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SCHEDULE 14A
(RULE 14A)
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:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
/ / Definitive Proxy Statement
/X/ Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
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FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $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:
Not Applicable
(2) Aggregate number of securities to which transaction applies:
Not Applicable
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
Not Applicable
(4) Proposed maximum aggregate value of transaction:
Not Applicable
(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / 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:
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(4) Date Filed:
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MANAGEMENT, ORGANIZATION AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
To assist shareholders to better understand how compensation of executive
officers of First Union Real Estate Equity and Mortgage Investments (the
"Company") is established, set forth below is a series of questions and answers
relating to the process by which compensation of the Company's management is
established.
QUESTION 1.
Who is responsible for determining the compensation of the chief executive
officer and other executive officers of the Company?
ANSWER 1.
Ultimately, the Board of Trustees is responsible for fixing the
compensation of executive officers. However, the Board acts on the basis of
recommendations of its Management, Organization and Compensation Committee (the
"Committee"). The Committee makes recommendations to the Board with respect to
(i) the compensation of all officers with annual salaries of $75,000 or more,
(ii) grants of options under the Company's 1981 Employee Share Option Plan and
(iii) awards to employees under the 1994 Long Term Incentive Performance Plan
which was approved by shareholders at the 1994 Annual Meeting of Shareholders.
The Committee is made up of three independent, non-management Trustees, Messrs.
William E. Conway (Chairman), Daniel G. DeVos and Russell R. Gifford. To assist
it in determining appropriate compensation levels for executive officers, in
1994, the Committee retained the services of an independent, internationally
recognized, compensation and employee benefit plan consulting firm.
QUESTION 2.
What are the objectives of the Committee in establishing the compensation
of executive officers?
ANSWER 2.
The Committee seeks to structure executive compensation to attract and
retain highly qualified, experienced management personnel and to use the four
principal components of the Company's executive compensation program (salary,
bonus, stock options and restricted stock) to align the interests of management
and shareholders and to use the non-salary compensation components to reward
performance beyond regular, competent, job performance as measured by individual
performance goals and corporate performance targets.
The Company's annual cash/stock bonus awards are intended to be the method
for compensating executive officers for achieving performance goals for a
particular fiscal year. Performance goals are expressed in terms of threshold,
target and maximum performance goals. Threshold goals are the minimum necessary
performance levels required for an executive officer to earn an annual bonus
award. In 1994, threshold performance goals were based upon an executive officer
achieving 80% of such executive officer's target goal. Maximum performance goals
were based upon an executive officer achieving 120% of such executive officer's
target goal. If a threshold, target or maximum performance goal was achieved,
the executive officer received 50%, 100% or 150% of such executive
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officer's bonus potential. Bonuses for achievement of performance goals at a
level between an executive officer's threshold and target goals or target and
maximum goals were calculated based upon straight line interpolation. Annual
cash/stock bonus awards are paid 20% in Shares of the Company and 80% in cash.
For 1994, the chief executive officer and all named executive officers had a
single performance goal based upon achieving the Company's funds from operations
target. The Company exceeded slightly its funds from operations target.
The Committee recommended awards of stock options for a broad class of
employees with the intent of broadly linking shareholder and employee interests.
Restricted stock awards were made only to named executive officers and are
intended to act as long term performance incentives by creating a strong
positive correlation between stock price appreciation and dividend growth, on
the one hand, and compensation levels, on the other hand.
QUESTION 3.
How does the level of compensation of the Company's executive officers
compare to the compensation of executive officers at other companies?
ANSWER 3.
In establishing each component of executive compensation, the Committee
compared the level of compensation of its executive officers with compensation
paid by organizations of similar size in comparable industries (as further
discussed below). In making these comparisons, the Committee utilized data
gathered and compiled by its independent compensation consultant. The Committee
did not have and, therefore, did not separately consider data relating to
corporate performance of the companies included in its compensation consultant's
comparisons. However, certain companies included in such compensation
comparisons are also included in the NAREIT All REITs Index. The Performance
Graph on page 14 of the Company's proxy statement compares corporate performance
(based upon five year cumulative total shareholder return) of the Company versus
that of companies included in the NAREIT All REITs Index and in the NYSE
Composite Index. The various components of executive compensation are discussed
individually below.
BASE SALARY. With the assistance of its compensation consultant, the
Committee examined base compensation of executive officers at other real estate
investment trusts located in the Midwest that have market capitalizations
between approximately $60 million and $360 million (the "comparable REITs"). The
base salaries of the Company's chief executive officer and other named executive
officers for 1994 were, on average, below the average 1993 base salary of such
officers at comparable REITs. Base salary amounts were determined without
reference to corporate performance.
BONUS, STOCK OPTIONS AND RESTRICTED STOCK. In determining the amount of all
incentive compensation arrangements (i.e., target bonus compensation, stock
option grants and restricted stock awards) for executive officers of the
Company, the Committee considered data presented by its compensation consultant
with respect to incentive compensation paid at approximately 125 other financial
services companies, including REITs and banking and insurance institutions, with
average sales of $356 million and average assets of approximately $200 million
("comparable companies"). Target bonus compensation was fixed by the Committee
so that executive officers achieving their target performance goals would
receive bonus compensation in the median range for corresponding positions at
comparable companies. Likewise, option grants were fixed by the Committee so
that executive officers (other than the chief executive officer) would receive
incentive stock options in the median range for corresponding positions at
comparable companies. In contrast, however, the amount of restricted stock
awards granted to executive officers (including the chief executive officer)
were fixed by the Committee with reference to data from comparable companies but
so that executive officers achieving their long term incentive goals would
receive restricted stock compensation higher than the average awards granted to
executive officers in corresponding positions at comparable
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companies. The number of stock options and shares of restricted stock granted to
Mr. Mastandrea was determined in connection with the negotiation of Mr.
Mastandrea's employment agreement as chief executive officer of the Company with
the Committee, in consultation with its compensation consultant.
The size of the Company's stock option grants and restricted stock awards
to executive officers was not based upon corporate performance during the
immediately preceding fiscal year, but rather such compensation was structured
in a manner the Committee believes will maximize future performance by executive
officers by linking the vesting of restricted stock and such officers'
eligibility to receive future option and restricted stock awards on corporate
performance. Restricted stock awards vest over an eight year period unless the
Company's Shares trade at $21 or more per Share for twenty consecutive trading
days, in which case such awards vest on an accelerated basis. Moreover, the
chief executive officer and the named executive officers are not eligible to
receive additional option grants or restricted stock awards until certain funds
from operations targets are achieved. The Committee did not utilize incentive
compensation data from comparable REITs in fixing the executive officers'
incentive compensation because a high standard deviation made such data
inherently unreliable for comparison purposes. The small number of options and
the absence of shares of restricted stock previously granted to executive
officers were considered by the Committee in determining the size and structure
of such grants in the past fiscal year.
QUESTION 4.
Will the Company be affected by Section 162(m) of the Internal Revenue Code
and new Internal Revenue Regulations which limit the amount of compensation a
publicly held entity may deduct as a business expense for federal income tax
purposes?
ANSWER 4.
Section 162(m)'s limit, which applies to compensation paid to the chief
executive officer and the four other most highly compensated executive officers,
is $1 million per individual per year, subject to certain exceptions. One
exception is for compensation that is performance-based. The Committee intends
to take steps to preserve the full deductibility of compensation paid to the
Company's executive officers without compromising the Committee's flexibility in
designing an effective compensation program. Messrs. Mastandrea and Bruhn have
each agreed to defer the receipt of payments that would otherwise not be
deductible due to the $1 million limit under Section 162(m).
Sincerely,
/s/ William E. Conway /s/ Daniel G. DeVos /s/ Russell R. Gifford
William E. Conway (Chairman) Daniel G. DeVos Russell R. Gifford
