIC Plan fund, as described above, may be
awarded on a discretionary basis by the Committee based on outstanding and
extraordinary individual performance and contribution to the Trust's
profitability.
Share options are granted to attract and retain qualified key employees,
who will be motivated by personal involvement in the development and success of
the Trust. Options were granted to Mr. Mastandrea in connection with his
employment.
OTES BENNETT, JR. (CHAIRMAN) WILLIAM E. CONWAY RUSSELL R. GIFFORD
MEMBERS OF THE COMMITTEE
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<PAGE> 13
PERFORMANCE GRAPH
The performance graph assumes $100 invested on December 31, 1988 in First
Union Shares, All REITs and the NYSE Composite, with dividends reinvested when
paid and share prices as of the last day of each calendar year. The total return
for All REITs was compiled by the National Association of Real Estate Investment
Trusts (NAREIT).
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
The chart below shows the amount of cumulative total return at the end of each
calendar year (assuming $100 invested on December 31, 1988 in First Union, All
REITs and the NYSE Composite) that was used to create the performance graph.
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NYSE COM-
(FISCAL YEAR COVERED) FIRST UNION ALL REITS POSITE
<S> <C> <C> <C>
1988 $100 $100 $100
1989 97 98 128
1990 49 81 122
1991 52 110 158
1992 75 124 166
1993 84 146 188
</TABLE>
11
<PAGE> 14
PROPOSED 1994 LONG TERM INCENTIVE PERFORMANCE PLAN
The 1994 Long Term Incentive Performance Plan (the "Plan") is intended to
encourage the Trust's managers to think and act as owners and, as a result, to
foster and promote the long term growth and performance of the Trust and
increase the market price of its Shares. To achieve this purpose, this Plan
gives broad authority to the Management, Organization and Compensation Committee
of the Board of Trustees (the "Committee"), a standing committee comprised
entirely of independent Trustees, to grant stock and other performance-based
incentives.
As a real estate investment trust, the Trust is required to distribute as
dividends 95% of its taxable ordinary income in each year, excluding certain non
cash income. Accordingly, the Trust is unable to accumulate retained earnings as
a vehicle for growth. Instead, the Trust must rely on growth through profitable
investments.
During the past several years, funds from operation have declined while
debt levels and interest costs have risen. In addition, expenditures will be
required to renovate some of the Trust's assets in order to preserve cash flow
and value, while other unprofitable assets need to be sold.
Faced with the inability to use retained earnings for growth, a decline in
recent financial performance, and the need to renovate or dispose of under
performing assets, the Board of Trustees believes that the Trust needs a
cohesive, aggressive, and well motivated management team who think and act as
owners. After developing the Plan over a six month period, the Board of Trustees
approved the Plan on February 1, 1994. The Board believes that the Plan will
help to achieve this objective and, therefore, recommends that shareholders vote
to approve it.
The full text of the Plan is included as Exhibit A to this Proxy Statement.
The following description of the Plan should be read in conjunction with, and is
qualified by reference to, the more detailed information (including definitions
and specific incentive factors) contained in the text of the Plan.
ELIGIBILITY
All employees of the Trust or any of its affiliates who have
responsibilities that affect the performance of the Trust, and the market price
of its Shares, over the long term will be eligible to participate in the Plan.
AUTHORITY OF COMMITTEE
Under the Plan, the Committee has the authority to select the employees who
will receive awards, determine the number and type of awards to be granted,
determine the terms, conditions, and restrictions applicable to the awards,
determine how the exercise price is to be paid, and establish rules governing
the Plan. The Committee may delegate its authority with respect to participants
who are not executive officers of the Trust.
The Plan does not prescribe the exercise price, earn-out or vesting
periods, restrictions, or performance objectives applicable to awards made to
employees other than certain "Covered Employees." Instead, the Committee is
given the broad authority to establish these terms in order best to achieve the
purpose of the Plan. The Plan does prescribe some of the terms of awards that
may be granted to executive officers of the Trust whose compensation is subject
to
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<PAGE> 15
the $1,000,000 limit on deductibility under Section 162(m) of the Internal
Revenue Code (the "Code"); these employees include the Chief Executive Officer
and the other four most highly compensated executive officers of the Trust
("Covered Employees").
NUMBER OF SHARES
Throughout the term of the Plan, the maximum number of Shares that may be
subject to Awards is 1,629,785, plus 9% of the number of Shares issued by the
Trust (other than Shares issued under the Plan) during the term of the Plan, and
the maximum number of Shares that may be subject to Awards granted to any
particular Participant is 905,434, plus 5% of the number of Shares issued by the
Trust during the term of this Plan (other than Shares Issued under the Plan).
The maximum number of Shares that may be subject to Awards granted in any given
year is 3% of the number of Shares outstanding at the beginning of that year,
and the maximum number of Shares that may be subject to Awards granted to any
particular Participant in any given year is 1.67% of the number of Shares
outstanding at the beginning of that year. The maximum number of Shares that may
be issued upon exercise of incentive stock options is 1,629,785.
Shares subject to an award that is forfeited, terminated, canceled, or
surrendered without having been exercised (other than shares subject to a stock
option that is canceled upon the exercise of a related stock appreciation right
and shares subject to an award that is surrendered to pay the exercise price of
a stock option) are generally available for future grants under the Plan,
without reducing the number of Shares that may be the subject of Awards or that
are available for the grant of Awards in any given year.
In the event of a recapitalization, stock dividend, stock split,
distribution to shareholders (other than normal cash dividends), rights
offering, or similar transaction, the Committee will adjust the number and class
of shares that may be issued under the Plan and the number and class of shares,
and the exercise price, applicable to outstanding awards.
TYPES OF AWARDS
The Plan provides for the grant of stock options, restricted stock, stock
appreciation rights, stock equivalent units, cash awards, and other stock or
performance-based incentives. These awards are payable in cash or Shares, or any
combination thereof, as established by the Committee.
The stock options may be incentive stock options ("Incentive Stock
Options"), which meet the criteria of Section 422 of the Code, and stock options
that do not qualify as Incentive Stock Options. The Committee has the discretion
to determine the exercise price, vesting periods, duration, and other terms of
stock options. The terms of Incentive Stock Options must, however, meet the
requirements of Section 422 of the Code. The exercise price of stock options
granted to Covered Employees must be the fair market value of the Shares at the
date of grant, unless the grant or vesting of the stock options is contingent
upon the achievement of performance goals established by the Committee at or
before the time of grant. These performance goals will represent a target amount
of funds from operations of the Trust for any given year, and/or a target market
price of the Shares at any given date. For this purpose, "funds from operations"
means income from operations, plus depreciation and amortization, as shown in
the audited
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<PAGE> 16
combined statement of income of the Trust and First Union Management, Inc., but
excluding any accrual for expenses relating to this Plan.
The restricted stock and cash awards will be subject to any conditions,
restrictions, and risks of forfeiture that the Committee, in its discretion, may
establish. The grant or vesting of any restricted stock or cash awards made to
Covered Employees, however, must be contingent upon the achievement of
performance goals established by the Committee at or before the time of grant.
The stock appreciation rights will give an employee the right to receive a
payment equal in value to all or a portion of the appreciation of Shares over a
limited period of time. The period of time over which the appreciation is
measured is within the discretion of the Committee. Among other things, the
Committee has the authority to grant stock appreciation rights that only become
exercisable upon the occurrence of a change in control (as defined in the Plan).
The stock equivalent units will, among other things, enable the Committee
to permit participants to defer their compensation in the form of (i) units
equal in value to Shares or (ii) cash. The Committee has the authority to credit
dividend equivalents on stock equivalent units and interest on deferred cash
payments.
Awards may be granted singly or in combination or tandem with other Awards.
The Trust may also assume awards granted by an organization acquired by the
Trust or may grant awards in replacement of any such awards.
PAYMENT OF EXERCISE PRICE; TAXES ASSOCIATED WITH AWARDS
The Committee may permit participants to pay the exercise price of an award
(other than an Incentive Stock Option) in cash, by the transfer of Shares, by
the surrender of all or part of an award (including the award being exercised),
or by a combination of these methods, as and to the extent permitted by the
Committee. The Committee may permit participants to pay the exercise price of an
Incentive Stock Option in cash, by the transfer of Shares, or by a combination
of these methods, but not by the surrender of an award. The Committee may
prescribe any other method of paying the exercise price that it determines to be
consistent with applicable law and the purpose of this Plan, including loans by
the Trust.
Prior to the payment of an award, the Trust may withhold, or require a
participant to remit to the Trust, an amount sufficient to pay any Federal,
state, and local taxes associated with the award. The Committee may permit
participants to pay the taxes associated with an award (other than an Incentive
Stock Option) in cash, by the transfer of Shares, by the surrender of all or
part of an award (including the award being exercised), or by a combination of
these methods. The Committee may permit a participant to pay the taxes
associated with an Incentive Stock Option in cash, by the transfer of Shares, or
by a combination of these methods, but not by the surrender of an award.
TERMINATION OF AWARDS
The Committee may cancel any awards if the participant, without the Trust's
prior written consent, (i) renders services for an organization, or engages in a
business, that is, in the judgment of the Committee, in competition with the
Trust or (ii) discloses to anyone outside of
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<PAGE> 17
the Trust, or uses for any purpose other than the Trust's business, any
confidential information or material relating to the Trust.
CHANGE IN CONTROL
In the event of a change in control of the Trust, as defined in the Plan,
(i) all outstanding stock options and stock appreciation rights become fully
exercisable, (ii) all restrictions and conditions applicable to restricted stock
and other awards exercisable for Shares will be deemed to have been satisfied,
(iii) all cash awards will be deemed to have been fully earned, and (iv) the
term of all loans granted to fund the exercise price of awards will be extended
to become due no earlier than twenty (20) years after the Change in Control, at
an interest rate no greater than LIBOR, or its equivalent, in effect from time
to time.
AMENDMENT OR SUSPENSION; EFFECTIVE DATE, AND TERMINATION
The Board of Trustees may amend or suspend the Plan at any time.
Shareholder approval for any such amendment will be required only to the extent
necessary to preserve (i) the exemption for awards provided by Rule 16b-3 under
the Securities Exchange Act of 1934 and (ii) the deductibility of compensation
associated with the award for Federal income tax purposes under Section 162(m)
of the Code. The Plan will become effective on the date it is adopted by the
Trust's shareholders and will remain in effect until December 31, 2004. The
Committee may waive any restrictions or conditions applicable to, or accelerate
the vesting of, any Award.
FEDERAL INCOME TAX CONSEQUENCES OF AWARDS
The anticipated Federal income tax treatment, to the Trust and the
participants, of the grant and exercise of awards is briefly discussed in
Exhibit B.
VOTE REQUIRED TO ADOPT THE PLAN
The affirmative vote of the holders of a majority of the Shares present in
person or by proxy and voting on the Plan at the meeting is required to adopt
the Plan. THE TRUST'S BOARD OF TRUSTEES RECOMMENDS THAT SHAREHOLDERS VOTE TO
ADOPT THE PLAN.
SELECTION OF AUDITORS
Arthur Andersen & Co. has been selected as auditors of First Union for the
ensuing year. Arthur Andersen & Co. has been First Union's auditors since the
founding of the Trust in 1961. Representatives of Arthur Andersen & Co. are
expected to be present at the 1994 Annual Meeting with the opportunity to make a
statement if they so desire and to respond to shareholder questions.
VOTING
The affirmative vote of the holders of a majority of the Shares present in
person or by proxy and voting at the meeting is required for approval of the
matters described in this Proxy
15
<PAGE> 18
Statement. If the requisite approval is not obtained with respect to a
particular matter, the proposal referred to in such matter will not be
implemented.
As far as the Trustees are aware, no matters other than those outlined in
this Proxy Statement will be presented to the meeting for action on the part of
the shareholders. If any other matters are brought before the meeting, it is the
intention of the persons named in the accompanying proxy to vote the Shares to
which the proxy relates in accordance with their best judgment.
SHAREHOLDER PROPOSALS
Any shareholder proposals intended to be presented at the 1995 Annual
Meeting of Shareholders must be received by First Union for inclusion in First
Union's proxy statement and form of proxy relating to that meeting on or before
October 10, 1994. Any such proposals should be sent to the following address:
First Union Real Estate Equity and Mortgage Investments, Suite 1900, 55 Public
Square, Cleveland, Ohio, 44113-1937, Attention: Paul F. Levin, Secretary.
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
PAUL F. LEVIN
Vice President -- General Counsel
and Secretary
March 11, 1994
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<PAGE> 19
EXHIBIT A
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
1994 LONG TERM INCENTIVE PERFORMANCE PLAN
1. PURPOSE
This Plan is intended to encourage the Trust's managers to think and act as
owners and, as a result, to foster and promote the long term growth and
performance of the Trust and increase the market price of its Shares. To achieve
this purpose, this Plan provides authority for the grant of stock and other
performance-based incentives.
2. DEFINITIONS
(a) "Affiliate and Associate" -- These terms have the meanings given
to them in Rule 12b-2 under the Exchange Act.
(b) "Award" -- A grant of Stock Appreciation Rights, Stock Awards,
Stock Options, Cash Awards, or other stock and performance-based incentives
under this Plan.
(c) "Board of Trustees" -- The Board of Trustees of the Trust.
(d) "Cash Award" -- This term has the meaning given to it in Section
6(b)(iv).
(e) "Change in Control" -- A "Change in Control" will be deemed to
occur if at any time after the date of the adoption of this Plan:
(i) Any Person (other than the Trust, any Subsidiary of the Trust,
any employee benefit plan or employee share ownership plan of the Trust
or any Subsidiary of the Trust, or any Person organized, appointed, or
established by the Trust or any Subsidiary of the Trust for or pursuant
to the terms of any such plan), alone or together with any of its
Affiliates or Associates, becomes the Beneficial Owner of 25% or more of
the Shares then outstanding. For purposes of this Section 2(e)(i), the
terms "Beneficial Owner," "Person," and "Subsidiary" have the meanings
given to them in the Rights Agreement, dated as of March 7, 1990,
between the Trust and National City Bank, as Rights Agent, as amended
from time to time.
(ii) At any time during a period of 24 consecutive months,
individuals who were Trustees at the beginning of the period no longer
constitute a majority of the members of the Board of Trustees unless the
election, or the nomination for election by the Trust's shareholders, of
each Trustee who was not a Trustee at the beginning of the period is
approved by at least a majority of the Trustees who are in office at the
time of the election or nomination and were Trustees at the beginning of
the period.
(iii) A record date is established for determining shareholders
entitled to vote upon (A) a merger or consolidation of the Trust with
another business trust, real estate investment trust, partnership,
corporation, or other entity in which the Trust is not the surviving or
continuing entity or in which all or part of the outstanding Shares are
to be
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<PAGE> 20
converted into or exchanged for cash, securities, or other property, (B)
a sale or other disposition of all or substantially all of the assets of
the Trust, or (C) the dissolution of the Trust.
(f) "Code" -- The Internal Revenue Code of 1986, or any law that
supersedes or replaces it, as amended from time to time.
(g) "Committee" -- The Management, Organization and Compensation
Committee of the Board of Trustees, or any other committee of the Board of
Trustees that the Board of Trustees authorizes to administer this Plan. The
Committee will be constituted in a manner that satisfies all applicable
legal requirements, including satisfying the disinterested administration
standard set forth in Rule 16b-3 under the Exchange Act and the outside
director requirement under Section 162(m) of the Code.
(h) "Covered Employee" -- An officer of the Trust whose compensation
is subject to the $1,000,000 limit on deductibility under Section 162(m) of
the Code, or any provision that supersedes or replaces Section 162(m) of
the Code, as amended from time to time.
(i) "Exchange Act" -- Securities Exchange Act of 1934, and any law
that supersedes or replaces it, as amended from time to time.
(j) "Fair Market Value" of Shares -- The value of Shares determined by
the Committee, or pursuant to rules established by the Committee, on a
basis consistent with regulations under the Code.
(k) "Incentive Stock Option" -- A Stock Option that meets the
requirements of Section 422 of the Code, or any provision that supersedes
or replaces Section 422 of the Code, as amended from time to time.
(l) "Participant" -- Any person to whom an Award has been granted
under this Plan.
(m) "Performance Goal" -- A target amount of funds from operations of
the Trust for any given year, or a target market price of the Shares at any
given date, established by the Committee as a condition to the grant or
vesting of an Award. For this purpose, "funds from operations" means income
from operations, plus depreciation and amortization, as shown in the
audited combined statement of income of the Trust and First Union
Management, Inc. included in the Form 10-K annual report of the Trust for
that year filed with the Securities and Exchange Commission, but excluding
any accrual for expenses relating to this Plan.
(n) "Restricted Stock" -- An Award of Shares that are subject to
restrictions or risk of forfeiture.
(o) "Rule 16b-3" -- Rule 16b-3 under the Exchange Act, or any rule
that supersedes or replaces it, as amended from time to time.
(p) "Shares" -- Shares of beneficial interest, $1.00 par value, of the
Trust or any equity security or securities of the Trust that are issued in
substitution or exchange therefor in a recapitalization of the Trust.
(q) "Stock Appreciation Right" -- This term has the meaning given to
it in Section 6(b)(i).
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<PAGE> 21
(r) "Stock Award" -- This term has the meaning given to it in Section
6(b)(ii).
(s) "Stock Equivalent Unit" -- An Award that is valued by reference to
the Fair Market Value of Shares.
(t) "Stock Option" -- This term has the meaning given to it in Section
6(b)(iii).
(u) "Trust" -- First Union Real Estate Equity and Mortgage
Investments, an Ohio business trust.
3. ELIGIBILITY
All employees of the Trust or any of its Affiliates who, in the judgment of
the Committee, have responsibilities that affect the performance of the Trust,
and the market price of its Shares, over the long term are eligible for the
grant of Awards.
4. SHARES AVAILABLE UNDER PLAN; ADJUSTMENT
(a) Number of Shares. The number of Shares that may be subject to
Awards granted under this Plan is subject to the following limitations:
(i) The maximum number of Shares that may be subject to Awards
granted throughout the term of this Plan is 1,629,785, plus nine percent
(9%) of the number of Shares issued by the Trust during the term of this
Plan, and the maximum number of Shares that may be subject to Awards
granted to any particular Participant throughout the term of this Plan
is 905,434, plus five percent (5%) of the number of Shares issued by the
Trust during the term of this Plan. For this purpose, the term "issue"
includes a sale of Shares in a public offering or a private placement,
an exchange of Shares for assets or securities, and the delivery of
Shares upon the conversion or exchange of securities in a merger or
other combination involving the Trust or any of its Affiliates, but does
not include the issuance of Shares under this Plan.
(ii) The maximum number of Shares that may be subject to Awards
granted in any given year is three percent (3%) of the number of Shares
outstanding at the beginning of that year, and the maximum number of
Shares that may be subject to Awards granted to any particular
Participant in any given year is one and sixty-seven hundredths percent
(1.67%) of the number of Shares outstanding at the beginning of that
year.
(iii) The maximum number of Shares that may be issued upon exercise
of Incentive Stock Options is 1,629,785.
The assumption of awards granted by an organization acquired by the Trust
or any of its Affiliates, or the grant of Awards under this Plan in substitution
for any such awards, will not reduce the number of Shares available for the
grant of Awards under this Plan.
Shares subject to an Award that is forfeited, terminated, canceled, or
surrendered without having been exercised (other than (i) Shares subject to a
Stock Option that is canceled upon the exercise of a related Stock Appreciation
Right and (ii) Shares subject to an Award that is
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<PAGE> 22
surrendered in payment of the exercise price of a Stock Option) will again be
available for grant under this Plan, without reducing the number of Shares that
may be subject to Awards or that are available for the grant of Awards in any
fiscal year, except to the extent that the availability of those Shares would
cause this Plan or any Awards granted under this Plan to fail to qualify for the
exemption provided by Rule 16b-3.
(b) No Fractional Shares. No fractional Shares will be distributed
under this Plan; the Committee will determine the manner in which
fractional Shares will be treated.
(c) Adjustment. In the event of any change in the Shares by reason of
a merger, consolidation, reorganization, recapitalization, or similar
transaction, or in the event of a stock dividend, stock split, distribution
to shareholders (other than normal cash dividends), or rights offering or
similar sale of Shares for less than their fair market value at the time of
sale, the Committee will adjust the number and class of shares that may be
issued under this Plan, the number and class of shares subject to
outstanding Awards, the exercise price applicable to outstanding Awards,
and any value determinations applicable to outstanding Awards.
5. ADMINISTRATION
(a) Committee. This Plan will be administered by the Committee. The
Committee will, subject to the terms of this Plan, have the authority to
(i) select the eligible employees who will receive Awards, (ii) determine
the number and types of Awards to be granted, (iii) determine the terms,
conditions, vesting periods, and restrictions applicable to the Awards,
(iv) prescribe the forms of any notices, agreements, or other instruments
relating to the Awards, (v) grant the Awards, (vi) adopt, alter, and repeal
administrative rules and practices governing this Plan, (vii) interpret the
terms and provisions of this Plan and any Awards granted under this Plan,
and (viii) otherwise supervise the administration of this Plan. All
decisions by the Committee will be made with the approval of not less than
a majority of its members.
(b) Delegation. The Committee may delegate any of its authority to
any other person or persons that it deems appropriate, provided the
delegation does not (i) cause this Plan, or any Awards granted under this
Plan, to fail to qualify for the exemption provided by Rule 16b-3 under the
Exchange Act or (ii) result in a reduction in the amount of compensation
associated with any Award that is deductible for Federal income tax
purposes under Section 162(m) of the Code.
(c) Decisions Final. All decisions by the Committee, and by any other
person or persons to whom the Committee has delegated authority, will be
final and binding on all persons.
6. AWARDS
(a) Grant of Awards. The Committee will determine the type or types
of Awards to be granted to each employee and the terms, conditions, vesting
periods, and restrictions applicable to each Award. More than one Award may
be granted to the same employee. Awards may be granted singly or in
combination or tandem with other Awards. The Trust
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<PAGE> 23
may assume awards granted by an organization acquired by the Trust or may
grant Awards in replacement of, or in substitution for, any such awards.
(b) Types of Awards. Awards may include, but are not limited to, the
following:
(i) Stock Appreciation Right -- A right to receive a payment, in
cash or Shares, equal to the excess of (A) the Fair Market Value of a
specified number of Shares on the date the right is exercised over (B)
the Fair Market Value of the Shares on the date the right is granted,
all as determined by the Committee. The right may be conditioned upon
the occurrence of certain events, such as a Change in Control of the
Trust, or may be unconditional, as determined by the Committee.
(ii) Stock Award -- An Award that is made in Shares, Restricted
Stock, or Stock Equivalent Units. The grant or vesting of any Stock
Award made to a Covered Employee (other than Stock Equivalent Units
representing deferred amounts under Section 7) must be contingent upon
the achievement of a Performance Goal or Performance Goals established
by the Committee at or before the time of grant; the grant or vesting of
any Stock Award made to a Participant other than a Covered Employee may,
in the discretion of the Committee, be contingent upon the achievement
of Performance Goals or other objectives established by the Committee.
(iii) Stock Option -- A right to purchase a specified number of
Shares, during a specified period, and at a specified exercise price,
all as determined by the Committee. A Stock Option may be an Incentive
Stock Option or a Stock Option that does not qualify as an Incentive
Stock Option. In addition to the terms, conditions, vesting periods, and
restrictions established by the Committee, Incentive Stock Options must
comply with the requirements of Section 422 of the Code. The exercise
price of a Stock Option granted to a Covered Employee must be the Fair
Market Value of the Shares on the date the Stock Option is granted,
unless the grant or vesting of the Stock Option is contingent upon the
achievement of a Performance Goal or Performance Goals established by
the Committee at or before the time of grant.
(iv) Cash Award -- An Award denominated in cash. The grant or
vesting of any Cash Award made to a Covered Employee must be contingent
upon the achievement of a Performance Goal or Performance Goals
established by the Committee at or before the time of grant; the grant
or vesting of any Cash Award made to Participants other than Covered
Employees may, in the discretion of the Committee, be contingent upon
continued service or the achievement of Performance Goals or other
objectives established by the Committee.
7. DEFERRAL OF PAYMENT
The Committee may, in its discretion, permit Participants to defer the
payment of some or all of the Shares, cash, or other consideration subject to
their Awards, as well as other compensation, in accordance with procedures
established by the Committee to ensure that the recognition of taxable income is
deferred under the Code. Deferred amounts may, to the extent permitted by the
Committee, be credited as cash or Stock Equivalent Units. The Committee may also
establish rules and procedures for the crediting of interest on deferred cash
payments and dividend equivalents on Stock Equivalent Units.
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<PAGE> 24
8. PAYMENT OF EXERCISE PRICE
The exercise price of a Stock Option (other than an Incentive Stock Option)
and any other Stock Award for which the Committee has established an exercise
price may be paid in cash, by the transfer of Shares, by the surrender of all or
part of an Award (including the Award being exercised), or by a combination of
these methods, as and to the extent permitted by the Committee. The exercise
price of an Incentive Stock Option may be paid in cash, by the transfer of
Shares, or by a combination of these methods, as and to the extent permitted by
the Committee at the time of grant, but may not be paid by the surrender of all
or part of an Award. The Committee may prescribe any other method of paying the
exercise price that it determines to be consistent with applicable law and the
purpose of this Plan, including loans by the Trust.
In the event shares of Restricted Stock are used to pay the exercise price
of a Stock Option, a number of the Shares issued upon the exercise of the Stock
Option equal to the number of shares of Restricted Stock used to pay the
exercise price will be subject to the same restrictions as the Restricted Stock.
9. TAXES ASSOCIATED WITH AWARD
Prior to the payment of an Award, the Trust may withhold, or require a
Participant to remit to the Trust, an amount sufficient to pay any Federal,
state, and local taxes associated with the Award. The Committee may, in its
discretion and subject to such rules as the Committee may adopt, permit a
Participant to pay any or all taxes associated with the Award (other than an
Incentive Stock Option) in cash, by the transfer of Shares, by the surrender of
all or part of an Award (including the Award being exercised), or by a
combination of these methods. The Committee may permit a Participant to pay any
or all taxes associated with an Incentive Stock Option in cash, by the transfer
of Shares, or by a combination of these methods, but not by the surrender of all
or part of an Award.
10. TERMINATION OF EMPLOYMENT
If the employment of a Participant terminates for any reason, all
unexercised, deferred, and unpaid Awards may be exercisable or paid only in
accordance with rules established by the Committee.
11. TERMINATION OF AWARDS UNDER CERTAIN CONDITIONS
The Committee may cancel any unexpired, unpaid, or deferred Award at any
time if the Participant is not in compliance with all applicable provisions of
this Plan or with the terms or conditions of the Award or if the Participant,
without the prior written consent of the Trust, engages in any of the following
activities:
(i) Renders services for an organization, or engages in a business,
that is, in the judgment of the Committee, in competition with the Trust.
(ii) Discloses to anyone outside of the Trust, or uses for any purpose
other than the Trust's business, any confidential information or material
relating to the Trust, whether acquired by the Participant during or after
employment with the Trust.
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The Committee may, in its discretion and as a condition to the exercise of
an Award, require a Participant to acknowledge in writing that he or she is in
compliance with all applicable provisions of this Plan and with the terms and
conditions of the Award and has not engaged in any activities referred to in
clauses (i) and (ii) above.
12. CHANGE IN CONTROL
In the event of a Change in Control of the Trust, (i) all Stock
Appreciation Rights and Stock Options then outstanding will become fully
exercisable as of the date of the Change in Control, (ii) all restrictions and
conditions applicable to Restricted Stock and other Stock Awards will be deemed
to have been satisfied as of the date of the Change in Control, (iii) all Cash
Awards will be deemed to have been fully earned as of the date of the Change in
Control, and (iv) the term of all loans granted to fund the exercise price of
awards will be extended to become due no earlier than twenty (20) years after
the date of the Change in Control, at an interest rate no greater than LIBOR, or
its equivalent, in effect from time to time.
13. AMENDMENT OR SUSPENSION OF THIS PLAN; AMENDMENT OF OUTSTANDING AWARDS
(a) Amendment or Suspension of this Plan. The Board of Trustees may
amend or suspend this Plan at any time. Shareholder approval for any such
amendment will be required only to the extent necessary to preserve (i) the
exemption provided by Rule 16b-3 under the Exchange Act for this Plan and
Awards granted under this Plan and (ii) the deductibility of compensation
associated with any Award for Federal income tax purposes under Section
162(m) of the Code.
(b) Amendment of Outstanding Awards. The Committee may, in its
discretion, amend the terms of any Award, prospectively or retroactively,
but no such amendment may impair the rights of any Participant without his
or her consent. The Committee may, in whole or in part, waive any
restrictions or conditions applicable to, or accelerate the vesting of, any
Award.
14. NONASSIGNABILITY
Unless otherwise determined by the Committee, (i) no Award granted under
this Plan may be transferred or assigned by the Participant to whom it is
granted other than by will, pursuant to the laws of descent and distribution, or
pursuant to a qualified domestic relations order and (ii) an Award granted under
this Plan may be exercised, during the Participant's lifetime, only by the
Participant or by the Participant's guardian or legal representative.
15. GOVERNING LAW
The interpretation, validity, and enforcement of this Plan will, to the
extent not otherwise governed by the Code or the securities laws of the United
States, be governed by the law of the State of Ohio.
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16. RIGHTS OF EMPLOYEES
Nothing in this Plan will confer upon any Participant the right to
continued employment by the Trust or limit in any way the Trust's right to
terminate any Participant's employment at will.
17. EFFECTIVE AND TERMINATION DATES
(a) Effective Date. This Plan will become effective on the date it is
approved by the holders of a majority of the Shares present in person or by
proxy and voting on the Plan.
(b) Termination Date. This Plan will continue in effect until
December 31, 2004.
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EXHIBIT B
ANTICIPATED INCOME TAX TREATMENT OF AWARDS
GRANTED UNDER
1994 LONG TERM INCENTIVE PERFORMANCE PLAN
Incentive Stock Options
In general, an employee will not recognize taxable income at the time an
Incentive Stock Option is granted or exercised. However, the excess of the fair
market value of the Shares acquired upon exercise of the Incentive Stock Option
over the exercise price is potentially subject to the alternative minimum tax.
Upon disposition of the Shares, capital gain or capital loss will be recognized
in an amount equal to the difference between the sale price and the exercise
price, provided that (1) the employee has not disposed of the Shares within two
years of the date of grant or within one year from the date of exercise and (2)
the employee has been employed by the Trust or one of its subsidiaries at all
times from the date of grant until the date three months before the date of
exercise (one year in the case of permanent disability). If the employee
disposes of the Shares without satisfying both the holding period and employment
requirements (a "Disqualifying Disposition"), the employee will recognize
ordinary income at the time of the Disqualifying Disposition to the extent of
the differences between the exercise price and the lesser of the fair market
value of the shares on the date the Incentive Stock Option is exercised or the
amount realized in the Disqualifying Disposition. Any remaining gain or loss is
treated as a capital gain or capital loss.
The Trust is not entitled to a tax deduction either upon the exercise of an
Incentive Stock Option or upon the disposition of the Shares acquired thereby,
except to the extent that the employee recognizes ordinary income in a
Disqualifying Disposition.
Non-Qualified Stock Options
In general, an employee will not recognize taxable income at the time a
stock option that does not qualify as an Incentive Stock Option (a
"non-qualified stock option") is granted. An amount equal to the difference
between the exercise price and the fair market value, on the date of exercise,
of the Shares acquired upon exercise of the non-qualified stock option will be
included in the employee's ordinary income in the taxable year in which the
non-qualified stock option is exercised. Upon disposition of the Shares acquired
upon exercise of the non-qualified stock option, appreciation or depreciation
after the date of exercise will be treated as either capital gain or capital
loss.
Generally, the Trust will be entitled to a tax deduction in the amount of
the ordinary income realized by the employee in the year the non-qualified stock
option is exercised.
Stock Appreciation Rights
The grant of stock appreciation rights will have no immediate tax
consequences to the Trust or the employee receiving the grant. The amount
received by the employee upon the exercise of the stock appreciation rights will
be included in the employee's ordinary income in the taxable
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year in which the stock appreciation rights are exercised. The Trust will be
entitled to a deduction in the same amount in that year.
Restricted Stock
Unless an employee makes an election under Section 83(b) of the Code, the
employee will recognize no income, and the Trust will be entitled to no
deduction, at the time restricted stock is awarded to the employee. When the
restrictions on restricted stock lapse or are otherwise removed, the employee
will recognize compensation income equal to the excess of the fair market value
of the restricted stock on the date the restrictions lapse or are otherwise
removed over the amount, if any, paid by the employee for the restricted stock,
and the Trust will be entitled to a deduction in the same amount if it satisfies
applicable withholding requirements. Dividends paid on restricted stock during
any restriction period will constitute income to the employee receiving the
dividends, and the Trust will be entitled to a deduction in the same amount.
Upon disposition of Shares after the restrictions lapse or are otherwise
removed, any gain or loss realized by an employee will be treated as short term
or long term capital gain or loss depending upon the period of time between the
disposition and the earlier lapse or removal of the restrictions on those
Shares.
If an employee files an election under Section 83(b) with the Internal
Revenue Service within 30 days after the grant of restricted stock, the employee
will, on the date of the grant, recognize compensation income equal to the
excess of the fair market value of the Shares on that date over the price paid
for those Shares, and the Trust will be entitled to a deduction in the same
amount if it satisfies applicable withholding requirements.
The Trust believes that, under the terms of the Plan, any restricted stock
award will constitute performance-based compensation and, as such, will not be
subject to the $1 million limit under Section 162(m) of the Internal Revenue
Code of 1986.
Stock Equivalent Units
The grant of stock equivalent units will not have any immediate tax
consequences to the employee receiving the stock equivalent units or to the
Trust. In general, at the time the Trust pays any amount to the employee with
respect to the stock equivalent units, the employee will recognize compensation
income equal to the amount of that payment, and the Trust will be entitled to a
deduction in that amount.
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FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS -- PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES.
Allen H. Ford, E. Bradley Jones and James C. Mastandrea, or any one of
them, are hereby authorized, with full power of substitution, to
represent and to vote the shares which the undersigned may be entitled
to vote, including reinvestment shares, if any, at the Annual Meeting
of Shareholders of First Union Real Estate Equity and Mortgage
Investments to be held on April 12, 1994, or at any adjournment
thereof, as follows:
<TABLE>
<S> <C>
1. ELECTION OF TRUSTEES WITHHOLD AUTHORITY / /
FOR all nominees listed below / / to vote for all nominees listed below
(except as indicated to the contrary below)
</TABLE>
Kenneth K. Chalmers, William E. Conway, Russell R. Gifford
INSTRUCTION: (To withhold authority to vote for any individual nominee
write that nominee's name in the space provided below)
----------------------------------------------------------------------
2. PROPOSAL TO ADOPT THE 1994 LONG TERM INCENTIVE PERFORMANCE PLAN
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion, as to such other business as may properly come
before the meeting or at any adjournment thereof.
(Continued, and to be signed on other side)
PROXY NO. SHARES
(Continued from the other side)
IF NO SPECIFICATION IS MADE, AUTHORITY IS GRANTED TO CAST THE VOTE OF
THE UNDERSIGNED IN FAVOR OF PROPOSALS 1 AND 2.
Dated...................., 1994
...............................
...............................
Please sign as name appears on
the share certificates (as
indicated on this card). When
shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or
guardian, please give your full
title as such. If the share
certificate is issued in the
name of a corporation, please
sign in full corporation name
by a duly authorized officer.
If a partnership, please sign
in partnership name by a duly
authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
