UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 23)
First Union Real Estate Equity and Mortgage Investments
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(Name of Issuer)
Shares of Beneficial Interest, $1.00 par value
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(Title of Class of Securities)
337400105
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(CUSIP Number)
Stephen Fraidin, P.C.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
(212) 859-8140
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(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications)
March 30, 1998
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box |_|.
Check the following box if a fee is being paid with the statement |_|. (A
fee is not required only if the reporting person: (1) has a previous
statement on file reporting beneficial ownership of more than five percent of
the class of securities described in Item 1; and (2) has filed no amendment
subsequent thereto reporting beneficial ownership of five percent or less of
such class.) (See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section
of the Act but shall be subject to all other provisions of the Act (however,
see the Notes).
SEC1746(12-91)
SCHEDULE 13D
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CUSIP NO. 337400105 PAGE 2 OF 10 PAGES
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Gotham Partners, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)|X|
(b)|_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) OR 2(e) |_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York, U.S.A.
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7 SOLE VOTING POWER
NUMBER OF 2,601,951 Shares
SHARES
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BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
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EACH 9 SOLE DISPOSITIVE POWER
REPORTING 2,601,951 Shares
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PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,601,951 Shares
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.24%
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14 TYPE OF REPORTING PERSON*
PN
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* SEE INSTRUCTIONS
SCHEDULE 13D
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CUSIP NO. 337400105 PAGE 3 OF 10 PAGES
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Gotham Partners II, L.P.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)|X|
(b)|_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) OR 2(e) |_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York, U.S.A.
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7 SOLE VOTING POWER
NUMBER OF 30,449 Shares
SHARES
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BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
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EACH 9 SOLE DISPOSITIVE POWER
REPORTING 30,449 Shares
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PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
30,449 Shares
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.10%
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14 TYPE OF REPORTING PERSON*
PN
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* SEE INSTRUCTIONS
SCHEDULE 13D
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CUSIP NO. 337400105 PAGE 4 OF 10 PAGES
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Gotham International Advisors, L.L.C.
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)|X|
(b)|_|
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
2(d) OR 2(e) |_|
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
NUMBER OF 287,900
SHARES
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BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
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EACH 9 SOLE DISPOSITIVE POWER
REPORTING 287,900
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PERSON 10 SHARED DISPOSITIVE POWER
WITH 0
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
287,900
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* |_|
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.91%
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14 TYPE OF REPORTING PERSON*
00; IA
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* SEE INSTRUCTIONS
This Amendment No. 23 amends and supplements the Statement on Schedule
13D (the "Schedule 13D") relating to the shares of Beneficial Interest, par
value $1.00 per share ("Shares"), of First Union Real Estate Equity and
Mortgage Investments, an Ohio business trust (the "Company") previously filed
by Gotham Partners, L.P. ("Gotham") and Gotham Partners II, L.P. ("Gotham
II"), both New York limited partnerships. This Amendment has been filed to
reflect the inclusion of an additional Reporting Person, and to update the
Schedule 13D in light of certain recent events. Capitalized terms used and
not defined in this Amendment have the meanings set forth in the Schedule 13D.
Except as specifically provided herein, this Amendment does not modify
any of the information previously reported on the Schedule 13D.
Item 2 is hereby amended to add the following information:
"Item 2. Identity and Background
This Statement is being filed by Gotham International Advisors, L.L.C.,
a Delaware limited liability company ("Gotham Advisors", and together with
Gotham and Gotham II, the "Reporting Persons"), with respect to the Shares
owned by Gotham Partners International, Ltd. ("Gotham International"), a
Cayman exempted company.
Gotham Advisors was formed for the purpose of providing a full range of
investment advisory services, including acting as the investment manager of
one or more investment funds or other similar entities, including Gotham
International.
Pursuant to an investment management agreement (the "Investment
Management Agreement"), Gotham Advisors has the power to vote and dispose of
the Shares held for the account of Gotham International and, accordingly, may
be deemed the "beneficial owner" of such shares. William A. Ackman and David
P. Berkowitz are the Senior Managing Members of Gotham Advisors.
The business address of Gotham Advisors is 110 East 42nd Street, 18th
Floor, New York, New York 10017. The business address of Gotham
International is c/o Goldman Sachs (Cayman) Trust, Limited, Harbour Centre,
2nd Floor, P.O. Box 896, George Town, Grand Cayman, Cayman Islands, British
West Indies.
During the last five years, neither Gotham Advisors, nor Gotham
International, (i) has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or (ii) has been a party to a
civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, federal or state securities
laws or finding any violation with respect to such laws."
Item 3 is hereby amended to add the following information:
"Item 3. Source and Amount of Funds or Other Consideration
The aggregate purchase price of the Shares purchased by Gotham was
$1,323,512.50 and the aggregate purchase price of the Shares purchased by
Gotham International was $3,411,776.25. All of the funds required for the
purchases were obtained from the general funds of Gotham and Gotham
International, respectively."
Item 4 is hereby amended to add the following information:
"Item 4. Purpose of the Transaction
On March 27, 1998 Judge Timothy J. McGinty of the Court of Common Pleas,
Cuyahoga County, Ohio entered a judgment denying the Company's motion for
preliminary injunction. A copy of such Judgment Entry Regarding Plaintiff's
Motion for Preliminary Injunction is attached as Exhibit 43 hereto and
incorporated herein by this reference.
Gotham Advisors plans to vote any of the Shares held by Gotham
International which it is entitled to vote at the 1998 Annual Meeting of
Beneficiaries of the Company (the "Annual Meeting") in favor of the proposal
and nominations that Gotham has submitted to a vote of the Beneficiaries of
the Company at the Annual Meeting.
On March 27, 1998, Gotham issued a press release. A copy of such press
release is attached as Exhbit 45 hereto and incorporated herein by this
reference.
Except as set forth above, none of the Reporting Persons has any plan
or proposals which would relate to or result in any of the matters set forth
in items (a) through (j) of Item 4 of Schedule 13D."
Item 5 is hereby amended to add the following information:
"Item 5. Interest in Securities of the Issuer
(a) Gotham owns 2,601,951 Shares as of the date of this Schedule 13D,
representing an aggregate of approximately 8.24% of the outstanding Shares of
the Company. Gotham II owns 30,449 Shares as of the date of this Schedule 13D,
representing an aggregate of approximately 0.10% of the outstanding Shares of
the Company. Gotham International owns 287,900 Shares as of the date of this
Schedule 13D, representing an aggregate of approximately 0.91% of the
outstanding Shares of the Company. The combined interest of Gotham, Gotham II
and Gotham International is 2,920,300 Shares, representing an aggregate of
approximately 9.25% of the outstanding shares of the Company. None of Section
H Partners, L.P., Karenina Corporation, DPB Corporation, Mr. Ackman, Mr.
Berkowitz or Gotham Advisors beneficially owns any of the Shares (other than
the Shares beneficially owned by Gotham, Gotham II and Gotham International).
(b) Each of Gotham and Gotham II have the sole power to vote and to
dispose of all of the Shares beneficially owned by it. Pursuant to the
Investment Management Agreement, Gotham Advisors currently has the power to
vote and to dispose of all of the Shares beneficially owned by Gotham
International.
(c) The tables below set forth information with respect to all
purchases and sales of Shares by Gotham and Gotham International since
October 9, 1997. In each case, the transactions took place on the New York
Stock Exchange.
Shares of Common Stock
Date Purchased/(Sold) Price per Share
---- ---------------------- ---------------
Gotham
01/23/98 10,500 $14.92500
02/04/98 100,000 $11.66800
Gotham International
03/27/98 5,000 $11.17500
03/30/98 282,900 $11.8625
(d) and (e) Not applicable."
Item 6 is hereby amended to add the following information:
"Item 6. Contracts, Arrangements, Understandings or Relationships with
Respect to Securities of the Issuer
In connection with its acquisition of 250,000 of the 282,900 Shares
purchased on March 30, 1998, Gotham International has received a proxy
entitling it to vote such Shares at the 1998 Annual Meeting of Beneficiaries
of the Company.
Except as described above, neither Gotham International, nor Gotham
Advisors is a party to any contract, arrangement, understanding or
relationship with respect to any securities of the Company, including but not
limited to transfer or voting of any of the securities, finder's fees, joint
ventures, loan or option agreements, puts or calls, guarantees of profits,
divisions of profit or losses or the giving or withholding of proxies."
Item 7 is hereby amended to add the following information:
"Item 7. Material to be Filed as Exhibits
43. Judgment Entry Regarding Plaintiff's Motion for Preliminary
Injunction entered in the Court of Common Pleas, Cuyahoga County, Ohio by
Judge Timothy J. McGinty on March 27, 1998.
44. An amended and restated agreement relating to the filing of joint
acquisition statements as required by Rule 13d-1(f)(1) promulgated under
the Securities Exchange Act of 1934, as amended.
45. Press release issued by Gotham on March 27, 1998."
After reasonable inquiry and to the best of our knowledge and belief,
the undersigned certify that the information set forth in this statement is
true, complete and correct.
March 31, 1998
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ William A. Ackman
------------------------
William A. Ackman
President
By: DPB Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ David P. Berkowitz
------------------------
David P. Berkowitz
President
GOTHAM PARTNERS II, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ William A. Ackman
------------------------
William A. Ackman
President
By: DPB Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ David P. Berkowitz
------------------------
David P. Berkowitz
President
GOTHAM INTERNATIONAL ADVISORS, L.L.C.
By: /s/ William A. Ackman
------------------------
William A. Ackman
Senior Managing Member
By: /s/ David P. Berkowitz
------------------------
David P. Berkowitz
Senior Managing Member
EXHIBIT 43
STATE OF OHIO ) IN THE COURT OF COMMON PLEAS
) SS:
CUYAHOGA COUNTY ) Case No.: 347063
FIRST UNION REAL ESTATE )
EQUITY AND MORTGAGE )
INVESTMENTS, )
)
)
Plaintiffs, )
)
vs. )
) JUDGMENT ENTRY REGARDING
------------------------
GOTHAM PARTNERS, L.P., et al., ) PLAINTIFF'S MOTION FOR
----------------------
) PRELIMINARY INJUNCTION
----------------------
Defendants. )
Timothy J. McGinty, J:
- ----------------------
On January 16, 1998, the plaintiff herein, First Union Real Estate
Equity and Mortgage Investments ("First Union"), a publicly traded real
estate investment trust ("REIT") organized pursuant to Ohio law, filed its
complaint for preliminary injunction, permanent injunction and declaratory
relief. The defendants, Gotham Partners, L.P. and Gotham Partners II, L.P.,
limited partnerships organized pursuant to New York law and shareholders of
First Union ("Gotham"), filed an answer and counterclaim. The issues
addressed herein pertain exclusively to plaintiff's request for preliminary
injunction. The parties have ably presented their positions in a full
evidentiary hearing and have thoroughly briefed the issues. Both sides have
been effectively represented in two weeks of hearings by highly qualified
and experienced counsel from prestigious law firms.
Pursuant to Ohio Civil Rule 65 and case law expounding its
application, the court's considerations are appropriately focused on the
following issues:
1) The likelihood of the movant's success on the merits;
2) Whether there is an adequate remedy at law;
3) Will there be irreparable harm if the injunction is not granted;
4) What injury to the parties and others will be caused by the
granting of the injunction;
5) The public interest that will be served by the granting of the
injunctive relief; and
6) Whether the injunctive relief sought is for the purpose of
maintaining the status quo pending trial on the merits.
Diamond Co. v. Gentry Acquisition Corp. (1988), 48 Ohio Misc. 2d 1, 2 (Cuy.
Co. Ct. C. P. 1988).
By making application for injunctive relief -- an extraordinary
remedy, Lykins v. Dayton Motorcycle Club (1972), 33 Ohio App. 2d 269, 269
- -- plaintiff has assumed the burden of establishing by clear and convincing
evidence that it is entitled to such relief. Diamond at 2, citing Southern
Ohio Bank v. Southern Ohio Savings Assn. (1976), 51 Ohio App. 2d 67, 69. As
such, plaintiff's burden of proof to establish the above enumerated issues
is "a degree of evidence . . . that is less than the degree required in a
criminal case but more than that required in an ordinary civil action." Id.,
citing Household Finance Corp. v. Altenberg (1966), 5 Ohio St. 2d 190.
In its motion for preliminary injunction, plaintiff correctly states
that defendants agreed to be bound by the terms of First Union's
Declaration of Trust and By-Laws when they purchased First Union shares.
Plaintiff claims that defendants have breached the contractual obligations
that it owes to First Union and its other shareholders. Gotham's alleged
breaches have occurred as a result of: a) Gotham's proposal to increase the
size of First Union's Board of Trustees and the nomination of a slate of
candidates for consideration; b) Gotham's failure to disclose information
requested by First Union; and c) Gotham's nomination of persons for
election to First Union's Board.
Before engaging in a substantive analysis pursuant to Judge James J.
McMonagle's noted Diamond opinion, and to provide the necessary chronology
of events, the parties' history must be reviewed. Currently controlling an
approximate $30 million investment in First Union stock, Gotham made its
first acquisition of First Union shares in November 1996. In early to mid
June 1997, Gotham, as required by The Securities Exchange Act of 1934,
filed a Schedule 13D with the Securities and Exchange Commission (the
"SEC") disclosing its beneficial ownership of greater than 5% of the
outstanding shares of First Union. 15 U.S.C. ss. 78m(d). The 13D disclosed
other information including that William A. Ackman and David P. Berkowitz
manage Gotham's affairs and the affairs of Gotham's general partner,
Section H Partners, L.P. through two corporations -- Karenina Corp. and DPB
Corp. -- which are the sole general partners of Section H Partners, L.P.
The 13D further supplied that none of the aforementioned entities that
constitute "Gotham" is a party "to any contract, arrangement, understanding
or relationship with respect to any securities of [First Union]" with any
other person or entity. No formal request for further information regarding
ownership was made by First Union at that time.
Dissatisfied with recent decisions of First Union's management, and
uncertain of its ability to maximize its REIT status, Gotham sent a letter
to First Union's Board of Trustees and the Board of Directors of First
Union Management, Inc., First Union's affiliated management company. The
letter, dated July 14, 1997, while openly critical of First Union's
management, provided information regarding accepted alternative management
techniques and issued an invitation for discussion with Gotham. The letter,
written by Gotham managing partner, William A. Ackman, and sent to First
Union CEO James C. Mastandrea and First Union's Trustees was very frank
and specifically outlined Gotham's plans and why they had invested in First
Union:
We believe the company has significant unrealized equity appreciation
potential which is unlikely to be realized under the Company's current
leadership . . . We believe it is similarly appropriate for the Board
to assess whether existing management possesses the skills required to
implement the Company's intended strategic plan.
Gotham's letter outlined in detail their four primary reasons for
concern regarding their investment in First Union: I. "Management appears
to have been unaware of the Company's Corporate Structure"; II.
"Overpayment for Imperial Parking Acquisition"; III. Management has diluted
shareholders with poorly executed equity offerings"; and IV. "Management
lacks the requisite background and experience." Mr. Ackman then urged the
First Union Board of Trustees to consider value maximizing strategies that
other pair-share REITs had used with success. He then accused First's
CEO of being, "unwilling to consider any proposal to the Company which does
not allow him to remain in control of FUR [First Union Real Estate]." Mr.
Ackman then concluded his nine-page letter by urging the Board to unlock
the tremendous potential value of the Company, "by replacing management
with new leadership that is committed to utilizing the staple-stock
structure in an effective and value enhancing manner, has relevant,
credible experience and views shareholders as an important constituency,
not as an adversary."
First Union management was unwilling to accept Gotham's invitations to
meet for a discussion to address its concerns. (PX4, July 23, 1997 letter
from Gotham to Mr. Mastandrea, CEO; and DX245, July 15, 1997 First Union
press release stating that Gotham's proposal "serves [Gotham's] own short
term purposes" and further suggesting the Gotham partnerships to be
"short-term players . . . in it for a quick profit"). The record reflects
that Gotham's letters did however prompt action within First Union
management.
First Union's Board of Trustees met on August 12, 1997. Gotham's July
14 letter was a topic of discussion at the meeting and First Union decided
to demand certain ownership information of Gotham. First Union states the
requests for information were motivated by a desire to protect its REIT
status. Gotham attributes First Union's actions to management's protective
tactics which result from Gotham's call for replacement of management in
Gotham's July 14, 1997 letter to the Board. First Union's position is
unsupported by the minutes of the meeting, while First Union Trustee Mr.
Conway testified upon deposition that Gotham's July 14 letter was the
catalyst for the request. (Conway Dep. at 17:23-18:15.)
Following the Board's decision to inquire as to Gotham's ownership, on
August 20, 1997, CEO James Mastandrea requested as follows:
[K]indly describe in writing the nature of all such actual,
"constructive" (as defined under the Internal Revenue Code) and
"beneficial" (as defined under Section 13(d) of the Securities Act of
1934) ownership of First Union securities by [Mr. Berkowicz] . . . ,
Mr. Ackman, and by any and all Gotham entities, affiliates and group
members. In addition, we are requesting that you provide detailed
information about the legal status, structure and ownership of each
entity, affiliate and group member.
The request for actual and constructive ownership information is consistent
with Section 11.7(FN1) of the Declaration of Trust but redundant as regards
beneficial ownership information which had been provided pursuant to
Gotham's 13D filings. The letter also referenced Article 6, Section 6(c) of
the By-Laws(FN2).
[FN]
1 Section 11.7. Information on Share Ownership
Every Beneficiary shall be obligated to furnish to the Trustees upon
demand a written statement disclosing the actual and constructive (as
the terms "actual" and "constructive" are defined for purposes of the
"real estate investment trust" provisions in the Internal Revenue
Code and the regulations proposed or in effect thereunder) ownership
of the shares registered in the name of such Beneficiary. A list of
the Beneficiaries failing or refusing to comply in whole or in part
with a demand of the Trustees for such written statement shall be
maintained by the Trustees as part of the records of the Trust. The
Trustees may establish such requirements as to furnishing of
information as to actual or constructive ownership of shares as they
may from time to time deem advisable and may, under provision in the
By-Laws, condition the issuance of certificates and registration of
ownership of shares in the name of any person upon the furnishing of
such information and on such information showing that issuance of the
certificate and registration of such person as a Beneficiary will
not, in the opinion of counsel for the Trust, result in the Trust
becoming disqualified for taxation as a real estate investment trust
under the Internal Revenue Code.
2 Section 6. Restrictions on Issuance and Transfer of Securities.
c) Ownership of Securities is conditional upon the owner or
prospective owner having provided to the Trust definitive written
information respecting his ownership of Securities. Failure to
provide such information, upon reasonable request shall result in the
Securities so owned being treated as Excess Securities pursuant to
Paragraph b) for so long as such failure continues.
</FN>
On September 8, 1997, Gotham replied to the Board's August 20 request
by parsing out, as requested, Gotham's and Gotham II's actual and
constructive ownership of First Union shares and specifically denied that
Gotham's management individually, or through any entity controlled by them,
actually, constructively or beneficially owned any other equity interests
in First Union. (PX7). Information to the same effect as above stated was
also filed with the SEC as an amendment to Gotham's 13(D). (DX13B) Three
days after making this response to First Union the Trust declared a third
quarter dividend, payment of which was received by Gotham on October 30,
1997.
Seeking yet greater ownership information, CEO Mastandrea wrote to
Gotham on October 7, 1997: "In particular, you are obligated to provide the
names of each and every member of Gotham I and Gotham II, as well as each
and every member of other entities who own First Union stock . . . " (DX8)
Heretofore unable to satisfy First Union's demands for Gotham's ownership
information through his responses, William A. Ackman, a Gotham managing
partner, called CEO Mastandrea offering cooperation if the CEO would
explain the nature of the information needed and, for the third time,
requested to meet with First Union representatives. According to Mr.
Ackman's testimony, it was agreed that the unsatisfied technical details
regarding ownership could be resolved through both entities counsel.
Further, counsel for First Union and Gotham conferred and agreed that Mr.
Mastandrea and Mr. Ackman would meet on December 29, 1997 -- Mr.
Mastandrea's first available date -- five and one half months after
Gotham's initial request for such a meeting.
From late November to January 1, 1998, little transpired between the
parties as to ownership interest. However, events of significance occurred
in the form of a fourth quarter dividend declaration and Mr. Mastandrea's
late-December cancellation of Gotham's long sought meeting with First
Union. No alternative date for meeting was proposed by Mr. Mastandrea.
Gotham's Ackman testified that he had grown suspicious of Mr. Mastandrea's
actual intentions and had used the month to prepare, with his attorneys,
contingency plans in the event that First Union's CEO was stalling for time
and attempting to get past the last possible date to submit a proposal for
presentation at the next annual meeting.
First Union's annual meeting was set for April 14, 1998, with the
final date for shareholder proposals for vote set for January 8. On January
8, Gotham hand-delivered the notice which lies at the heart of this
dispute. The Notice, in brief, proposes to: 1) nominate three candidates
for election to Board seats whose terms are expiring in 1998; 2) expand the
Board by creating six new seats; and 3) nominate candidates to fill the
proposed new positions. The Notice provided further information as required
by First Union's advanced notice provision. (See, By-Laws Article 1, ss.
7.) The Notice included a request that "any questions concerning [the]
notice or any related legal matters be addressed to Gotham's counsel."
(PX9.)
Gotham's January 8, 1998 proposal not only threatened First Union's
existing management structure, but if passed, would likely result in its
ouster. To contest the validity of Gotham's Notice, First Union mounted a
double-pronged attack on January 16, 1998. First, it sent Gotham a letter
stating that its Notice was deficient for reasons identified and
unidentified, curable and noncurable. A volley of letters ensued between
the parties' attorneys with Gotham asserting its compliance, attempting to
satisfy First Union by providing greater and greater levels of information
and requesting "immediate notice" if the First Union continued to deem the
Notice unsatisfactory. (DX15,PX11,PX13)
On January 20, 1998, First Union's Secretary Paul Levin wrote that
Gotham's Notice "continues to be deficient in not identifying limited
partners and other Beneficiaries and beneficial owners who support Gotham's
proposal and nominations." (See, PX12.) Gotham reiterated its position that
its Notice was satisfactory, that First Union's notice of deficiencies was
flawed, stated that, "as of the date of the Notice and as of [January 21],
Gotham has no knowledge of any Beneficiary or beneficial owner of any
Shares, other than the Shares beneficially owned by Gotham and Gotham II .
. . that is known to be supporting its nominations or proposal" and
requested immediate notification of deficiency and additional time to cure.
(See, PX13.) In the second prong of its attack and by decision of the
Board, First Union filed the within action seeking: a) a determination that
Gotham's approximate 2,500,000 shares are excess and not entitled to vote;
and b) a determination that Gotham's Notice and proposal was a nullity.
The relationship between First Union and Gotham is governed by First
Union's Declaration of Trust and By-Laws. First Union claims that Gotham
has breached its obligations to the Trust and seeks a determination by this
court that would totally disenfranchise Gotham of its two and one half
million shares thereby rendering its investment powerless in the upcoming
annual meeting. Hence, the issues presented by First Union in its complaint
center on the interpretation of the Declaration of Trust as a contract.
Berry v. McCourt (1965), 1 Ohio App.2d 172, 172 (Franklin Cty. App.).
First Union maintains that Article VI, ss. 6(c) of its By-Laws
"automatically" renders Gotham's shares as "Excess Securities" thereby
stripping Gotham of its proposal and voting rights for the upcoming annual
meeting. Article VI, ss. 6(c) provides:
Ownership of Securities is conditional upon the owner or prospective
owner having provided to the Trust definitive written information
respecting his ownership of Securities. Failure to provide such
information, upon reasonable request shall result in the Securities so
owned being treated as Excess Securities pursuant to Paragraph b) for
so long as such failure continues.
Plaintiff claims that it was Gotham's failure to provide ownership
information that automatically triggered this provision. Plaintiff's proof
centers on: 1) a need to abide by ownership limitations imposed by the
Internal Revenue Code in order to maintain its REIT status; 2) First
Union's interpretation of Article VI, ss. 6(c); and 3) a series of letters
specific as to the nature of the information sought but vague as to its
actual object.
With regard to First Union's need to abide by ownership limitations,
plaintiff has failed to establish that Gotham has ever owned 9.8% -- the
amount necessary to trigger Article VI, ss. 6 -- of First Union shares.
And, if it did own more than 9.8%, only that percentage that exceeded 9.8%
would be excess shares.
Plaintiff's second and third theories of the applicability of the
Excess Securities provision are inconsistent and disingenuous. First Union
initially argues that because Gotham failed to provide "certain" ownership
information, the Excess Securities provision applies automatically. Not
only is such an interpretation completely contrary to First Union's
treatment of the provision (see, PX15, February 2, 1998 letter from
Secretary Levin to Gotham, "[T]HE BOARD OF TRUSTEES . . . HAS DETERMINED
that securities of First Union claimed to be owned by you constitute
'Excess Securities'" (emphasis added)), it also flies in the face of First
Union's treatment of other shareholders who are perhaps less aggressive and
threatening to management. (PX35, January 16, 1998 letters from Secretary
Levin to certain shareholders, in which Levin maintains that the Board has
"broad authority ... to take remedial action" if a shareholder fails to
provide ownership information, including determining that the shares are
"Excess Securities.")(emphasis added.) Neither Apollo L.P. or Franklin
L.P., both owners of greater than 5% of First Union, were sent the demands
for more specific ownership information pertaining to their limited
partners as was sent to Gotham. But then, neither Apollo nor Franklin had
sent the First Union Board a letter calling for the replacement of existing
management.
Further, the language of Article VI, ss. 6(c) fails to support a
finding that application of the provision is automatic: "Failure to provide
such information, upon reasonable request shall result in the Securities so
owned being treated as Excess Securities . . . " Where language employed in
a contract is clear and unambiguous on its face, a court may not resort to
rules of construction to ascertain the meaning of the words used. Kelly v.
Medical Life Ins. Co. (1987), 31 Ohio St.3d 130, 132. It is a maxim of
contract interpretation that words be given their plain meaning. It is NOT
reasonable to interpret as automatic language that on its face requires the
Trust to initiate a request. The request of the information is a precursor
to its application as it is the ultimate sanction (i.e., classification as
"excess" and disenfranchisement).
First Union's third and fourth rationale -- that because Gotham failed
to supply information regarding its limited partners the "Excess
Securities" provision applies -- is equally unpersuasive. First, Article VI,
ss. 6(c) requires submission of "definitive written information" upon
reasonable request. The Declaration and By-Laws do not indicate the nature
and quality of the information necessary to satisfy the provision. However,
the exhibits discussed in the chronology, supra, support Gotham's provision
of actual, constructive and beneficial ownership information. They further
establish that First Union's first request for Gotham to identify its
Limited Partners came on January 20, 1998, four days after the filing of
the Complaint herein. (PX12.) Prior to that request, First Union
consistently asserted that it was seeking ownership information but did not
specifically indicate that Gotham's response was insufficient for lack of a
list of its limited partners.
First Union's complaint included a second assertion that Gotham's
Notice and proposal violated the following provisions of the Declaration of
Trust and By-Laws: 1) Decl ss. 8.1 provisions for a staggered board; 2)
Article 1, ss. 7 provisions for advanced notice information; and 3) Article
V1, ss. 6(c), "Excess Securities."
First Union's Board of Trustees is currently comprised of nine
individuals representing three classes (Class 1, Class II and Class III) of
three trustees each. Gotham seeks to take advantage of Decl. ss. 8.1 by
increasing the Board to the maximum capacity of trustees -- 15 -- allowed
thereunder. First Union argues that Gotham is attempting to "pack" the
Board to secure control for itself. Regardless of their motive, the
Declaration expressly authorizes that, "[t]he number of Trustees shall be
not less than three nor more than fifteen." First Union offers a 1984 proxy
statement in support of its claim that First Union and its shareholders had
"overwhelmingly approved the staggered board" with the intention of
preventing "an owner of a minority interest gain[ing] control of the Trust
through a proxy fight with a bare majority of shareholder votes." (See,
First Union's Memorandum in Support of . . . Motion for Preliminary
Injunction, Tab C.) First Union has failed to address why the shareholders
allowed the Declaration to continue to contain an express provision
allowing the Board to be expanded at a single annual meeting; See, Decl.
ss. 8.1; see also, DiEleuterio v. Cavaliers of Del., Inc. (Del.Ch.Feb. 9,
1987), 1987 WL 6338; and Larkin v. Baltimore Bancorp (D. Md. 1991), 769 F.
Supp. 919, 934. Nor has First Union dispelled Gotham's contention that by
creating two new seats in each of the three classes, there is no violation
of the provision for a staggered board.
Plaintiff's second argument, that Gotham failed to comply with the
advanced notice procedures required under Article 1, ss. 7, would require
plaintiff to establish that 1) they gave Gotham notice of the deficiencies
of their Notice and 2) that they allowed Gotham an opportunity to cure. First
Union's letter of January 16, 1998 fails to establish that First Union gave
Gotham notice of the alleged deficiencies since it vaguely references
"noncurable" problems. Further, plaintiff chose to file this action as
opposed to allowing Gotham the opportunity to cure.
With regard to First Union's third argument that the "Excess
Securities" provision nullifies the proposal, the court declines further
discussion of it as the issue was thoroughly discussed above.
For the foregoing reasons the court finds that the plaintiff probably
cannot demonstrate by clear and convincing evidence that Gotham violated
the Declaration of Trust and By-Laws for failing to provide ownership
information or for filing a deficient Notice of proposal. The six
requirements of Diamond, supra, are conjunctive. As First Union has failed
to establish its likelihood of success on the merits, it is unnecessary to
consider the remaining five issues. First Union's attempts to preclude the
inevitable proxy contest and possible take over of its current Board and
fear of change in management are understandable; however, actions that
would deprive a shareholder of exercising rights to a $30 million
investment while also depriving other shareholders of the ability to
consider valid options are unlikely to satisfy Diamond's fifth requirement
that the public interest also be served.
Gotham appears to have made reasonable attempts to comply with all of
First Union's demands for information. There is no credible evidence that
Gotham then or now endangered First Union's REIT status. It also appears
that this issue, like the others raised by First Union, are simply
pretextual. The evidence shows that First Union's demand for information
exceeded the requirements of the Internal Revenue Code, its Declaration of
Trust and By-Laws.
The evidence adduced at this hearing demonstrated that the efforts of
First Union's management following Gotham's July 14, 1997 letter were
primarily motivated by a desire to derail Gotham's efforts to change the
Company's course and replace top management. First Union's management's
efforts to disenfranchise Gotham do not appear to be designed to protect
First Union's REIT status but rather management. All the shareholders
should have a fair opportunity to decide the direction of their corporation
at the April 14, 1998 annual meeting.
First Union's Motion for Preliminary Injunction is DENIED.
IT IS SO ORDERED.
/s/ Timothy J. McGinty
----------------------------
TIMOTHY J. MCGINTY, JUDGE
DATE: MARCH 27, 1998
EXHIBIT 44
AMENDED AND RESTATED
JOINT ACQUISITION STATEMENT
PURSUANT TO RULE 13d-1(f)1
The undersigned acknowledge and agree that the foregoing
statement on Schedule 13D, as amended, is filed on behalf of each of the
undersigned and that all subsequent amendments to this statement on
Schedule 13D, as amended, shall be filed on behalf of each of the
undersigned without the necessity of filing additional joint acquisition
statements. The undersigned acknowledge that each shall be responsible
for the timely filing of such amendments, and for the completeness and
accuracy of the information concerning him or it contained therein, but
shall not be responsible for the completeness and accuracy of the
information concerning the other, except to the extent that he or it knows
or has reason to believe that such information is inaccurate.
DATED: March 31, 1998
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ William A. Ackman
------------------------
William A. Ackman
President
By: DPB Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ David P. Berkowitz
------------------------
David P. Berkowitz
President
GOTHAM PARTNERS II, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ William A. Ackman
------------------------
William A. Ackman
President
By: DPB Corporation,
a general partner of Section H
Partners, L.P.
By: /s/ David P. Berkowitz
------------------------
David P. Berkowitz
President
GOTHAM INTERNATIONAL ADVISORS, L.L.C.
By: /s/ William A. Ackman
------------------------
William A. Ackman
Senior Managing Member
By: /s/ David P. Berkowitz
------------------------
David P. Berkowitz
Senior Managing Member
EXHIBIT 45
For Immediate Release
- ---------------------
Contacts: Bill Ackman or George Sard/David Reno
David Berkowitz Sard Verbinnen & Co.
Gotham Partners (212) 687-8080
(212) 286-0300
OHIO COURT RULES IN FAVOR OF GOTHAM PARTNERS
IN PROXY CHALLENGE FOR FIRST UNION REAL ESTATE
Gotham To Proceed With Proxy Contest To Elect New Trustees Of First Union
NEW YORK, March 27, 1998 - Gotham Partners, L.P. today announced that
the Court of Common Pleas, Cuyahoga County, Ohio, has ruled against First
Union Real Estate Investments' (NYSE:FUR) attempt to enjoin Gotham from
presenting an alternative slate of directors for election at First Union's
annual meeting and prevent Gotham from voting its shares. The First Union
annual meeting is scheduled for April 14, 1998. Gotham Partners is one of
First Union's largest shareholders. First Union is a stapled-stock real
estate investment trust (REIT).
In his decision, Judge Timothy J. McGinty stated:
"The evidence adduced at this hearing demonstrated that the efforts of
First Union's management following Gotham's July 14, 1997 letter were
primarily motivated by a desire to derail Gotham's efforts to change the
Company's course and replace top management. First Union's management's
efforts to disenfranchise Gotham do not appear to be designed to protect
First Union's REIT status but rather management. All shareholders should
have a fair opportunity to decide the direction of their corporation at the
April 14, 1998 annual meeting."
On July 14, 1997, Gotham sent a letter to the First Union Board of
Trustees expressing its strong concerns about management and the strategic
direction of the Company and requesting a meeting with the Board of
Trustees. The First Union Board of Trustees refused and despite numerous
subsequent efforts by Gotham has continued to refuse to address Gotham's
concerns.
William A. Ackman, a principal of Gotham Partners, said, "We are very
pleased by the Court's decision and believe it is a victory for all First
Union shareholders. First Union's tactics were clearly seen for what they
are -- a blatant attempt to entrench senior management at all costs by
disenfranchising shareholders. We intend to proceed with our efforts to
elect new Trustees of First Union and look forward to the vote on April 14.
If victorious, we will work hard on behalf of all shareholders to maximize
the value inherent in First Union."
Gotham is soliciting proxies to replace the entire class of three
First Union Trustees up for election at this year's annual meeting, which
includes First Union chairman and chief executive officer James C.
Mastandrea, with Gotham nominees Ackman, David P. Berkowitz, also a
principal of Gotham Partners, and James A. Williams, chairman of Michigan
National Bank. Gotham is also proposing to increase the size of the First
Union Board of Trustees from nine members to 15 members and to fill the six
new seats with Gotham nominees. In its ruling, the Court found no grounds
to invalidate any of Gotham's proposals or any of its nominees for election
to the First Union Board of Trustees. If all the Gotham proposals are
approved by First Union shareholders and its nominees elected, the Gotham
nominees would hold nine of the 15 seats on the First Union Board.
If elected, the Gotham nominees intend to propose changes in the
senior management of First Union and explore other alternatives to maximize
shareholder value.
Gotham Partners is a private New York investment partnership.
