<PAGE> 1
================================================================================
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
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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 (Set forth the amount on which the
filing fee is calculated and state how it was determined): ............
(4) Proposed maximum aggregate value of transaction: ......................
(5) Total fee paid: .......................................................
[ ] 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: ...............................................
(2) Form, Schedule or Registration Statement No.: .........................
(3) Filing Party: .........................................................
(4) Date Filed: ...........................................................
================================================================================
<PAGE> 2
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 PUBLIC SQUARE, SUITE 1900, CLEVELAND, OHIO 44113-1937
NOTICE OF
1998 ANNUAL MEETING OF BENEFICIARIES
To the Beneficiaries:
Notice is hereby given that the 1998 Annual Meeting of the
Beneficiaries of First Union Real Estate Equity and Mortgage Investments ("First
Union" or the "Trust") will be held in the Forum Conference Center, located at
One Cleveland Center, Cleveland, Ohio , on Tuesday, April 14, 1998, at 10:00
A.M., Eastern Daylight Time, for the following purposes:
1. To fix the number of Trustees at twelve (12) with one (1)
vacancy to be added to each existing class of Trustees.
2. To elect three Trustees.
Beneficiaries of record at the close of business on February 13, 1998, are
entitled to notice of and to vote at the meeting. Only such beneficiaries will
be permitted to attend. Holders of "Excess Securities" as of the date of the
meeting shall not be entitled to vote or to be counted for quorum purposes.
By order of the Board of Trustees
Paul F. Levin
Senior Vice President -- General Counsel
and Secretary
March , 1998
PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED GREEN PROXY CARD WHETHER
OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING. A SELF-ADDRESSED ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
2
<PAGE> 3
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 PUBLIC SQUARE, SUITE 1900, CLEVELAND, OHIO 44113-1937
PROXY STATEMENT
ANNUAL MEETING OF BENEFICIARIES
APRIL 14, 1998
GENERAL INFORMATION
The accompanying GREEN proxy is solicited by the Board of Trustees
(sometimes referred to herein as the "Board") of First Union Real Estate Equity
and Mortgage Investments ("First Union" or the "Trust") for use at the 1998
Annual Meeting of Beneficiaries (the "Annual Meeting") to be held on April 14,
1998 and at any adjournment or postponement of that meeting. The shares of
beneficial interest, par value $1 per share, of the Trust ("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
GREEN proxy card, and for the proposal to fix the size of the Board of Trustees
at twelve (12) Trustees.
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
are first being sent to beneficiaries is March ____, 1998.
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 beneficiaries, at a fee of $45,000, 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, 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 beneficiaries entitled to vote at
the Annual Meeting is February 13, 1998. On that date, 31,562,450 Shares were
outstanding, including Excess Securities.
FIXING THE SIZE OF THE BOARD OF TRUSTEES
Under the Amended Declaration of Trust, as amended (the "Declaration of
Trust") of First Union, the number of Trustees shall be not less than three nor
more than fifteen, as from time to time determined at annual or special meetings
of beneficiaries. The number of Trustees is currently set at nine. The Board of
Trustees recommends that the number be increased to twelve with one additional
vacancy added to each class. The Board of Trustees is not currently nominating
persons to fill those vacancies but believes it is prudent to have vacancies in
the event that qualified candidates become available in connection with one or
more acquisitions by the Trust or otherwise. Any vacancy may be filled by a
majority vote of the remaining Trustees, effective for the remainder of the term
for the Class in which such vacancy exists. Regardless of whether the proposal
is approved by beneficiaries, only three Trustees will be elected at the Annual
Meeting.
ELECTION OF TRUSTEES
Under 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. 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.
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
2000, 1998 and 1999, respectively. It is proposed that three Trustees be elected
to Class II of the Board of Trustees at the Annual Meeting. James M. Delaney,
James C. Mastandrea and Herman J. Russell, current Trustees whose term expire in
1998, are nominees for election at the meeting. Nominees receiving the greatest
number of votes duly cast by the Shares represented at the Annual Meeting that
are entitled to vote on the matter shall be elected as Trustees.
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.
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS.
DELANEY, MASTANDREA AND RUSSELL.
3
<PAGE> 4
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
------------ ---------------- ------- ----
<S> <C> <C>
CLASS II
James M. Delaney (63) Mr. Delaney was Managing Partner of the Northeast 1997 to Date 1998
Ohio Offices of Deloitte & Touche LLP (Deloitte)
from 1978 to 1997 when he retired. He is a CPA
and was a member of Deloitte since 1958. He is
currently a consultant to Deloitte, a member
of the Advisory Board of AON Risk Services, a
global insurance company, and a director of
Cardinal American Corporation, a private home
products company. Mr. Delaney was the
Financial Supervisor for the Oversight
Commission which supervised the City of
Cleveland's fiscal recovery from 1980 to 1986.
Mr. Delaney was a Vice Chairman of the Greater
Cleveland Growth Association, served as
Chairman of Build Up Greater Cleveland, a
public/private partnership, from 1989-1997,
chaired the Accountancy Advisory Board for
Case Western Reserve University from 1980 to
1990 and was a trustee of the Distribution
Committee of the Cleveland Foundation from
1986 to 1996. He is Treasurer of the
MetroHealth Foundation Board of Trustees, a
member of the Boards of Trustees of John
Carroll University and of Youth Opportunities
Unlimited, and the Visiting Committee of the
Weatherhead School of Management of Case
Western Reserve University.
James C. Mastandrea (54) Mr. Mastandrea has been Chairman, President and 1994 to Date 1998
Chief Executive Officer of the Trust since
January 1994 and in 1996 also served as Chief
Financial Officer; he was President and Chief
Operating Officer from July 1993 through
December 1993. Mr. Mastandrea was President
and Chief Executive Officer of Triam
Corporation, Chicago, Illinois, an investment
adviser to various real estate investment
funds from 1991 to 1993. He was Chairman,
President and Chief Executive Officer and
founder 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. He is the Chairman of the Euclid
Corridor Improvement Project (Project
Management Board); Chairman of the Nominating
Committee of the Cleveland State University
Foundation Board of Directors; served as
Chairman of the Downtown Development
Coordinators from 1995-1997; a member of the
Cleveland State University Foundation Board of
Directors; a member of the Convention and
Visitors Bureau of Greater Cleveland Board of
Directors; a member of the University Circle,
Inc. Board of Directors and property
committee; a member of the Civic Vision 2000
and Beyond Surface Transportation Task Force;
a member of the Hotel Development Council of
the Urban Land Institute, a member of the
International Council of Shopping Centers, a
member of the National Association of Real
Estate Investment Trusts, a member of the
Multifamily Housing Association, and a member
of the National Association of Corporate
Directors.
Herman J. Russell (67) Mr. Russell is Chairman of H. J. Russell & Company, 1997 to Date 1998
a general construction, construction
management, brokerage, and real estate
development and management company. He formed
the company in 1959. He is also President and
Chief Executive Officer of Russell Properties,
Inc., a real estate development company formed
by Mr. Russell in 1991, and of Concessions
International, Inc., an airport food and
beverage concessionaire formed by Mr. Russell
in 1978. He is Chairman of the Board of
Directors of Citizens Trust Bank, and a
director of Georgia
</TABLE>
4
<PAGE> 5
Power Company, Wachovia Corportion, National
Service Industries, Inc. and Georgia Port
Authority. He is also a director of Central
Atlanta Progress and Atlanta Chamber of
Commerce and a trustee of Morris Brown College
and Tuskegee University.
REMAINING TRUSTEES
Each remaining Trustee, whose present term of office as Trustee 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, is as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS, PERIOD OF EXPIRATION
BUSINESS EXPERIENCE SERVICE AS OF
NAME AND AGE AND AFFILIATIONS TRUSTEE TERM
------------ ---------------- ------- ----
<S> <C> <C>
CLASS I
Kenneth K. Chalmers (68) Mr. Chalmers is a consultant. During 1995 and 1994 to Date 2000
1996, he was a consultant with Kennedy & Co.,
Chicago, Illinois, responsible for the Bank of
America account. He was Executive Vice
President of Continental Bank, Chicago,
Illinois, and its successor, Bank of America,
a commercial bank, from 1984 to 1994.
Previously 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 a director of Learning Insights,
L.L.C., Catholic Health Partners and Profile
Systems; 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
and Maginfy Holdings Corporation.
William E. Conway (70) Mr. Conway has been Chairman of Fairmount Minerals, 1985 to Date 2000
Ltd., a miner and processor of industrial
minerals, since 1978, and was Chairman and
Chief Executive Officer from 1978 to 1996. 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.
Russell R. Gifford (58) Mr. Gifford was President of CNG Energy Services 1991 to Date 2000
Corporation ("CNG"), an unregulated energy
marketing company providing gas and electric
energy services throughout North America, from
1994 to 1997. He was President and Chief
Executive Officer of The East Ohio Gas Company
("East Ohio"), Cleveland, Ohio, a distributor
of natural gas, from 1988 to 1994. He was also
President of West Ohio Gas Company ("West
Ohio"), Lima, Ohio, and River Gas Company
("River"), Marietta, Ohio. CNG, East Ohio,
West Ohio and River are subsidiaries of
Consolidated Natural Gas Co. of Pittsburgh,
Pennsylvania. Mr. Gifford was Senior Vice
President of East Ohio from 1985 to 1988. Mr.
Gifford is a director of Applied Industrial
Technologies, Inc., a trustee of Baldwin
Wallace College, and a member of the National
Board of Governors of the American Red Cross.
CLASS III
Daniel G. DeVos (39) Mr. DeVos is Chairman, President and Chief Executive 1994 to Date 1999
Officer of DP Fox Ventures, L.L.C., a private
real estate investment, development and
management company. He is also Vice President,
Corporate Affairs of Amway Corporation, a
direct sales consumer product business; Vice
Chairman, Governing Board of the Orlando
Magic, a professional NBA Basketball
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C> <C>
franchise; President and Chief Executive
Officer of the Grand Rapids Griffins and the
Kansas City Blades, professional International
Hockey League franchises and the Grand Rapids
Rampage, a professional Arena Football League
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; and Appliance
Distributors, Inc., Detroit, Michigan, a
wholesale distributor of high-end appliances.
Mr. DeVos is a director of Genmar Industries,
Inc., Minneapolis, Minnesota, a boat
manufacturer . He is also a trustee of
Butterworth Hospital, Grand Rapids, Michigan,
and a member of the Boards of the Family
Outreach Center, Grand Rapids, Michigan and
the Grand Rapids Symphony.
Allen H. Ford (69) Mr. Ford is a consultant and was, from 1981 to 1983 to Date 1999
1986, Senior Vice President - Finance and
Administration of 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 Gliatech, Inc. and Parker Hannifin
Corporation, and is a trustee and former
Chairman of Case Western Reserve University, a
trustee of the Musical Arts Association
(Cleveland Orchestra), University Hospitals of
Cleveland, the Western Reserve Historical
Society, and University Circle, Inc. He is
also a trustee and former Chairman of the
Edison BioTechnology Center.
Spencer H. Heine (55) Mr. Heine has been Executive Vice President, 1996 to Date 1999
Secretary and General Counsel of Montgomery
Ward Holding Corp., a national retail chain,
since September 1991, and has been a director
of the company since May 1992. Prior thereto,
he was Senior Vice President, Secretary and
General Counsel of the company from June 1988
through September 1991. Mr. Heine has been
Executive Vice President, Secretary and
General Counsel of Montgomery Ward & Co.,
Incorporated, a subsidiary of Montgomery Ward
Holding Corp., since April 1994, and has been
a director of that company since May 1992. He
has also been President of Montgomery Ward
Properties, a subsidiary of Montgomery Ward &
Co., Incorporated since April 1994. Prior
thereto, Mr. Heine served as Executive Vice
President, Legal and Financial Services of
Montgomery Ward & Co., Incorporated, from
September 1991 through April 1994. Mr. Heine
was Chairman and Chief Executive Officer of
Signature, a subsidiary of Montgomery Ward &
Co., Incorporated, from March 1993 through
April 1994. Prior thereto, he also served as
President of Signature from September 1991.
</TABLE>
6
<PAGE> 7
COMPENSATION OF TRUSTEES
Trustees, other than Mr. Mastandrea, receive an annual retainer fee of
$12,000 and are paid an attendance fee of $1000 for meetings of the Board and
committees. A Deferred Compensation Plan for Non Employee Trustees has been
established to permit Trustees to receive compensation in Shares.
ORGANIZATION OF BOARD OF TRUSTEES
The Board of Trustees held six board meetings during 1997. Each of the
present Trustees attended at least 75% of the aggregate of the meetings of the
Board and the committees of the Board on which he served except Mr. Russell who
attended 70.6% and Mr. DeVos who attended 72.2%. 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 Kenneth K. Chalmers, William
E. Conway, James M. Delaney, Daniel G. DeVos, Allen H. Ford, Russell R. Gifford,
Spencer H. Heine, Herman J. Russell and James C. Mastandrea (Chairman).
The Executive Committee held eight meetings during 1997.
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
Kenneth K. Chalmers, Spencer H. Heine and Allen H. Ford, (Chairman). The Audit
Committee held two meetings during 1997.
MANAGEMENT, ORGANIZATION AND COMPENSATION COMMITTEE
The Management, Organization and Compensation Committee (the
"Management Committee"), composed entirely of Trustees who are not employees of
First Union, makes recommendations to the Board on matters involving management
succession, the compensation of officers with salaries of $75,000 per year or
more and the retainer and attendance fees for Trustees, makes recommendations
and determinations concerning First Union's Share option plans and the 1994 Long
Term Incentive Performance Plan (as amended from time to time, the "1994 Plan"),
and reviews compensation arrangements as they relate to key employees. Present
members are Daniel G. DeVos, Herman J. Russell and William E. Conway (Chairman).
The Management Committee held four meetings in 1997.
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 Russell R. Gifford and James C. Mastandrea (Chairman). The Committee
held one meeting in 1997. 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 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.
7
<PAGE> 8
SECURITY OWNERSHIP OF TRUSTEES AND OFFICERS AND CERTAIN BENEFICIAL OWNERS
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 February 13, 1998:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF
- ------------------------- BENEFICIAL OWNERSHIP (1) PERCENT
------------------------ -------
<S> <C> <C>
TRUSTEES
Kenneth K. Chalmers 8,768 .028 %
William E. Conway 19,511 .062 %
James M. Delaney 2,198 .005 %
Daniel G. DeVos 15,745 .05 %
Allen H. Ford 25,000 .079 %
Russell R. Gifford 16,240 .051 %
Spencer H. Heine 5,000 .016 %
Herman J. Russell 8,733 .028 %
James C. Mastandrea
(also an Executive Officer) 915,559 (2) 2.874%
EXECUTIVE OFFICERS
Steven M. Edelman 117,670 (3) .331%
Paul F. Levin 104,728 (4) .372 %
John J. Dee 108,022 (5) .342 %
Thomas T. Kmiecik 76,304 (6) .241 %
All Trustees and executive officers
(13 in number) as a group 1,423,478 (7) 4.40%
</TABLE>
(1) Pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, 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, except for restricted shares which have only voting
power and no investment power.
(2) Includes 565,890 Shares in the form of restricted stock over which Mr.
Mastandrea has sole voting power but no investment power, 286,441
Shares that Mr. Mastandrea has the vested right to acquire through the
exercise of options, and 3,000 Series A Cumulative Convertible
Preferred Shares of Beneficial Interest, par value $25.00 per share, of
the Trust ("Convertible Preferred Shares") convertible into Shares at a
conversion ratio of approximately 3.31:1 per preferred share.
(3) Includes 55,000 Shares in the form of restricted stock over which Mr.
Edelman has sole voting power but no investment power and 55,307 Shares
that Mr. Edelman has the vested right to acquire through the exercise
of options.
(4) Includes 50,000 Shares in the form of restricted stock over which Mr.
Levin has sole voting power but no investment power and 51,617 Shares
that Mr. Levin has the vested right to acquire through the exercise of
options.
(5) Includes 50,500 Shares in the form of restricted stock over which Mr.
Dee has sole voting power but no investment power and 52,307 Shares
that Mr. Dee has the vested right to acquire through the exercise of
options.
(6) Includes 30,000 Shares in the form of restricted stock over which Mr.
Kmiecik has sole voting power but no investment power and 44,647 Shares
that Mr. Kmiecik has the vested right to acquire through the exercise
of options.
(7) Includes 490,319 Shares which executive officers have the vested right
to acquire through the exercise of options and 751,390 Shares in the
form of restricted stock.
8
<PAGE> 9
The following table sets forth, as of the record date, information concerning
each person known by First Union to be the beneficial owner of more than 5% of
the Shares of First Union:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
---------------- --------- -----
<S> <C> <C>
Franklin Resources, Inc. (1) 2,900,429 9.7%
777 Mariners Island Blvd.
San Mateo, CA 94404
Charles B. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
Rupert H. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
Franklin Mutual Advisors, Inc.
51 John F. Kennedy Parkway,
Short Hills, NJ 07078
Franklin Mutual Series Fund, Inc.
51 John F. Kennedy Parkway,
Short Hills, NJ 07078
Gotham Partners, L.P (2) 2,632,400 9.36%
Gotham Partners II, LP
110 East 42nd St.
New York, New York 10017
Apollo Real Estate Investment Fund II, LP (3) 2,135,987 7.6%
Apollo Real Estate Advisors II LP
1301 Avenue of the Americas
New York, New York 10019
Stephen Feinberg (4) 1,602,327 5.7%
Cerberus Partners L.P.
Cerberus International Ltd.
Ultra Cerberus Fund, Ltd.
Certam Private Funds
450 Park Avenue, 28th Floor
New York, New York 10022
</TABLE>
(1) The information regarding this holder was received by First Union
through the filing of a schedule 13-G with the Securities and Exchange
Commission on or about November 22, 1996 as amended through January 27,
1998. These shares consist of 569,000 Convertible Preferred Shares each
such share being convertible into 3.31 Shares.
(2) The information regarding this holder was received by First Union
through the filing of a Schedule 13-D filed with the Securities and
Exchange Commission on June 4, 1997 as amended through February 13,
1998.
(3) The information regarding this holder was received by First Union
through the filing with the Securities and Exchange Commission of a
Schedule 13-D with respect to Convertible Preferred Shares on or about
December 2, 1996, as amended through April 2, 1997, and a Schedule 13-D
with respect to Shares on or about January 6, 1997, as amended through
June 10, 1997. These Shares consist of 377,000 Convertible Preferred
Shares, each such share being convertible into approximately 3.31
Shares, and 889,700 Shares.
(4) The information regarding this holder was received by First Union
through the filing with the Securities and Exchange Commission of a
Schedule 13-D on February 16, 1998. These shares include 30,500
Preferred Shares convertible into 100,827 Shares.
9
<PAGE> 10
CERTAIN LEGAL PROCEEDINGS
In August and October 1997, the Trust requested information pursuant to
its Declaration of Trust and By-Laws in order to ascertain the ownership of
Shares held by two of its beneficiaries, Gotham Partners, L.P. ("Gotham I") and
Gotham Partners II, L.P. (collectively, the "Gotham Partnerships"). The requests
were made in furtherance of the Trustees' obligation to preserve the Trust's tax
status as a real estate investment trust. The Gotham Partnerships refused to
comply with such requests. On January 16, 1998, the Trust commenced a civil
action (Case No. 347063) in the Court of Common Pleas, Cuyahoga County, Ohio
(the "State Court Action"), against the Gotham Partnerships to, among other
things, enforce the Declaration of Trust and to declare a proposal, set forth in
a letter dated January 8, 1998 from Gotham I to the Trust, to increase the
number of Trustees constituting the full Board of Trustees by six, and to elect
six additional Trustees at the Annual Meeting (the "Proposal"), unlawful, null
and void. The Trust also seeks, among other things, to enjoin the Gotham
Partnerships from soliciting proxies for the Proposal or the Gotham
Partnerships' nominees for the Board of Trustees. Initially, the Gotham
Partnerships unsuccessfully sought to remove the State Court Action to federal
district court. On January 20, 1998, the Gotham Partnerships filed
counterclaims, alleging, among other things, that the Trust had violated its
purported fiduciary obligations to the Gotham Partnerships and violated the
proxy rules under federal securities laws. The Gotham Partnerships also sought,
among other things, a declaration that Gotham I was entitled to submit the
Proposal and nominations for a vote at the Annual Meeting and to enjoin the
Trust from soliciting proxies from the Trust's beneficiaries.
A hearing has been scheduled for March 2, 1998 in the State Court
Action to consider the Trust's motion to enforce the Declaration of Trust and
By-Laws which deem the Gotham Partnerships' interest in the Trust to be "Excess
Shares," the equivilant of treasury shares, by virtue of their failure to comply
with the Trust's requests for ownership information, and to enjoin them from
soliciting proxies for the Annual Meeting.
On January 30, 1998, the Gotham Partnerships filed a separate civil
action in the District Court (Case No. 1:98CV 0272) (the "Federal Action").
Therein, the Gotham Partnerships sought to enjoin the Trust from taking actions
allegedly in violation of federal securities laws and to permit Gotham I to
solicit proxies with respect to its Proposal and purported nominations. The
Trust filed an answer and counterclaims on February 10, 1998 to the Gotham
Partnerships' Federal Action, denying any wrongdoing, and alleging, among other
things, that the Gotham Partnerships violated federal securities laws,
tortuously interfered with the Trust's business, and caused the Trust and its
beneficiaries to suffer damage. The Trust's counterclaims, as amended, seek
compensatory and punitive damages, injunctive relief and a trial by jury. On
February 17, 1998, the Trust filed a motion to dismiss the Federal Action on the
basis that it is premature and may be mooted by a decision in the State Court
Action, and that it fails to state legally cognizable claims against the Trust
for breach of the federal securities laws or breach of fiduciary duty. The Trust
understands that the filing of its motion to dismiss automatically stays all
proceedings in the Federal Action pursuant to the Private Securities Litigation
Reform Act of 1995.
10
<PAGE> 11
EXECUTIVE COMPENSATION
The table below sets forth the plan and non-plan compensation awarded, paid or
earned for services rendered to First Union during each of the last three years
to or by the Chief Executive Officer during 1997 and each of the remaining four
highest compensated executive officers of the Trust at December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
OTHER RESTRICTED
NAME AND PRINCIPAL ANNUAL SECURITIES UNDERLYING SHARE ALL OTHER(2)
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SHARES AWARDS(1) COMPENSATION
-------- ---- ------ ----- ------------ -------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
James C. Mastandrea 1997 $340,000 $140,443 $17,131 225,000 $3,471,428 $13,094
Chairman, President 1996 290,000 140,441 5,467 200,000 1,603,125 12,694
Chief Executive Officer 1995 283,333 99,876 6,536 112,500 871,875 18,760
Steven M. Edelman 1997 157,500 41,769 20,000 385,000 7,719
Executive Vice President- 1996 120,000 51,769 40,000 142,500 7,469
Chief Financial Officer 1995 116,667 25,830 10,000 77,500 6,823
Paul F. Levin 1997 122,500 34,808 20,000 303,750 7,557
Senior Vice President- 1996 115,000 39,808 40,000 142,500 6,804
General Counsel and Secretary 1995 112,500 24,754 10,000 77,500 6,573
John J. Dee 1997 127,333 33,900 20,000 310,438 7,719
Senior Vice President- 1996 112,000 38,900 40,000 142,500 6,585
Chief Accounting Officer 1995 110,000 24,108 10,000 77,500 6,257
Thomas T. Kmiecik 1997 105,833 28,250 20,000 303,750 6,164
Senior Vice President- 1996 93,333 33,250 30,000 142,500 5,117
Treasurer 1995 83,334 18,296 10,000 - 4,408
</TABLE>
(1) The Trust's Long Term Incentive Performance Plan was implemented in
1994. Restricted Shares are awarded only as targeted financial goals
are met or exceeded, except for Restricted Shares awarded upon Exercise
of Stock Options as noted below. Restricted shares are entitled to
dividends at the same rate and on the same terms as unrestricted Shares
of the same class. Included in the amounts for Restricted Share Awards
are restricted shares that will have the restrictions removed when the
market price of Shares attain $21.00 for twenty consecutive trading
days or after eight years. The number and value of restricted shares
held by the individuals listed above subject to these provisions,
valued as of December 31, 1997, are as follows: James C. Mastandrea
450,000 shares ($7,312,500); Steven M. Edelman 40,000 shares
($650,000); Paul F. Levin 40,000 shares ($650,000); John J. Dee 40,000
($650,000); and Thomas T. Kmiecik 20,000 ($325,000). The number of
restricted shares subject to these provisions awarded on July 1, 1997
were as follows: James C. Mastandrea 112,500; Steven M. Edelman 10,000;
Paul F. Levin 10,000; John J. Dee 10,000; and Thomas T. Kmiecik 10,000.
Also included in amounts for Restricted Share awards are restricted
shares that will have the restrictions removed when funds from
operations for four consecutive quarters double compared to the four
consecutive quarters ending with the quarter in which the restricted
shares were granted, or the closing Share price for five consecutive
trading days is 50% higher compared to the average closing Share price
on the final five trading days of the quarter in which the restricted
shares were granted. The number and value of the restricted shares held
by individuals listed above subject to these provisions, valued as of
December 31, 1997, are as follows: James C. Mastandrea 112,500 shares
($1,828,125); Steven M. Edelman 15,000 shares ($243,750); Paul F. Levin
10,000 shares ($162,500); and John J. Dee 10,000 shares ($162,500).
These restricted shares were awarded on January 6, 1998 but were earned
as of December 31, 1997.
To encourage employees to exercise stock options, the Trust grants one
restricte share for every four stock options exercised. The
restrictions are removed after four years as long as the individual is
an employee of the Trust and has retained the unrestricted Shares
received from exercising the original options. The number and value of
restricted shares held by the individuals listed above subject to these
provisions and included in the Restricted Stock Awards, valued as of
December 31, 1997 are as follows: James C. Mastandrea 3,390 shares
($55,088) and John J. Dee 500 shares ($8,125). The restricted shares
were issued on December 31, 1997 and March 27, 1997, respectively.
The amounts for Restricted Stock Awards in the table above were based
on the Share closing price on the date the restricted shares were
awarded.
(2) Amounts shown are composed solely of annual contributions made to a
defined contribution pension plan, except the amount for Mr.
Mastandrea, which also included term life insurance premiums. The
pension plan contribution for each participant is equal to the sum of
(i) 3% of the participant's total cash compensation paid for such year
up to that years Social Security taxable wage base, and (ii) 6% of the
portion of the participant's cash compensation paid for such year which
is in excess of that years social security taxable wage base up to a
maximum of $150,000 for 1994 and 1995 and $160,000 for 1996 and 1997.
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 insurance
premiums of $5,375 in 1997, $4,975 in 1996, and $11,596 in 1995 for Mr.
Mastandrea are net of the amount recoverable by First Union upon his
termination or death. The policy provides a death benefit of $2.5
million to Mr. Mastandrea's beneficiary.
11
<PAGE> 12
EMPLOYMENT CONTRACTS
TERMINATION OF EMPLOYMENT AND
CHANGE-IN-CONTROL AGREEMENTS
EMPLOYMENT AGREEMENT
In July 1994, the Trust entered into an Employment Agreement (the
"Agreement") with Mr. Mastandrea . The Agreement has an initial three-year term
and is extended automatically for additional one-year terms unless one of the
parties gives notice of an intention not to renew.
The agreement with Mr. Mastandrea provides that he will have the
titles, and perform the duties, of Chairman of the Board of Trustees, Chairman
of the Executive Committee of the Board of Trustees, and President and Chief
Executive Officer of the Trust. Under the agreement, Mr. Mastandrea receives an
annual base salary of not less than $250,000, subject to annual review and
adjustment by the Board of Trustees; health and welfare benefits; participation
in the 1994 Plan; and split dollar life insurance in the benefit amount of
$2,500,000.
The premiums on the split dollar life insurance were set with the
expectation that, if Mr. Mastandrea continues to work for the Trust until he
attains age 65, the cash surrender value of the policy will be sufficient to
fund (1) the return to the Trust of all premiums paid by it and (2) paid-up
insurance on the life of Mr. Mastandrea in the amount of $2,500,000.
The Agreement also provides that, in the event Mr. Mastandrea becomes
disabled, the Trust will continue to pay his base salary and bonus and to
provide health and welfare benefits for three years, unless he earlier recovers
from the disability, dies, or attains age 65.
The employment of Mr. Mastandrea may be terminated at any time.
However, if the Trust terminates the employment of Mr. Mastandrea without cause
(as defined in the Agreement), or if he terminates his employment for good
reason (as defined), the Trust is required to continue to pay his base salary
and bonus and to provide benefits, including pension contributions and vesting
of options, for a period of three years, unless he earlier dies or attains age
65. A portion of the Shares in the form of restricted stock previously granted
to Mr. Mastandrea would also vest. Notification by the Trust that it does not
intend to renew the Agreement beyond the three-year initial term is treated, for
this purpose, as a termination by the Trust.
In the event of a change in control or shift in ownership of the Trust
(as defined), the Trust is required to deposit, in an irrevocable escrow
account, an amount sufficient to fund all payments that would be due to Mr.
Mastandrea upon termination without cause or for good reason. In addition, if
termination without cause or for good reason occurs after a change in control or
shift in ownership, the base salary, bonus and pension contributions payable to
him upon termination becomes due immediately in lump sum and all options
previously granted will fully vest and all restrictions on restricted stock
grants will be removed.
In the event a change in the ownership or control of the Trust occurs
within the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), the aggregate amount payable to Mr. Mastandrea will be
limited to the maximum amount that may be deducted for Federal income tax
purposes without constituting "excess parachute payments" under Section 280G. In
addition, Mr. Mastandrea has agreed to defer the receipt of payments that would
otherwise not be deductible due to the $1,000,000 limit under Section 162(m) of
the Internal Revenue Code.
CHANGE IN CONTROL AGREEMENTS
The Trust has entered into agreements (each, a "Change in Control
Agreement") with five executive officers, including all of the named executive
officers, and certain senior officers and key employees of the Trust. Each
Change in Control Agreement provides that in the event such executive's or
employee's employment with the Trust is terminated within two years following a
change in control of the Trust (as defined below) either by the officer or
employee for "Good Reason" or by the Trust "Without Cause" (each as defined in
the Change in Control Agreement), such executive or employee will be entitle to
receive (i) accrued salary and other benefits earned or accrued, (ii) an amount
equal to a multiple of such person's Base Salary and Additional Compensation
(each as defined), (iii) cash in lieu of shares receivable upon the exercise of
options awarded under the1994 Plan, and (iv) cash for such unvested portion of
such person's interest in any of the Trust's pension plans. In addition, if any
payment or distribution (including payments under the Change in Control
Agreement, any stock option agreement or otherwise) to an officer or employee is
determined to be an "excess parachute payment" under the Code, such officer or
employee would be entitled to receive an additional payment (net of taxes,
including interest and penalties) to compensate such officer or employee for any
excise tax imposed by the Code on such payment or distribution. The specified
multiple for a person's Base Salary and Addition Compensation referred to above
are: two, in the case of the named executive officer and one senior officer;
one, in the case of certain other officers; and one-half, in the case of certain
key employees.
In addition to the above-described agreements, the Trust has agreed to
reimburse each officer and employee party to a Change in Control Agreement for
certain legal, financial and other professional services.
For purposes of the Change in Control Agreements, a change in control
of the Trust occurs if (a) the Trust is merged, consolidated or reorganized and
thereafter the shareholders of the Trust immediately prior to such transaction
hold less than 80% of the combined voting power of then outstanding securities
of the new entity; (b) the Trust sells substantially all of its assets, and
thereafter, the shareholders of the Trust immediately prior to such transaction
hold less than a majority of the combined voting power of then outstanding
securities of the purchaser; (c) a person who is required to file a Schedule 13D
or Schedule 14D-1 under the Securities Exchange Act of 1934 acquires 20% or more
of the outstanding securities of the Trust; (d) the Trust files, or is required
to file, a report or proxy statement disclosing that a change in control of the
Trust has or may have occurred, or will or may occur in the future; or (e) if
the individuals who, at the date of the Change in Control Agreement, constitute
the Board of Trustees cease to constitute at least three-fourths of the Board.
12
<PAGE> 13
OPTION GRANTS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
----------------- VALUE AT ASSUMED
ANNUAL RATES OF SHARE
% OF TOTAL PRICE APPRECIATION
NUMBER OF SHARES OPTIONS FOR 8
UNDERLYING GRANTED TO EXERCISE YEAR OPTION TERM(2)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -------------------
NAME GRANTED (1) IN 1997 SHARE DATE 5% 10%
---- ----------- ------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
James C. Mastandrea 112,500 34.6% 14.250 02/05/2005 $765,421 $1,833,316
112,500 34.6% 14.125 07/01/2005 $758,707 $1,817,234
Steven M. Edelman 10,000 3.1% 14.250 02/05/2005 $68,037 $162,961
10,000 3.1% 14.125 07/01/2005 $67,441 $161,533
Paul F. Levin 10,000 3.1% 14.250 02/05/2005 $68,037 $162,961
10,000 3.1% 14.125 07/01/2005 $67,441 $161,533
John J. Dee 10,000 3.1% 14.250 02/05/2005 $68,037 $162,961
10,000 3.1% 14.125 07/01/2005 $67,441 $161,533
Thomas T. Kmiecik 10,000 3.1% 14.250 02/05/2005 $68,037 $162,961
10,000 3.1% 14.125 07/01/2005 $67,441 $161,533
</TABLE>
(1) Options granted under the 1994 Plan may be in the form of Incentive
Stock Options (qualifying as such under Section 422A of the Code) 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 eight 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
one-third during the second year, two-thirds during the third year and
in full during the fourth through eighth years. In the event of any
change in control of the Trust, a defined term in the 1994 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.
(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.
AGGREGATED SHARE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED ------------------ ------------------
ON VALUE UNEXER- UNEXER-
NAME EXERCISE REALIZED CISABLE EXERCISABLE CISABLE EXERCISABLE
---- -------- -------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
James C. Mastandrea 13,559 $116,946 425,000 286,441 2,225,000 2,548,414
Steven M. Edelman 53,333 55,307 335,831 359,430
Paul F. Levin 53,333 51,617 335,831 316,283
John J. Dee 2,000 $14,000 53,333 52,300 335,831 329,005
Thomas T. Kmiecik 44,647 45,833 269,268 296,947
</TABLE>
13
<PAGE> 14
MANAGEMENT, ORGANIZATION AND COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
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 Committee. The Management Committee makes recommendations to the
Board with respect to (i) the compensation of all officers with annual salaries
of $75,000 or more, and (ii) awards to employees under the 1994 Plan. The
Management Committee consists of three independent, non-management Trustees,
Messrs. William E. Conway (Chairman), Daniel G. DeVos and Herman J. Russell.
GENERAL APPROACH TO EXECUTIVE COMPENSATION
Compensation for executive officers consists of four principal
elements: base salaries, annual cash/stock bonus awards, stock options, and
restricted stock.
The Management Committee seeks to structure executive compensation to
attract and retain highly qualified, experienced management personnel and to use
the four principal components of the Trust's executive compensation program to
align the interests of management and beneficiaries 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.
In establishing each component of executive compensation, the
Management Committee compares the level of compensation of its executive
officers with compensation paid by organizations of similar size in comparable
industries. In making these comparisons, the Management Committee utilized data
initially gathered and compiled by its independent compensation consultant in
1994 and updated from time to time through 1997. The Management 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 National Association of Real Estate
Investment Trusts ("NAREIT") All REITs Index. The Performance Graph in this
proxy statement compares corporate performance (based upon five year cumulative
total shareholder return) of the Trust versus that of companies included in the
NAREIT All REITs Index and in the NYSE Composite Index.
Base Salaries. In its recommendations regarding base salaries, the
Management Committee examined base compensation of executive officers at other
real estate investment trusts in similar product types and/or with comparable
market capitalization (the "comparable REITs"). The base salaries of the Trust's
chief executive officer and other named executive officers have historically
been below the average base salary of such officers at comparable REITs. Base
salary amounts were determined without direct reference to corporate
performance.
Annual Cash/Stock Bonus Awards. The primary goals of the annual
cash/stock bonus awards are to provide a direct link between compensation and
annual performance, to provide a strong incentive to attain Trust and operating
unit goals, to recognize and reward employees for performance beyond regular,
competent job performance, and to build and reinforce the concept of a team by
focusing on the key measure of the Trust's performance -- funds from operations
for the current year. Awards are designed to be comparable in amount to the
average of awards paid by organizations of similar size in comparable industries
when target performance is met; awards will be above this average when the
target is exceeded, or below this average when the target is not achieved.
Awards are paid partially in stock in order to encourage Share ownership.
The Trust'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 1997, threshold performance goals were based upon an executive officer
achieving 80% of such executive officer's target goal. Target goals were based
upon meeting the goal, while 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%, respectively, of such executive officer's
bonus potential. If the threshold 80% was not met, no bonus was paid. 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 Trust and 80% in cash. For 1997, the chief executive officer and
all named executive officers had a single performance goal based upon achieving
the Trust's funds from operations target. In 1997, the Trust achieved funds from
operations that exceeded the target performance goal.
Stock Options. The primary goal of the stock options is to link
shareholder and employee interest by providing a way for both to gain from
appreciation in the market price of Shares over time. Stock options are granted
to executive officers as well as key employees in the organization on the theory
that the best performance for beneficiaries will be attained when a broad group
of employees has a mutual interest with the beneficiaries. In 1997 the
Management Committee adopted a new Rule providing for the grant of one
restricted share for each four options exercised. The restrictions are removed
after four years provided the recipient has not disposed of the shares acquired
by exercise of the option and is still employed by First Union.
Restricted Stock. The restricted stock awards are designed to encourage
senior executives to think and act like beneficiaries and, as a result, to
promote the long term growth and performance of the Trust and increase the
market price of the Shares. The awards 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. The level of the awards are recognized to be above average for
organizations of similar size in comparable industries. Awards of restricted
stock through 1997 were based on attainment of a predetermined level of
performance but the goal required to earn the restricted stock in less than
eight years is challenging (the market price of the Shares has to attain $21 per
Share for 20 consecutive trading days. In October 1997 the Management Committee
adopted a new Rule for subsequent awards of restricted stock. In JANUARY 1998
restricted shares were awarded based on attainment of financial goals, which
will vest only when funds from operations for four consecutive
14
<PAGE> 15
quarters increases 200% as compared to funds from operations in the quarter the
restricted shares were issued or when the per share price is 50% greater than
the per share price on the five consecutive trading days of the quarter
immediately preceeding the grant date of the restricted shares. Restricted stock
under this rule is granted only to the most senior officers--those who have the
greatest impact on the performance of the trust.
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 Trust, the Management Committee initially
considered data presented by its compensation consultant in 1994 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") . The data has been updated by the consultant from time
to time through 1997. Target bonus compensation was fixed by the Management
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 Management
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 Management 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 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 Trust
with the Management Committee in consultation with its compensation consultant.
Stock option grants and restricted stock awards to executive officers
was conditioned upon corporate performance during the immediately preceding
year, and such compensation was structured in a manner the Management 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 until certain funds from operations or share
price targets are achieved. Although the Management Committee utilized incentive
compensation data from comparable companies, the Management 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.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
During 1997, Mr. Mastandrea served as Chairman of the Board of
Trustees, Chairman of the Executive Committee of the Board of Trustees, and
President, Chief Executive Officer and Chief Financial Officer of the Trust. For
the year end December 31, 1997, he received a base salary of $340,000, an annual
bonus of $140,443, options to purchase 225,000 Shares and restricted stock of
228,390 Shares. See the tables entitled "Summary Compensation Table" and "Option
Grants in Last Fiscal Year."
The Management Committee believes that Mr. Mastandrea's compensation is
consistent with its general approach to executive compensation, which is
described above, as well as Mr. Mastandrea's position and responsibilities with
the Trust and his individual performance during 1997. Mr. Mastandrea's
compensation is also consistent with commitments made to him when he was hired
by the Trust in July 1993, which are reflected in the Agreement discussed above
under the heading "Employment Agreement."
COMPENSATION OF OTHER NAMED EXECUTIVE OFFICERS
As is the case with Mr. Mastandrea, the Management Committee believes
that the compensation provided to other executive officers named in the "Summary
Compensation Table" is consistent with the Management Committee's general
approach to executive compensation, which is described above, as well as the
position and responsibilities with the Trust and individual performance of each
of these executive officers during 1997.
WILLIAM E. CONWAY (CHAIRMAN) DANIEL G. DEVOS HERMAN J. RUSSELL
MEMBERS OF THE COMMITTEE
15
<PAGE> 16
PERFORMANCE GRAPH
The performance graph assumes $100 invested on December 31, 1992 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 NAREIT.
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
First Union $100 $113 $ 82 $ 95 $172 $233
All REITs 100 120 123 142 192 232
NYSE Composite 100 111 111 149 181 241
</TABLE>
SELECTION OF AUDITORS
Arthur Andersen LLP has been selected as auditors of First Union for
the ensuing year. Arthur Andersen LLP has been First Union's auditors since the
founding of the Trust in 1961. Representatives of Arthur Andersen LLP are
expected to be present at the Annual Meeting with the opportunity to make a
statement if they so desire and to respond to appropriate 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 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 beneficiaries. If any other matters are properly brought before the
meeting, it is the intention of the persons named in the accompanying GREEN
proxy card to vote the Shares to which the proxy relates in accordance with
their best judgment.
FORM 10-K ANNUAL REPORT
A COPY OF THE TRUST'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997,
WILL BE FURNISHED WITHOUT CHARGE TO BENEFICIARIES UPON WRITTEN REQUEST DIRECT TO
THOMAS T. KMIECIK, SENIOR VICE PRESIDENT - TREASURER, FIRST UNION REAL ESTATE
EQUITY AND MORTGAGE INVESTMENTS, 55 PUBLIC SQUARE, SUITE 1900, CLEVELAND, OHIO
44113-1937.
SHAREHOLDER PROPOSALS
Any shareholder proposals intended to be presented at the 1999 Annual
Meeting of Beneficiaries 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
November 5, 1998. 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
Senior Vice President -- General
Counsel and Secretary
March , 1998
16
<PAGE> 17
Draft--February 18, 1998
[Form of Proxy]
FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
55 Public Square, Suite 1900, Cleveland, Ohio 44113-1937
1998 Annual Meeting of Beneficiaries, April 14, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES
The undersigned hereby appoints Russell Gifford and William Conway, or
any one of them, each with power of substitution, attorneys and proxies for and
in the name and place of the undersigned, to vote, as designated below, all of
the shares of beneficial interest, par value $1 per share ("Shares"), of First
Union Real Estate Equity and Mortgage Investments, a business trust formed under
the laws of the State of Ohio (the "Trust"), to be held at the Forum Conference
Center, One Cleveland Center, Cleveland, Ohio 44114, on April 14, 1998, at 10:00
A.M., Eastern Daylight Time, and any adjournments or postponements thereof, upon
the matters set forth in the Notice of Annual Meeting and Proxy Statement,
receipt of which is hereby acknowledged, as follows:
<TABLE>
<S> <C> <C>
1. Fixing the number of Trustees at twelve (12) with one (1) vacancy to be added
to each existing class of Trustees.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Election of Trustees [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all
(except as noted to the contrary below) nominees listed below
Nominees: James M. Delaney, James C. Mastandrea and Herman J. Russell
Instruction: To withhold authority to vote for any individual nominee write that nominee's name on the following line:
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3. In their discretion, the Proxies are authorized to vote upon all other matters properly brought before the meeting.
</TABLE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED IN THE SPACE
PROVIDED. TO THE EXTENT NO DIRECTIONS ARE GIVEN, THEY WILL BE VOTED "FOR"
PROPOSAL 1 AND FOR THE ELECTION OF ANY OR ALL NOMINEES FOR TRUSTEES, AND IN THE
DISCRETION OF THE PROXIES ON ALL OTHER MATTERS PROPERLY BROUGHT BEFORE THE
MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF. THIS PROXY MAY BE REVOKED
AT ANY TIME PRIOR TO ITS EXERCISE.
Date , 1998
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Signature
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Signature (if jointly held)
Where Shares are registered jointly
in the name of two or more persons,
all should sign. Signature should
correspond exactly with the name on
the Share certificate. Persons
signing in a representative capacity
should indicate that capacity.
I Do [ ] Do Not [ ]
plan to attend the Annual Meeting
in person.
