-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, RzrSW9dWCKNMxM7Q2tCI7dZmqUWPy+nvZsFK0/3CtsoWZnaKR+Qt9h0dLNMrNR/1 4V290dLMSxIPsRpdsOqB8w== 0000950136-95-000084.txt : 19950614 0000950136-95-000084.hdr.sgml : 19950614 ACCESSION NUMBER: 0000950136-95-000084 CONFORMED SUBMISSION TYPE: PRRN14A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19950309 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION REAL ESTATE EQUITY & MORTGAGE INVESTMENTS CENTRAL INDEX KEY: 0000037008 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 346513657 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRRN14A SEC ACT: 1934 Act SEC FILE NUMBER: 001-06249 FILM NUMBER: 95519634 BUSINESS ADDRESS: STREET 1: 55 PUBLIC SQUARE STREET 2: SUITE 1910 CITY: CLEVELAND STATE: OH ZIP: 44113 BUSINESS PHONE: 2167814030 MAIL ADDRESS: STREET 1: 55 PUBLIC SQUARE, SUITE 1910 CITY: CLEVELAND STATE: OH ZIP: 44113 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION REALTY DATE OF NAME CHANGE: 19691012 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: COMMITTEE TO UNLOCK THE VALUE OF FIRST UNION REAL ESTATE INV CENTRAL INDEX KEY: 0000940326 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: PRRN14A BUSINESS ADDRESS: STREET 1: 7001 CENTER STREET CITY: MENTOR STATE: OH ZIP: 44060 BUSINESS PHONE: 2169511111 MAIL ADDRESS: STREET 1: ONE CLEVELAND CENTER STREET 2: 20TH FLOOR CITY: CLEVELAND STATE: OH ZIP: 44114 PRRN14A 1 REVISED PRELIMINARY PROXY SCHEDULE 14A SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. 1) Filed by the Registrant [ ] Filed by a Party other than the Registrant [X] Check the appropriate box: [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 ss. 240.14a-11(c) or ss. 240.14a-12 First Union Real Estate Equity and Mortgage Investments ............................................................................ (Name of Registrant as Specified In Its Charter) The Committee to Unlock the Value of First Union Real Estate Invesstments ............................................................................. (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. [X] $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: Shares of Beneficial Interest, $1.00 par value ...................................................................... 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 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 1 of 21 Pages [Preliminary Copy] PROXY STATEMENT IN OPPOSITION TO THE BOARD OF TRUSTEES OF FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS ANNUAL MEETING OF SHAREHOLDERS SCHEDULED FOR APRIL 11, 1995 TO ALL SHAREHOLDERS OF FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS: This Proxy Statement is furnished by The Committee to Unlock the Value of First Union Real Estate Investments (the "Committee") in connection with its solicitation of proxies to be used at the Annual Meeting of Shareholders of First Union Real Estate Equity and Mortgage Investments ("First Union" or the "Company") scheduled to be held on Tuesday, April 11, 1995, at the National City Bank Auditorium, on the fourth floor of the National City Center Annex Building, 1900 East Ninth Street, Cleveland, Ohio 44114 at 10:00 A.M., local time, and at any adjournments or postponements thereof. This Proxy Statement and the accompanying RED, WHITE AND BLUE Proxy Card are first being sent to the Company's shareholders on or about March 13, 1995. The Company has set February 10, 1995, as the Record Date for determination of shareholders entitled to notice of, and to vote at, the Annual Meeting. According to the Company, as of the close of business on the Record Date there were outstanding and entitled to vote at the Annual Meeting a total of 18,262,725 shares of Beneficial Interest, par value $1.00 per share (the "Shares"). Each Share is entitled to one vote on all matters submitted to a vote of the shareholders at the Annual Meeting. Pursuant to Section 8.2 of the Company's Amended Declaration of Trust, the affirmative vote of the holders of a plurality of the Shares cast at the Annual Meeting is required for the election of trustees. If you own your First Union Shares in the name of a brokerage firm, your broker cannot vote such Shares unless he receives your specific instructions. As of the Record Date, the Committee had the right to vote an aggregate of 982,500 Shares constituting approximately 5.4% of the total votes eligible to be cast at the Annual Meeting. See "The Committee." THE COMMITTEE URGES YOU TO SIGN, DATE AND RETURN THE ENCLOSED RED, WHITE AND BLUE PROXY CARD TO VOTE FOR THE ELECTION OF THE COMMITTEE'S NOMINEES AS TRUSTEES. A POSTAGE-PAID ENVELOPE HAS BEEN PROVIDED FOR YOUR CONVENIENCE. REASONS FOR THIS SOLICITATION The Committee is urgently soliciting your proxy to enable us to salvage and then revive the Company. We had high hopes for the Company when we first made our investments. We now believe that First Union has little or no future if management is not changed immediately. The Committee seeks your help to elect three trustees with substantial commercial real estate experience who will constitute one-third of the Board of Trustees. We believe these new trustees will be more knowledgeable in real estate investment and management, more responsive to shareholder concerns and more responsible in their direction of the management of the Company. The Committee will recommend to its nominees, if elected, that they seek the removal of James C. Mastandrea, the current Chief Executive Officer of the Company, whose policies are a continuation of past mistakes and who has shown a callous disregard for shareholders. We believe that the Committee's nominees, through a new management team, will implement the policies necessary to maximize shareholder value. We send you this request for your proxy and ask for your vote for a number of reasons: (1) The Company's Shares, which once traded at prices exceeding $27.00 per share, have steadily declined for more than eight years, hovering in the $6.00 - $10.00 range for most of the past year. (2) The Company's current Trustees and executive officers have shown little faith in the Company -- their total investment in the Company amounts to only 245,348 Shares (excluding unexercised options), or only 1.3% of outstanding Shares. Of the 245,348 Shares, 162,500 Shares of restricted stock were awarded to executive officers in 1994 under the Company's Long Term Incentive Performance Plan. Therefore, the Trustees and executive officers have purchased at most only 82,848 Shares, or less than 0.5% of the outstanding Shares, on the open market. (3) From 1993 to 1994, Mr. Mastandrea's annual salary, not including bonuses, increased from $200,000 to $250,000, an increase of 25%, and his bonus increased to $110,610, an increase of 25% on an annualized basis. Moreover, in 1994 Mr. Mastandrea received options to purchase 162,500 Shares and was rewarded with 112,500 Shares of restricted stock under the Company's 1994 Long Term Incentive Performance Plan. All these increases and grants were made while from 1993 to 1994 the Company's per share earnings were cut in half. - 2 - (4) From 1992 to 1993, annual general and administrative expenses increased 27%, or $408,000; from the third quarter of 1993 to the third quarter of 1994 the nine-month increase was 142%, or $1.5 million! (5) As of December 31, 1994, the average dividend yield of 102 real estate investment trusts was 7.7%. (Source, A.G. Edwards & Sons, Inc., Quarterly REIT Review, January 18, 1995.) First Union's yield was only 6.0% as of December 31, 1994. (6) From 1992 to 1993, annual operating expenses increased 8% or $1.8 million, but revenue increased only 2%, or $1.5 million; from the third quarter of 1993 to the third quarter of 1994 the nine-month operating expense increase was 3%, or $540,000, but revenue increased only 1% or $710,000. (7) In 1994, First Union sold a 50% interest in two regional shopping malls, one in Wilkes Barre, Pennsylvania and the other in Fairmount, West Virginia (the "Malls") for a sale price equivalent to approximately $58 per square foot. Mr. Mastandrea then agreed on behalf of the Company to use a portion of the proceeds of the Mall sales to purchase a suburban shopping center outside of his hometown of Chicago for a price equivalent to approximately $120 per square foot. (8) The Mall sales generated over $29 million in gains for the Company, or over $1.60 per share. Contrary to the past practice of the Company, none of these gains were, or will be, distributed to the Company's shareholders. WHAT WE WILL DO A proxy contest is not the best forum for detailed discussion of a business plan. Our nominees, however, have experience in investing, managing and analyzing real estate in a profitable manner. They are committed to: (1) The hiring of a chief executive officer who will be responsive to shareholders and who will aggressively manage the Company enabling it to provide returns to the shareholders that they have every right to expect and for so long have not received; (2) An urgent review of all the Company's real estate investments, including appraisals of properties, with a view toward improving the performance of the portfolio; (3) The development of a plan to increase the dividends payable to shareholders; - 3 - (4) The imposition of strict controls on overhead expenses and the implementation of necessary steps to cut overhead costs; (5) The termination of all stock option and restricted stock award plans that benefit management at the expense of shareholders; (6) The termination of the Rights Agreement, which is commonly known as a poison pill, adopted by the Company in 1990; (7) The termination of the restrictions in Section 6 of the Company's By-Laws that prohibit any person from owning more than 9.8% of the Shares; (8) The termination of the staggered election of members of the Company's Board of Trustees; (9) The implementation of a continuous, effective shareholder relations program to keep shareholders informed about the Company; (10) To the extent possible, a reversal of management's decision not to distribute the over $29 million in gains received from the Mall sales; and (11) The evaluation of the possibility of enhancing shareholder value by merging the Company with a larger, well run real estate investment trust ("REIT"). WHAT WE WILL NOT DO (1) We will NOT terminate employees simply for the sake of cutting costs; our grievance is with the Company's trustees, including Mr. Mastandrea, not its professional staff. We trust that with stability, a coherent business plan, professional management and shareholder oversight, their distinguished talents can be put to profitable use. (2)We will NOT waste the shareholders' money on lavish offices for the management. (3) We will NOT increase the pay and benefits of officers or reward them with grants of Shares or "golden parachutes" at a time when First Union share prices are declining. (4) We will NOT hire expensive outside consultants to give advice on matters that First Union's management should know for themselves. (5) We will NOT take any action to impair First Union's status as a REIT under the Internal Revenue Code of 1986. (6) We will NOT announce a new policy of investor communications (Source, Letter, dated March 25, 1994, from Mr. Mastandrea to First Union shareholders), and - 4 - then refuse to meet with the Company's largest shareholder and spend Company funds to launch enormously expensive litigation against the shareholder. See "Litigation." WHY SHAREHOLDER INVESTMENTS WILL BE LOST IF MANAGEMENT IS NOT CHANGED We have summarized the events and failures which have led us to believe that management must change. We have personally invested nearly $6.8 million in the Company. We describe below in further detail why we believe that First Union's shareholders deserve a prompt and comprehensive change of First Union's ways of doing business. 1. The Market's Rejection of First Union From a high of over $27.00 per share in 1987, First Union's stock traded at less than $6.25 per share on September 30, 1994 and, after the announcement of our investment, has since risen to a high of $8.50 per share on January 19, 1995, and again on January 30, 1995. On March 10, 1995, the last trading day prior to the date of this Proxy Statement, the closing sales price for First Union Shares was $____. This steep per share decline shows that the market is trying to send a message to First Union. We seek your proxy because management is not getting the message. 2. Mr. Mastandrea Has Personally Benefitted at the Expense of First Union Shareholders While the performance of First Union has continued to decline from 1993 to 1994, Mr. Mastandrea received a $50,000 annual salary increase, or 25%, and an increase in his bonus equal to 25% on an annualized basis. At the same time, Mr. Mastandrea received the following: (1) options to purchase 162,500 Shares; (2) a reward of 112,500 Shares of restricted stock under the Company's 1994 Long Term Incentive Performance Plan; (3) a "golden parachute" that requires the Company, in certain circumstances, to continue to pay his base salary and bonus and provide benefits, including pension contributions and vesting of options, for a period of three years after Mr. Mastandrea is no longer employed by the Company, and, in certain circumstances such as the termination of Mr. Mastandrea without cause after a change in control of the Company (as defined), the base salary, bonus and benefits otherwise payable over the three-year period become immediately due and payable by the Company in a lump sum; (4) Company-paid memberships in several exclusive Cleveland social clubs; and (5) a $2.5 million split-dollar life insurance policy, all the premiums on which are paid by the Company during his employment and on which the Company must continue to pay premiums, in certain circumstances, even after he is no longer employed by the Company. - 5 - As shareholders, we continue to fund Mr. Mastandrea's lucrative salary and perquisites without receiving any value in return. 3. First Union Shares Continually Underperform the Market Based on information provided by the Company, the following performance graph assumes the investment of $100 on December 31, 1989 in First Union Shares, the New York Stock Exchange (NYSE) Composite, and All REITs, with dividends reinvested when paid and share prices as of the last day of each calendar year. The All REITs was compiled by the National Association of Real Estate Investment Trusts (NAREIT). The "star" in the table indicates the date on which Mr. Mastandrea joined First Union. 1989 1990 1991 1992 1993 1994 First Union $100 $50 $53 $76 $85 $62 All REITs $100 $83 $112 $126 $149 $150 NYSE Composite $100 $96 $124 $130 $148 $145 As the graph indicates, a $100 investment in First Union Shares on December 31, 1989 would be worth $62 on December 31, 1994. The same $100 would be worth $145 if invested in the NYSE Composite or $150 if invested in All REITs. LITIGATION Richard M. Osborne is sole managing member of Turkey Vulture Fund XIII, Ltd., an Ohio limited liability company (the "Fund"), that was formed to acquire, hold, sell or otherwise invest in all types of securities and other instruments. The Fund is the largest shareholder in First Union. Mr. Osborne attempted to meet with management of First Union to discuss First Union and the significant investment made by the Fund. Management of First Union refused to meet with him. Instead, on February 3, 1995, First Union commenced an action (No. 1:95CV 0274) in the U.S. District Court for the Northern District of Ohio, Eastern Division, against Mr. Osborne, the Fund, and various - 6 - other persons (the "First Union Action"). First Union alleges, among other matters, that the named defendants were conspiring to take control of First Union, violated federal and state securities laws and breached certain obligations to other First Union shareholders. Mr. Osborne and the Fund vehemently deny all charges made by First Union and are contesting the charges vigorously. Among other matters, Mr. Osborne and the Fund have sought (1) dismissal of the First Union Action, (2) a declaration that First Union breached its fiduciary duty to its shareholders by bringing the First Union Action and thereby wasting corporate assets, (3) damages in the amount of all fees and costs incurred in prosecuting and defending the First Union Action and all damages awarded from the failure of the trustees of First Union to independently investigate the basis of the First Union Action and from their obligation to not abuse the process, and (4) the production of the First Union shareholder list. This enormously expensive litigation has resulted in nothing of value to First Union. On February 8, 1995, the court denied First Union's motion for a temporary restraining order on the grounds that First Union failed to show a substantial likelihood of prevailing on the merits of its claim, or irreparable injury if the motion was not granted. The court has scheduled a hearing on First Union's injunction motion for May 2, 1995. Despite clear evidence that, other than the Fund, none of the other defendants in the First Union Action own any Shares or have any intention to purchase any Shares of First Union, the Company continues to wage legal warfare, without any concern over the cost to the Company and its shareholders. THE COMMITTEE The members of the Committee are Steven A. Calabrese, Richard M. Osborne, and James R. Webb. The Committee believes that, as of the Record Date, its members beneficially owned or were entitled to vote an aggregate of 982,500 Shares, representing approximately 5.4% of the outstanding Shares. WE ARE SHAREHOLDERS, NOT CORPORATE RAIDERS Contrary to First Union's groundless accusations, neither the Committee nor any of its members are attempting to benefit themselves at the expense of any other shareholders. Rather, the Committee is seeking to increase value to all shareholders. Neither the Committee nor its members will acquire any of First Union's operations or assets or be compensated either as principal or agent in transactions relating to the redeployment of First Union assets, or earn any profits, commissions or other fees from First Union for their services in connection therewith, other than (1) such compensation, if any, as might be payable to any of the Committee members solely in their capacities - 7 - as trustees of First Union, (2) payments received by Committee members in their capacity as holders of First Union stock, and (3) reimbursements of professional fees and expenses incurred in the legal proceedings brought by First Union against Mr. Osborne and the Fund. See "Litigation." Additional information concerning the members of the Committee and their holdings of Shares is set forth in Appendix A hereto. MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING PROPOSAL 1: NOMINEES FOR ELECTION AS TRUSTEES The Company's Board of Trustees is presently composed of nine trustees, divided into three classes of trustees who serve for three-year terms. The trustees elected at the Annual Meeting will serve in such capacity until the 1998 Annual Meeting of Shareholders and thereafter until their successors shall have been elected and qualified. In opposition to the incumbent Class II of the Board of Trustees the Committee is proposing a slate of three experienced and well-qualified nominees for election as trustees of the Company who, if elected, would constitute one-third of the Board of Trustees. Each nominee named below has consented to serve as a trustee of the Company if elected. The Committee does not expect that any of the nominees will be unable to stand for election but, in the event that a vacancy in the slate of nominees should occur unexpectedly, the Shares represented by the enclosed RED, WHITE AND BLUE Proxy Card will be voted for a substitute candidate selected by the Committee. The following information concerning business address, age, and principal occupation has been furnished by the Committee' minees.
Name and Business Address Age Principle Occupation for Past Five Years Steven A. Calabrese 34 Since 1988, Mr. Calabrese has been Executive 1110 Euclid Avenue Vice President and a Director of Calabrese, Racek Suite 300 and Markos, Inc. ("CRM"), a commercial-industrial Cleveland, Ohio 44115 real estate appraisal company located in Cleveland, Ohio. He is also an executive officer and a Director of various affiliates of CRM, also located in Cleveland, that provide full-service real estate property management, construction and environmental services. Mr. Calabrese is a member of the Appraisal Institute, holds the MAI designation and is also a certified appraiser. - 8 - Richard M. Osborne 49 Mr. Osborne is President and Chief Executive 7001 Center Street Officer of OsAir, Inc., Mentor, Ohio ("OsAir"), a Mentor, Ohio 44060 company he founded in 1963. OsAir is a manufacturer of industrial gases for pipeline delivery and a real property developer. Mr. Osborne has substantial experience in real estate development and management. During his career as a real estate entrepreneur, he has developed, managed or sold over 1 million square feet of industrial space and over 1.5 million square feet of commercial space, and is currently developing a 250 acre industrial park in Mentor, Ohio. At its formation in November 1994, Mr. Osborne became the sole managing member of the Fund. Mr. Osborne is also Vice-Chairman and Director of Great Lakes Bank, of Mentor, Ohio, a position he has held since the Bank's founding in July 1994. From 1985 through 1990, Mr. Osborne was Chairman of the Board of Peoples Savings Bank of Ashtabula, now First Bankcorp of Ohio. James R. Webb, PhD. 47 Dr. Webb is Professor and Director of the Center Department of Finance for the Study of Real Estate Brokerage and College of Business Markets at the James J. Nance College of Cleveland State University Business, Cleveland State University, a position Cleveland, Ohio 44115 that he has held since 1991. From 1989 to 1991, he was Professor and Chairman of the Department of Finance at that College of Business. Since 1991, Dr. Webb has been the Chairman of the Board of the National Bureau of Real Estate Research, a non-profit organization specializing in real estate analysis, and since 1987, he has been the Executive Director of the American Real Estate Society, the largest real estate education and research organization in the United States. Dr. Webb founded that organization in 1985 and served as its President in 1986. In addition, he has published over eighty articles on various aspects of real estate investment in professional and academic journals. Dr. Webb received his PhD. from the University of Illinois in 1982.
- 9 - None of the nominees has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) during the past ten years. Additional information concerning the Committee's nominees is set forth in Appendix A hereto. The Committee urges you to sign, date and return the enclosed RED, WHITE AND BLUE proxy card to vote for the election of the Committee's nominees as trustees. PROPOSAL 2: SHAREHOLDER PROPOSAL Statement in Support and Proposal Mr. Allen Wolff, D.V.M., Trustee, 4241 Center Road, Brunswick, Ohio 44212-0474, who is the beneficial owner of 520 Shares of Beneficial Interest, has, according to the Company, advised it that he intends to present at the Annual Meeting the following proposal: I have invested my life savings in various equities to try to provide for retirement and old age, and I want the funds to be there when I need them. Throughout corporate America, many stockholder proposals have been introduced to try to control compensation to directors and top management and to try to tie them in with profits and dividends. Management opposes this! . . . Most shareholder proposals fail because (1) the investors are not organized and have no alternative, (2) management already controls a large number of votes and then rewards itself with more shares to vote against such proposals, and (3) we are not playing on a level field; management gets to count unmarked proxies as voting in favor of their position and then is allowed to solicit proxies at the company's expense. I feel that many Boards of Directors have lost touch with the investors, and it seems that they are giving more and more rewards for less and less success. In Junior High School, we learned that there were three (3) parts to any business: CAPITAL, LABOR AND MANAGEMENT. The boards seem to have forgotten this lesson. The boards, in general, are self-perpetuating groups seemingly intent on rewarding themselves and members of management, at the expense of the investor. I am particularly dismayed at the statement on proxies that "Proxies signed, but not specifically marked, will be voted as management has suggested." Management says that stockholders clearly understand how their votes will be counted if they don't put Xs in the boxes; yet may shareholders didn't understand THAT (and I have letters about that). They say that this process allows the stockholder not to be burdened with making THREE OR FOUR Xs. WOW! How many shareholders even understand what they are being asked to vote on? - 10 - Last April at the annual meeting of First Union Real Estate Trust, a company that also has reduced its dividends in the last two years, there was a management proposal to increase compensation ("because that's what we have to do to attract top executives"). An interesting question from the floor to the CEO: "Without this incentive, would you not work very hard at your base salary?" Answer muted. The proposal passed by 69% (including the UNMARKED proxies). An astute investor in the audience did some quick arithmetic and pointed out that less than 50% of the shares voted were actually voted for the proposal. When I go to the polls and figure there is no clear choice among candidates and leave that space "unmarked", it is not voted in favor of the incumbent or the incumbent's party, it is merely a non-vote. Therefore, be it resolved that in future proxies of this company, there will be no discretionary power of voting by the named proxy-holder on any issues where no direction has been given, including ANY ISSUE "WHICH MAY PROPERLY COME UP AT THE MEETING." Committee's Statement The Committee takes no position regarding this proposal. RED, WHITE AND BLUE Proxy Cards not marked with respect to this proposal will be voted as an abstention. Vote Required According to the Company, approval of this proposal will require the affirmative vote of the holders of a majority of the Shares present in person or by proxy and voting at the meeting. VOTING OF PROXIES Unless otherwise indicated, the persons named in the accompanying RED, WHITE AND BLUE Proxy Card will vote properly executed and duly returned proxies (1) FOR the election of three Committee nominees as members of Class II of the Board of Trustees of the Company to serve for a term of three years until the 1998 annual meeting of shareholders and until their successors are elected and qualified, (2) as an abstention with respect to the shareholder's proposal set forth in Proposal 2, and (3) in accordance with their judgment on such other business as may be properly presented to the meeting and any adjournment or postponement thereof. RED, WHITE AND BLUE Proxy Cards should be signed, dated and returned in the postage-paid envelope provided. Execution of the enclosed RED, WHITE AND BLUE Proxy Card will not affect a shareholder's right to attend the Annual Meeting and vote in - 11 - person. A shareholder who has given a proxy may revoke it at any time before such proxy is voted either by a later dated proxy or by voting in person at the Annual Meeting. Attendance at the Annual Meeting will not in and of itself constitute a revocation. If you were a shareholder of record on the Record Date, you will retain the voting rights in connection with the Annual Meeting even if you sell or sold such Shares after the Record Date. Accordingly, it is important that you vote the Shares held by you on the Record Date or grant a proxy to vote such Shares whether or not you still own such Shares. Shareholders cannot select trustees from among those proposed by the Company and the Committee. Therefore, if you wish to support the Committee's nominees, your last dated properly executed proxy must be a RED, WHITE AND BLUE Proxy Card. PROXY SOLICITATION; EXPENSES Proxies may be solicited by members of the Committee and their nominees by mail, telephone, telecopier and personal solicitation. Regular employees of Mr. Osborne of all classes may be used to solicit proxies, and when used, will not receive additional compensation therefor. Banks, brokerage houses and other custodians, nominees and fiduciaries will be requested to forward the soliciting material of the Committee to their customers for whom they hold shares, and the Committee will reimburse them for their reasonable out-of-pocket expenses. The Committee has retained Beacon Hill Partners, 90 Broad Street, New York, New York, 10004, to assist in the solicitation of proxies. The Committee has agreed to pay Beacon Hill Partners a fee of $25,000 and to reimburse it for its reasonable out-of-pocket expenses. Approximately 25 people will be used by Beacon Hill Partners in its solicitation efforts. The entire expense of preparing, assembling, printing and mailing this Proxy Statement and related materials and the cost of soliciting proxies for the nominees proposed by the Committee will be borne by the Committee. The Committee anticipates that its total expenditures relating to the solicitation will be approximately $225,000 (excluding costs represented by salaries and wages of regular employees of Mr. Osborne); total expenditures to date have been less than $30,000. All expenses of the solicitation will be borne by the members of the Committee in a manner to be determined by them. The Committee will seek reimbursement from the Company for those expenses and does not intend to seek shareholder approval for such reimbursement at a subsequent meeting unless such approval is required under Ohio law. SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING In order to be included in the Company proxy statement for the 1996 Annual Meeting, any shareholder proposal to be presented at the 1996 Annual Meeting must be - 12 - received in the Office of the Secretary of the Company by the date specified in the Company proxy statement for this year's Annual Meeting. OTHER MATTERS The Committee is not aware of any other matters scheduled to be presented at the Annual Meeting. If any other matters properly come before the meeting, the persons named in the enclosed RED, WHITE AND BLUE Proxy Card will have discretionary authority to vote all proxies with respect to such matters in accordance with their judgment. Sincerely, March 13, 1995 THE COMMITTEE TO UNLOCK THE VALUE OF FIRST UNION REAL ESTATE INVESTMENTS - 13 - IMPORTANT Your vote is important. No matter how many or how few First Union shares you own, please vote FOR the Committee's nominees by signing, dating and mailing the enclosed RED, WHITE AND BLUE Proxy Card today. The Committee urges you NOT to return any proxy cards sent to you by the Board of Trustees of First Union. If you have already returned a Board of Trustees' proxy card before receiving this Proxy Statement, you have every right to change your vote by signing and returning the enclosed RED, WHITE AND BLUE Proxy Card. Only your latest dated properly executed proxy will count at the Annual Meeting. If you own your First Union Shares in the name of a brokerage firm, your broker cannot vote such Shares unless he receives your specific instructions. Please sign, date and return the enclosed RED, WHITE AND BLUE Proxy Card in the postage-paid envelope that has been provided. If you have any questions about how to vote your First Union shares, please call our proxy solicitor: Beacon Hill Partners 90 Broad Street New York, NY 10004 Telephone: 1-800-755-5001 - 14 - APPENDIX A On the date hereof, Richard M. Osborne, as the sole managing member of the Fund, is the beneficial owner of 965,500 Shares, representing approximately 5.3% of the 18,262,725 Shares outstanding according to the most recently available filing by the Company with the Securities and Exchange Commission. Steven A. Calabrese is the beneficial owner of 17,000 Shares, representing less than 0.1% of the Shares outstanding. R-C Enterprises, a general partnership ("R-C Enterprises"), of which Mr. Calabrese is managing partner, is a member of the Fund. Under the terms of the Operating Agreement of the Fund, Mr. Osborne as the sole managing member, manages all day-to-day operations involving, and makes all decisions concerning, the business and affairs of the Fund. Other than Mr. Osborne, the members have no authority or power to bind the Fund, vote securities owned by the Fund, make investment decisions for the Fund or dispose of any securities held by the Fund. Each member has agreed, under the terms of the Operating Agreement, to indemnify the Fund for any costs or damages incurred by the Fund as a result of the exercise of any unauthorized authority by each such member. Under Rule 13d-3 promulgated by the Securities and Exchange Commission, "a beneficial owner of a security includes any person, who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (1) Voting power which includes the power, to vote, or to direct the voting of, such security, and/or (2) Investment power which includes the power to dispose, or to direct the disposition of, such security." Because the members of the Fund, other than Mr. Osborne, lack any of the requisite powers of beneficial ownership, none of them, other than Mr. Osborne, are beneficial owners of the Shares solely because of their investment as members in the Fund. Mr. Osborne believes that as of the Record Date, the members of the Fund, or their affiliates (including Mr. Calabrese), were, through purchases of Stock other than by the Fund, beneficial owners of 81,000 Shares, or less than 0.5% of the outstanding Shares. Neither the Fund nor Mr. Osborne has any interest, beneficial or otherwise, in these 81,000 Shares. The Operating Agreement of the Fund contains a provision that prohibits any of the members or their affiliates from selling, selling short or covering short sales in any securities in which the Fund has a long position. In addition to any other remedies available under law, the penalties under the Operating Agreement for violating this A-1 provision are (1) disgorgement of any profits to the Fund, (2) payment of any losses, claims, damages, liabilities, cost and expenses (including attorneys' fees) of the Fund, and (3) if Mr. Osborne determines in his sole discretion, expulsion of the member from the Fund. The foregoing provision was included in the Operating Agreement to avoid any conflict of interest among the members by insuring that the Fund could not be damaged by an adverse act of any one member. The table below sets forth all Shares purchased by Mr. Osborne within the past two years, the dates on which such purchases were made and the amount of such purchases. The 20,000 Shares purchased on August 11, 1994 and 10,000 of the Shares purchased on December 28, 1994 were purchased by the Profit Sharing Trust of OsAir. All 906,000 Shares set forth in the table below, including those Shares purchased by the Profit Sharing Trust, were contributed to the Fund by Mr. Osborne on January 13, 1995. Mr. Osborne sold no shares during the two year period. Date Number of Shares August 2, 1994 35,000 August 3, 1994 27,500 August 4, 1994 5,100 August 5, 1994 25,800 August 8, 1994 1,600 August 9, 1994 5,000 August 11, 1994 20,000 October 3, 1994 4,000 October 4, 1994 38,000 October 5, 1994 8,900 October 6, 1994 15,500 October 7, 1994 7,700 October 10, 1994 5,200 October 11, 1994 22,800 October 12, 1994 21,700 October 13, 1994 44,300 October 14, 1994 20,000 October 17, 1994 12,000 October 20, 1994 700 October 21, 1994 16,000 October 24, 1994 9,900 October 25, 1994 10,900 October 26, 1994 5,500 October 27, 1994 25,400 October 28, 1994 17,000 October 31, 1994 9,800 A-2 November 1, 1994 4,700 November 16, 1994 13,700 November 17, 1994 5,800 November 18, 1994 14,000 November 21, 1994 13,700 November 22, 1994 12,000 November 23, 1994 40,800 December 6, 1994 18,200 December 7, 1994 20,100 December 8, 1994 31,000 December 9, 1994 102,000 December 14, 1994 17,400 December 16, 1994 22,300 December 19, 1994 20,000 December 21, 1994 17,800 December 22, 1994 20,600 December 23, 1994 24,900 December 27, 1994 2,500 December 28, 1994 14,200 December 29, 1994 22,000 December 30, 1994 20,000 January 4, 1995 4,500 January 5, 1995 5,800 January 6, 1995 5,500 January 10, 1995 17,200 The table below sets forth all Shares purchased by the Fund, the dates on which such purchases were made and the amount of such purchases, other than the 906,000 Shares contributed to the Fund by Mr. Osborne on January 13, 1995. The Shares purchased by the Fund are held in a margin account, in which there are also securities other than the Shares. The margin balance of that account as of February 27, 1995, was approximately $2.8 million. The Fund sold no shares during the two year period. Date Number of Shares January 16, 1995 9,000 February 2, 1995 3,000 February 3, 1995 12,800 February 7, 1995 9,300 February 8, 1995 10,000 February 9, 1995 4,300 February 10, 1995 11,100 A-3 The table below sets forth all Shares purchased by Mr. Calabrese, the dates on which such purchases were made and the amount of such purchases. The Shares purchased on January 17, 1995, were purchased by Mr. Calabrese and his wife, Nancy Calabrese, and were held in a margin account, in which there were also securities other than the Shares. The margin balance of that account as of February 27, 1995 was approximately $60,000. Mr. Calabrese sold no shares during the two year period. Mrs. Calabrese's address is 861 West Hill Drive, Cleveland, Ohio 44040. Date Number of Shares January 17, 1995 13,200 January 19, 1995 3,800 After the Record Date, the Shares purchased on January 17, 1995 were transferred to R-C Enterprises. The transfer took place on or about March 9, 1995. Except as otherwise set forth in this Appendix A, neither the Committee or any of its members or any "associate" of any of the foregoing persons or any other person who may be deemed a "participant" in the Proxy Solicitation is the beneficial or record owner of any Shares. Except as otherwise set forth in this Appendix A, neither the Committee or any of its members or any "associate" of any of the foregoing persons or any other person who may be deemed a "participant" in the Proxy Solicitation has purchased or sold any Shares within the past two years, borrowed any funds for the purpose of acquiring or holding any Shares or is or was within the past year a party to any contract or arrangement or understanding with any person with respect to any Shares. There has not been any transaction since the beginning of the Company's last fiscal year and there is not currently any proposed transaction to which the Company is a party, in which the Committee or any of its members or any "associate" or immediate family member of any of the foregoing persons or any other person who may be deemed a "participant" in the Proxy Solicitation had or will have a direct material interest. A-4 [Side 1] PROXY First Union Real Estate Equity and Mortgage Investments 1995 Annual Meeting of Shareholders Unless otherwise specified, this proxy will be voted FOR Item 1 and ABSTAIN on Item 2 and will be voted in the discretion of the proxies on such other matters as may properly come before the meeting or any adjournment(s) or postponement(s) thereof. 1. Election of Trustees FOR o WITHHOLD o Committee nominees are: Steven A. Calabrese, Richard M. Osborne, and James R. Webb (Authority to vote for any nominee(s) may be withheld by lining through or otherwise striking out the name of such nominee(s).) THE COMMITTEE RECOMMENDS A VOTE FOR ITEM 1. 2. Shareholder Proposal Concerning Tabulation of Proxies FOR o AGAINST o ABSTAIN o The Proxy revokes all prior proxies and voting instructions. (Continued and to be signed and dated on the reverse side) [Side 2] SOLICITED ON BEHALF OF THE COMMITTEE TO UNLOCK THE VALUE OF FIRST UNION REAL PROXY SOLICITED IN OPPOSITION ESTATE INVESTMENTS TO THE BOARD OF TRUSTEES The undersigned hereby appoints Steven A. Calabrese, Richard M. Osborne and James R. Webb, and each of them, with full power of substitution, as proxies for the undersigned, to represent and vote, as designated on the reverse side, all shares of beneficial interest of First Union to which the undersigned is entitled to vote at the 1995 Annual Meeting of Shareholders of First Union scheduled to be held on April 11, 1995, and at any adjournment(s) or postponement(s) thereof, and revokes all prior proxies with respect to the matters covered by this proxy. Date: ________________, 1995 Signature:__________________________ Signature: _________________________ Title or Authority: ____________________ (Please sign exactly as name appears on share certificates, indicating title or representation capacity, where applicable) PLEASE SIGN, DATE AND MAIL YOUR PROXY TODAY If you have any questions on voting, please call: Beacon Hill Partners at 1-800-755-5001 THE COMMITTEE TO UNLOCK THE VALUE OF FIRST UNION REAL ESTATE INVESTMENTS DEAR FELLOW FIRST UNION REAL ESTATE INVESTMENTS SHAREHOLDER: HOW LONG CAN YOU AFFORD TO WAIT? We believe that new direction is needed at First Union Real Estate Investments, AND NEEDED NOW! In Mr. Mastandrea's letter to shareholders last year dated March 25, 1994, he speaks of the company's "re-birth" and striving to grow and enhance shareholder value. WHAT HAPPENED? The Board paints a rosy picture as the shareholders suffer from declining stock values and earnings. PERFORMANCE SPEAKS LOUDER THAN PREDICTIONS. OUR PLEDGE TO SHAREHOLDERS [] We will tell the truth to the shareholders, something First Union management cannot or will not do [] We will reduce costs and eliminate the senseless waste of funds on consultants, lavish offices and high priced lawyers [] We will hire a CEO, responsive to shareholders, who will aggressively manage the Company enabling it to provide returns to shareholders that they have every right to expect--BUT SO FAR HAVE NOT RECEIVED. [] If present management has not squandered the $29 million plus in gains received from the mall sales, we will work to distribute the gain of over $1.60 per share to shareholders [] We will commence an urgent review of all the Company's real estate investments with a view toward improving the performance of the portfolio [] We will push our goal to increase the dividends to shareholders on an on going basis [] We will eliminate those things that protect management at the expense of shareholder value such as stock option and restricted stock award plans, the Rights Agreement commonly known as a poison pill, the restriction on any person owning more than 9.8% of the shares and the staggered board [] We will implement a continuous, effective shareholder relations program to keep shareholders informed about the Company [] We will maintain REIT status [] We will evaluate the possibility of enhancing shareholder value by merging the Company with a larger, well run REIT. FIRST UNION'S FUTURE IS AT STAKE The current Board will be asking you for your support. Let's review what they have delivered before listening to what they are promising. [] The stock price, which once exceeded $27 per share, has steadily declined for more than eight years [] 1994 earnings are less than one half of 1993 earnings [] General and Administrative expenses jumped 142% for the nine months ended September 30, 1994 from the same period in 1993 [] The dividend yield is far below that of other comparable REITs [] First Union recently sold its stake in two regional shopping malls for a sale price equivalent to approximately $58 PER SQUARE FOOT. Immediately following this transaction, Mastandrea entered into an agreement on behalf of the Company to purchase a shopping center, near his hometown of Chicago, for a price equivalent to approximately $120 PER SQUARE FOOT. We believe this price is too rich and not a prudent way to spend shareholder money. In addition, we have demanded for the Company to disclose the sellers and all the agents involved in the transaction and whether any of them had a direct or indirect affiliation with the Trust or any of its employees. To date, the Company has refused to reveal this information. HOW MUCH IS TOO MUCH? The Company's callous disregard for shareholders is painfully apparent in Mr. Mastandrea's salary and bonuses. During 1994, Mr. Mastandrea received a salary of $250,000, PLUS a bonus of $110,610 (25% more than 1993), PLUS other compensation of $9,151, PLUS a restricted stock award valued at $717,188, PLUS other compensation totaling $35,630, which includes a $2.5 million dollar life insurance policy, PLUS a golden parachute entitling him to three years salary, bonus and benefits upon certain changes-in-control, plus stock options to purchase 162,500 shares which have a potential estimated market value of $1,407,861. WE PROMISE YOU, ALL THIS STOPS IF WE ARE ELECTED. TO MAKE MATTERS WORSE, hidden in Mastandrea's employment contract is an agreement that may force the Company to exchange real estate property owned by Mastandrea near his hometown of Chicago for shares in First Union. We can only hope that the $120 PRICE PER SQUARE FOOT that the Company agreed to pay for a nearby property won't apply to these transactions. Mastandrea is not the only executive enjoying the gravy train, Gregory Bruhn, our Chief Financial Officer, has stepped up to the trough as well. For eight-and-a-half months work during 1994, Bruhn received a salary of $111,372, PLUS a bonus of $46,456, PLUS a restricted stock award valued at $127,500, PLUS stock options to purchase 45,000 shares which have a potential estimated market value of $439,654, PLUS--THE COMPANY PAID $57,219 FOR BRUHN TO RELOCATE. AND IF THAT'S NOT BAD ENOUGH! Not to waste too much time attacking the past, we thought all stockholders should know the following: The Company is currently paying Donald S. Schofield, our past CEO, a consulting salary of $250,000 a year. But wait--it gets better--the Company has also agreed to pay Schofield $12,500 a month in case he becomes disabled. And if he dies, the Company has agreed to pay his heir's $8,333 per month for 30 months. DID THE STOCK PRICE INCREASE SO MUCH UNDER SCHOFIELD THAT THIS IS JUSTIFIED? WHERE HAVE ALL THE STOCK OPTIONS GONE ? To Mastandrea, where else. Last year when the company adopted a Long Term Incentive Performance Plan, Mr. Mastandrea stated that the plan is "designed to more closely align the interest of the management team with those of our shareholders." According to the Company's proxy statement, Mastandrea hoarded 53.3% of all grants last year. So much for the little people. THEY DON'T EVEN BELIEVE IN THE COMPANY Can you believe all 13 Trustees and executive officers as a group only own 82,848 shares, or less than 0.5% of the outstanding shares. They also have options and restricted stock in the amount of 267,091 shares. You can see why the current board does not act like shareholders because they really aren't. IF THEY ARE SO CONFIDENT IN FIRST UNION'S FUTURE, DON'T YOU THINK THEY'D PUT THEIR OWN MONEY ON THE LINE AND BUY SOME SHARES? Can anything tell you more about a company then the ownership of its shares by management? We already own 982,500 shares. In addition, we will require all Company executives to purchase shares of the Company. THE ONLY WAY TO ACT LIKE A SHAREHOLDER IS TO BE A SHAREHOLDER! THE FUTURE OF FIRST UNION IS IN YOUR VOTE Your vote is important. No matter how many or how few shares you own, please vote for the Committee's Nominees by: SIGNING, DATING and MAILING the enclosed RED, WHITE and BLUE PROXY CARD TODAY in the postage paid envelope provided. THE COMMITTEE URGES YOU NOT TO RETURN ANY WHITE PROXY CARDS SENT TO YOU BY THE INCUMBENT BOARD OF TRUSTEES. If you own your shares in the name of a brokerage firm, your broker cannot vote your shares unless he receives your specific instructions. Please sign, date and return the enclosed RED, WHITE and BLUE proxy card in the return envelope that has been provided. If you have any questions about how to vote your shares, please call our proxy solicitor at: BEACON HILL PARTNERS, INC. 90 Broad Street New York, NY 10004 800-755-5001 -----END PRIVACY-ENHANCED MESSAGE-----