SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant |_|
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 Rule 14a-11(c) or Rule 14a-12
First Union Real Estate Equity and Mortgage Investments
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Gotham Partners, L.P.
- -------------------------------------------------------------------------------
(Name of Person Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
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Preliminary Copy -- Subject To Completion
1998 ANNUAL MEETING OF THE BENEFICIARIES
OF
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
--------------------------------
PROXY STATEMENT
OF
GOTHAM PARTNERS, L.P.
---------------------------------
This Proxy Statement and the accompanying WHITE proxy card are furnished by
Gotham Partners, L.P., a New York limited partnership ("Gotham"), in
connection with the solicitation by Gotham of proxies from the holders of
shares of Beneficial Interest, par value $1.00 per share (the "Shares"), of
First Union Real Estate Equity and Mortgage Investments, an Ohio business
trust (the "Company"), to vote at the 1998 Annual Meeting of Beneficiaries
of the Company, including any adjournments or postponements thereof and any
special meeting of Beneficiaries called in lieu thereof (the "Annual
Meeting"), to take the following actions: (i) to elect William A. Ackman,
David P. Berkowitz and James A. Williams to the three existing seats on
Class II of the Board of Trustees of the Company (the "Board") which will
be open for election at the Annual Meeting; (ii) to approve a Beneficiary
proposal to increase the size of the Board from nine members to fifteen
members, with two new seats in each of the three classes on the Board, and
to hold an election for the six newly created seats (the "Gotham
Proposal"); and (iii) in the event that the Beneficiaries of the Company
adopt the Gotham Proposal, to elect Daniel Shuchman and Steven S. Snider to
the new Class I seats on the Board, Mary Ann Tighe and Stephen J. Garchik
to the new Class II seats on the Board, and David S. Klafter and Daniel J.
Altobello to the new Class III seats on the Board (each of such nominees
together with the nominees referred to in clause (i) above and Gotham's
alternate nominee being hereinafter referred to as a "Gotham Nominee" and
collectively as the "Gotham Nominees"). The principal executive offices of
the Company are located at 55 Public Square, Suite 1900, Cleveland, Ohio
44113-1937. This Proxy Statement and the WHITE proxy card are first being
furnished to the Company's Beneficiaries on or about February 10, 1998.
GOTHAM RECOMMENDS THAT YOU VOTE IN FAVOR OF THE GOTHAM NOMINEES AND
THE GOTHAM PROPOSAL.
The adoption of the Gotham Proposal and the election of the Gotham
Nominees will result in Gotham obtaining control of the Company's Board of
Trustees. Gotham is seeking control because of its disappointment with the
Company's fundamental business
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performance as measured on a per-share basis and the Company's
unwillingness to pursue certain alternatives to maximize the value inherent
in its stapled-stock structure. These alternatives include the sale of the
Company, a partnership with a strategic investor, the acquisition of
appropriate operating businesses which can profit from the Company's
stapled-stock structure and a change in management. If elected, the Gotham
Nominees, subject to their fiduciary duties, will propose changes in the
senior management of the Company, although Gotham has not yet identified
the members of the new management team, and will explore other alternatives
to maximize shareholder value, including an outright sale of the Company, a
partnership with a strategic investor and/or the acquisition of real
estate-intensive operating businesses, in a manner that would preserve and
maximize the value of the Company's stapled-stock structure.
The Annual Meeting is scheduled to be held on Tuesday, April 14, 1998.
The Company has not yet announced the time or location of the Annual
Meeting. Gotham is soliciting proxies for use at the Annual Meeting
whenever and wherever it may be held. Similarly, the record date for
determining the Beneficiaries entitled to notice of and to vote at the
Annual Meeting (the "Record Date") has not yet been set by the Company. In
the event that the Board establishes a Record Date with respect to the
Annual Meeting, only Beneficiaries of record of Shares on the Record Date
will be entitled to vote at the Annual Meeting for each Share. Gotham and
Gotham Partners II, L.P. ("Gotham II"), an affiliate of Gotham,
beneficially own an aggregate of 2,532,400 Shares (including 100 Shares
held of record by Gotham and the remainder held in "street name"), which
collectively represent approximately 9.0% of the Shares outstanding (based
on information publicly disclosed by the Company). Gotham and Gotham II
intend to cause all of such shares to be voted FOR the adoption of the
Gotham Proposal and the election of the Gotham Nominees.
BY SIGNING, DATING AND MAILING THE ENCLOSED WHITE PROXY CARD YOU WILL
REVOKE ANY PREVIOUSLY DATED PROXY. ONLY YOUR LATEST-DATED PROXY WILL COUNT
AT THE MEETING.
THIS SOLICITATION IS BEING MADE BY GOTHAM AND NOT ON BEHALF OF THE
BOARD OF TRUSTEES OF THE COMPANY.
YOUR VOTE IS EXTREMELY IMPORTANT. If you do not submit a proxy card or
vote in person at the Annual Meeting, your Shares will not be voted on the
Gotham Proposal or the Gotham Nominees. If you agree with Gotham's efforts,
we ask for your support by immediately signing, dating and mailing the
enclosed WHITE proxy card.
SHARES IN YOUR NAME. No matter how many Shares you own, vote "FOR" the
Gotham Proposal and the Gotham Nominees by signing, dating and mailing the
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enclosed WHITE proxy card. Sign the WHITE proxy card exactly as your name
appears on the share certificate regarding your Shares.
SHARES IN YOUR BROKER'S OR BANK'S NAME. If you own Shares in the name
of a brokerage firm, bank or other nominee, your broker, bank or other
nominee cannot vote your shares for the Gotham Proposal and the Gotham
Nominees unless it receives your specific instructions. Please sign, date
and mail as soon as possible the enclosed WHITE proxy card in the envelope
that has been provided by your broker, bank or other nominee to be sure
that your Shares are voted, or contact the person responsible for your
account and instruct that person to execute a WHITE proxy card on your
behalf.
QUESTIONS AND ASSISTANCE. If you have not received a WHITE proxy card
or have any questions or need assistance in voting, please call:
Beacon Hill Partners, Inc.
90 Broad Street
New York, New York 10004
(212) 843-8500 (CALL COLLECT)
or
CALL TOLL-FREE (800) 253-3814
PLEASE REMEMBER TO DATE YOUR PROXY CARD, AS ONLY YOUR LATEST DATED
PROXY WILL COUNT AT THE ANNUAL MEETING. IF YOU HAVE ANY DOUBTS AS TO
WHETHER YOUR PROXY WILL BE RECEIVED IN TIME TO BE CAST AT THE ANNUAL
MEETING, PLEASE CALL BEACON HILL PARTNERS, INC. PROMPTLY.
THE GOTHAM PROPOSAL
Gotham sets forth the following proposal to be considered by the
Beneficiaries of the Company at the Annual Meeting:
RESOLVED, in accordance with Article VIII, Section 8.1 of the
Company's Declaration of Trust, as amended (the "Declaration of
Trust"),
(i) that the number of Trustees constituting the full Board of
Trustees of the Company shall be determined at the Annual Meeting to
be fixed at fifteen (an increase of six members); and
(ii) that two of the newly-created seats of the Board of Trustees
of the Company be assigned to each of Class I, Class II and Class III;
and
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(iii) that, at the Annual Meeting, in addition to electing the
three Trustees to fill the seats of the three Trustees in Class II
whose terms are expiring, the Beneficiaries of the Company shall also
elect six Trustees (two Trustees to each of Class I, Class II and
Class III) to serve in the newly-created seats established in
paragraph (ii) above.
YOU ARE URGED TO VOTE FOR THE GOTHAM PROPOSAL ON THE ENCLOSED WHITE
PROXY CARD.
ELECTION OF GOTHAM NOMINEES AS TRUSTEES
Gotham is proposing that the Beneficiaries of the Company elect the
Gotham Nominees to the Board at the Annual Meeting. Currently, the Board of
Trustees is composed of nine Trustees and is divided into equal classes
known as Class I, Class II and Class III whose terms expire in 2000, 1998
and 1999, respectively. It is proposed that William A. Ackman, David P.
Berkowitz and James A. Williams be elected to succeed the current Class II
Trustees on the Board (or any Trustee named to fill any vacancy created by
the death, retirement, resignation or removal of any of such Class II
Trustees) at the Annual Meeting. In the event that the Beneficiaries of the
Company adopt the Gotham Proposal, it is proposed that Daniel Shuchman and
Steven S. Snider be elected to the two Class I seats on the Board created
as a result of the adoption of the Gotham Proposal, Mary Ann Tighe and
Stephen J. Garchik be elected to the two Class II seats on the Board
created as a result of the adoption of the Gotham Proposal, and David S.
Klafter and Daniel J. Altobello be elected to the two Class III seats on
the Board created as a result of the adoption of the Gotham Proposal.
Richard A. Mandel will be nominated for election to the Board in the event
that any one of the aforementioned candidates is unable for any reason to
be elected and to serve as a Trustee.
The following table sets forth the name, age and present principal
occupation, business address and business experience for the past five
years, and certain other information, with respect to each of the Gotham
Nominees. This information has been furnished to Gotham by the respective
Gotham Nominees. Each of the Gotham Nominees has consented to serve as a
Trustee and, if elected, would hold office until the expiration of the term
of the Class of Trustees to which such nominee is elected and until his or
her successor has been elected and qualified or until earlier death,
retirement, resignation or removal.
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PRINCIPAL OCCUPATION OR
NAME, AGE AND EMPLOYMENT DURING
BUSINESS ADDRESS THE LAST FIVE YEARS
---------------- -------------------
William A. Ackman (31)................ Through a company he owns, Mr.
Gotham Partners Management Co. LLC Ackman is a co-investment manager
110 East 42nd Street, 18th Floor of Gotham and Gotham II. Since
New York, New York 10017 January 1, 1993, Mr. Ackman has
been the Vice President, Secretary
and Treasurer of GPLP Management
Corp., the Managing Member of
Gotham Partners Management Co. LLC,
an investment management firm (and
the General Partner of its
predecessor entity). Mr. Ackman has
been employed by Gotham Partners
Management Co. LLC and its
predecessor entity since January 1,
1993. Mr. Ackman was a general
partner of Section H Partners,
L.P., the General Partner of the
Gotham Partners, L.P. and Gotham
Partners II, L.P. investment funds,
from January 1, 1993 through
September 1993. Mr. Ackman has been
the President, Secretary and
Treasurer of Karenina Corporation,
a general partner of Section H
Partners, L.P. since October 1993.
Mr. Ackman is also a member of the
Executive Committee of Florida Golf
Partners, L.P. (described below).
Mr. Ackman holds an A.B. from
Harvard College and an M.B.A. from
Harvard Business School. Mr. Ackman
is a member of the Board of
Directors of the Jerusalem
Foundation and Chairman of its
Investment Committee. He is also
the Chairman of Crimson Impact, a
community service organization.
Daniel J. Altobello (56).............. Mr. Altobello has been the
ONEX Food Services, Inc. Chairman of the Board of ONEX Food
6550 Rock Spring Drive Services, Inc., an airline
Bethesda, Maryland 20817 catering company, since September
1995. Mr. Altobello has been a
partner in Ariston Investment
Partners, a consulting firm, since
September 1995. Mr. Altobello was
the Chairman, President and Chief
Executive Officer of Caterair
International Corporation, an
airline catering company, from
January 1, 1993 until September
1995. Mr. Altobello is a member of
the Boards of Directors of American
Management Systems, Inc., Colorado
Prime Corporation and Blue Cross
Blue Shield of Maryland. Mr.
Altobello holds a B.A. from
Georgetown University and an M.B.A.
from Loyola College in Maryland.
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David P. Berkowitz (35).............. Through a company he owns, Mr.
Gotham Partners Management Co. LLC Berkowitz is a co-investment
110 East 42nd Street, 18th Floor manager of Gotham and Gotham II.
New York, New York 10017 Since January 1, 1993, Mr.
Berkowitz has been the President of
GPLP Management Corp., the Managing
Member of Gotham Partners
Management Co. LLC, an investment
management firm (and the General
Partner of its predecessor entity).
Mr. Berkowitz has been employed by
Gotham Partners Management Co. LLC
and its predecessor entity since
January 1, 1993. Mr. Berkowitz was
a general partner of Section H
Partners, L.P., the General Partner
of Gotham Partners, L.P. and Gotham
Partners II, L.P. investment funds,
from January 1993 through September
1993. Mr. Berkowitz has been the
President, Secretary and Treasurer
of DPB Corporation, a general
partner of Section H Partners, L.P.
since October 1993. Mr. Berkowitz
is also a member of the Executive
Committee of Florida Golf Partners,
L.P. (described below). Mr.
Berkowitz holds a B.S. and an M.S.
from the Massachusetts Institute of
Technology and an M.B.A. from
Harvard Business School. Mr.
Berkowitz is a member of the Board
of Directors and serves on the
Executive Committee of the Jewish
Community House of Bensonhurst.
Stephen J. Garchik (43).............. Since January 1, 1993, Mr. Garchik
The Evans Company has been the President of The Evans
8251 Greensboro Drive, Suite 850 Company, a commercial real estate
McLean, Virginia 22102 development and management firm.
Since July 1996, Mr. Garchik has
been the Chairman of Florida Golf
Partners, L.P., a community golf
course ownership, operation and
development enterprise in which
Gotham has a substantial
investment. Mr. Garchik holds a
B.S. and an M.B.A. from the
University of Pennsylvania.
David S. Klafter (42).............. Mr. Klafter has been an in-house
Gotham Partners Management Co. LLC counsel and a member of the
110 East 42nd Street, 18th Floor investment team of Gotham Partners
New York, New York 10017 Management Co. LLC, an investment
management firm, since April 1996.
Mr. Klafter was counsel at White &
Case, a law firm, from January 1,
1993 until December 1993, and a
partner at White & Case from
January 1994 until April 1996. Mr.
Klafter's law practice was in
general commercial litigation, with
an emphasis on real-estate-related
matters, including leases,
mortgages and loan work-outs. Mr.
Klafter holds a B.A. from
Northwestern University and a J.D.
from New York University School of
Law. He serves on the Visiting
Committee of the College of Arts
and Sciences of Northwestern
University.
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Richard A. Mandel (35).............. Mr. Mandel has been the President
Alternate Nominee of the Brokerage Division of
Kennedy-Wilson International Kennedy-Wilson International, a
1270 Avenue of the Americas real estate brokerage and
Suite 1818 investment firm, since December
New York, New York 10020 1996. From October 1993 until
December 1996, Mr. Mandel was a
Managing Director in charge of the
Asian Operations of Kennedy-Wilson
International. From January 1, 1993
until October 1993, he was a
Director of Jones Lang Wootton, a
real estate brokerage firm.
Mr. Mandel is a member of the
Board of Directors of
Kennedy-Wilson International. Mr.
Mandel holds a B.A. from Washington
University in St. Louis and an
M.B.A. from Northwestern
University's Kellogg Graduate
School of Management.
Daniel Shuchman (32) Mr. Shuchman has been a member of
Gotham Partners Management Co. LLC the investment team at Gotham
110 East 42nd Street, 18th Floor Partners Management Co. LLC, an
New York, New York 10017 investment management firm, since
October 1994. Mr. Shuchman was an
investment banker at Goldman Sachs
& Co., an investment banking firm,
from January 1, 1993 until August
1994. Mr. Shuchman holds a B.A.
from the University of
Pennsylvania.
Steven S. Snider (41) Since January 1, 1993, Mr. Snider
Hale and Dorr LLP has been a senior partner at Hale
1455 Pennsylvania Avenue, N.W. and Dorr LLP, a law firm. Mr.
Washington, D.C. 20004 Snider holds an A.B. from Cornell
University and a J.D. from the
University of Chicago Law School.
Mary Ann Tighe (49) Since January 1, 1993, Ms. Tighe
Insignia/ESG has been an Executive Managing
200 Park Avenue Director and a member of the
New York, New York 10166 Executive and Strategic Planning
Committees of Insignia/ESG, a
commercial real estate firm. Ms.
Tighe holds a B.A. from Georgetown
University and a master's degree
from the University of Maryland.
She is on the Board of Directors of
New 42nd Street.
James A. Williams (55).......... Since January 1, 1993, Mr. Williams
Williams, Williams, Ruby has been the President of Williams,
& Plunkett PC Williams, Ruby & Plunkett PC, a law
380 N. Woodward Avenue, firm. Mr. Williams has also been
Suite 380 the Chairman of Michigan National
Birmingham, Michigan 48009 Bank and Michigan National
Corporation since November 1995.
Mr. Williams holds a B.A. from the
University of Michigan and a J.D.
from Wayne State University Law
School. Mr. Williams is Chairman of
the Henry Ford Hospital in West
Bloomfield, Michigan. He is a
Trustee of Henry Ford Health System
and the Oakland University
(Michigan) Foundation and a member
of the Board of Governors of the
Cranbrook School.
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If the Gotham Proposal is adopted and all of the Gotham Nominees are
elected to the Board, the Gotham Nominees will constitute a majority of the
Board. If the Gotham Nominees are elected to the existing Class II seats on
the Board that will be open at the Annual Meeting, but the Gotham Proposal
is not adopted by the Beneficiaries of the Company, the Gotham Nominees
will not constitute a majority of the Board, but the three Gotham Nominees
elected in such case will, in accordance with their fiduciary duties, use
their positions on the Board to urge the Board to make certain changes to
senior management and to explore other alternatives to maximize shareholder
value in a manner that would preserve and maximize the value of the
Company's stapled-stock structure.
The Gotham Nominees will not receive any compensation from Gotham for
their services as Trustees of the Company. Gotham has agreed to indemnify
all of the Gotham Nominees against any costs, expenses and other
liabilities associated with their nomination and the election contest. Each
of the Gotham Nominees has consented to being a nominee of Gotham for
election as a Trustee of the Company and to serve as a Trustee if so
elected.
According to the Company's public filings, if elected as Trustees of
the Company, the Gotham Nominees who are not employees of the Company would
receive under the Company's current policies an annual retainer fee of
$12,000 and an attendance fee of $500 for each meeting of the Board and
each committee meeting attended, except for certain committee meetings for
which an attendance fee of $250 is paid. The Gotham Nominees, if elected,
may consider modifying this fee-based compensation structure to an
equity-based incentive program.
In order to further align their interests with those of the Company's
Beneficiaries, the Gotham Nominees who are affiliated with Gotham, namely
William A. Ackman, David P. Berkowitz, David S. Klafter and Daniel
Shuchman, have agreed to waive all fees and any other compensation payable
to them by the Company in the course of their service as Trustees.
All Trustees of the Company would be reimbursed by the Company for
expenses incurred in connection with their services as Trustees of the
Company. The Gotham Nominees, if elected, will be indemnified by the
Company for service as a Trustee of the Company to the extent
indemnification is provided to Trustees of the Company under the
Declaration of Trust of the Company and the By-Laws of the Company, as
amended (the "By-Laws").
The beneficial ownership of Shares by the Gotham Nominees and certain
additional information concerning the Gotham Nominees and other
participants in this solicitation is set forth on Schedule I of this Proxy
Statement.
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Gotham does not expect that any of the Gotham Nominees will be unable
to stand for election, but, in the event that any one of the Gotham
Nominees is unable to stand for election, the Shares represented by the
enclosed WHITE proxy card will be voted for Richard A. Mandel instead of
such Gotham Nominee. In addition, Gotham reserves the right to nominate
substitute or additional persons if the Company makes or announces any
changes to its By-Laws or takes or announces any other action that has, or
if consummated would have, the effect of disqualifying any or all of the
Gotham Nominees. The Company has contested Gotham's nomination of the
Gotham Nominees and its making of the Gotham Proposal and is seeking to
prevent and nullify such nominations and proposal. See "Certain
Litigation." In any such case, Shares represented by the enclosed WHITE
proxy card will be voted for all such substitute or additional nominees
selected by Gotham.
In accordance with applicable regulations of the Securities and
Exchange Commission (the "Commission" or "SEC"), the WHITE proxy card
affords each Beneficiary the opportunity to designate the names of any of
the Gotham Nominees whom he or she does not desire to elect to the Board.
Notwithstanding the foregoing, Gotham urges Beneficiaries to vote for all
of the Gotham Nominees on the enclosed WHITE proxy card. The persons named
as proxies on the enclosed WHITE proxy card will vote, in their discretion,
for each of the Gotham Nominees who is nominated for election and for whom
authority has not been withheld.
YOU ARE URGED TO VOTE FOR THE ELECTION OF THE GOTHAM NOMINEES ON THE
ENCLOSED WHITE PROXY CARD.
BACKGROUND OF THE SOLICITATION
On June 4, 1997, Gotham and Gotham II filed a Schedule 13D with the
Commission which stated in relevant part that:
[Gotham and Gotham II] acquired the Shares and Options for
investment purposes, and for the reasons set forth in the following
paragraphs. In general, [Gotham and Gotham II] pursue an investment
objective that seeks capital appreciation. In pursuing this investment
objective, [Gotham and Gotham II] analyze and evaluate the performance
of securities owned by them, including the Shares and the Options, and
the operations, capital structure and markets of companies in which
they invest, including the Company, on a continuous basis through
analysis of documentation on and discussions with knowledgeable
industry and market observers and with representatives of such
companies (often at the invitation of management).
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[Gotham and Gotham II] believe that the Company has significant
unrealized equity potential which can be realized if the Company is
able to execute a substantial number of sizable acquisitions of
real-estate-intensive operating businesses at attractive prices.
[Gotham and Gotham II] are concerned that existing management may not
have the requisite background and experience to implement such a
value-maximizing strategy. [Gotham and Gotham II] are concerned that
the Company's management, over the past eight months, has raised
equity capital in a manner which has been unnecessarily dilutive to
existing shareholders of the Company.
[Gotham and Gotham II] will continuously assess the Company's
business, financial condition, results of operations and prospects,
general economic conditions, the securities markets in general and
those for the Company's securities in particular, other developments
and other investment opportunities. Depending on such assessments, and
based on, among other reasons, the matters set forth in the preceding
paragraph, [Gotham and Gotham II] may seek to actively influence the
management and affairs of the Company, including, without limitation,
by making proposals and taking other actions as to, among other
things, new management for the Company, a new slate of directors, an
extraordinary corporate transaction such as a merger or
reorganization, modification of the Company's Declaration of Trust or
By-laws, or other similar or related matters.
In addition, one or more of [Gotham and Gotham II] may acquire
additional Shares or Options or may determine to sell or otherwise
dispose of all or some of its holdings of Shares or Options. Such
actions, and any action of the nature referred to in the preceding
sentence, will depend upon a variety of factors, including, without
limitation, current and anticipated future trading prices for such
common stock, the financial condition, results of operations and
prospects of the Company, alternative investment opportunities,
general economic financial market and industry conditions, and future
actions of the Company and its management.
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On July 14, 1997, the following letter was sent to the Board of
Trustees of the Company and the Board of Directors of First Union
Management, Inc., the Company's affiliated management company:
Mr. James C. Mastandrea
Chairman/President/CEO
First Union Real Estate
55 Public Square, Suite 1900
Cleveland, OH 44113
To: The Trustees of First Union Real Estate Equity and Mortgage
Investments
The Directors of First Union Management, Inc.
As you may know from our recent 13D filing, we have a substantial
investment in First Union Real Estate Equity and Mortgage Investments
("FUR" or "the Company"). We are writing to you because we believe the
Company has significant unrealized equity appreciation potential which
is unlikely to be realized under the Company's current leadership.
In light of the Company's recent dramatic change in strategic
direction, we believe that it is appropriate for the Board to
determine whether the Company's newly proposed strategic plan is the
best plan to maximize shareholder value after considering all
alternatives. 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.
We have outlined the four primary reasons for our concerns below. In
addition, we describe the value-maximization strategies chosen by the
other paired-share(FN1) REITs because we believe they provide a good
background for the Board's consideration. We conclude by discussing
current management's responses to value-maximizing suggestions we have
made and, in light of management's response, our proposed future
course of action for the Company.
I. MANAGEMENT APPEARS TO HAVE BEEN UNAWARE OF THE COMPANY'S CORPORATE
STRUCTURE
FUR's strategic direction has changed dramatically in recent months
due to the discovery by the Company's shareholders of FUR's unusual
and potentially valuable stapled-stock corporate structure. As
recently as the Company's
[FN]
1. In this letter, we use "paired-share" and "stapled-stock" interchangeably
to refer to those REITs which were grandfathered under the tax law to
permit their remaining "stapled" after June 30, 1983.
</FN>
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convertible preferred stock offering on October 23, 1996, the
Company's "five-year strategic plan" consisted of "renovating the
properties, repositioning the asset portfolios through targeted
acquisitions and dispositions, and improving the operations of the
Company (Preferred prospectus, page S-3)."
On the road show for the convertible offering in October, management
stated that the Company was targeting acquisitions of shopping malls
and apartments and intended to dispose of the Company's office
portfolio. Management made no mention of the Company's stapled-stock
structure on the road show nor did it announce any plans to make
acquisitions of parking lots or operating companies. As part of its
stated acquisition strategy, the Company, after completion of the
offering, purchased a 146-unit apartment complex on December 11, 1996.
Unlike the strategic plan disclosed in the Company's convertible
prospectus offering circular, the Company's strategic plan announced
on May 27, 1997 at its road show in New York was materially different.
Mr. James C. Mastandrea, the Company's chairman, chief executive
officer, and president, publicly indicated that maximizing the value
of the Company's paired-share structure was part of FUR's five-year
strategic plan that he claimed to have formulated more than one and
one-half years ago (i.e., in late 1995.) When Mr. Mastandrea was
questioned by shareholders as to why the Company did not promote its
unusual and preferential corporate structure during the preferred
offering, he replied, "We did not want new shareholders to buy the
stock for the wrong reason." Despite this concern, it is noteworthy
that beginning December 4, 1996 the Company changed its tag line on
all of its press releases from:
First Union Real Estate Investments (NYSE: FUR) is an equity
real estate investment trust (REIT) specializing in
repositioning real estate to extract intrinsic value
(October 24, 1996 company press release).
to:
First Union Real Estate Investments (NYSE: FUR) is the only
equity real estate investment trust (REIT) with a "stapled
stock" management company, First Union Management, Inc.
First Union together with its management company specializes
in repositioning a variety of real estate property types to
extract intrinsic value (December 4, 1996 company press
release).
If, indeed, the Company's strategic plan previously had been to
maximize the value of the Company's stapled-stock structure, then
investors in the Company's preferred offering were not properly
informed of the purpose for which the Company raised equity. The
Company's use of a material amount of its available capital to
purchase the $312 million Marathon mall portfolio on October 1, 1996,
when that acquisition did not in any way allow the Company to benefit
from its
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stapled-stock structure, is a further indication that use of the
structure was not part of the Company's strategic plan.
After the Company's stapled-stock structure was noted by investors who
carefully reviewed the fine print in the "Federal Income Tax
Considerations" section at the back of the prospectus for the
preferred offering, management apparently revised its publicly
disclosed strategic plan.(FN2) According to the Company's May 28, 1997
prospectus, "The Company's primary business focus will be to acquire
parking structures and surface lots throughout North America and to
sell non-core assets (page S-3)." The Company's first step in its new
strategic plan was to acquire a controlling interest in Imperial
Parking Limited.
It is troubling that management was apparently unaware of the
Company's value-enhancing corporate structure and disconcerting that
management has been unwilling to acknowledge its prior ignorance of
the structure. In fact, disingenuous statements by management have
caused us to question management's motives.
II. OVERPAYMENT FOR IMPERIAL PARKING ACQUISITION
Based on management's recent actions as well as its background and
experience, we do not believe that management possesses the requisite
skills to successfully implement the Company's strategic plan. This
lack of experience is demonstrated in part by management's pursuit and
acquisition of Imperial Parking.
We believe that the price paid by FUR for Imperial Parking was well in
excess of the fair market value of the company. We arrive at this
conclusion by comparing (1) Imperial's acquisition multiple with that
paid for Allright Parking, a superior parking company which has real
property parking assets in addition to a third-party management
business, (2) by considering the after-tax yield FUR will earn on the
price paid for the business, and (3) by comparing the price paid by
FUR with the price paid by Onex, the seller, to take Imperial private
less than one year before.
FUR paid approximately 17 times 1996 fiscal year EBITDA for Imperial
Parking Ltd. in April of 1997. A group comprised of Apollo Real Estate
and AEW Realty Advisors paid less than 10 times 1996 fiscal year
EBITDA for Allright Parking in October of 1996. While the acquisition
multiple paid by FUR looks high by comparison, it is even more extreme
when one compares the two companies.
[FN]
2. An electronic text search of First Union's public filings for the
previous ten years reveals that there is no other reference to FUR
being a stapled-stock company in any of the Company's public filings.
</FN>
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Imperial and Allright are comparable in some respects. Both are
dominant parking management companies in their respective markets.
Allright, however, has several materially superior qualities to
Imperial. Among other factors, Allright generates more than five times
the EBITDA that Imperial generates and 55% of Allright's EBITDA is
from parking lots it owns. Most significantly for FUR, Allright can be
acquired by the REIT entity of a stapled-stock REIT, allowing a
significant component of the company's earnings to be shielded from
corporate level taxation. Because Imperial Parking does not own the
properties it manages, it cannot be acquired by the REIT entity of a
stapled-stock company, and therefore does not offer FUR the benefits
associated with being a stapled-stock REIT. In addition, because
Imperial does not own the parking lots it manages and has typically
short-term management contracts, there is significantly greater
uncertainty associated with the stability of its future revenue
streams. In light of Imperial's absence of real estate assets, smaller
size, and less stable revenue stream, we believe that FUR should have
been able to acquire Imperial at a significantly lower multiple of
cash flow than that paid for Allright.
Despite management statements about the Imperial acquisition being
only slightly initially dilutive, we believe the acquisition will be
materially dilutive to FUR. We estimate that the Imperial acquisition
will generate an initial unleveraged, after-tax yield of less than 4%
on FUR's Canadian $105 million investment. Management and analysts
have described the acquisition impact on the Company on a pre-tax
funds from operation (FFO) basis, but because FUR will be taxed on
Imperial's earnings, only an after-tax analysis is appropriate.
We believe that management was forced to pay a tremendous premium for
Imperial Parking because the business, which had only recently been
acquired by the then current owner, was not officially for sale. Onex
Corp. had acquired Imperial Parking for a price of approximately
Canadian $60.5 million in a going-private transaction completed in
June of 1996. In April of 1997, FUR paid Canadian $105 million, a more
than 65% premium to the takeover premium price paid by Onex less than
one year before.
Because the price paid for acquisitions, particularly in an
acquisition-intensive company, is a critical determinant of the
returns earned for shareholders, we are extremely concerned about the
execution of future acquisitions by the existing management team.
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III. MANAGEMENT HAS DILUTED SHAREHOLDERS WITH POORLY EXECUTED EQUITY
OFFERINGS
Management's ability to raise equity successfully is a critical
requirement for shareholder value maximization. The timing, amount,
structure and prices of equity offerings will significantly affect
shareholder risk and return in the future.
In October 1996, FUR raised equity for the first time in nearly twenty
years. Management's execution of its preferred-stock offering and two
follow-on common stock offerings indicate that management lacks
sufficient experience to execute an optimal capital-raising program.
In a recent press release, the Company promotes as an accomplishment
that it has raised equity three times since October of 1996. The press
release does not make reference to the pricing, structure, and timing
of the offerings. We believe that all three offerings were ill-timed
and poorly executed -- the first offering because of management
ignorance of the Company's stapled-stock structure, the second and
third offerings because of management's efforts to dilute the
ownership stake of certain substantial shareholders of the Company.
The first $57.5 million equity offering was for preferred equity
convertible into common stock at $7.5625, a price which was, and
remains, significantly below the Company's real estate net asset value
per share, not including any value for the Company's stapled-stock
structure. Raising $57.5 million of convertible preferred stock at a
substantial discount to net asset value is a desperate act of a
distressed REIT. Management, however, did not seem to be aware that
the pricing of the offering was not favorable, nor did it give any
indication that the proceeds of the offering were to be used to
acquire operating businesses:
This is the first time First Union has been to the equity
market since 1977. The successful completion of this
offering, reflected by the favorable pricing and strong
demand, is evidence that the market supports our strategic
plan to reposition assets to maximize total return to
shareholders (James C. Mastandrea, October 24, 1996 Company
Press Release).
Had the Company been aware of the implications of its stapled-stock
structure and actively promoted the structure's value, we believe the
offering could have been accomplished at a significantly higher price.
Four months later on January 28, 1997, the Company sold $47.4 million
of common equity at $12.125 using an offering memorandum which
directly promoted the Company's stapled-stock structure: "First Union
also intends to utilize its stapled stock structure to maximize the
total return to First Union
15
<PAGE>
Shareholders . . . (p. S-7)." The offering was accomplished without a
road show or any public announcement (until after the offering was
completed), and without the knowledge of most of the major
shareholders of the REIT. Despite the fact that the stock was well bid
for in the public market at $13.125 on the date of the completion of
the offering, management sold stock to previously uninvolved investors
at $12.125 per share, a $1.00 discount before including the $0.303
underwriting discount.
The Company's third equity offering in eight months was achieved at a
price significantly below the stock's trading price for several weeks
prior to the offering. This common stock offering was completed at
$12.50 when stock had been trading at $14.00+ per share until word of
the impending offering spread on Wall Street.
One might reasonably ask why the Company, despite hiring well-regarded
investment bankers, executed these offerings so poorly. Based on the
secretive nature of the second offering and the inopportune timing of
the third offering, we believe the primary reason for the structure
and timing of these offerings was to dilute the voting stake of
certain major shareholders of the Company regardless of the most
effective means, timing, and price for raising equity. Had management
been interested in raising equity at the highest possible price, we
believe the Company would have solicited the participation of the
Company's largest shareholders.
Management's demonstrated inability to execute an optimal equity
capital raising program and its indifference to the dilution of
existing shareholders raise significant concerns about management's
ability to implement its strategic plan to maximize the value of the
Company's stapled-stock structure.
IV. MANAGEMENT LACKS THE REQUISITE BACKGROUND AND EXPERIENCE
Even if one were to ignore management's poorly executed equity
offerings and the Company's overpayment for Imperial Parking, we
believe that an examination of management's background and experience
casts significant doubt on its ability to manage an
acquisition-intensive operating business.
In order to maximize the value of the Company's structure, management
has acknowledged that the Company must invest substantial capital in
numerous acquisitions of real-estate-intensive operating businesses at
attractive prices while simultaneously seamlessly combining these
organizations into the Company's existing base of operations.
Management has affirmed these requirements by announcing an intention
to complete $700-800 million of parking acquisitions over the next
three years. The skills required for the Company's recently revised
plan
16
<PAGE>
to conduct an acquisition-intensive investment program are materially
different from those required under its prior plan to renovate and
reposition an existing portfolio of shopping center and office assets.
Current management's background and experience is primarily that of
real estate asset management with very limited real estate acquisition
experience. Because of the Company's overleveraged balance sheet and
underperforming assets over the past several years, the Company did
not have an opportunity to complete a significant number of
acquisitions and attract an experienced acquisition team.
The oversight and guidance for existing management is provided by Mr.
Mastandrea. Mr. Mastandrea was hired by the Company to replace the
retiring chairman and to assist the Company in turning around its
troubled real estate portfolio. Renovating, leasing, and repositioning
shopping centers require different skills from those required to
implement the Company's current strategic plan. Operating company
acquisition and management experience do not appear to be present in
Mr. Mastandrea's resume. A review of Mr. Mastandrea's background
indicates that prior to joining FUR, he was primarily a single family
home builder and real estate consultant.
The existing senior management of the Company, prior to the purchase
of Imperial Parking, had never made an acquisition of an operating
business. We believe the acquisition of Imperial Parking, particularly
the price paid, demonstrates management's inexperience in acquiring
operating companies.
Management has actively promoted the rise in the Company's share price
since October of 1996 as evidence that Wall Street approves of
management and the Company's strategic plan. In contrast to
management's statements, we believe that Wall Street's acceptance of
these offerings and the stock's substantial appreciation have been
largely driven by investors' discovery of the Company's stapled-stock
structure and their belief that the board of directors will pursue a
value-maximization strategy similar to the other paired-share REITs.
Speculation concerning investor interest in the Company, fueled by
Apollo Real Estate's 13D filings, have also likely contributed to the
stock's appreciation.
We do not fault management for lacking the required experience to
implement the current plan because senior management was hired to
execute the Company's prior strategic plan. We do, however, fault
existing members of management for attempting to implement a strategic
plan for which they lack the requisite experience. In light of our
concerns, we believe the Board should consider the value-maximizing
strategies of the other paired-share REITs outlined below.
17
<PAGE>
VALUE-MAXIMIZATION STRATEGIES THE BOARD SHOULD CONSIDER
We believe that an analysis of the shareholder value-maximization
techniques of the other three paired-share REITs will be useful in
assisting the Board in identifying the best shareholder
value-maximization approach for the Company:
Hotel Investors Trust/Hotel Investors Corp. was an over-leveraged,
nearly defunct paired-share REIT when Starwood Capital Group agreed to
contribute its hotel assets to the REIT in December 1994 in exchange
for paired-share units in the company's recently formed UPREIT. The
companies were renamed Starwood Lodging Trust.
Since Starwood Lodging Trust's recapitalization, Barry Sternlicht,
Chairman of Starwood, and a newly-identified, extremely experienced
management with substantial hotel operating and acquisition experience
have acquired numerous full service hotel assets at attractive prices.
Starwood Lodging Trust has raised equity capital in a series of
carefully-timed offerings at prices which have been minimally dilutive
to shareholders. The share price of Starwood Lodging Trust has
appreciated from approximately $10.00 per share in late 1994 to over
$44.00 per share today. The success of Starwood has attracted
significant interest in the three other remaining grandfathered
paired-share REITs.
California Jockey Club/Bay Meadows Operating Company is a paired-share
REIT whose business was primarily owning and operating the Bay Meadows
Race Track. In August of 1996, Hudson Bay Partners, L.P., an entity
affiliated with Crescent Real Estate Equities and Richard Rainwater,
made a recapitalization proposal to Cal Jockey whereby Hudson Bay
would invest $300 million to purchase new equity in the Companies.
Other interest in the REIT encouraged its board to hire an investment
banker to solicit other proposals from interested parties. In October
of 1996, Cal Jockey selected Patriot American Hospitality as the
winning bidder with its $33.00 cash or stock offer. From the time the
Hudson Bay offer was made public, the stock has appreciated from
approximately $17.00 per share to in excess of $44.00 today. Gotham
Partners, L.P. and Gotham Partners II, L.P. had a combined 6.3% stake
in California Jockey Club prior to the Patriot offer.
Santa Anita Realty/Santa Anita Operating Company (the "Santa Anita
Companies" or "SAR") is a paired-share REIT whose business was
primarily owning and operating the Santa Anita Race Track in Arcadia,
California as well as a small portfolio of shopping centers, office
buildings, and apartments. In August of 1996, the Santa Anita
Companies agreed to sell $138 million of stock to Colony Capital, a
well-regarded real estate opportunity fund. At the time of the Colony
offer,
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SAR's stock was trading at approximately $13.50 per share. The Colony
proposal precipitated significant interest from other investors.
Ultimately, Morgan Stanley held an auction which was won by Meditrust,
a health care REIT, which offered stock consideration valued at $31.00
per share. Gotham Partners, L.P. was part of a losing bid to acquire
control of Santa Anita.
In summary, by examining the value-maximization strategies of the
boards of directors of the other three paired-share REITs, we conclude
that shareholder value maximization is best accomplished by attracting
new investors with the skills and access to deal flow required to
maximize the value of a paired-share REIT's structure and the
willingness to invest substantial equity capital in the Company as a
demonstration of their commitment to value-maximization.
MANAGEMENT'S RESPONSE TO SHAREHOLDER VALUE-MAXIMIZATION PROPOSALS
In conversations with management in which we have suggested potential
partners to assist the Company in achieving shareholder value
maximization, Mr. Mastandrea has indicated to us that, regardless of
the potential for shareholder value maximization, he is unwilling to
consider any proposal to the Company which does not allow him to
remain in control of FUR.
We have suggested to Mr. Mastandrea that he consider adding some of
the Company's significant shareholders to the Board, which would
likely give the substantial owners of the Company greater comfort in
FUR's ability to implement its strategic plan. Mr. Mastandrea has
responded by indicating that he is unwilling to consider the addition
of any of FUR's major shareholders to the Board.
We have suggested that the Company could acquire significant
management talent and attractive assets by using its stock (or
operating partnership units in a newly-formed UPREIT) as a currency
for the acquisition of a real-estate-intensive operating business. Mr.
Mastandrea has responded that he is unwilling to consider any
transaction which would give an outside investor a substantial
interest in the Company even if the acquisition were structured to
preserve the Company's important tax characteristics.
Unlike the management and boards of directors of the other
paired-share REITs, the management of FUR has adopted a "go it alone"
strategy in its approach to shareholder value maximization. In
adopting this strategy, we believe that the current management has
overestimated its capabilities and underestimated the experience and
skills required to maximize the Company's value.
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<PAGE>
Ultimately, we believe that the current management is not objective in
evaluating its abilities to manage the Company going forward.
OUR PROPOSAL FOR THE FUTURE
Mr. Mastandrea has accused us and other shareholders of the Company
who question the Company's current management experience and strategic
plan of being short-term opportunists. Speaking for Gotham, this is
false. We are not seeking, nor would we accept, greenmail. Gotham is
not a short-term trading fund, nor are we risk arbitrageurs. Rather,
we seek investments which offer high rates of return over a many-year
holding period. We have learned from the example of Warren Buffett to
seek investments in great businesses managed by people whom we like,
trust, and admire, which we can hold forever. Please help make First
Union a permanent investment for Gotham Partners and all of FUR's
shareholders.
We believe there is tremendous potential value in First Union. We urge
you to unlock that value by replacing management with new leadership
that is committed to utilizing the stapled-stock structure in an
effective and value-enhancing manner, has relevant and credible
experience, and views shareholders as an important constituency, not
as an adversary.
We would like to meet with you to discuss these concerns further as
well as answer any questions you may have.
Very truly yours,
Gotham Partners, L.P.
Gotham Partners II, L.P.
/s/ William A. Ackman
---------------------
William A. Ackman
/s/ David P. Berkowitz
----------------------
David P. Berkowitz
20
<PAGE>
On July 21, 1997, the following letter was sent by Mary Ann Jorgenson
of Squire, Sanders & Dempsey, L.L.P., outside counsel to the Company, to
Stephen Fraidin of Fried, Frank, Harris, Shriver & Jacobson, special
counsel to Gotham and Gotham II:
Stephen Fraidin, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
RE: Gotham Partners Management Co. LLC
----------------------------------
Dear Mr. Fraidin:
I would like to take this opportunity to voice some concerns raised by
the recent letter your client sent to the Trustees of First Union Real
Estate and Mortgage Investments and to the directors of its related
management company.
We can expect considerable discourse among the participants in this
arena. Our concern is that discussion not stray from the facts. The
reference to Warren Buffett and his standard of "trust" being used to
suggest, by innuendo, that the management of First Union, and
specifically Chairman and CEO James C. Mastandrea, lacks integrity and
honesty was utterly inappropriate and so closely toes the line that it
requires mention. Hopefully, this will not occur again.
Very truly yours,
/s/ Mary Ann Jorgenson
----------------------
Mary Ann Jorgenson
21
<PAGE>
On July 23, 1997, Gotham and Gotham II sent the following letter to
James C. Mastandrea, the Chairman, President and CEO of the Company:
Mr. James C. Mastandrea
Chairman/President/CEO
First Union Real Estate
55 Public Square, Suite 1900
Cleveland, OH 44113
Dear Mr. Mastandrea:
On July 14, we sent a letter to the Trustees of First Union Real
Estate and Mortgage Investments and the Directors of First Union
Management, Inc. In that letter we asked the Trustees and Directors,
as fiduciaries for the company's shareholders, to consider two
questions. First, is the company's new strategic plan the most
appropriate plan to ensure long-term maximization of shareholder
value? Second, is the current management team capable of identifying,
executing, and integrating the acquisitions necessary to maximize the
value of the company's unusual corporate structure?
We offered what we believe to be reasoned arguments for questioning
the logic of the company's recently revised strategic plan and current
management's ability to implement it. In the subsequent week, we have
received no substantive response to our letter.
We are truly interested in being long-term shareholders of First Union
and enjoying the benefit of the company's unusual corporate structure
over a multi-year period. We have absolutely no interest in any
arrangement through which we receive short-term benefit at the expense
of other shareholders. Further, we have several specific proposals
which we believe will manifest our long-term commitment to First
Union.
We would appreciate the opportunity to meet with the Trustees of First
Union Real Estate and Mortgage Investments and the Directors of First
Union
22
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Management, Inc. to discuss our original concerns and our proposals
for the future. We will make ourselves available at your convenience
in Cleveland, New York, or any other mutually agreeable location. We
look forward to your response.
Very truly yours,
Gotham Partners, L.P.
Gotham Partners II, L.P.
/s/ William A. Ackman
---------------------
William A. Ackman
/s/ David P. Berkowitz
----------------------
David P. Berkowitz
23
<PAGE>
On August 20, 1997, James C. Mastandrea sent the following letter to
David P. Berkowitz of Gotham:
Mr. David P. Berkowitz
Gotham Partners Management Co. LLC
110 East 42nd Street, 18th Floor
New York, NY 10017
Dear Mr. Berkowitz:
First Union's Board of Trustees has asked me to respond to your most
recent correspondence.
Your comments about the Trust's strategy and your stated intentions
concerning control of the Trust cause the Board to be concerned about
the impact your actions could have on First Union's REIT status.
Accordingly, in fulfilling its obligations as fiduciaries to all of
our shareholders, the Board formally requests certain information
about your holdings pursuant to Section 11.7 of the Declaration of
Trust of First Union and Article VI, Section 6(c) of the By-Laws.
Specifically, kindly 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 you, your partner, 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
such entity, affiliate and group member.
Once we have received and reviewed this written information, we will
be in a position to consider the proposals you mention. If you will
send your suggestions in writing to my attention, the Board will give
them the same consideration it gives all shareholder proposals.
I look forward to hearing from you.
Sincerely,
/s/James C. Mastandrea
----------------------
James C. Mastandrea
24
<PAGE>
On September 8, 1997, William A. Ackman of Gotham sent the following
letter to James C. Mastandrea:
Mr. James C. Mastandrea
First Union Real Estate Investments
55 Public Square Suite 1900
Cleveland, OH 44113
Dear Jim:
We are disappointed that the only substantive response to our letters
to you is your request of August 20, 1997 for certain information from
us. We assume that your questions about our ownership in First Union
relate to the Board's concern about the Trust maintaining its special
tax status. We assume that you are acting in good faith by addressing
these questions to us, rather than attempting to make it cumbersome
for us to work with the Trust in our attempt to increase shareholder
value.
Please be assured that we are well aware of the risks to First Union
of a loss of the Company's REIT status or its favorable paired-share
structure. In an effort to be responsive, we have addressed your
questions below.
As of the date hereof, Gotham Partners, L.P., a limited partnership,
is the actual owner of 877,825 common shares of First Union and
constructively owns, within the meaning of Treasury Regulation
1.857-8(c) and Section 544 of the Internal Revenue Code (through
ownership of an option), an additional 1,183,150 common shares. In
addition, as of the date hereof Gotham Partners II, L.P., a limited
partnership, is the actual owner of 9,075 common shares of First Union
and constructively owns (as defined above) an additional 16,850 common
shares. Neither I nor David Berkowitz, nor any entity under our
control, actually, constructively (as defined above) or beneficially
owns any other equity interests in First Union.
We sincerely hope that now that you have received this information you
will turn to more fundamental issues, in particular, those raised in
our July 14, 1997 letter. As we stated in that letter, we would
welcome the opportunity to meet with the Board so that we can discuss
our concerns and any proposals we may have in more detail.
Sincerely,
/s/William A. Ackman
--------------------
William A. Ackman
25
<PAGE>
On October 7, 1997, Mr. Mastandrea sent the following letter to Mr.
Berkowitz:
Mr. David P. Berkowitz
Gotham Partners Management Co. LLC
110 East 42nd Street, 18th Floor
New York, NY 10017
Dear David:
We received your letter of September 8, 1997. It is simply not
responsive to the Board's demand for information about the structure
of your entities and your group. In particular, you are obligated to
provide the names of each and every member of Gotham I and II, as well
as each and every member of other entities who own First Union stock.
Undoubtedly you are aware that you are obligated under the Declaration
of Trust to divulge such ownership information.
Your partial response and your use of 13D amendments as a media
campaign look more like market games than real shareholder interest.
If you have serious proposals for First Union's future, provide the
ownership information we need, and put your proposals in writing.
Sincerely,
/s/James C. Mastandrea
----------------------
James C. Mastandrea
26
<PAGE>
On January 8, 1998, Gotham sent the following letter to Paul F. Levin,
Secretary of the Company.
Paul F. Levin, Esq.
Secretary
First Union Real Estate Equity
and Mortgage Investments
55 Public Square, Suite 1900
Cleveland, Ohio 44113-1937
Dear Mr. Levin:
Gotham Partners, L.P. ("Gotham"), a Beneficiary of First Union
Real Estate Equity and Mortgage Investments (the "Company"), hereby
gives notice of the following to the Secretary of the Company pursuant
to Article I, Section 7 of the By-Laws of the Company:
1. Gotham hereby nominates William A. Ackman, David P.
Berkowitz and James A. Williams for election as Class II
Trustees to the Board of Trustees of the Company at the 1998
Annual Meeting of Beneficiaries of the Company (or any
Special Meeting of Beneficiaries held in lieu thereof).
2. Gotham hereby makes the proposal attached as Exhibit A
hereto for consideration by the Beneficiaries at the 1998
Annual Meeting of Beneficiaries of the Company (or any
Special Meeting of Beneficiaries held in lieu thereof) (the
"Proposal").
3. Gotham hereby nominates Daniel Shuchman and Steven S. Snider
for election to the two Class I seats on the Board of
Trustees of the Company created as a result of the adoption
of the Proposal; Mary Ann Tighe and Stephen J. Garchik for
election to the two Class II on the Board of Trustees of the
Company created as a result of the adoption of the Proposal;
and David S. Klafter and Daniel J. Altobello for election to
the two Class III seats on the Board of Trustees of the
Company created as a result of the adoption of the Proposal;
such elections to be held immediately following the approval
of the Proposal by the Beneficiaries at the 1998 Annual
Meeting of Beneficiaries of the Company (or any Special
Meeting held in lieu thereof).
4. Gotham hereby nominates Richard A. Mandel for election to
the Board of Trustees of the Company, provided that Mr.
Mandel shall stand for election only in the event that any
of Gotham's nominees named in
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<PAGE>
paragraphs 1 or 3 above is unable for any reason to serve as
a Trustee of the Company.
Pursuant to Article I, Section 7 of the By-Laws of the Company,
the following documentation is included herewith: (i) the information
specified in Article I, Section 7(c)(i) of the By-Laws of the Company
with respect to each of Gotham's nominees for election to the Board of
Trustees, which is attached as Exhibit B hereto; (ii) a brief
description of the Proposal and a statement of Gotham's reasons for
making the Proposal, which is attached as Exhibit C hereto; (iii) the
information required to be provided pursuant to Article I, Sections
7(c)(iii), (iv) and (v) of the By-Laws of the Company, which is
attached as Exhibit D hereto; (iv) a certification by Gotham that each
of Gotham's nominees meets all of the qualifications for Trustees set
forth in the Amended Declaration of Trust of the Company; and (v) a
certification by Gotham that the Proposal does not conflict with or
violate any provision of the Declaration of Trust of the Company.
If you have any questions concerning this notice or any related
legal matters, please contact our counsel, Alexander R. Sussman of
Fried, Frank, Harris, Shriver & Jacobson, at (212) 859-8551.
Very truly yours,
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: DPB Corporation,
a general partner
of Section H
Partners, L.P.
By: /s/ David P. Berkowitz
----------------------
David P. Berkowitz
President
By: Karenina Corporation,
a general partner
of Section H
Partners, L.P.
By: /s/ William A. Ackman
---------------------
William A. Ackman
President
28
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EXHIBIT A
---------
Proposal
--------
Gotham Partners, L.P. ("Gotham Partners"), a Beneficiary of First
Union Real Estate Equity and Mortgage Investments ("the Company"), meeting
the qualifications set forth in Article I, Section 7 of the By-Laws of the
Company, sets forth the following proposal to be considered by the
Beneficiaries of the Company at the Company's 1998 Annual Meeting of
Beneficiaries (or any Special Meeting of Beneficiaries held in lieu
thereof):
Proposed, in accordance with Article VIII, Section 8.1 of the
Company's Amended Declaration of Trust, dated July 25, 1986,
(i) that the number of Trustees constituting the full Board of
Trustees of the Company shall be determined at the 1998 Annual Meeting of
Beneficiaries of the Company (or any Special Meeting of Beneficiaries held
in lieu thereof) to be fixed at fifteen (an increase of six members); and
(ii) that two of the newly-created seats of the Board of Trustees of
the Company be assigned to each of Class I, Class II and Class III; and
(iii) that, at the 1998 Annual Meeting of Beneficiaries of the Company
(or any Special Meeting of Beneficiaries held in lieu thereof), in addition
to electing the three Trustees to fill the seats of the three Trustees in
Class II whose terms are expiring, the Beneficiaries of the Company shall
also elect six Trustees (two Trustees to each of Class I, Class II and
Class III) to serve in the newly-created seats established in paragraph
(ii) above.
EXHIBIT B
---------
Trustee Nominee Information
---------------------------
The following is the information required to be given by Gotham
Partners, L.P. ("Gotham") with respect to its nominees for election to the
Board of Trustees of First Union Real Estate Equity and Mortgage
Investments (the "Company") pursuant to Article I, Section 7(c) of the
By-Laws of the Company. All of such nominees have an understanding with
Gotham whereby they have agreed to be nominated to the Board of Trustees by
Gotham, and to serve on such Board if elected. In addition, Gotham has
agreed to indemnify each of the nominees for any liability incurred by such
nominee in connection with his or her nomination for election to the Board
of Trustees. None of the nominees has held any position
29
<PAGE>
or office with the Company or with an entity affiliated with the Company
since January 1, 1993.
WILLIAM A. ACKMAN
-----------------
ADDRESS: 150 Columbus Avenue, Apt. 4D, New York, New York 10023
DATE OF BIRTH: May 11, 1966 (age 31)
CITIZENSHIP: United States
BUSINESS ADDRESS: Gotham Partners Management Co. LLC, 110 East 42nd
Street, 18th Floor, New York, New York 10017
EMPLOYMENT HISTORY: Since January 1, 1993, Mr. Ackman has been the
Vice President, Secretary and Treasurer of GPLP Management Corp., the
Managing Member of Gotham Partners Management Co. LLC, an investment
management firm (and the General Partner of its predecessor entity).
Mr. Ackman has been employed by Gotham Partners Management Co. LLC and
its predecessor entity since January 1, 1993. Mr. Ackman was a general
partner of Section H Partners, L.P., the General Partner of the Gotham
Partners, L.P. and Gotham Partners II, L.P. investment funds, from
January 1, 1993 through September 1993. Mr. Ackman has been the
President, Secretary and Treasurer of Karenina Corporation, a general
partner of Section H Partners, L.P. since October 1993.
DIRECTORSHIPS REQUIRED TO BE REPORTED PURSUANT TO ITEM 401(E)(2) OF
REGULATION S-K: None.
INVOLVEMENT IN LEGAL PROCEEDINGS REQUIRED TO BE REPORTED PURSUANT TO
ITEM 401(F) OF REGULATION S-K: None.
DANIEL J. ALTOBELLO
-------------------
ADDRESS: 9727 Avenel Farm Drive, Potomac, Maryland 20854
DATE OF BIRTH: February 28, 1941 (age 56)
CITIZENSHIP: United States
BUSINESS ADDRESS: ONEX Food Services, Inc., 6550 Rock Spring Drive,
Bethesda, Maryland 20817
EMPLOYMENT HISTORY: Mr. Altobello has been the Chairman of the Board
of ONEX Food Services, Inc., an airline catering company, since
September 1995. Mr. Altobello has been a partner in Ariston Investment
Partners, a consulting firm,
30
<PAGE>
since September 1995. Mr. Altobello was the Chairman, President and
Chief Executive Officer of Caterair International Corporation, an
airline catering company, from January 1, 1993 until September 1995.
DIRECTORSHIPS REQUIRED TO BE REPORTED PURSUANT TO ITEM 401(E)(2) OF
REGULATION S-K: Mr. Altobello is a member of the Boards of Directors
of American Management Systems, Inc. and Colorado Prime Corporation.
INVOLVEMENT IN LEGAL PROCEEDINGS REQUIRED TO BE REPORTED PURSUANT TO
ITEM 401(F) OF REGULATION S-K: None.
DAVID P. BERKOWITZ
------------------
ADDRESS: 2109 Broadway, New York, New York 10023
DATE OF BIRTH: March 10, 1962 (age 35)
CITIZENSHIP: United States
BUSINESS ADDRESS: Gotham Partners Management Co. LLC, 110 East 42nd
Street, 18th Floor, New York, New York 10017
EMPLOYMENT HISTORY: Since January 1, 1993, Mr. Berkowitz has been the
President of GPLP Management Corp., the Managing Member of Gotham
Partners Management Co. LLC, an investment management firm (and the
General Partner of its predecessor entity). Mr. Berkowitz has been
employed by Gotham Partners Management Co. LLC and its predecessor
entity since January 1, 1993. Mr. Berkowitz was a general partner of
Section H Partners, L.P., the General Partner of Gotham Partners, L.P.
and Gotham Partners II, L.P. investment funds, from January 1993
through September 1993. Mr. Berkowitz has been the President,
Secretary and Treasurer of DBP Corporation, a general partner of
Section H Partners, L.P. since October 1993.
DIRECTORSHIPS REQUIRED TO BE REPORTED PURSUANT TO ITEM 401(E)(2) OF
REGULATION S-K: None.
INVOLVEMENT IN LEGAL PROCEEDINGS REQUIRED TO BE REPORTED PURSUANT TO
ITEM 401(F) OF REGULATION S-K: None.
31
<PAGE>
STEPHEN J. GARCHIK
------------------
ADDRESS: 9605 Sotweed Drive, Potomac, Maryland 20854
DATE OF BIRTH: March 12, 1954 (age 43)
CITIZENSHIP: United States
BUSINESS ADDRESS: The Evans Company, 8251 Greensboro Drive, Suite 850,
McLean, Virginia 22102
EMPLOYMENT HISTORY: Since January 1, 1993, Mr. Garchik has been the
President of The Evans Company, a commercial real estate development
and management firm. Mr. Garchik has been the Chairman of Florida Golf
Partners, L.P., a golf course ownership, operation and development
enterprise, since July 1996.
DIRECTORSHIPS REQUIRED TO BE REPORTED PURSUANT TO ITEM 401(E)(2) OF
REGULATION S-K: None.
INVOLVEMENT IN LEGAL PROCEEDINGS REQUIRED TO BE REPORTED PURSUANT TO
ITEM 401(F) OF REGULATION S-K: None.
DAVID S. KLAFTER
----------------
ADDRESS: 119 Waverly Place, Apt. 3, New York, New York 10011
DATE OF BIRTH: February 24, 1955 (age 42)
CITIZENSHIP: United States
BUSINESS ADDRESS: Gotham Partners Management Co. LLC, 110 East 42nd
Street, 18th Floor, New York, New York 10017
EMPLOYMENT HISTORY: Mr. Klafter has been an in-house counsel and
investment analyst at Gotham Partners Management Co. LLC, an
investment management firm, since April 1996. Mr. Klafter was counsel
at White & Case, a law firm, from January 1, 1993 until December 1993,
and a partner at White & Case from January 1994 until April 1996.
DIRECTORSHIPS REQUIRED TO BE REPORTED PURSUANT TO ITEM 401(E)(2) OF
REGULATION S-K: None.
INVOLVEMENT IN LEGAL PROCEEDINGS REQUIRED TO BE REPORTED PURSUANT TO
ITEM 401(F) OF REGULATION S-K: None.
32
<PAGE>
RICHARD A. MANDEL
-----------------
ADDRESS: 28 Hilltop Road, Short Hills, New Jersey 07078
DATE OF BIRTH: September 1, 1962 (age 35)
CITIZENSHIP: United States
BUSINESS ADDRESS: Kennedy-Wilson International, 1270 Avenue of the
Americas, Suite 1818, New York, New York 10020
EMPLOYMENT HISTORY: Mr. Mandel has been the President of the Brokerage
Division of Kennedy-Wilson International, a real estate brokerage and
investment firm, since December 1996. From October 1993 until December
1996, Mr. Mandel was a Managing Director in charge of the Asian
Operations of Kennedy-Wilson International. From January 1, 1993 until
October 1993, he was a Director of Jones Lang Wootton, a real estate
brokerage firm.
DIRECTORSHIPS REQUIRED TO BE REPORTED PURSUANT TO ITEM 401(E)(2) OF
REGULATION S-K: Mr. Mandel is a member of the Board of Directors of
Kennedy-Wilson International.
INVOLVEMENT IN LEGAL PROCEEDINGS REQUIRED TO BE REPORTED PURSUANT TO
ITEM 401(F) OF REGULATION S-K: None.
DANIEL SHUCHMAN
---------------
ADDRESS: 203 East 72nd Street, Apt. 7D, New York, New York 10021
DATE OF BIRTH: August 4, 1965 (age 32)
CITIZENSHIP: United States
BUSINESS ADDRESS: Gotham Partners Management Co. LLC, 110 East 42nd
Street, 18th Floor, New York, New York 10017
EMPLOYMENT HISTORY: Mr. Shuchman has been an investment analyst at
Gotham Partners Management Co. LLC, an investment management firm,
since October 1994. Mr. Shuchman was an investment banker at Goldman
Sachs & Co., an investment banking firm, from January 1, 1993 until
August 1994.
DIRECTORSHIPS REQUIRED TO BE REPORTED PURSUANT TO ITEM 401(E)(2) OF
REGULATION S-K: None.
33
<PAGE>
INVOLVEMENT IN LEGAL PROCEEDINGS REQUIRED TO BE REPORTED PURSUANT TO
ITEM 401(F) OF REGULATION S-K: None.
STEVEN S. SNIDER
----------------
ADDRESS: 1624 Foxhall Road, N.W., Washington, D.C. 20007
DATE OF BIRTH: December 31, 1956 (age 41)
CITIZENSHIP: United States
BUSINESS ADDRESS: Hale and Dorr LLP, 1455 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004
EMPLOYMENT HISTORY: Since January 1, 1993, Mr. Snider has been a
senior partner at Hale and Dorr LLP, a law firm.
DIRECTORSHIPS REQUIRED TO BE REPORTED PURSUANT TO ITEM 401(E)(2) OF
REGULATION S-K: None.
INVOLVEMENT IN LEGAL PROCEEDINGS REQUIRED TO BE REPORTED PURSUANT TO
ITEM 401(F) OF REGULATION S-K: None.
MARY ANN TIGHE
--------------
ADDRESS: 1320 York Avenue, Apt. 36B, New York, New York 10021
DATE OF BIRTH: August 24, 1948 (age 49)
CITIZENSHIP: United States
BUSINESS ADDRESS: Insignia/ESG, 200 Park Avenue, New York, New York
10166
EMPLOYMENT HISTORY: Since January 1, 1993, Ms. Tighe has been an
Executive Managing Director and a member of the Executive and
Strategic Planning Committees of Insignia/ESG, a commercial real
estate firm.
DIRECTORSHIPS REQUIRED TO BE REPORTED PURSUANT TO ITEM 401(E)(2) OF
REGULATION S-K: None.
INVOLVEMENT IN LEGAL PROCEEDINGS REQUIRED TO BE REPORTED PURSUANT TO
ITEM 401(F) OF REGULATION S-K: None.
34
<PAGE>
JAMES A. WILLIAMS
-----------------
ADDRESS: 3518 Franklin Road, Bloomfield Hills, Michigan 48382
DATE OF BIRTH: March 30, 1942 (age 55)
CITIZENSHIP: United States
BUSINESS ADDRESS: Williams, Williams, Ruby & Plunkett PC, 380 N.
Woodward Avenue, Suite 380, Birmingham, Michigan 48009
EMPLOYMENT HISTORY: Since January 1, 1993, Mr. Williams has been the
President of Williams, Williams, Ruby & Plunkett PC, a law firm. Mr.
Williams has also been the Chairman of Michigan National Bank and
Michigan National Corporation since November 1995.
DIRECTORSHIPS REQUIRED TO BE REPORTED PURSUANT TO ITEM 401(E)(2) OF
REGULATION S-K: None.
INVOLVEMENT IN LEGAL PROCEEDINGS REQUIRED TO BE REPORTED PURSUANT TO
ITEM 401(F) OF REGULATION S-K: None.
EXHIBIT C
---------
Description of the Proposal
---------------------------
To increase the number of Trustees on the Company's Board of Trustees
from its current composition of nine members to fifteen members and to hold
an election of Trustees to fill the newly-created positions along with the
three seats whose terms are expiring.
Reasons for the Proposal
------------------------
Gotham Partners, L.P. and Gotham Partners II, L.P. ("Gotham") together
are the Company's largest Beneficiaries, holding 7.19% of the outstanding
shares of Beneficial Interest of the Company as well as options to acquire
an additional 1.78% of the shares which Gotham intends to exercise on or
before the expiration date of the options.
On July 14, 1997 Gotham sent a letter (the "Letter") to the Company's
Trustees and the Directors of First Union Management, Inc. indicating
concern with the Company's recently modified strategic plan. In addition,
Gotham questioned management's ability to implement a strategy which would
maximize the value of the Company's stapled-stock structure, given
management's limited
35
<PAGE>
experience acquiring and managing operating businesses. Gotham's concerns
arose primarily from (1) the Company's three ill-timed, poorly-executed and
dilutive equity offerings; (2) the premium price paid by the Company for
Impark; and (3) the fact that Mr. Mastandrea has told Gotham that he is
unwilling to enter into any transaction which would replace existing
management with a new investor group and management team with the capital
and experience to maximize the value of the Company's structure.
In the Letter and a follow-up letter dated July 23, 1997, Gotham
requested a meeting with the Trustees and Directors to discuss its concerns
and proposals for maximizing the Company's value. These and future attempts
by Gotham to meet with the Trustees and Directors have proven unsuccessful.
The Company has stated that it intends to focus on purchasing parking
assets. Despite its stated goal to acquire parking assets, the Company has
used most of its financial resources ($292 million of $350 million invested
in the third and fourth quarters of 1997) to acquire shopping malls which
do not take advantage of the Company's stapled-stock structure. Based on
management's record to date, Gotham believes that the Company has yet to
demonstrate it is capable of implementing its own strategic plan.
Mr. Mastandrea's record as Chairman, CEO, and President of the Company
has been disappointing particularly when measured based on the Company's
share price performance during his tenure. From the date he became Chairman
of the Company on January 1, 1994 to the date prior to the Company's
initial disclosure of its stapled-stock structure in its convertible
preferred offering on October 24, 1996, the Company's common stock price
declined 26% (from $9.625 to $7.125) while the Morgan Stanley REIT index
increased by 30.6% over the same period.
Since the Company's stapled-stock structure was revealed in the
preferred stock offering prospectus, the Company's common stock has
appreciated substantially. While Mr. Mastandrea claims this share price
appreciation demonstrates shareholder support for management's strategic
plan and represents a vote of confidence in management, Gotham believes the
primary reason for this share price appreciation is public awareness of the
Company's stapled-stock structure and the belief among investors that
management will be replaced. Even if one includes the recent share price
increase, the Company's stock has failed to keep pace with the Morgan
Stanley REIT index (the Company's stock has appreciated by 67% versus 82%
for the index) and has dramatically underperformed the other paired-share
REITs over Mr. Mastandrea's tenure with the Company.
36
<PAGE>
Gotham believes that the existing Board of Trustees has done little to
maximize shareholder value. Gotham believes this is largely due to the
Board's lack of real estate expertise and insubstantial shareholdings in
the Company. Mr. Mastandrea has publicly stated (Wachtell Lipton REIT
conference, New York City, April 7, 1997) that he does not want his board
members to own stock because the only way they can be truly independent is
if they are not significant shareholders of the Company.
Gotham believes that the best board members are those who are
independent - independent of management, not independent of shareholders'
interests - have significant real estate and operating company investment
experience, and have a substantial cash investment in the stock in the
Company. Gotham believes its nominees better meet these criteria and can
better represent the interests of the shareholders than the existing board.
As a result, Gotham intends to seek shareholder support for its
nominees. Gotham will seek majority representation on the Board of Trustees
at the next Annual Meeting of Beneficiaries (or any Special Meeting of
Beneficiaries held in lieu thereof) and has nominated nine individuals (who
are described in further detail in the accompanying nomination notice) to
replace the three trustees whose terms are expiring and to fill a
newly-expanded board.
Upon gaining majority representation on the Company's Board of
Trustees and after reviewing relevant information about the business and
operations of the Company, Gotham expects that the new board will propose
changes in the management of the Company, but has not presently identified
new management. In addition, after careful analysis of various factors, in
particular the value-maximization strategies of the other paired-share
REITs, the new board may cause the Company to change its strategic
direction, including, without limitation, identifying a strategic partner
or partners, pursuing acquisitions in other real-estate-intensive operating
businesses, disposing of non-core assets and/or seeking the sale of the
Company in a single transaction or a series of transactions which would
preserve and maximize the value of the Company's stapled-stock structure.
Gotham does not currently have any specific plans regarding any of the
foregoing.
37
<PAGE>
EXHIBIT D
---------
Proponent Information
---------------------
The following is the information required to be given pursuant to
Article I, Sections 7(c)(iii), (iv) and (v) of the By-Laws of First Union
Real Estate Equity and Mortgage Investments (the "Company") by a
Beneficiary offering a nomination or proposal:
1. NAME AND ADDRESS OF THE BENEFICIARY MAKING THE PROPOSAL OR
NOMINATION (THE "PROPONENT") AS THEY APPEAR IN THE SHARE TRANSFER BOOKS OF
THE COMPANY: Gotham Partners, L.P., 110 East 42nd Street, New York, New
York 10017
2. NAME AND ADDRESS OF ANY OTHER BENEFICIARY KNOWN BY THE PROPONENT
TO BE SUPPORTING THE NOMINATION AND PROPOSAL: Gotham Partners II, L.P., 110
East 42nd Street, New York, New York 10017
3. THE CLASS AND NUMBER OF SHARES OF BENEFICIAL INTEREST OF THE
COMPANY ("SHARES") OWNED BY THE PROPONENT: Gotham Partners, L.P. owns
1,998,301 Shares and holds an option to acquire 493,150 Shares.
4. THE CLASS AND NUMBER OF SHARES OWNED BY ANY BENEFICIARIES
DESCRIBED IN PARAGRAPH 2 ABOVE: Gotham Partners II, L.P. owns 23,599 Shares
and holds an option to acquire 6,850 Shares.
5. ANY FINANCIAL INTEREST OF THE PROPONENT IN THE PROPONENT'S
PROPOSAL: Gotham has no interest in the Proposal other than its interest as
an owner of Shares and an option to acquire Shares.
38
<PAGE>
CERTIFICATION OF NOMINEES
Pursuant to Article I, Section 7(c) of the By-Laws of First Union Real
Estate Equity and Mortgage Investments (the "Company"), the undersigned,
Gotham Partners, L.P., a Beneficiary of the Company, hereby certifies that
each of its nominees for election to the Board of Trustees of the Company
at the 1998 Annual Meeting of Beneficiaries of the Company (or any Special
Meeting of Beneficiaries held in lieu thereof), a list of whom is attached
hereto as Exhibit A, meets all the qualifications for Trustees set forth in
the Declaration of Trust of the Company, including, but not limited to,
Section 8.10 thereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
this 8th day of January, 1998.
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: DPB Corporation,
a general partner
of Section H Partners, L.P.
By: /s/David P. Berkowitz
---------------------
David P. Berkowitz
President
By: Karenina Corporation,
a general partner
of Section H Partners, L.P.
By: /s/William A. Ackman
--------------------
William A. Ackman
President
39
<PAGE>
EXHIBIT A
---------
Nominees
--------
William A. Ackman
Daniel J. Altobello
David P. Berkowitz
Stephen J. Garchik
David S. Klafter
Richard A. Mandel
Daniel Shuchman
Steven S. Snider
Mary Ann Tighe
James A. Williams
CERTIFICATION OF PROPOSAL
Pursuant to Article I, Section 7 of the By-Laws of First Union Real
Estate Equity and Mortgage Investments (the "Company"), the undersigned,
Gotham Partners, L.P., a Beneficiary of the Company, hereby certifies that
its proposal to be brought before the 1998 Annual Meeting of Beneficiaries
of the Company (or any Special Meeting of Beneficiaries held in lieu
thereof), a copy of which is attached as Exhibit A hereto, does not
conflict with or violate any provisions of the Declaration of Trust of the
Company.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
this 8th day of January, 1998.
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: DPB Corporation,
a general partner
of Section H Partners, L.P.
By: /s/David P. Berkowitz
---------------------
David P. Berkowitz
President
By: Karenina Corporation,
a general partner
of Section H Partners, L.P.
By:/s/William A. Ackman
--------------------
William A. Ackman
President
40
<PAGE>
EXHIBIT A
---------
Proposal
--------
Gotham Partners, L.P. ("Gotham Partners"), a Beneficiary of First
Union Real Estate Equity and Mortgage Investments ("the Company"), meeting
the qualifications set forth in Article I, Section 7 of the By-Laws of the
Company, sets forth the following proposal to be considered by the
Beneficiaries of the Company at the Company's 1998 Annual Meeting of
Beneficiaries (or any Special Meeting of Beneficiaries held in lieu
thereof):
Proposed, in accordance with Article VIII, Section 8.1 of the
Company's Amended Declaration of Trust, dated July 25, 1986,
(i) that the number of Trustees constituting the full Board of
Trustees of the Company shall be determined at the 1998 Annual Meeting of
Beneficiaries of the Company (or any Special Meeting of Beneficiaries held
in lieu thereof) to be fixed at fifteen (an increase of six members); and
(ii) that two of the newly-created seats of the Board of Trustees of
the Company be assigned to each of Class I, Class II and Class III; and
(iii) that, at the 1998 Annual Meeting of Beneficiaries of the Company
(or any Special Meeting of Beneficiaries held in lieu thereof), in addition
to electing the three Trustees to fill the seats of the three Trustees in
Class II whose terms are expiring, the Beneficiaries of the Company shall
also elect six Trustees (two Trustees to each of Class I, Class II and
Class III) to serve in the newly-created seats established in paragraph
(ii) above.
41
<PAGE>
On January 16, 1998, Mr. Levin sent the following letter to Gotham:
Gotham Partners, L.P.
10 East 42nd Street
New York, New York 10017
Attn: Mr. David P. Berkowitz
Mr. William A. Ackman
Gentlemen:
The Board of Trustees (the "Board") of First Union Real
Estate Equity and Mortgage Investments (the "Trust") has received your
notice dated January 8, 1998 (the "Notice"), and, pursuant to Article I,
Section 7(d) of the By-Laws of the Trust, hereby gives notice to Gotham
Partners, L.P. that the Notice does not satisfy the informational
requirements of such Section and is therefore deficient. Because Gotham's
Notice is deficient, the proposal and nominations contained in such Notice
cannot be presented for action at the 1998 Annual Meeting of Beneficiaries
of the Trust (the "Annual Meeting"). However, Gotham may provide curative
information to the Secretary of the Trust within five (5) days from date
hereof.
As provided in Article I, Section 7(d) of the By-Laws,
Gotham's Notice must set forth as to each nomination or proposal (i) the
name and address of, and the class and number of shares of the Trust's
capital shares which are beneficially owned by, any other beneficiaries of
the Trust known by Gotham to be supporting such nomination or proposal on
the date of the Notice and (ii) any financial interest of any such
beneficiaries in such proposal.
This notice addresses only those deficiencies in the Notice
that are capable of being cured. The Trust does not waive any other
requirements of the Declaration of Trust or By-Laws of the Trust or any
deficiencies that are not curable. The Board reserves the right to omit
from consideration at the Annual Meeting any proposal or nomination that
has not been properly made.
Sincerely,
/s/Paul F. Levin
----------------
Paul F. Levin
Secretary
42
<PAGE>
On January 16, 1998, the Company issued the following press release:
FIRST UNION FILES SUIT AGAINST GOTHAM
CLEVELAND, OHIO, JANUARY 16, 1998 -- First Union Real Estate
Investments (NYSE: FUR) today announced that it has filed a lawsuit in
the Common Pleas Court of Cuyahoga County, Ohio against two Gotham
Partners limited partnerships.
New York-based Gotham recently filed a notice with the Trust and in a
Schedule 13-D that it intends to nominate a slate of three individuals
to oppose incumbent Trustees, including its Chairman, James C.
Mastandrea, and Herman J. Russell and James M. Delaney, for election
to First Union's Board of Trustees at the Trust's 1998 Annual
Shareholders' Meeting. Gotham also stated that it intends to propose
that the size of the Board be expanded from nine to 15 members, and
purports to nominate candidates for those prospective new seats as
well. First Union asserts in its complaint that Gotham's proposals
violate First Union's Declaration of Trust and its By Laws, and could
cause permanent damage to the Trust and its shareholders.
Mastandrea stated, "We filed this lawsuit to protect the integrity of
our Declaration of Trust and minimize any potential damage which may
have been created."
First Union Real Estate Investments is a stapled-stock real estate
investment trust (REIT) and its shares are traded on the New York
Stock Exchange.
43
<PAGE>
On January 20, 1998, Gotham sent the following letter to Mr. Levin:
Paul F. Levin, Esq.
Secretary
First Union Real Estate Equity
and Mortgage Investments
55 Public Square, Suite 1900
Cleveland, Ohio 44113-1937
Dear Mr. Levin:
In response to your letter notice to Gotham Partners, L.P., dated
January 16, 1998, we note that your purported notice is defective and
ineffectual in at least three respects. First, your letter notice states
that, "As provided in Article I, Section 7(d) of the By-Laws, Gotham's
notice must set forth as to each nomination and proposal" certain
information; but Section 7(d) has no such requirement. Second, the Board of
Trustees has failed to identify, as required by Article I, Section 7(d) of
the By-Laws, the "material respect" in which Gotham Partners, L.P.'s notice
of nominations and proposal, dated January 8, 1998 (the "Notice"),
allegedly does not satisfy the information requirements of Section 7(c).
Third, Gotham Partners, L.P.'s notice did respond to the requirements of
Section 7(c) and, therefore, your quoting those requirements in your letter
is inadequate to allow Gotham Partners, L.P. to correct any alleged
deficiency.
Notwithstanding the foregoing and without waiving any of our rights,
we hereby provide First Union Real Estate Equity and Mortgage Investments
("First Union"), the following information:
1. Gotham Partners II, L.P., is known by Gotham Partners, L.P. to
support its nominations and proposal.
2. The address of Gotham Partners II, L.P. is 110 East 42nd Street,
18th Floor, New York, New York 10017.
3. Gotham Partners II, L.P. is the owner of 23,599 shares of
Beneficial Interest of the Company, par value $1.00 per share (the
"Shares"), and holds an option to acquire 6,850 Shares.
4. Other than through its ownership of Shares described in item 3,
Gotham Partners II, L.P. has no financial interest in the proposal referred
to above.
5. Gotham Partners, L.P. does not have knowledge of any other
beneficiary of First Union supporting its nominations or proposal as of
the date of the Notice.
44
<PAGE>
The foregoing is hereby incorporated by reference and made a part of
the notice.
Gotham Partners, L.P. believes that its Notice satisfies the
requirements of the Declaration of Trust and By-Laws of First Union,
including without limitation the informational requirements of Article I,
Section 7(c) of the By-Laws of First Union. If this does not comport with
the understanding of First Union, we expect that you will provide immediate
notice of that position. If First Union does not comply with the preceding
sentence and attempts to omit the proposal or any of the nominations made
by Gotham Partners, L.P., from consideration at the 1998 Annual Meeting of
the Beneficiaries of First Union (or any special meeting of Beneficiaries
of First Union called in lieu thereof), we intend to pursue all of our
rights and remedies.
Please direct all future correspondence relating to this matter to
both of our litigation counsel, Alexander R. Sussman at Fried, Frank,
Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004,
and David C. Weiner at Hahn, Loeser & Parks LLP, 3300 BP America Building,
200 Public Square, Cleveland, Ohio 44114-2301.
Very truly yours,
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
45
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On January 20, 1998, the following letter was sent by Alexander R.
Sussman of Fried, Frank, Harris, Shriver & Jacobson, special counsel to
Gotham and Gotham II, and David C. Weiner of Hahn, Loeser & Parks LLP,
co-counsel, to Frances Floriano Goins of Squire, Sanders & Dempsey, L.L.P.,
counsel to the Company:
Frances Floriano Goins, Esq.
Squire, Sanders & Dempsey, L.L.P.
4900 Key Tower
127 Public Square
Cleveland, Ohio 44114-1304
Dear Ms. Floriano Goins:
We are special counsel to Gotham Partners, L.P. ("Gotham I") and
Gotham Partners II, L.P. ("Gotham II"). (Gotham I and Gotham II,
collectively, are the "Gotham Partnerships"). Together with co-counsel,
David Weiner of Hahn, Loeser & Parks, we are writing to urge your client,
First Union Real Estate Equity and Mortgage Investments ("First Union"), to
desist from entrenchment tactics and harassing litigation in responding to
Gotham I's nominations and proposal to be voted upon at First Union's
upcoming Annual Meeting. Gotham I seeks to give First Union
Beneficiaries/stockholders a choice about the company's future management,
business direction and value maximization strategy, by allowing
stockholders the option to vote for Gotham I's nominations and proposal. At
a minimum, it is obviously in the interest of First Union and all of its
stockholders to avoid unnecessary and wasteful costs and burdens during the
forthcoming proxy contest. We believe the contest should be decided in a
businesslike manner, with free stockholder choice, full disclosure, and a
vote on the merits of the Trustee candidates and their plans for First
Union.
Any disputes between the parties should be resolved without
litigation. If there is to be litigation, however, it should come after the
April 14 Annual Meeting and stockholder vote, in order to avoid costly
distraction during the proxy contest and premature judicial consideration
of issues that may be mooted by the outcome of the contest. Accordingly, we
are making the following demands and taking the following actions:
1. As the first order of business, First Union's purported "notice of
deficiency" with respect to Gotham I's notice, dated January 8, 1998 of
Gotham I's nominations and proposal pursuant to Article I, Section 7 of
First Union's By-Laws ("Gotham I's Notice"), must be resolved immediately.
Despite Gotham I's express request on page 2 of Gotham I's Notice that any
questions be addressed to Mr. Sussman, the "notice of deficiency" was sent
by Paul Levin, First Union's Secretary, in a letter to Gotham I, dated
January 16, 1998, and was
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referenced in a lawsuit filed on that date, without any prior communication
to Gotham I or to Mr. Sussman.
We are enclosing a copy of Gotham I's letter response, dated as of
today, to Mr. Levin's unexplained statement that Gotham I's Notice "does
not satisfy the informational requirements of [First Union's By-Laws] and
is therefore deficient." As Gotham I's letter explains, Mr. Levin's
purported notice was defective and ineffectual. Moreover, we believe that
Gotham I's Notice was in full compliance with the Trust and By-Laws as well
as the informational requirements of Article I, Section 7(c) of the
By-Laws. In any case, any information that was not provided was immaterial
and any purported deficiency was similarly immaterial and did not require
any further response.
According to Mr. Levin's letter, "Gotham may provide curative
information to the Secretary of the Trust within five (5) days from the
date hereof [January 16, 1998]." Since the cure period ends tomorrow
Wednesday, January 21, 1998, we require that you advise us by 2:00 p.m.
today whether the Notice, as amended, is deemed effective and not deficient
by First Union. If you cannot so advise me by that time, we ask that you be
available this afternoon at 2:00 p.m. to join us in a conference call with
the federal court (see Point 3 below), so that we may arrange for a hearing
to be held at the Court's convenience tomorrow, Wednesday, January 21,
1998. At such hearing we plan to petition the Court for appropriate relief
to protect the Gotham Partnerships from any claim that the informational
requirements of First Union's By-Laws have not timely been met.
2. This morning, the Gotham Partnerships have removed First Union's
state court lawsuit to the United States District Court for the Northern
District of Ohio, Eastern Division. Enclosed is a copy of the Notice of
Removal. There is diversity between the parties and any litigation between
First Union and the Gotham Partnerships will be in the context of a proxy
contest with proxy violation claims subject to the federal court's
exclusive jurisdiction.
3. Despite our preference that disputes between the parties either be
resolved without court intervention or subsequent to the vote at First
Union's Annual Meeting, in order to protect the Gotham Partnerships'
rights, we have filed counterclaims in the removed federal action. We are
herewith serving the Answer and Counterclaim along with our initial
discovery requests.
4. As set forth in our federal counterclaims, First Union's management
and Trustees have a fiduciary obligation to act in a manner consistent with
the interests of First Union and its stockholders. While we have not named
any individual counterclaim defendants, we reserve the Gotham Partnerships'
right to
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do so should any individuals violate their fiduciary duties to the Trust
and its stockholders.
We look forward to hearing from you before 2:00 p.m. today, as
requested above.
Sincerely,
/s/Alexander R. Sussman /s/David C. Weiner
----------------------- ------------------
Alexander R. Sussman David C. Weiner
On January 20, 1998, Mr. Levin sent the following letter to Gotham:
Gotham Partners, L.P.
110 East 42nd Street, 18th Floor
New York, New York 10017
Attn: Mr. David P. Berkowitz
Mr. William A. Ackman
Gentlemen:
In response to your letter dated January 20, 1998 and its attempt to
cure deficiencies in providing information required by Article I, Section
7(c) of First Union's By-Laws, the Notice (as defined in your letter)
continues to be deficient in not identifying limited partners and other
Beneficiaries and beneficial owners who support Gotham's proposal and
nominations.
Sincerely,
/s/ Paul F. Levin
-----------------
Paul F. Levin
Secretary
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On January 21, 1998, Gotham sent the following letter to the Secretary
of the Company:
Paul F. Levin, Esq.
Secretary
First Union Real Estate Equity
and Mortgage Investments
55 Public Square, Suite 1900
Cleveland, Ohio 44113-1937
Dear Mr. Levin:
We are in receipt of your letter of January 20, 1998, in which you
contend that the notice of nominations and proposal submitted by Gotham
Partners, L.P. ("Gotham"), dated January 8, 1998 (the "Notice"), as
supplemented by Gotham's letter, dated January 20, 1998, does not satisfy
the informational requirements of Article I, Section 7(c) ("Section 7(c)")
of First Union's By-Laws, because it allegedly "continues to be deficient
in not identifying limited partners and other Beneficiaries and beneficial
owners who support Gotham's proposal and nominations." Gotham continues to
believe that your notice of deficiencies is defective and ineffectual and
that Gotham's Notice satisfies the requirements of Section 7(c).
Notwithstanding the foregoing and without waiving any of our rights,
to the extent you are making a technical objection to our Notice, we hereby
provide First Union the additional information attached hereto as Exhibit A.
To the extent First Union's position results from its disbelieving our
certification that Gotham Partners II, L.P. is the only "other
Beneficiar[y] known by such Beneficiary [Gotham] to be supporting
[Gotham's] nomination or proposal on the date of such Beneficiary's
notice," which is the information required by Section 7(c), we would like
to reconfirm that, as of the date of the Notice and as of today's date,
Gotham has no knowledge of any Beneficiary or beneficial owner of any
Shares, other than the Shares beneficially owned by Gotham and Gotham II as
set forth on Exhibit A hereto, that is known to be supporting its
nominations or proposal.
We request your confirmation that Gotham has satisfied Section 7(c)'s
informational requirements.
If you still contend that our Notice and the additional information we
have provided today and yesterday is somehow deficient, we request that you
provide immediate notice of that position and additional time to cure.
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<PAGE>
If First Union does not confirm that Gotham's Notice complies with
Section 7(c), Gotham reserves all of its rights and remedies and will seek
appropriate relief, if and when required, in the pending federal court
action.
Very truly yours,
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
EXHIBIT A
---------
We hereby provide First Union Real Estate Equity and Mortgage
Investments ("First Union"), the following information, which shall be
incorporated and made a part of the notice (the "Notice") of Gotham
Partners, L.P. ("Gotham") to First Union relating to its proposal and
nominations for consideration at First Union's 1998 Annual Meeting of
Beneficiaries (or any special meeting held in lieu thereof):
Gotham is the record and beneficial owner of 100 shares of Beneficial
Interest, par value $1.00, of First Union (the "Shares"), and the
beneficial owner of an additional 2,491,351 Shares (including an option to
purchase 493,150 Shares). Gotham Partners II, L.P. ("Gotham II") is the
beneficial owner of 30,449 Shares (including an option to purchase 6,850
Shares). The option agreements in connection with the options to acquire
Shares held by Gotham and Gotham II are attached as exhibits to the
Schedule 13D of Gotham and Gotham II, as amended,
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<PAGE>
which is incorporated herein by reference. Cede & Co. is the record owner
of the Shares of which Gotham is the beneficial owner and not the record
owner, and is the record holder of all of the Shares of which Gotham II is
the beneficial holder. The address of Cede & Co. is 55 Water Street, New
York, New York 10041-0099. Gotham and Gotham II intend to instruct Cede &
Co. to vote such Shares held of record by Cede & Co. in favor of the
proposal and nominations presented in the Notice. In addition, we note the
following: the general partner of Gotham is Section H Partners, L.P. The
general partners of Section H Partners, L.P. are Karenina Corporation and
DPB Corporation. William A. Ackman is the President and sole shareholder of
Karenina Corporation. David P. Berkowitz is the President and sole
shareholder of DPB Corporation. In such indicated capacities, Section H
Partners, L.P., Karenina Corporation, DPB Corporation, William A. Ackman
and David P. Berkowitz may be deemed to be beneficial owners of the Shares
described above as beneficially held by Gotham and Gotham II. All of such
entities and persons support the nominations and proposal made by Gotham in
the Notice, and the address of each of such entities and persons is care of
110 East 42nd Street, 18th Floor, New York, New York 10017. Other than
through their respective interests in the Shares described above, none of
such entities or persons has any financial interest in the proposal set
forth in the Notice or is a Beneficiary or beneficial owner of any other
Shares.
Except as described herein and in the Notice, Gotham has no knowledge
of any Beneficiary or beneficial owner of Shares that was known to be
supporting its proposal and nominations as of the date of the Notice or is
known to be supporting its proposal and nominations as of today's date.
In addition, although we do not believe that the By-Laws of First
Union require us to disclose the following information to First Union, in
response to your letter, dated January 20, 1998, Gotham states that it does
not have any knowledge of any limited partner of Gotham or Gotham II who
supported Gotham's proposal and nominations on the date of the Notice, or,
indeed, who supports such proposal and nominations as of today, other than
those limited partners who are also nominees of Gotham. David S. Klafter
and Daniel Shuchman are limited partners of Section H Partners, L.P. and of
Gotham. Mary Ann Tighe and James A. Williams are limited partners of
Gotham. None of such persons are Beneficiaries or beneficial owners of any
Shares.
The Notice and supplements thereto provided by Gotham to First Union
assume that the definition of the term "beneficial ownership" is that
contained in Rule 13d-3 of the Securities Exchange Act of 1934, as amended.
If this is not the case, you should inform us immediately of such other
definition used by First Union.
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CERTAIN LITIGATION
On January 16, 1998, the Company filed a civil action against Gotham
and Gotham II in the Court of Common Pleas, Cuyahoga County, Ohio,
captioned First Union Real Estate Equity and Mortgage Investments v. Gotham
Partners, L.P., et al., Case No. 347063. The Company alleges, among other
things, that Gotham has failed to provide information requested of it
pursuant to the Company's Declaration of Trust and By-Laws, and that
therefore Gotham's Shares should be deemed to be Excess Securities under
the Company's By-Laws. Under the Company's By-Laws, Shares that are deemed
to be Excess Securities are not entitled to any voting rights, not
considered to be outstanding for quorum or voting purposes and are not
entitled to receive dividends. The Company claims that because Gotham's
Shares were Excess Securities at the time Gotham made the Gotham Proposal
and the nomination of the Gotham Nominees, Gotham was not entitled to
present them or any other matter for consideration at the Annual Meeting.
In addition, the Company's Complaint alleges that Gotham has failed to
comply with certain provisions of the By-Laws, by not disclosing other
shareholders who support the Gotham Proposal and the Gotham Nominees and
the holdings of those supporters. The Complaint further alleges that Gotham
has failed to disclose the Gotham Nominees' purported financial interests
in the Gotham Proposal. Specifically, the Complaint alleges that Gotham
failed to disclose that one of the Gotham Nominees, Daniel J. Altobello,
has a financial interest in the Gotham Proposal because he is an executive
of an entity affiliated with certain entities that are parties to a
"Put-Call Agreement" with the Company. See "Possible Effects of the
Adoption of the Gotham Proposal and the Election of the Gotham Nominees"
and "Schedule I." Paragraph 38 of the Complaint further alleges that the
Gotham Nominees are unqualified to serve as Trustees because they own "more
than 1% of the securities of, or [are] otherwise affiliated with another
[real estate investment trust], or own more than 1% of the securities of,
or [are] otherwise affiliated with any real estate company that competes
with" the Company for investments.
Gotham believes that the Company's allegations and claims are without
merit, and Gotham intends to vigorously defend against such allegations
and claims.
The complaint seeks, among other things, preliminary and permanent
declaratory and injunctive relief to (i) determine that Gotham and Gotham
II's Shares be deemed Excess Securities that have no voting rights and may
not be considered for quorum or voting purposes; (ii) declare null and void
the Gotham Proposal and the nomination of the Gotham Nominees; and (iii)
prohibit Gotham and Gotham II from supporting or soliciting proxies on
behalf of the Gotham Proposal or the Gotham Nominees. If the Company
obtains a court order granting the declaratory and injunctive relief it is
seeking, the Gotham Proposal and Gotham's nominations could not be brought
before the
52
<PAGE>
Beneficiaries at the Annual Meeting. Gotham believes that the Company is
not entitled to any relief.
On January 20, 1998, Gotham removed the Company's action from the
Court of Common Pleas for Cuyahoga County, Ohio, to the United States
District Court for the Northern District of Ohio, where it was assigned
Case No. 98CV105. On that date, Gotham also filed an answer and asserted
counterclaims, which were amended on January 23, 1996, against the Company
seeking, among other things, injunctive relief prohibiting the Company from
interfering with Gotham's submission of the Gotham Proposal and the
nomination of the Gotham Nominees for a vote at the Annual Meeting. The
counterclaims allege, among other things, that the Company has violated the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), by:
(i) actively soliciting proxies in violation of the filing requirements of
the SEC proxy rules; (ii) interfering with Gotham's right as security
holder to present nominations and proposals; and (iii) interfering with
Gotham's right as a security holder to vote its Shares. The counterclaims
also allege that the Company's management and Trustees have violated their
fiduciary duty to shareholders by wasting assets and seeking to entrench
the position of the Company's current officers and management. Gotham
seeks, among other things, court relief that would (i) enjoin further
violations by the Company of the Exchange Act and SEC proxy rules; (ii)
declare that the Gotham Proposal and the nomination of the Gotham Nominees
may be presented at the Annual Meeting for a vote by the Beneficiaries, and
(iii) declare that Gotham is in compliance with the SEC proxy rules and the
terms of the Company's Declaration of Trust and By-Laws.
Also on January 20, 1998, subsequent to Gotham's removal of the
Company's action to the United States District Court, the Company filed a
motion in state court for an order awarding the preliminary declaratory and
injunctive relief it seeks in its Complaint pending a final determination
by the state court. The state court scheduled a hearing on the Company's
motion for February 10, 1998.
On January 21, 1998, the Company filed a motion in the United States
District Court for an order remanding the litigation to state court. The
Company concurrently filed a motion for an expedited hearing on its motion
to remand the matter to state court.
On January 23, 1998, Gotham filed a motion in the federal court for an
order granting preliminary injunctive relief on certain of its
counterclaims. Gotham also requested that the hearing on the Company's
motion to remand and on the Company's and Gotham's preliminary injunction
motions be scheduled on or before March 10, 1998.
53
<PAGE>
POSSIBLE EFFECTS OF THE ADOPTION OF THE GOTHAM PROPOSAL
AND THE ELECTION OF THE GOTHAM NOMINEES
Based upon the publicly available information concerning the Company,
the following would be consequences of the approval of the Gotham Proposal
and the election of the Gotham Nominees.
MASTANDREA EMPLOYMENT AGREEMENT. In July 1994, the Company entered
into an Employment Agreement with Mr. Mastandrea. The Agreement has an
initial three-year term and is extended automatically for additional
one-year terms unless one of the parties gives notice of an intention not
to renew.
The agreement with Mr. Mastandrea provides that he will have the
titles, and perform the duties, of Chairman of the Board of Trustees,
Chairman of the Executive Committee of the Board of Trustees, and President
and Chief Executive Officer of the Company. Under the agreement, Mr.
Mastandrea receives an annual base salary of not less than $250,000,
subject to annual review and adjustment by the Board of Trustees; health
and welfare benefits; participation in the Company's 1994 Long Term
Incentive Performance Plan; and split-dollar life insurance in the benefit
amount of $2,500,000. Mr. Mastandrea's annual compensation for 1996 fiscal
year was $435,908.
The premiums on the split-dollar life insurance were set with the
expectation that, if Mr. Mastandrea continues to work for the Company until
he attains age 65, the cash surrender value of the policy will be
sufficient to fund (1) the return to the Company of all premiums paid by it
and (2) paid-up insurance on the life of Mr. Mastandrea in the amount of
$2,500,000.
The employment of Mr. Mastandrea may be terminated at any time.
However, if the Company terminates the employment of Mr. Mastandrea without
cause (as defined in the Agreement), or if he terminates his employment for
good reason (as defined in the Agreement), the Company is required to
continue to pay his base salary and bonus and to provide benefits,
including pension contributions and vesting of options, for a period of
three years, unless he earlier dies or attains age 65. A portion of the
Shares of restricted stock previously granted to Mr. Mastandrea would also
vest.
It is expected that Mr. Mastandrea's employment with the Company will
be terminated with or without cause by the Company, or with or without good
reason by Mr. Mastandrea, if the Gotham Proposal is adopted and the Gotham
Nominees are elected. If termination by the Company without cause or
termination by Mr. Mastandrea with good reason occurs after a change in
control or shift in ownership (which would include the adoption of the
Gotham Proposal and the election of the Gotham Nominees), in addition to
the provisions described in the preceding paragraph, the base salary, bonus
and pension contributions payable to Mr. Mastandrea following termination
become due immediately in lump sum, and all grants under the 1994 Plan
become fully vested.
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<PAGE>
According to the Company's Proxy Statement in connection with the 1997
Annual Meeting of Beneficiaries (the "1997 Proxy Statement"), Mr.
Mastandrea's salary and bonus for the Company's 1996 fiscal year was
$435,908.
In the event a change in ownership or control of the Company occurs
within the meaning of Section 280G of the Internal Revenue Code, the
aggregate amount payable to Mr. Mastandrea will be limited to the maximum
amount that may be deducted for Federal income tax purposes without
constituting "excess parachute payments" under Section 280G. In addition,
Mr. Mastandrea has agreed to defer the receipt of payments that would
otherwise not be deductible due to the $1,000,000 limit under Section
162(m) of the Internal Revenue Code.
SENIOR NOTES. Pursuant to the terms of the Indenture, dated as
September 1, 1993, between the Company and Society National Bank, as
Trustee (the "Indenture"), under which the Company's 8 7/8% Senior Notes
due 2003 (the "Senior Notes") were issued, upon (i) the "change of control"
of the Company (as defined in the Indenture), which would include the
approval of the Gotham Proposal and the election of the Gotham Nominees,
and (ii) the occurrence of a specified rating decline of the Senior Notes
by Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's") within ninety days following such a "change of control", the
holders of such Senior Notes would have the right to require the Company to
repurchase all or any part of such Senior Notes at a price in cash equal to
101% of the aggregate principal amount thereof plus accrued and unpaid
interest thereon. Interest on the Senior Notes at the rate of 8 7/8% per
annum is payable semi-annually on April 1 and October 1. If the Senior
Notes are rated by either S&P or Moody's as investment grade, the specified
decline in rating means a decline in such rating to below investment grade.
If the Senior Notes are rated below investment grade by both S&P and
Moody's, the specified decline means any decline in such rating by either
S&P or Moody's. Gotham believes that the adoption of the Gotham Proposal
and the election of the Gotham Nominees will not result in such a specified
decline in the ratings of the Senior Notes or the exercise of the right to
have the Company repurchase the Senior Notes. If the ratings of the Senior
Notes decline and the holders of the Senior Notes exercise this right,
Gotham believes that the Company would be able to refinance the Senior
Notes without a material adverse effect on the financial position of the
Company. The outstanding aggregate principal amount under the Senior Notes
is $100,000,000.
IMPARK PUT-CALL AGREEMENT. In connection with the acquisition of
Imperial Parking Ltd. ("Impark") on April 17, 1997, the Company's
affiliated management company acquired approximately 67% of Impark's voting
common stock, and Impark's former owners received non-voting common stock
of Impark. The holders of the non-voting common stock issued to the former
owners of Impark have the right (but not the obligation) to cause the
Company to purchase such stock at an escalating price during certain
periods following the occurrence of "trigger events" (as defined in such
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<PAGE>
agreement), which would include the adoption of the Gotham Proposal and the
election of the Gotham Nominees, or after approximately 30 months have
passed following April 17, 1997 (although the Company has the right to
extend the closing date of such purchase for six months upon the payment of
a fee to such holders). According to the Company's Prospectus Supplement,
dated May 28, 1997, to the Company's Prospectus, dated October 7, 1996, in
connection with the offering of 5,500,000 Shares, the purchase price
payable in respect of such right increases from the aggregate issue price
as of April 17, 1997 of approximately $10.6 million at an 8% per annum rate
on the outstanding amount for the first six months and compounded by an
additional one percentage point per annum each six month period thereafter
up to a maximum rate of 17% per annum.
IMPARK CREDIT AGREEMENT. The adoption of the Gotham Proposal and the
election of the Gotham Nominees would constitute a "collateralization
event" under the Ancillary Agreement, dated April 17, 1997, between BT Bank
of Canada ("BT"), Hong Kong Bank of Canada ("HKB"). Pursuant to such
agreement, upon the occurrence of a "collateralization event", BT and HKB
have the right to require the Company to deliver to a trustee United States
or Canadian government bonds representing the outstanding amount of
borrowings under the Amended and Restated Credit Agreement, dated April 17,
1997, between Impark, BT and HKB. In the event that BT and HKB exercise
such right, Gotham believes that Impark would either collateralize or
refinance its borrowings and that Impark could refinance such borrowings
without a material adverse effect on the financial position of the Company.
The total aggregate amount of borrowings that may be outstanding at any
time under such Credit Agreement is Canadian $50,000,000.
1994 OPTION PLAN. Under the Company's 1994 Long Term Incentive
Ownership Plan (the "1994 Plan"), a "change of control" (as defined in the
1994 Plan), which would include the adoption of the Gotham Proposal and the
election of the Gotham Nominees, would cause (i) all stock appreciation
rights and stock options outstanding under the 1994 Plan to become fully
exercisable, (ii) all restrictions and conditions applicable to restricted
Share awards under the 1994 Plan to be deemed satisfied, (iii) all cash
awards under the 1994 Plan to be deemed to have been fully earned, and (iv)
the term of all loans granted under the 1994 Plan to fund the exercise
price of awards to be extended for twenty years. According to the 1997
Proxy Statement, as of December 31, 1996, options on 494,880 Shares with
exercise prices ranging from $6.375 to $7.75 and 427,500 restricted Shares
granted under the 1994 Plan were outstanding.
Gotham disclaims any responsibility for the accuracy of the foregoing
information, which has been extracted from the Company's public filings.
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CERTAIN INFORMATION REGARDING THE PARTICIPANTS
The principal business of Gotham and Gotham II is the buying and
selling of securities for investment for its own account. Section H
Partners, L.P. is the general partner of Gotham and Gotham II, and Karenina
Corporation and DPB Corporation are general partners of Section H Partners,
L.P. Gotham Partners Management Co. LLC, a limited liability company
affiliated with Gotham and Gotham II, manages the investments of Gotham and
Gotham II. The principal business address of each of such entities is care
of 110 East 42nd Street, 18th Floor, New York, New York 10017.
Gotham, Gotham II, Gotham Partners Management Co. LLC, Section H
Partners, L.P., Karenina Corporation, DPB Corporation and the Gotham
Nominees are sometimes referred to herein as the "Participants" in this
solicitation. No employees or other representatives of Gotham or Gotham
Partners Management Co. LLC will solicit proxies other than those employees
who are Gotham Nominees. The transactions involving Shares over the past
two years by the Participants and certain other information with respect to
the Participants is set forth on Schedule II of this Proxy Statement.
Except as set forth in this Proxy Statement (including the Schedules
hereto), none of the Participants, or any associate of the foregoing,
directly or indirectly owns any securities of the Company or any subsidiary
of the Company, beneficially or of record, has the right to acquire
beneficial ownership of such securities within 60 days or has purchased or
sold such securities within the past two years.
INFORMATION CONCERNING THE COMPANY
The Company is subject to the informational requirements of the
Exchange Act, and in accordance therewith files reports and other
information with the Commission. Reports, proxy statements and other
information filed by the Company with the Commission in accordance with the
Exchange Act may be inspected and copied at the public reference facilities
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. In addition, such material concerning the Company can
be inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005. The Commission also maintains a World
Wide Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants,
including the Company, that file electronically with the Commission.
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VOTING AND PROXY PROCEDURES
Under the Declaration of Trust, the Board may establish the Record
Date for determining stockholders entitled to notice to and to vote at the
Annual Meeting. In the event that the Board establishes a Record Date, only
Beneficiaries of record on the Record Date will be entitled to notice of
and to vote at the Annual Meeting. Each Share is entitled to one vote.
Beneficiaries who sell Shares before the Record Date (or acquire them
without voting rights after the Record Date) may not vote such Shares.
Beneficiaries of record on the Record Date will retain their voting rights
in connection with the Annual Meeting even if they sell such Shares after
the Record Date. Based on publicly available information, Gotham believes
that the only outstanding class of securities of the Company entitled to
vote at the Annual Meeting is the class constituting the Shares. According
to publicly available information, as of September 30, 1997, there were
28,137,441 Shares issued and outstanding.
Shares represented by properly executed WHITE proxy cards will be
voted at the Annual Meeting as marked and, in the absence of specific
instructions, will be voted FOR the Gotham Proposal, FOR the election of
the Gotham Nominees and in the discretion of the persons named as proxies
on all other matters as may properly come before the Annual Meeting.
Abstentions and broker non-votes will be included in determining the
number of Shares present for purposes of determining the presence of a
quorum.
Approval of the Gotham Proposal requires the affirmative vote of a
majority of Shares represented by person or proxy and entitled to vote at
the Annual Meeting. Broker non-votes will not be treated as entitled to
vote on the Gotham Proposal and, therefore, will have no effect on whether
the Gotham Proposal is adopted. Abstentions from voting on the Gotham
Proposal have the same effect as a vote "against" the Gotham Proposal.
Election of the Gotham Nominees to the seats on the Board of Trustees
to which they were nominated requires the affirmative vote of a plurality
of the Shares cast for such seats. Abstentions and broker non-votes will
have no effect on the election of the Gotham Nominees to the Board of
Trustees.
Beneficiaries of the Company may revoke their proxies at any time
prior to its exercise by attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself
constitute revocation of a proxy) or by delivering a written notice of
revocation. The delivery of a subsequently dated proxy which is properly
completed will constitute a revocation of any earlier proxy. The revocation
may be delivered either to Gotham in care of Beacon Hill Partners, Inc.
("Beacon Hill") at the address set forth on the back cover of this Proxy
Statement or to the Company at 55 Public Square, Suite 1900, Cleveland,
Ohio 44113-1937, or any other address provided by the Company. Although a
revocation is effective if delivered to the
58
<PAGE>
Company, Gotham requests that either the original or photostatic copies of
all revocations be mailed to Gotham in care of Beacon Hill at the address
set forth on the back cover of this Proxy Statement or faxed to Beacon Hill
at (212) 843-4384 so that Gotham will be aware of all revocations and can
more accurately determine if and when proxies have been received from the
holders of record on the Record Date of a majority of the outstanding
Shares.
IF YOU WISH TO VOTE FOR THE GOTHAM PROPOSAL AND FOR THE ELECTION OF
THE GOTHAM NOMINEES TO THE BOARD, PLEASE SIGN, DATE AND RETURN PROMPTLY THE
ENCLOSED WHITE PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. GOTHAM
RECOMMENDS THAT YOU VOTE "FOR" THE GOTHAM PROPOSAL AND GOTHAM NOMINEES.
SOLICITATION OF PROXIES
Solicitation of proxies is being made by and on behalf of Gotham.
Proxies will be solicited by mail, advertisement, telephone or facsimile
and in person. Solicitations may be made by certain directors, officers and
employees of Gotham and its affiliates and associates, none of whom will
receive additional compensation for such solicitation.
Gotham has retained Beacon Hill for solicitation and advisory services
in connection with this solicitation, for which Beacon Hill will receive
compensation not to exceed $50,000 together with reimbursement for its
reasonable out-of-pocket expenses. Gotham has also agreed to indemnify
Beacon Hill against certain liabilities and expenses, including under the
Federal securities law.
Gotham and Beacon Hill will solicit proxies from individuals, brokers,
banks, bank nominees and other institutional holders. Gotham has requested
banks, brokerage houses and other custodians, nominees and fiduciaries to
forward all solicitation materials to the beneficial owners of the shares
they hold of record. Gotham will reimburse these record holders for their
reasonable out-of-pocket expenses in so doing. It is anticipated that
Beacon Hill will employ approximately 50 persons to solicit the Company's
Beneficiaries for the Annual Meeting.
The cost of the solicitation of proxies is being borne by Gotham.
Costs related to the solicitation of proxies include or may include
expenditures for attorneys, accountants, financial advisers, proxy
solicitors, public relations advisers, printing, advertising, postage,
litigation and related expenses and filing fees and are expected to be in
the aggregate approximately $[ ]. Gotham estimates that through the date
hereof, its expenses in connection with this solicitation are approximately
$[ ].
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<PAGE>
Gotham reserves the right, though no final determination has been
made, to seek reimbursement from the Company for its costs incurred in
connection with this proxy solicitation. Any such request for reimbursement
will not be submitted to a vote of the Company's Beneficiaries.
BENEFICIARY PROPOSALS FOR 1999 ANNUAL MEETING
Gotham anticipates that the Company proxy statement with respect to
the Annual Meeting will indicate that proposals of the Company's
Beneficiaries that are intended to be presented by such Beneficiaries at
the 1999 Annual Meeting of Beneficiaries of the Company must be received by
the Company on or before the date specified therein in order to be
considered for inclusion in the proxy statement and form of proxy relating
to that meeting. The inclusion of any proposal will be subject to
applicable rules of the Commission.
OTHER MATTERS AND ADDITIONAL INFORMATION
Gotham is unaware of any other matters to be considered at the Annual
Meeting. However, Gotham has notified the Company of its intention to bring
before the Annual Meeting the Gotham Proposal and its nomination of the
Gotham Nominees. Should other proposals be brought before the Annual
Meeting, the persons named as proxies on the enclosed WHITE proxy card will
vote on such matters in their discretion. Beneficiaries will have no
appraisal or similar rights of dissenters with respect to the Gotham
Proposal.
Schedule II of this Proxy Statement sets forth certain information, as
made available in public documents, regarding Shares held by the Company's
management and Trustees and beneficial owners of more than five percent of
the Company. The information concerning the Company contained in this Proxy
Statement and the Schedules attached hereto has been taken from, or is
based upon, publicly available information. To date, Gotham has not had
access to the books and records of the Company. Although Gotham does not
have any knowledge that would indicate that any statement contained herein
based upon such documents and records is untrue, Gotham does not take any
responsibility for the accuracy or completeness of the information
contained in such documents and records, or for any failure by the Company
to disclose events that may affect the significance or accuracy of any such
information.
GOTHAM PARTNERS, L.P.
[ ], 1998
60
<PAGE>
SCHEDULE I
SHARES HELD BY GOTHAM AND GOTHAM II
Gotham is the beneficial owner of an aggregate of 2,501,951 Shares.
Gotham II is the beneficial owner of an aggregate of 30,449 Shares. Within
the past two years, Gotham and Gotham II have engaged in the following
transactions in Shares. Except as otherwise indicated below, the securities
acquired or disposed of consisted of Shares and the transactions were
effected on the New York Stock Exchange.
I. TRANSACTIONS IN SHARES BY GOTHAM
TRANSACTION NUMBER OF SHARES PRICE PER SHARE
DATE ACQUIRED/DISPOSED OF OR OPTION
------------ -------------------- ---------------
11/13/96 330,240 $ 10.00360
11/14/96 9,846 10.06000
11/14/96 364,702 10.43300
11/15/96 123,077 10.43300
11/15/96 20,677 10.44500
12/19/96 (553,742) 11.00000
12/19/96 690,000 (1) 3.38000
12/20/96 98,510 11.36000
12/23/96 11,525 11.31000
12/24/96 39,400 11.56000
1/03/97 2,970 11.47670
1/24/97 109,970 13.43330
1/27/97 29,690 13.35110
1/28/97 65,590 13.41280
1/29/97 (360,000) 13.49000
1/29/97 7,300 13.43500
1/29/97 493,150 (2) 4.31635
1/30/97 (190,905) 13.39100
2/03/97 7,595 13.52750
3/20/97 (49,315) 13.19600
3/20/97 (29,655) 13.19000
3/21/97 (37,475) 13.32500
4/11/97 6,410 13.36730
4/14/97 157,810 13.90610
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<PAGE>
4/25/97 56,500 13.72260
4/29/97 55,000 13.80000
4/30/97 30,930 13.79480
5/01/97 39,700 13.58150
5/06/97 40,000 13.56000
5/29/97 127,680 12.79760
5/30/97 77,585 12.78330
6/02/97 23,740 13.05000
6/10/97 98,800 13.31000
8/01/97 19,300 13.32360
8/04/97 9,895 13.30000
8/05/97 49,480 13.42500
8/06/97 6,430 13.30000
8/12/97 495 13.42500
8/13/97 30,575 13.41310
8/14/97 2,965 13.30000
8/15/97 24,740 13.27500
8/18/97 19,790 13.30000
10/03/97 59,376 13.63330
10/07/97 173,180 13.55000
10/08/97 98,960 13.43500
10/09/97 98,960 13.37250
1/23/98 10,500 14.92500
- --------------------
[FN]
(1) Option to purchase 690,000 Shares at $8.80 per Share pursuant to
a Letter Agreement, dated as of January 24, 1997, by and between
Gotham and J.P. Morgan Securities, Inc. ("J.P. Morgan"), as agent
for Morgan Guaranty Trust Company of New York ("Morgan
Guaranty"), as supplemented by a Letter Agreement, dated as of
June 10, 1997, by and between Gotham and J.P. Morgan, as agent
for Morgan Guaranty. The option was exercised by Gotham on
December 24, 1997 at an aggregate exercise price of $6,072,000.
(2) Option to purchase 493,150 Shares at $10.80 per Share pursuant to
an Option Agreement, dated as of January 29, 1997, by and between
Gotham and Bankers Trust Company, as amended. The option was
exercised by Gotham on January 21, 1998 at an aggregate exercise
price of $5,326,020.
</FN>
I-2
<PAGE>
II. TRANSACTIONS IN SHARES BY GOTHAM II
TRANSACTION NUMBER OF SHARES PRICE PER SHARE
DATE ACQUIRED/DISPOSED OF OR OPTION
------------ -------------------- ---------------
11/13/96 5,160 $ 10.00360
11/14/96 154 10.06000
11/14/96 5,698 10.43300
11/15/96 1,923 10.43300
11/15/96 323 10.44500
12/19/96 (13,258) 11.00000
12/19/96 10,000 (1) 3.38000
12/20/96 1,490 11.36000
12/23/96 175 11.31000
12/24/96 600 11.56000
1/03/97 4,530 11.47670
1/17/97 (680) 13.06500
1/24/97 1,530 13.43330
1/27/97 410 13.35110
1/28/97 910 13.41280
1/29/97 (5,000) 13.49000
1/29/97 100 13.43500
1/29/97 6,850 (2) 4.31635
1/30/97 (2,650) 13.39100
2/03/97 105 13.52750
3/20/97 (685) 13.19600
3/20/97 (410) 13.19000
3/21/97 (425) 13.32500
4/11/97 90 13.36733
4/14/97 2,190 13.90610
4/30/97 370 13.79481
5/29/97 1,520 12.79760
5/30/97 915 12.78330
6/02/97 1,260 13.05000
6/10/97 1,200 13.31000
8/04/97 105 13.30000
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<PAGE>
8/05/97 520 13.42500
8/06/97 70 13.30000
8/12/97 5 13.42600
8/13/97 325 13.41310
8/14/97 35 13.30000
8/15/97 260 13.27500
8/18/97 210 13.30000
10/03/97 624 13.63330
10/07/97 1,820 13.55000
10/08/97 1,040 13.43500
10/09/97 1,040 13.37250
- --------------------
[FN]
(1) Option to purchase 10,000 Shares at $8.80 per Share pursuant to a
Letter Agreement, dated as of January 24, 1997, by and between
Gotham II and J.P. Morgan, as agent for Morgan Guaranty, as
supplemented by a Letter Agreement dated as of June 10, 1997, by
and between Gotham II and J.P. Morgan, as agent for Morgan
Guaranty. The option was exercised by Gotham II on December 24,
1997 at an aggregate exercise price of $88,000.
(2) Option to purchase 6,850 Shares at $10.80 per Share pursuant to
an Option Agreement, dated as of January 29, 1997, by and between
Gotham II and Bankers Trust Company, as amended. The option was
exercised by Gotham II on January 21, 1998 at an aggregate
exercise price of $73,980.
</FN>
III. TRANSACTIONS IN SHARES BY OTHER PARTICIPANTS
Except as set forth in this Proxy Statement, none of the Participants,
nor any associate of the foregoing, directly or indirectly owns any
securities of the Company or any subsidiary of the Company, beneficially or
of record, has the right to acquire beneficial ownership of such securities
within 60 days or has purchased or sold such securities within the past two
years.
William A. Ackman is the President of Karenina Corporation, a general
partner of Section H Partners, L.P. David P. Berkowitz is the President of
DPB Corporation, a general partner of Section H Partners, L.P., the sole
general partner of Gotham and Gotham II. Mr. Ackman, Mr. Berkowitz,
Karenina Corporation, DPB Corporation and Section H Partners, L.P. may be
deemed the beneficial owners of Shares owned by Gotham and Gotham II. David
S. Klafter and Daniel Shuchman are limited partners of Gotham and Section H
Partners, L.P. Mary Ann Tighe and James A. Williams are limited partners of
Gotham. As limited partners of such entities, Ms. Tighe,
I-4
<PAGE>
Mr. Williams, Mr. Klafter and Mr. Shuchman have no right to vote or dispose
of any Shares held by Gotham, and therefore do not beneficially own any
Shares held by Gotham.
BENEFICIAL OWNERSHIP OF SHARES BY THE GOTHAM NOMINEES
The following table sets forth the beneficial ownership of Shares as
of January 23, 1998 by each of the Gotham Nominees.
Amount of Approximate
Beneficial Percentage
Name Ownership of Class (1)
- ------------------------ ---------- --------------
William A. Ackman(2) 2,532,400 9.0%
Daniel J. Altobello -0- -0-
David P. Berkowitz(2) 2,532,400 9.0
Stephen J. Garchik -0- -0-
David S. Klafter(3), (4) -0- -0-
Richard A. Mandel -0- -0-
Daniel Shuchman(3), (4) -0- -0-
Steven B. Snider -0- -0-
Mary Ann Tighe(4) -0- -0-
James A. Williams(4) -0- -0-
- --------------------
[FN]
(1) Based on 28,137,441 Shares outstanding, as listed in the
Company's Form 10-Q for the quarter ended September 30, 1997
filed with the Commission.
(2) Mr. Ackman is the President of Karenina Corporation, a general
partner of Section H Partners, L.P. Mr. Berkowitz is the
President of DPB Corporation, a general partner of Section H
Partners, L.P., the sole general partner of Gotham and Gotham II.
Accordingly, Mr. Ackman, Mr. Berkowitz, Karenina Corporation, DPB
Corporation and Section H Partners, L.P. may be deemed the
beneficial owners of Shares owned by Gotham and Gotham II. For
purposes of this table, such ownership is included.
(3) Mr. Klafter and Mr. Shuchman are limited partners of Section H
Partners, L.P. As limited partners of Section H Partners, L.P.,
Mr. Klafter and Mr. Shuchman have no right to vote or dispose of
any Shares held by Gotham, and therefore do not beneficially own
any Shares held by Gotham.
(4) Mr. Klafter, Mr. Shuchman, Ms. Tighe and Mr. Williams are limited
partners of Gotham. As limited partners of Gotham, Ms. Tighe and
Mr. Williams have no right
I-5
<PAGE>
to vote or dispose of any Shares held by Gotham, and therefore do
not beneficially own any Shares held by Gotham.
</FN>
ADDITIONAL INFORMATION REGARDING THE PARTICIPANTS
To the knowledge of Gotham, except as set forth in this Proxy
Statement, none of the Participants has any substantial interest, direct or
indirect, by security holdings or otherwise, in any matter to be acted upon
at the Annual Meeting, except for the election of Trustees.
During the past 10 years, none of the Participants has been convicted
in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
No part of the purchase price of any of the Shares beneficially owned
by any of the Participants is represented by funds borrowed or otherwise
obtained for the purpose of acquiring or holding such securities.
None of the Participants is, or within the past year has been, a party
to any contract, arrangement or understanding with any person with respect
to any securities of the Company, except that (i) Mr. Klafter, Mr.
Shuchman, Mr. Williams and Ms. Tighe are limited partners of Gotham; (ii)
Mr. Ackman is the President of Karenina Corporation, a general partner of
Section H Partners, L.P., the general partner of Gotham and Gotham II;
(iii) Mr. Berkowitz is the President of DPB Corporation, a general partner
of Section H Partners, L.P.; (iv) Mr. Klafter and Mr. Shuchman are limited
partners of Section H Partners, L.P.; (v) Gotham had an option to purchase
493,150 Shares pursuant to an Option Agreement, dated as of January 29,
1997, by and between Gotham and Bankers Trust Company; (vi) Gotham had an
option to acquire 690,000 Shares pursuant to a Letter Agreement, dated as
of January 24, 1997, by and between Gotham and J.P. Morgan, as agent for
Morgan Guaranty, as supplemented by a Letter Agreement, dated as of June
10, 1997, by and between Gotham and J.P. Morgan as agent for Morgan
Guaranty; (vii) Gotham II had an option to purchase 6,850 Shares pursuant
to an Option Agreement, dated as of January 29, 1997, by and between Gotham
II and Bankers Trust Company; and (viii) Gotham II had an option to acquire
10,000 Shares pursuant to a Letter Agreement, dated as of January 24, 1997,
by and between Gotham II and J.P. Morgan, as agent for Morgan Guaranty, as
supplemented by a Letter Agreement, dated as of June 10, 1997, by and
between Gotham II and J.P. Morgan, as agent for Morgan Guaranty. Through
their indirect interest in Section H Partners, L.P., the general partner of
Gotham and Gotham II, Mr. Ackman and Mr. Berkowitz hold a participation
interest in the profits generated by the investment of Gotham and Gotham II
in such Shares. Gotham Partners Management Co. LLC is entitled to an annual
fee equal to 1% of the assets of Gotham and Gotham II as consideration for
managing such assets. Messrs. Ackman, Berkowitz, Klafter and Shuchman are
employees of, and receive compensation
I-6
<PAGE>
from, Gotham Partners Management Co. LLC, and Messrs. Ackman and Berkowitz
each hold 50% of the outstanding equity interests in such entity.
On April 17, 1997, certain entities affiliated with ONEX Corporation
sold a controlling interest in Impark to the Company's affiliated
management company for $75 million, including the assumption of $26 million
of debt. In connection with such sale, certain entities affiliated with
ONEX Corporation and the Company entered into an agreement relating to
certain securities of Impark retained by such entities. Pursuant to such
agreement, such entities have the right to cause the Company to purchase
such securities at a specified price upon certain "trigger events", as
defined in such agreement, which could include the adoption of the Gotham
Proposal and the election of the Gotham Nominees. See "Possible Effects of
the Adoption of the Gotham Proposal and the Election of the Gotham
Nominees" and "Certain Litigation." Mr. Altobello may have an indirect
interest in the outcome of the matters to be acted upon at the Annual
Meeting by virtue of his position as Chairman and CEO of ONEX Food
Services, Inc., a subsidiary of ONEX Corporation.
None of the Participants, or any associate thereof, has any
arrangement or understanding with any person (A) with respect to any future
employment by the Company or its affiliates or (B) with respect to any
future transactions to which the Company or any of its affiliates will or
may be a party.
Except as otherwise disclosed in this Proxy Statement, there are no
pending legal proceedings in which any of the Gotham Nominees or any of
their associates is a party adverse to the Company or any of its affiliates
or in which any of the Gotham Nominees or any of their associates has an
interest adverse to the Company or any of its affiliates.
None of the Gotham Nominees holds any position or office with the
Company or any parent, subsidiary or affiliate of the Company, and none has
ever served as a director of the Company or any parent, subsidiary or
affiliate of the Company.
None of the Gotham Nominees has any family relationship, by blood,
marriage or adoption, to any Trustee, executive officer or person nominated
or chosen by the Company to become a Trustee or executive officer of the
Company. During the last three fiscal years, no compensation was awarded
to, earned by, or paid to any of the Gotham Nominees by any person for any
services rendered in any capacity to the Company or its subsidiaries.
Daniel J. Altobello is the Chairman and CEO of ONEX Food Services, Inc.
which is a subsidiary of ONEX Corporation.
I-7
<PAGE>
SCHEDULE II
SHARE OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT OF THE COMPANY
Set forth below is information regarding the Shares owned by certain
beneficial owners, Trustees and executive officers of the Company.
The following table sets forth, according to publicly available
information on file with the Commission as of the dates indicated (except
information with respect to Gotham and Gotham II), the name and address of
each person who is the beneficial owner of more than five percent of the
outstanding Shares at such date, the number of Shares owned by each such
person, the percentage of the outstanding Shares represented thereby and
certain information with respect to such person. Gotham disclaims any
responsibility for the following information (except information with
respect to Gotham and Gotham II), which has been extracted from public
filings.
II-1
<PAGE>
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENTAGE
OF BENEFICIAL OWNER OWNERSHIP OF CLASS (1)
------------------------------------ ---------------------- --------------
Apollo Real Estate Investment Fund LP 2,135,987 Shares (2) 7.3%
Apollo Real Estate Advisors II LP
1301 Avenue of the Americas
New York, New York 10019
Gotham Partners, L.P. 2,532,400 Shares (3) 9.0
Gotham Partners II, L.P.
110 East 42nd Street, 18th Floor
New York, New York 10017
Franklin Resources, Inc. 1,883,390 Shares (4) 6.3
777 Mariners Island Blvd.
San Mateo, CA 94404
Charles B. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
Rupert H. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENTAGE
OF BENEFICIAL OWNER OWNERSHIP OF CLASS (1)
------------------------------------ ---------------------- --------------
Franklin Mutual Advisors, Inc.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Franklin Mutual Series Fund, Inc.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
- --------------------
[FN]
(1) Based upon 28,137,441 Shares outstanding as listed in the Company's
Form 10-Q for the quarter ended September 30, 1997 filed with the
Commission.
(2) An Amendment No. 3 to Schedule 13D filed with the Commission on or
about June 10, 1997 reflects that Apollo Real Estate Investment Fund
II LP and Apollo Real Estate Advisors LP beneficially own an aggregate
of 2,135,987 Shares, consisting of 889,700 Shares and 377,000 Shares
of First Union Series A Cumulative Convertible Redeemable Preferred
Shares of Beneficial Interest, each of which is immediately
convertible into 3.3058 Shares (the "Preferred Shares"). Apollo Real
Estate Investment Fund II LP and Apollo Real Estate Advisors LP are
deemed to have shared voting and dispositive power with respect to
such Shares.
(3) Gotham beneficially owns 2,501,951 Shares. Gotham II beneficially owns
30,449 Shares. Each of Gotham and Gotham II has sole voting and
dispositive power with respect to the Shares beneficially owned by it.
(4) A Schedule 13G filed with the Commission on or about November 22, 1996
reflects that Franklin Resources, Inc., Franklin Mutual Advisors, Inc.
("FMAI"), Franklin Mutual Series Fund, Inc., Charles B. Johnson and
Rupert H. Johnson may be deemed to beneficially own an aggregate of
1,883,390 Shares, consisting of 569,000 Preferred Shares. FMAI has the
sole voting and dispositive power with respect to such Shares.
</FN>
II-2
<PAGE>
The following table shows as of February 7, 1997 (except as otherwise
indicated) the beneficial ownership of Shares by each Trustee and nominee,
certain named executive officers in the Company's 1997 Proxy Statement, and
as to all Trustees and all executive officers as a group. Gotham disclaims
any responsibility for the accuracy of the foregoing information, which has
been extracted from the Company's public filings.
AMOUNT AND
NATURE OF
NAME OF BENEFICIAL PERCENTAGE
BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
- ------------------------------ ---------------- -------------
TRUSTEES AND NOMINEES
Kenneth K. Chalmers 6,937 .032%
William E. Conway 15,635(2) .073
Daniel G. DeVos 14,028 .065
Allen H. Ford 25,000 .116
Russell R. Gifford 4,480(3) .021
Spencer H. Heine 2,500(4) .012
E. Bradley Jones 13,331 .062
Herman J. Russell -0-(5) .000
James C. Mastandrea 597,589(6) 2.745
(also an Executive Officer)
EXECUTIVE OFFICERS
Steven M. Edelman 89,545(7) .414
Paul F. Levin 77,546(8) .359
John J. Dee 85,555(9) .396
Thomas T. Kmiecik 52,733(10) .244
All executive officers and 984,879(11) 4.484
director as a group (13 persons)
- --------------------
[FN]
(1) Pursuant to Rule 13d-3 of the Securities Exchange Act of 1934, a
person is deemed to be a beneficial owner if he has or shares voting
power or investment authority in respect of such security or has the
right to acquire beneficial ownership within 60 days. The amounts
shown in the above table do not purport to represent beneficial
ownership except as determined in accordance with this Rule. Each
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<PAGE>
Trustee and executive officer has sole voting and investment power
with respect to the amounts shown or shared voting and investment
powers with his spouse.
(2) According to the most recent Form 4 filed by Mr. Conway as of January
23, 1998, Mr. Conway owned 17,635 Shares.
(3) According to the most recent Form 4 filed by Mr. Gifford as of January
23, 1998, Mr. Gifford owned 14,580 Shares.
(4) According to the most recent Form 4 filed by Mr. Heine as of January
23, 1998, Mr. Heine owned 5,000 Shares.
(5) According to the most recent Form 4 filed by Mr. Russell as of January
23, 1998, Mr. Russell owned 7,400 Shares.
(6) Includes 337,500 Shares of restricted stock over which Mr. Mastandrea
has sole voting power but no investment power, 206,250 Shares that Mr.
Mastandrea has the vested right to acquire through the exercise of
options, and 3,000 Preferred Shares. According to the most recent Form
4 filed by Mr. Mastandrea as of January 23, 1998, Mr. Mastandrea owned
506,688 Shares (including Shares of restricted stock and Preferred
Shares) and held options to acquire 711,411 Shares. All of such
506,688 Shares were beneficially owned by Mr. Mastandrea as of the
date of such Form 4. It is not possible to determine from publicly
available information how many of such options were beneficially owned
by Mr. Mastandrea as of such date.
(7) Includes 30,000 Shares of restricted stock over which Mr. Edelman has
sole voting power but no investment power and 52,800 Shares that Mr.
Edelman has the vested right to acquire through the exercise of
options. According to the most recent Form 4 filed by Mr. Edelman as
of January 23, 1998, Mr. Edelman owned 47,363 Shares (including Shares
of restricted stock) and held options to acquire 112,800 Shares. All
of such 47,373 Shares were beneficially owned by Mr. Edelman as of the
date of such Form 4. It is not possible to determine from publicly
available information how many of such options were beneficially owned
by Mr. Edelman as of such date.
(8) Includes 30,000 Shares of restricted stock over which Mr. Levin has
sole voting power but no investment power and 44,950 Shares that Mr.
Levin has the vested right to acquire through the exercise of options.
According to the most recent Form 4 filed by Mr. Levin as of January
23, 1998, Mr. Levin owned 43,061 Shares (including Shares of
restricted stock) and held options to acquire 104,950 Shares. All of
such 43,061 Shares were beneficially owned by Mr. Levin as of the date
of such Form 4. It is not possible to determine from publicly
available information how many of such options were beneficially owned
by Mr. Levin as of such date.
II-4
<PAGE>
(9) Includes 30,000 Shares of restricted stock over which Mr. Dee has sole
voting power but no investment power and 52,840 Shares that Mr. Dee
has the vested right to acquire through the exercise of options.
According to the most recent Form 4 field by Mr. Dee as of January 23,
1998, Mr. Dee owned 45,717 Shares (including Shares of restricted
stock) and held options to acquire 110,840 Shares. All of such 45,717
Shares were beneficially owned by Mr. Dee as of the date of such Form
4. It is not possible to determine from publicly available information
how many of such options were beneficially owned by Mr. Dee as of such
date.
(10) Includes 10,000 Shares of restricted stock over which Mr. Kmiecik has
sole voting power but no investment power and 41,473 Shares that Mr.
Kmiecik has the vested right to acquire through the exercise of
options. According to the most recent Form 4 filed by Mr. Kmiecik as
of January 23, 1998, Mr. Kmiecik owned 21,657 Shares (including Shares
of restricted stock) and held options to acquire 94,640 Shares. All of
such 21,657 Shares were beneficially owned by Mr. Levin as of the date
of such Form 4. It is not possible to determine from publicly
available information how many of such options were beneficially owned
by Mr. Kmiecik as of such date.
(11) Includes 398,313 Shares which executive officers have the vested right
to acquire through the exercise of options and 437,500 Shares of
restricted stock. According to the most recent Form 4s filed by the
executive officers and Trustees of the Company as of January 23, 1998,
the executive officers and Trustees as a group owned 709,101 Shares
(including Shares of restricted stock and Preferred Shares) and held
options to acquire 1,134,641 Shares. All of such Shares were
beneficially owned by such persons as of the date of such Form 4s. It
is not possible to determine from publicly available information how
many of such options were beneficially owned by such persons as of
such date.
</FN>
II-5
<PAGE>
IMPORTANT
Tell your Board what you think! Your vote is important. No matter how
many Shares you own, please give Gotham your proxy FOR approving the Gotham
Proposal and FOR the election of the Gotham Nominees by taking three steps:
1. SIGNING the enclosed WHITE proxy card,
2. DATING the enclosed WHITE proxy card, and
3. MAILING the enclosed WHITE proxy card TODAY in the envelope provided
(no postage is required if mailed in the United States).
If any of your Shares are held in the name of a brokerage firm, bank,
bank nominee or other institution, only it can vote such Shares and only
upon receipt of your specific instructions. Accordingly, please contact the
person responsible for your account and instruct that person to execute the
WHITE proxy card representing your Shares. Gotham urges you to confirm in
writing your instructions to Gotham in care of Beacon Hill Partners, Inc.
at the address provided below so that Gotham will be aware of all
instructions given and can attempt to ensure that such instructions are
followed.
If you have any questions or require any additional information
concerning this Proxy Statement, please contact Beacon Hill Partners, Inc.
at the address set forth below.
BEACON HILL PARTNERS, INC.
90 BROAD STREET
NEW YORK, NEW YORK 10004
(212) 843-8500 (CALL COLLECT)
OR
CALL TOLL-FREE (800) 253-3814
Preliminary Copy -- Subject to
Completion [Form of Proxy Card]
-------------------------------
<PAGE>
WHITE PROXY CARD
ANNUAL MEETING OF BENEFICIARIES OF
FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS
TO BE HELD ON APRIL 14, 1998
TO VOTE FOR THE TRUSTEE NOMINEES AND PROPOSAL
SET FORTH BELOW
THIS PROXY IS SOLICITED ON BEHALF OF GOTHAM PARTNERS, L.P.
The undersigned appoints William A. Ackman and David P.
Berkowitz, and each of them acting alone, attorneys and agents with full
power of substitution, as proxy of the undersigned (the "Proxy Agents"), to
attend the Annual Meeting (the "Annual Meeting") of the Beneficiaries of
First Union Real Estate Equity and Mortgage Investments (the "Company") to
be held at [ ], on April 14, 1998, commencing at [ ], and at any and all
adjournments or postponements thereof and any special meeting called in
lieu thereof, and to vote all shares of Beneficial Interest, par value
$1.00 per share (the "Shares"), of the Company, as designated on the
reverse side of this proxy, with all powers the undersigned would possess
if personally present at the meeting, as follows:
(Please mark an "X" in the appropriate box)
GOTHAM PARTNERS, L.P. RECOMMENDS
A VOTE FOR THE FOLLOWING TRUSTEE NOMINEES
1. ELECTION OF TRUSTEES: To elect Mr. William A. Ackman, David P.
Berkowitz and Mr. James A. Williams to succeed the current Class II
members of the Board of Trustees of the Company.
/_/ FOR ALL NOMINEES /_/ WITHHOLD AUTHORITY TO
LISTED ABOVE (EXCEPT VOTE FOR ALL NOMINEES
AS MARKED TO THE LISTED ABOVE
CONTRARY BELOW)
INSTRUCTION: To withhold authority to vote for the election of any
nominee(s), write the name(s) of such nominee(s) in the following
space:
GOTHAM PARTNERS, L.P. RECOMMENDS
A VOTE FOR THE FOLLOWING PROPOSAL
2. PROPOSAL OF GOTHAM PARTNERS, L.P.: To adopt the following:
RESOLVED, in accordance with Article VIII, Section 8.1 of the
Company's Declaration of Trust, as amended, (i) that the number of Trustees
constituting the full Board of Trustees of the Company shall be determined
to be fixed at fifteen (an increase of six members); and (ii) that two of
the newly-created seats of the Board of Trustees of the Company be assigned
to each of Class I, Class II and Class III; and (iii) that, in addition to
electing the three Trustees to fill the seats of the three Trustees in
Class II whose terms are expiring, the Beneficiaries of the Company shall
also elect six Trustees (two Trustees to each of Class I, Class II and
Class III) to serve in the newly-created seats.
/_/ For /_/ Against /_/ Abstain
GOTHAM PARTNERS, L.P. RECOMMENDS
A VOTE FOR THE FOLLOWING TRUSTEE NOMINEES
3. ELECTION OF TRUSTEES: To elect Daniel Shuchman and Steven S. Snider to
the newly-created Class I seats on the Board of Trustees of the
Company, Mary Ann Tighe and Stephen J. Garchik to the newly-created
Class II seats on the Board of Trustees of the Company, and David S.
Klafter and Daniel J. Altobello to the newly-created Class III seats
on the Board of Trustees of the Company.
/_/ FOR ALL NOMINEES /_/ WITHHOLD AUTHORITY TO
LISTED ABOVE (EXCEPT VOTE FOR ALL NOMINEES
AS MARKED TO THE LISTED ABOVE
CONTRARY BELOW)
INSTRUCTION: To withhold authority to vote for the election of any
nominee(s), write the name(s) of such nominee(s) in the following
space:
4. IN THEIR DISCRETION, EACH OF THE PROXY AGENTS IS AUTHORIZED TO VOTE
UPON ANY OTHER MATTERS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING
OR ANY ADJOURNMENT THEREOF.
The undersigned hereby revokes any other proxy or proxies
heretofore given to vote or act with respect to the Shares held by the
undersigned, and hereby ratifies and confirms all actions the herein named
Proxy Agents, their substitutes, or any of them may lawfully take by virtue
hereof. If properly executed, this proxy will be voted as directed above.
IF NO DIRECTION IS INDICATED WITH RESPECT TO THE ABOVE PROPOSALS, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF ALL GOTHAM NOMINEES AND FOR THE
PROPOSAL SET FORTH IN ITEM 2 ABOVE AND IN THE MANNER SET FORTH IN ITEM 4
ABOVE.
This proxy will be valid until the sooner of one year from the
date indicated below and the completion of the Annual Meeting.
DATED: , 1998.
---------------------------
PLEASE SIGN EXACTLY AS NAME APPEARS ON
THIS PROXY.
----------------------------------------
(Signature)
----------------------------------------
(Signature, if held jointly)
----------------------------------------
(Title)
WHEN SHARES ARE HELD JOINTLY, JOINT OWNERS
SHOULD EACH SIGN. EXECUTORS, ADMINISTRATORS,
TRUSTEES, ETC., SHOULD INDICATE THE CAPACITY
IN WHICH SIGNING.
IMPORTANT: PLEASE SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE
ENCLOSED ENVELOPE.
IF YOU NEED ASSISTANCE WITH THIS PROXY CARD, PLEASE CALL BEACON HILL
PARTNERS, INC. TOLL-FREE (800) 253-3814 OR (212) 843-8500 (CALL COLLECT).
