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 (Amendment No. )
Filed by the registrant |_|
Filed by a party other than the registrant |X|
Check the appropriate box:
|_| Preliminary proxy statement |_| Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
|X| 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:
1998 SPECIAL 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 AND BLUE 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 Special Meeting
in lieu of Annual Meeting of Beneficiaries of the Company, including any
adjournments or postponements thereof and any special meeting of
Beneficiaries called in lieu thereof (the "Special 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 Special 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"); (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"); and
(iv) to vote against the Company's proposal to fix the number of Trustees
at twelve with one additional vacancy to be added to each existing class of
Trustees (the "Current Board's Proposal"). 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 AND BLUE proxy card are
first being furnished to the Company's Beneficiaries on or about
April 21, 1998.
GOTHAM RECOMMENDS THAT YOU VOTE IN FAVOR OF THE GOTHAM NOMINEES AND
THE GOTHAM PROPOSAL AND AGAINST THE CURRENT BOARD'S PROPOSAL.
EVEN IF YOU HAVE ALREADY VOTED ON THE WHITE PROXY CARD PREVIOUSLY
DISTRIBUTED BY GOTHAM, WHICH WILL BE COUNTED AT THE SPECIAL MEETING, WE
URGE YOU TO VOTE IN FAVOR OF THE GOTHAM PROPOSAL AND THE GOTHAM NOMINEES,
AND AGAINST THE CURRENT BOARD'S PROPOSAL, ON THE NEW WHITE AND BLUE PROXY
CARD.
BY SIGNING, DATING AND MAILING THE ENCLOSED WHITE AND BLUE PROXY CARD
IN THE POSTAGE-PAID ENVELOPE PROVIDED, YOU WILL REVOKE ANY PREVIOUSLY DATED
PROXY. ONLY YOUR LATEST-DATED PROXY WILL COUNT AT THE SPECIAL 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 Special Meeting, your Shares will not be voted on the
Gotham Proposal, the Gotham Nominees or the Current Board's Proposal. If
you agree with Gotham's efforts, we ask for your support by immediately
signing, dating and mailing the enclosed WHITE AND BLUE proxy card in the
postage-paid envelope provided.
SHARES IN YOUR NAME. No matter how many Shares you own, vote "FOR" the
Gotham Proposal and the Gotham Nominees and "AGAINST" the Current Board's
Proposal by signing, dating and mailing the enclosed WHITE AND BLUE proxy
card in the postage-paid envelope provided. Sign the WHITE AND BLUE 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 and against the Current Board's Proposal unless it receives your
specific instructions. Please sign, date and mail as soon as possible the
enclosed WHITE AND BLUE proxy card in the postage-paid 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 AND BLUE proxy card on your behalf.
QUESTIONS AND ASSISTANCE. If you have not received a WHITE AND BLUE
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 WHITE AND BLUE PROXY CARD, AS ONLY YOUR
LATEST DATED PROXY WILL COUNT AT THE SPECIAL MEETING. IF YOU HAVE ANY
DOUBTS AS TO WHETHER YOUR PROXY WILL BE RECEIVED IN TIME TO BE CAST AT THE
SPECIAL MEETING, PLEASE CALL BEACON HILL PARTNERS, INC. PROMPTLY.
THE SPECIAL MEETING
The Special Meeting is scheduled to be held in the Forum Conference &
Education Center, located at One Cleveland Center, 1375 East 9th Street,
Cleveland, Ohio, on Tuesday, May 19, 1998, at 10:00 A.M., local time. April
28, 1998 has been set as the record date for determining the Beneficiaries
entitled to notice of and to vote at the Special Meeting (the "Record
Date"). Only Beneficiaries of record of Shares on the Record Date will be
entitled to vote at the Special Meeting, and will be entitled to one vote
for each Share held on the Record Date. Gotham and two of its affiliates,
Gotham Partners II, L.P. ("Gotham II") and Gotham International Advisors,
L.L.C. ("Gotham Advisors" and together with Gotham and Gotham II, the
"Gotham Funds"), beneficially own an aggregate of 3,047,800 Shares
(including 100 Shares held of record by Gotham and the remainder held in
"street name"), which collectively represent approximately 9.65% of the
Shares outstanding (based on information publicly disclosed by the
Company). The Gotham Funds intend to cause all of such Shares to be voted
FOR the adoption of the Gotham Proposal and the election of the Gotham
Nominees and AGAINST the adoption of the Current Board's Proposal.
GOTHAM'S PROPOSAL AND NOMINATIONS WILL BE CONSIDERED AT THE SPECIAL
MEETING. Gotham was successful in trial court in Ohio in defeating the
Company's preliminary injunction motion which would have kept the Gotham
Proposal and the Gotham Nominees from being considered by the shareholders
at the Special Meeting. As more fully described below, the Company tried to
enjoin Gotham on various grounds in the Ohio courts from making its
proposal and nominations, but was wholly unsuccessful. See "Certain
Litigation." Gotham believes that the following excerpt from the trial
court's opinion in this matter is highly informative as to the motives of
the Company and its management:
The evidence adduced at this hearing demonstrated that the
efforts of First Union's management following Gotham's July 14,
1997 letter were primarily motivated by a desire to derail
Gotham's efforts to change the Company's course and replace top
management. First Union's management's efforts to disenfranchise
Gotham do not appear to be designed to protect First Union's REIT
status but rather management. All the shareholders should have a
fair opportunity to decide the direction of their corporation at
the . . . meeting.
YOU SHOULD SIGN, DATE AND MAIL THE ENCLOSED WHITE AND BLUE PROXY CARD
IN THE POSTAGE-PAID ENVELOPE PROVIDED EVEN IF YOU HAVE ALREADY SUBMITTED A
WHITE PROXY CARD. You may have previously been provided with a proxy
statement and proxy card by Gotham. However, because the Company failed to
distribute its proxy materials to the shareholders in sufficient time prior
to the Annual Meeting date set for April 14, 1998 (purportedly because the
Company did not want to distribute the materials while it was engaged in
settlement discussions with Gotham), the Company determined to postpone the
Annual Meeting and the Record Date. It was agreed by Gotham and the Company
that the Annual Meeting would be omitted and the Special Meeting with the
new record date would be held in lieu thereof. Gotham only agreed to this
change upon the Company's agreement that (1) the Company would not provide
any new employee benefits or compensation outside the ordinary course of
business (Gotham was highly distressed at recent purported amendments to
Mr. James Mastandrea's employment contract potentially adding in excess of
$8 million to his existing compensation package, as described more fully in
"Certain Effects of the Adoption of the Gotham Proposal and the Election of
the Gotham Nominees" below, as well as new severance and other benefits
policies recently purportedly adopted by the Company), (2) the Company
would not make any transfers of its assets for less than fair value, (3)
the Company would mail Gotham's proxy materials as it is required to do
under applicable Federal proxy rules, but which it had previously refused
to do, and (4) the Gotham Proposal and the Gotham Nominees would not be
prejudiced by the change in characterization of the meeting from an annual
meeting to a special meeting. This agreement was then made an order of the
trial court. Because of the change in the record date and the meeting date,
and because the Company has finally agreed to mail Gotham's proxy materials
as it is required to do under the Federal proxy rules, Gotham has decided
to update its proxy statement and distribute it to the shareholders with
new proxy cards.
EVEN IF YOU HAVE ALREADY VOTED ON THE WHITE PROXY CARD PREVIOUSLY
DISTRIBUTED BY GOTHAM, WHICH WILL BE COUNTED AT THE SPECIAL MEETING, WE
URGE YOU TO VOTE IN FAVOR OF THE GOTHAM PROPOSAL AND THE GOTHAM NOMINEES,
AND AGAINST THE CURRENT BOARD'S PROPOSAL, ON THE NEW WHITE AND BLUE PROXY
CARD.
THE GOTHAM PROPOSAL
Gotham sets forth the following proposal to be considered by the
Beneficiaries of the Company at the Special Meeting:
Proposed, 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 Special
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
(iii) that, at the Special 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
AND BLUE PROXY CARD.
GOTHAM'S PROPOSED BUSINESS PLAN FOR THE COMPANY
The adoption of the Gotham Proposal and the election of the Gotham
Nominees will result in the Gotham Nominees obtaining a majority of the
seats on the Company's Board of Trustees. Gotham is taking these steps
because of its disappointment with the Company's fundamental business
performance as measured on a per Share basis and Gotham's belief that the
Company and its existing management have not successfully pursued certain
alternatives to maximize the value inherent in its paired share structure.
These alternatives include (i) the sale of the Company, (ii) a partnership
with a strategic investor, (iii) the acquisition of appropriate operating
businesses at economically attractive prices which will take advantage of
the Company's paired share structure, and (iv) a change in management. In
addition, Gotham does not believe that current management of the Company
has developed, or is capable of developing or implementing, the changes to
the Company's strategic plan which will be required if the utility of the
Company's paired share structure is substantially limited by the passage
into law of pending legislation. See "Certain Effects of the Clinton
Administration Budget Proposal and Proposed Congressional Legislation." If
elected, the Gotham Nominees, subject to their fiduciary duties, will
consider adopting the proposed business plan for the Company as outlined
below.
Background
----------
Gotham believes that it is difficult in the current real estate
investment environment in the U.S. to earn attractive returns on capital
operating as a conventional real estate investment trust. In Gotham's view,
the Company has historically paid high prices for real estate and parking
assets, and returns to shareholders have suffered as a result. The
Company's stock has increased by a compound annual rate of less than 1%
from July 19, 1993, the date James Mastandrea, the Company's current
Chairman, President and CEO, joined the Company, to April 15, 1998, and the
Company's dividend has declined by 39% during this period. Gotham's goal is
to maximize total return to shareholders over a multi-year investment
horizon through both capital appreciation and increased distributions to
shareholders.
Gotham believes that the current U. S. real estate markets are
substantially efficient such that an acquisition strategy that relies on
purchasing competitively marketed real estate assets is unlikely to offer
above-average returns. Gotham believes that if the Company is to be
successful in delivering attractive returns to shareholders, it must adopt
a more opportunistic investment and operating strategy and must achieve
certain competitive advantages.
Gotham believes that significant opportunities exist in real estate
and real-estate-related investments, but that in the current competitive
environment, a management team experienced in implementing complex
transactions with an extensive network of relationships and access to deal
flow is required to succeed. Gotham believes that the Company's existing
senior management team does not possess the experience, skills or network
of relationships required to implement such a strategy. If elected, the
Gotham Nominees intend to immediately seek suitable replacements who are
capable of implementing such a strategy.
Gotham intends to identify a Chief Executive Officer and other senior
members of management with substantial real estate investment and operating
experience as well as an extensive background in the capital markets,
including public and private equity investing. Gotham has not yet
identified the members of the new management team, but is in preliminary
discussions with several strong potential candidates.
Basic Investment Principles and Structural Considerations
---------------------------------------------------------
1. Long-Term Economic Goal
Gotham's long-term economic goal is to maximize the rate of gain in
the Company's intrinsic asset and business value on a per Share basis.
Gotham believes that there is a direct relationship between growth in the
Company's free cash flow per Share and growth in the Company's intrinsic
value per Share. Gotham believes that the Company's free cash flow per
Share will grow at a rapid rate if the Company is able to invest capital
and earn returns well in excess of its cost of capital. Gotham believes
that growth in intrinsic value per Share occurs when capable management and
the Company's Board of Trustees are motivated to think like owners.
Outlined below are proposed Share ownership goals and modifications to the
existing management compensation program which Gotham believes will
contribute to the long-term economic goals of the Company.
2. Alignment of Interest with Shareholders
Gotham believes that shareholder value is most likely to be created
when the Board's and management's interests are aligned with the interests
of the shareholders. By virtue of Gotham (together with its affiliates)
being the Company's largest shareholder as of the date hereof with
ownership of 3,047,800 Shares, the nominees affiliated with Gotham have a
substantial interest in the Company, and will be extremely motivated to
increase the value of the Company's Share price. Gotham will encourage all
Board members to commit substantial personal funds to purchase stock in the
Company so that they are similarly motivated.
Gotham believes that management must have a significant portion of its
net worth invested in the Company in order to align management's interests
with shareholders. While outright grants of Shares and options to
executives may motivate management to create value, they create an
alignment in only one direction. Gotham believes that "Heads I win, Tails
you lose"-type compensation structures are not conducive to long-term value
creation for shareholders.
The Company's existing compensation plan generally provides for
outright grants to executives based on a percentage of the absolute number
of Shares outstanding and on growth in funds from operation ("FFO"). As a
result, management is motivated to grow Shares outstanding and FFO without
regard to the per Share impact this growth will have. Gotham believes that
the damaging effects of such a compensation structure are demonstrated by
examining the Company's recent performance. Over the last 18 months, Shares
outstanding have approximately doubled. However, per Share FFO for 4th
Quarter 1997 has declined by more than 27% from the prior year period.
Growth for growth's sake does not increase value for shareholders, and can
be significantly destructive to shareholder value over the long term.
Gotham believes that the growth in per Share intrinsic value of the
Company will correspond to the growth in the Company's free cash flow per
Share in the future. As a result, Gotham's view is that a management
compensation program based on free cash flow growth per Share will best
align management's interest with shareholders' long-term goals. The Gotham
Nominees intend to modify the existing compensation arrangement for senior
management accordingly. In addition, Gotham believes that employees other
than the most senior management should similarly be compensated based on
free cash flow growth in the segments of the business under their
supervision.
3. Paired Share Structure
In the event proposed legislation that would limit the utility of the
Company's paired share structure is passed into law, the Gotham Nominees
intend to seek to modify the Company's existing structure so that it
complies with the proposed legislation while continuing to allow for
acquisitions of businesses which have assets or income which are not
permitted to be held or received by a REIT. These structural modifications
may include the distribution of shareholders' interest in the management
company to the Company's shareholders, the formation of a "paper-clip"
structure, or some other alternative that will allow the Company's
shareholders to continue to invest in real-estate-intensive operating
businesses through the Company in conjunction with a related entity and
permit the Company to continue to qualify as a REIT. There is no assurance
that any such alternative can be achieved. In addition, each alternative
has advantages and disadvantages, and the alternative, if any, ultimately
pursued by the Company will be chosen based upon an analysis of the risks
and rewards of each of the alternatives open to the Company.
4. UPREIT Structure
In contemplation of the new investment strategies of the Company, the
Gotham Nominees intend to consider employing an UPREIT structure to enable
the tax-advantaged acquisition of assets or businesses held in partnership
or limited liability company form. Such a structure would contemplate the
contribution of the assets of the Company to an operating partnership in
exchange for ownership interests in such operating partnership. Assets and
businesses to be acquired could be contributed by their owners to the
operating partnership in exchange for ownership interests in the operating
partnership. This structure could enable the Company to make future
acquisitions for equity (rather than cash) consideration, and would permit
the Company to use an acquisition currency that under certain circumstances
could result in favorable tax treatment to the owners of the acquired
businesses. This could serve to reduce the price paid by the Company in
such transactions. The UPREIT structure could prove to be a highly
effective growth vehicle for the Company.
5. Capital Structure -- Equity
Gotham believes that the Company should be cautious when issuing
equity capital. Gotham believes that many REITs, in particular the Company,
have not carefully considered the cost of selling equity in their
calculation of the appropriate pricing and timing of raising equity
capital. Gotham believes that dilutive equity issuance is a significant
contributor to the Company's per Share FFO dilution over the past 18
months. In Gotham's view, the Company should only raise equity capital when
the Company is confident that it can earn returns in excess of the cost of
equity capital raised. Similarly, Gotham believes that the Company should
only use equity to acquire assets or businesses when it receives as much
business or asset value as it gives up when it issues Shares. Gotham
believes the Company should always compare a potential transaction
opportunity with the purchase of its own Shares in the open market.
Depending upon the Company's trading value in the open market, share
repurchases can create significant value for shareholders.
6. Capital Structure -- Debt
Gotham believes that non-recourse secured debt is preferable to
recourse corporate debt for a REIT. By segregating leverage on an
asset-by-asset basis, the Company can reduce the risk of one failed project
impacting the health of the overall enterprise. Gotham believes that the
use of leverage can reduce substantially the cost of the Company's capital,
and if structured appropriately on a non-recourse, individual asset basis,
can dramatically reduce systemic risk for shareholders.
While debt can reduce a REIT's cost of capital, the amount of debt the
Company can support must be carefully monitored. Gotham believes that it is
critical that the Company be in a strong financial position with the
ability to comfortably meet future obligations, and have the financial
flexibility to pursue opportunities as they arise. For this reason, Gotham
will encourage the Company to maintain prudent levels of debt.
Investment Strategy
-------------------
If the Gotham proposed business plan is adopted, the Company's
investment strategy will emphasize the following types of transactions
among others:
1. Acquisitions of Private Family Real Estate Businesses
Gotham believes that there are a substantial number of private real
estate businesses owned by families who seek liquidity for their
businesses, but whose primary motivation for sale include factors in
addition to price. These other factors include tax considerations,
preservation of employment for key employees, simplicity of execution of a
transaction, form of purchase price consideration, and estate planning
factors.
Gotham believes that for many such owners going public independently
is not an appealing option because of (1) their unwillingness or lack of
interest in engaging in the activities required to take a company public,
(2) the requirements of growth imposed by Wall Street on most REITs, (3) a
general discomfort in dealing with the Wall Street and investment
communities, and/or (4) the lack of liquidity an independent public
offering typically provides for such owners.
In many cases, an all-cash sale is unappealing to such owners because
of the immediate tax impact, and also because of other estate planning
concerns including the investment management burdens imposed on future
generations.
Gotham believes that a transaction with many other REITs, even those
using equity consideration through UPREIT structures, will be unappealing
to these owners for several reasons: (1) many other REITs are focused on
particular property types or markets or have investment strategies which
are inconsistent with the diverse collections of assets of many private
family businesses, (2) the undesirability of selling out to long-time
competitors, (3) single-product and/or geographically-focused REITs do not
offer the potential for diversification for these owners, and (4) many
REITs are not managed strictly for the benefit of owners without regard to
Wall Street convention or other short-term investment considerations, as
Gotham believes the Company should be managed.
Gotham believes the Company may have a competitive advantage in
acquiring these businesses because of its willingness (1) to preserve the
tax positions of the owners, (2)to serve as a "one-stop shop" in its
willingness to acquire all of the assets of a seller, (3)to absorb the real
estate organizations of a seller, allowing an existing management team, to
the extent it is mutually desirable, to continue in its management role
following the sale, and (4) to operate in a manner that ignores short-term
investment considerations and Wall Street convention insofar as it
interferes with the Company's ability to generate long-term attractive
returns for its shareholders.
2. Acquisition of Entrepreneurially Managed Real Estate
Investment Programs
Gotham believes that it is difficult to attract, hire, and retain
talented management, particularly at senior management levels. In addition,
Gotham believes that there are numerous property owners who have embarked
on entrepreneurial real estate strategies that offer attractive returns who
are continually in need of capital to pursue future opportunities. Gotham
believes that many such real estate entrepreneurs do not control a
sufficient amount of assets to raise capital in the public markets.
In light of these considerations, and based on Gotham's and the Gotham
Nominees' experience in identifying, designing and implementing such
transactions, Gotham believes that there are numerous opportunities for the
Company to acquire assets in exchange for UPREIT consideration at favorable
prices from, and to form joint venture arrangements with, real estate
entrepreneurs who can then identify new opportunities for the Company. The
benefit of these entrepreneurs' expertise and skills, coupled with the
Company's anticipated ability to source attractively-priced equity and
debt, further improves the ability of these entrepreneurs working on behalf
of the Company to execute transactions at favorable prices. Gotham intends
to identify and implement such "platform" opportunities, and to enter into
exclusive arrangements with these entrepreneurs for the benefit of the
Company. In addition, Gotham intends to encourage the cross-fertilization
of intellectual capital among the different platform operators to further
improve the operations and deal flow of the Company.
3. Real-Estate-Intensive Operating Businesses
and Other Corporate Opportunities
Gotham believes that there are substantial opportunities for the
Company, in conjunction with an affiliated operating entity, to acquire
real-estate-intensive operating businesses at attractive prices. Gotham
believes these opportunities exist because there are many such businesses
held in C Corporation form which in Gotham's view are valued as operating
companies without an appropriate value assigned to such companies'
significant real estate holdings.
Gotham will only encourage the Company to acquire
real-estate-intensive operating businesses that have attractive economic
characteristics at prices that offer above-average returns to the Company.
Such acquisitions will be structured in a manner that preserves the
Company's REIT status.
4. Special Situation Opportunities
Gotham believes that there are opportunities for the Company to
acquire individual real-estate-related assets or portfolios at
economically-attractive prices, particularly where complexities exist which
make these acquisitions cumbersome for other purchasers. Examples include
investments with legal, tax, capital structure or other complexities which
make many traditional buyers unlikely competitors. The Company would not
limit such assets or portfolios to any single asset type, such as parking
lots, or any single geographical market, because Gotham believes that a
narrow focus would prevent the Company from pursuing the most economically
favorable transactions in the real estate sector.
Gotham intends to identify a new management team capable of exploiting
such complex, special situation opportunities where it believes the Company
will have limited competition and where above-average returns are
available.
While Gotham believes that the adoption by the Company of a business
plan based on the foregoing is a crucial element to the maximization of the
value of the Company for its shareholders, there is no assurance that the
plan will be successful, or that the plan as a whole or any specific
element thereof can or will be successfully implemented. Certain of the
specific elements of the plan may require shareholder approval. If elected,
the Gotham Nominees will consider the plan and each of its elements in
accordance with their fiduciary duties. Gotham believes that part of the
Company's strategic plan should be its continued qualification as a REIT,
and the Gotham Nominees, if elected, intend to cause the Company to
maintain this status, absent material developments which cannot be foreseen
at this time.
ELECTION OF GOTHAM NOMINEES AS TRUSTEES
Gotham is proposing that the Beneficiaries of the Company elect the
Gotham Nominees to the Board at the Special 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 Special 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.
PRINCIPAL OCCUPATION OR
NAME, AGE AND EMPLOYMENT DURING THE
BUSINESS ADDRESS 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 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
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 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 a
Senior Managing Member of Gotham
International Advisors, L.L.C., the
investment manager of Gotham
Partners International, Ltd. Mr.
Ackman is also a member of the
Executive Committee of Gotham 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 (57)............. Mr. Altobello has been the Chairman
ONEX Food Services, Inc. of the Board of ONEX Food Services,
6550 Rock Spring Drive Inc., an airline catering company,
Bethesda, Maryland 20817 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 November 1989 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.
David P. Berkowitz (36).............. 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 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
before January 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 a Senior Managing Member of
Gotham International Advisors,
L.L.C. Mr. Berkowitz is also a
member of the Executive Committee
of Gotham 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 (44).............. Since January 1993, Mr. Garchik
The Evans Company has been the President of
8251 Greensboro Drive, Suite 850 The Evans Company, a commercial
McLean, Virginia 22102 real estate development and
management firm. Since July 1996,
Mr. Garchik has been the Chairman
of Gotham 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 (43)................ Mr. Klafter has been an in-
Gotham Partners Management Co. LLC house counsel and a principal of
110 East 42nd Street, 18th Floor Gotham Partners Management Co. LLC,
New York, New York 10017 an investment management firm,
since April 1996. Mr. Klafter is a
Member of Gotham International
Advisors, L.L.C. Mr. Klafter was
counsel at White & Case, a law
firm, from January 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.
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 August 1987
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 principal
Gotham Partners Management Co. LLC of Gotham Partners Management Co.
110 East 42nd Street, 18th Floor LLC, an investment management firm,
New York, New York 10017 since October 1994. Mr. Shuchman
is a Member of Gotham International
Advisors, L.L.C. Mr. Shuchman was
an investment banker at Goldman,
Sachs & Co., an investment banking
firm, from before January 1, 1993
until August 1994. Mr. Shuchman
holds a B.A. from the University of
Pennsylvania.
Steven S. Snider (41)................ Since June 1998, Mr. Snider
Hale and Dorr LLP has been a senior partner
1455 Pennsylvania Avenue, N.W. at Hale and Dorr LLP, a law firm.
Washington, D.C. 20004 Mr. Snider is a transactional
lawyer involved in a broad spectrum
of real estate, tax and corporate
matters. Mr. Snider holds an A.B.
from Cornell University and a J.D.
from the University of Chicago Law
School.
Mary Ann Tighe (49).................. Since November 1984, Ms.
Insignia/ESG Tighe has been an Executive
200 Park Avenue Managing Director and a member of
New York, New York 10166 the 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 the New 42nd Street, a
New York City-based community
revitalization organization.
James A. Williams (55)............... Since December 1969, Mr.
Williams, Williams, Ruby & Plunkett PC Williams has been the President of
380 N. Woodward Avenue, Suite 380 Williams, Williams, Ruby & Plunkett
Birmingham, Michigan 48009 PC, a lawfirm. Mr. Williams has
also been the Chairman of Michigan
National 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.
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
members of the Board. If the Gotham Nominees are elected to the existing
Class II seats on the Board that will be open at the Special 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, including the consideration and
implementation of Gotham's proposed business plan for the Company. See
"Gotham's Proposed Business Plan for the Company."
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 $1,000 for each meeting of the Board and
each committee meeting attended. 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.
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 AND BLUE 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. The trial Court denied
the Company's attempt at obtaining a preliminary injunction that would have
prohibited Gotham from making its proposal and nominations and soliciting
in favor thereof. See "Certain Litigation." In any such case, Shares
represented by the enclosed WHITE AND BLUE 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 AND BLUE 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 AND BLUE proxy card.
The persons named as proxies on the enclosed WHITE AND BLUE 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 AND BLUE PROXY CARD.
THE CURRENT BOARD'S PROPOSAL
The Company's definitive proxy statement in connection with the
Special Meeting, as amended, filed with the Commission on April 9, 1998
(the "Company's Proxy Statement"), proposes that the Beneficiaries of the
Company vote in favor of fixing the number of Trustees at twelve, an
increase of three seats, with one vacancy added to each of the three
existing classes of Trustees. Under the Current Board's Proposal, the
Beneficiaries would be denied the right to fill these seats. Instead, the
incumbent Trustees would be able to pick whomever they wish to fill the new
seats whenever they wish to do so, subject only to the nominees being
"qualified" (a term left undefined in the Company's Proxy Statement) and,
presumably, to the incumbent Trustees' fiduciary duties.
Gotham is against the Current Board's Proposal because it denies the
Beneficiaries the right to choose their Trustees. Gotham believes that the
Current Board's Proposal is in contravention of the Declaration of Trust,
which provides that the right of Trustees to fill vacancies on the Board of
Trustees arises only when a Trustee resigns or is removed or when it is
determined subsequent to an election that a newly-elected Trustee is not
qualified to serve as a Trustee under the Declaration of Trust, and not in
connection with an increase in the size of the Board of Trustees. Gotham
believes that the Current Board's Proposal is inconsistent with
well-established law which provides that absent an explicit provision in
the governing documents to the contrary, shareholders have the right to
vote for newly-created seats on a board and these seats are not deemed
vacancies. See "Possible Effects of the Adoption of the Gotham Proposal and
the Election of the Gotham Nominees--Certain Provisions of the Declaration
of Trust" and "Certain Litigation."
YOU ARE URGED TO VOTE AGAINST THE CURRENT BOARD'S PROPOSAL ON THE
ENCLOSED WHITE AND BLUE PROXY CARD.
BACKGROUND OF THE SOLICITATION
On June 4, 1997, Gotham and Gotham II filed a Schedule 13D with the
Commission which reported that it had acquired Shares and options to
acquire Shares for investment purposes. The Schedule 13D stated that Gotham
and Gotham II generally pursue an investment objective that seeks capital
appreciation, and that in pursuing this investment objective, Gotham and
Gotham II analyze and evaluate the performance of securities owned by them
and the operations, capital structure and markets of companies in which
they invest 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).
Gotham and Gotham II further reported their belief that in order for
the Company to maximize shareholder value by taking advantage of its
stapled-stock structure, the Company should execute sizable acquisitions of
real estate-intensive operating businesses at attractive prices. In
addition, Gotham and Gotham II described their concern that (i) in their
opinion, existing management does not have the requisite background and
experience to implement such a value-maximizing strategy, and (ii) the
Company had raised capital in equity offerings that had diluted the
holdings of existing stockholders.
On July 14, 1997, Gotham and Gotham II sent a letter to the Board of
Trustees of the Company and the Board of Directors of First Union
Management, Inc., the Company's affiliated management company. In summary,
the letter raises questions about the Company's strategic plan and states
that Gotham and Gotham II have four primary concerns with the Company's
management, as follows:
first, Gotham and Gotham II's belief that management was unaware of
the Company's stapled-stock structure until late 1996, as indicated (i) by
the Company's description of its strategic plan on October 23, 1996, on
which date the Company stated on page S-3 of its convertible preferred
stock prospectus that 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," and made no reference to the use of the Company's stapled-stock
structure and (ii) by a review of the Company's standard tag line for its
press releases, which began mentioning the Company's stapled-stock
structure on or about December 4, 1996;
second, Gotham and Gotham II's belief that the Company overpaid for
its Imperial Parking unit, which belief is based on (i) a comparison of the
multiple of approximately 17 times 1996 fiscal year EBITDA paid by the
Company for Imperial Parking Ltd. to the multiple paid by Apollo Real
Estate and AEW Realty Advisors for Allright Parking in October 1996 of less
than 10 times 1996 fiscal year EBITDA and (ii) the fact that a significant
portion of Imperial Parking's assets are not REIT-eligible because it owns
or leases few of its assets and because it is not based in the United
States, which limits the Company's ability to take advantage of its
stapled-stock structure;
third, Gotham and Gotham II's belief that the Company's series of
equity offerings beginning in October 1996 diluted the value of existing
shareholders' holdings through the issuance of additional common stock and
preferred stock. This belief arises from the decline in the Company's per
share funds from operation of 13% for the third quarter of 1997, and 27%
for the fourth quarter of 1997, as compared to the corresponding periods in
1996; and
fourth, Gotham and Gotham II's belief that management lacks the
background and experience to manage an acquisition-intensive operating
business because Mr. Mastandrea's background and experience appear to be
chiefly in the area of real estate asset management, and because the
Company had not made an acquisition of an operating company during the term
in office of its current senior management until the Imperial Parking
acquisition.
The letter also described value-maximizing techniques employed by
three other stapled-stock REITs (Starwood Lodging Trust, California Jockey
Club and Santa Anita Realty), indicated that Gotham and Gotham II would not
accept greenmail, and requested a meeting of Gotham representatives with
the Trustees and Directors to discuss the matters raised in the letter.
On July 21, 1997, Mary Ann Jorgenson of Squire, Sanders & Dempsey,
L.L.P., outside counsel to the Company, sent a letter to Stephen Fraidin of
Fried, Frank, Harris, Shriver & Jacobson, special counsel to Gotham and
Gotham II, stating her belief that a reference in the letter sent by Gotham
and Gotham II on July 14, 1997 to the effect that Gotham and Gotham II have
learned from the example of Warren Buffett to seek investments in great
businesses managed by people who they like, trust and admire was
inappropriate because of her belief that the use of the word "trust"
suggested, by innuendo, that the management of First Union, and
specifically Mr. Mastandrea, lacked integrity and honesty.
---------
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 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
---------
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 [sic] 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
---------
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
---------
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
---------
On January 8, 1998, Gotham sent the following letter to Paul F.
Levin, Secretary of the Company. The full text of the letter and its
exhibits and accompanying documents appear below except for Exhibit C
(the "Description of the Proposal" and the "Reasons for the
Proposal"), which is summarized.
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 seats
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 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
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
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, 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.
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.
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.
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.
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
---------
Exhibit C states that the description of the Gotham Proposal
is 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. Exhibit C also reviews in its section on the
"Reasons for the Proposal" the correspondence between Gotham and
Gotham II and the Company and the performance of the Shares for
periods since Mr. Mastandrea became Chairman of the Company, and
states that in order to implement steps to maximize shareholder
value, Gotham is seeking majority representation on the Board of
Trustees at the Annual Meeting.
Gotham states that upon gaining majority representation on
the Company's Board of Trustees and after reviewing relevant
information about the business and operations of the Company, it
expects that the new board would propose changes in the
management of the Company, but that it had not 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, although Gotham did not have any
specific plans regarding any of the foregoing.
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.
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
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
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.
---------
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 the 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
---------
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.
---------
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.
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
---------
On January 20, 1998, 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, sent a letter to Frances
Floriano Goins of Squire, Sanders & Dempsey, L.L.P., counsel to the
Company. Mr. Sussman and Mr. Weiner urged the Company to desist from what
they believed were entrenchment tactics and harassing litigation in
responding to the Gotham Proposal and the Gotham Nominations. The letter
continues as follows:
. . . Gotham I seeks to give First Union Beneficiaries/stock-
holders 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 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 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
---------
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.
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, 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.
---------
On January 30, 1998, Gotham sent the following letter and
certificate 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:
Gotham Partners, L.P. ("Gotham") is a holder of record of
shares of Beneficial Interest, par value $1.00 per share
("Shares"), of First Union Real Estate Equity and Mortgage
Investments (the "Company"), and is entitled to vote its Shares
at the 1998 Annual Meeting of Beneficiaries of or any special
meeting held in lieu thereof (the "Annual Meeting"). In
connection with its proposal and nominations to be presented for
consideration at the Annual Meeting, Gotham hereby requests that,
pursuant to Rule 14a-7 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Company elect
to either provide Gotham with a list of all of the record holders
of Shares (in such form as is required by Rule 14a-7 and as is
set forth below) or to mail Gotham's soliciting materials
(including proxy statements, forms of proxy and other soliciting
materials to be furnished by Gotham) to the record holders of
Shares. The Company is required to notify Gotham of its election
within five business days of the date hereof.
In the event that the Company elects to provide Gotham with
a list of the record holders of Shares, Gotham hereby requests,
and the Company is required to deliver to Gotham within five
business days of the date hereof, (i) a reasonably current list
of the names, addresses and security positions of all of the
record holders, including banks, brokers and similar entities,
holding Shares and other securities of the Company in the same
class or classes as holders which have been or are to be
solicited on management's behalf; and (ii) the most recent list
of names, addresses and security positions of beneficial owners
as specified in Rule 14a-13(b) promulgated under the Exchange
Act, in the possession of the Company, or which subsequently
comes into the possession of the Company. In addition, if the
Company makes this election, the Company shall furnish Gotham
with updated record holder information on a daily basis or, if
not available on a daily basis, at the shortest reasonable
interval, through the record date of the Annual Meeting.
In the event that the Company elects to mail Gotham's
soliciting materials, the Company shall mail copies of any proxy
statement, form of proxy or other soliciting material furnished
by Gotham to all of the record holders of Shares, including
banks, brokers or similar entities. The Company is required to
mail a sufficient number of copies to the banks, brokers and
similar entities for distribution to all beneficial owners of
Shares. The Company is further required to mail Gotham's
materials with reasonable promptness after tender of the material
to be mailed, envelopes or other containers therefor, postage or
payment for postage and other reasonable expenses of effecting
such mailing.
Gotham also requests, pursuant to clause (a)(1) of Rule
14a-7, that the Company provide Gotham with the following
information within five business days of the date hereof:
(i) a statement of the approximate number of record holders
and beneficial holders of the Company's securities, separated by
type of holder and class, owning Shares or other securities in
the same class or classes as holders which have been or are to be
solicited on management's behalf; and
(ii) the estimated cost of mailing a proxy statement, form
of proxy or other communication to such holders, including to the
extent known or reasonably available, the estimated costs of any
bank, broker, and similar person through whom the Company has or
intends to solicit beneficial owners in connection with the
Annual Meeting.
Enclosed herewith is the certification of Gotham given
pursuant to clause (c)(2) of Rule 14a-7.
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
Certificate
-----------
The undersigned, Gotham Partners, L.P. ("Gotham"), hereby
certifies as follows:
1. The list of security holders of First Union Real Estate
Equity and Mortgage Investments (the "Company") which Gotham has
requested from the Company will be used to solicit proxies in
connection with its proposal and nominations to be presented for
consideration at the 1998 Annual Meeting of Beneficiaries of the
Company or any special meeting held in lieu thereof (the "Annual
Meeting"), which are set forth in Gotham's Notice to the
Secretary of the Company dated January 8, 1998.
2. Gotham will not use the information contained in such
list of security holders for any purpose other than to
communicate with or solicit security holders regarding the Annual
Meeting.
3. Gotham will not disclose the information contained in
such list of security holders to any person other than an
employee or agent of Gotham to the extent necessary to effectuate
such communication or solicitation.
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
---------
On February 2, 1998, the Secretary of the Company sent the following
letter to Gotham and Gotham II:
Gotham Partners, L.P.
Gotham Partners II, L.P.
110 East 42nd Street, 18th Floor
New York, New York 10017
Attn: Mr. David P. Berkowitz
Mr. William A. Ackman
Gentlemen:
As you know, the Board of Trustees of First Union Real
Estate Equity and Mortgage Investments ("First Union") has
determined that securities of First Union claimed to be owned by
you constitute "Excess Securities" pursuant to First Union's
Declaration of Trust and By-Laws. Despite the fact that the
holders of Excess Securities have no right to dividends, you may
receive funds representing the dividend declared on December 3,
1997 due to certain agreements between Depository Trust Company
and its members and various transfer agents.
In accordance with the provisions of First Union's By-Laws,
you have no right to any such dividend payments for so long as
you hold Excess Securities, and you hold such payments as agent
for First Union. This result applies to the November payment as
well. Any transfer by you of these payments to your limited
partners will be at your risk and in violation of the Declaration
of Trust.
Sincerely,
/s/ Paul F. Levin
------------------
Paul F. Levin
Senior Vice President,
General Counsel and Secretary
---------
On February 3, 1998, the Secretary of the Company sent the following
letter to William A. Ackman and David P. Berkowitz:
William A. Ackman
David P. Berkowitz
Gotham Partners, L.P.
110 East 42nd St., 18th Floor
New York, NY 10017
Gentlemen:
In response to your request that First Union notify Gotham
whether First Union will provide Gotham a shareholder list or
mail Gotham's soliciting materials, First Union has no plans to
do either.
As you know, First Union's Board of Trustees has determined,
pursuant to the Declaration of Trust and By-Laws, that Gotham's
shares are "Excess Securities." As provided in Article VI,
Section 6 of the By-Laws:
As the equivalent of treasury Securities for such
purposes, the Excess Securities shall not be entitled
to any voting rights; shall not be considered to be
outstanding for quorums or voting purposes; and shall
not be entitled to receive interest or any other
distribution with respect to the Securities.
Consequently, under the Declaration of Trust and By-Laws, your
Excess Securities are really treasury shares and are outside the
coverage of Regulation 14(a)-7.
Very truly yours,
/s/ Paul F. Levin
-----------------
Paul F. Levin
---------
On February 3, 1998, James C. Mastandrea sent the following letter to
William A. Ackman and David P. Berkowitz:
Mr. William A. Ackman
Mr. David P. Berkowitz
Gotham Partners, L.P.
110 East 42nd Street, 18th Floor
New York, NY 10017
Gentlemen:
As you are aware, the Clinton budget proposal has already had a
dramatic impact on paired share REITs and certainly has the
potential to alter any plans either of us might have had for
First Union. As Chairman, I am concerned that our shareholders
have seen the value of their First Union holdings negatively
impacted since the beginning of the year. According to newspaper
accounts, the publicity generated in connection with last year's
takeover battle involving Starwood and ITT contributed to a
climate of controversy where negative points of view regarding
the paired share provision found their way into the media and now
into proposed tax policy.
Recognizing that some of the extraordinary opportunities
available to First Union may be eliminated in the next few
months, we have very little time to make investments that will be
advantageous by utilizing our structure.
While I don't intend to comment on the merits of your intended
proxy fight, it is obvious that it will be time consuming and
costly to both of us and only serve to distract us as the window
of opportunity closes. The relevance of a proxy contest and its
attendant litigation pales next to our mutual concern about
shareholder values.
I believe that we should meet to determine if our concerns
regarding the budget proposal merit our working together in the
brief time remaining, and if all of the shareholders' interests
might best be addressed by cooperation rather than protracted and
costly litigation. I have asked our attorneys to postpone further
filings to give us a chance to meet, and look forward to hearing
from you tomorrow afternoon, no later than 5:00 p.m. Otherwise, I
must assume that our present course is your preference.
Very truly yours,
/s/ James C. Mastandrea
-------------------------------
James C. Mastandrea
Chairman and Chief Executive Officer
---------
On February 5, 1998, Gotham and Gotham II stated in the seventeenth
amendment to the Schedule 13D relating to their interest in the Company
that the meeting requested by Mr. Mastandrea's February 3, 1998 letter to
Messrs. Ackman and Berkowitz took place on February 4, 1998.
---------
On March 27, 1998, Gotham issued the press release set forth below.
The quotation by Mr. Ackman contained therein is a statement of Mr.
Ackman's opinion.
GOTHAM TO PROCEED WITH PROXY CONTEST TO ELECT NEW
TRUSTEES OF FIRST UNION
NEW YORK, March 27, 1998 - Gotham Partners, L.P. today announced that
the Court of Common Pleas, Cuyahoga County, Ohio, has ruled against
First Union Real Estate Investments' (NYSE: FUR) attempt to enjoin
Gotham from presenting an alternative slate of directors for election
at First Union's annual meeting and prevent Gotham from voting its
shares. The First Union annual meeting is scheduled for April 14,
1998. Gotham Partners is one of First Union's largest shareholders.
First Union is a stapled-stock real estate investment trust (REIT).
In his decision, Judge Timothy J. McGinty stated:
The evidence adduced at this hearing demonstrated that the
efforts of First Union's management following Gotham's July
14, 1997 letter were primarily motivated by a desire to
derail Gotham's efforts to change the Company's course and
replace top management. First Union's management's efforts
to disenfranchise Gotham do not appear to be designed to
protect First Union's REIT status but rather management. All
the shareholders should have a fair opportunity to decide
the direction of their corporation at the April 14, 1998
annual meeting.
On July 14, 1997, Gotham sent a letter to the First Union Board of
Trustees expressing its strong concerns about management and the
strategic direction of the Company and requesting a meeting with the
Board of Trustees. The First Union Board of Trustees refused and
despite numerous subsequent efforts by Gotham has continued to refuse
to address Gotham's concerns.
William A. Ackman, a principal of Gotham Partners, said, "We are very
pleased by the Court's decision and believe it is a victory for all
First Union shareholders. First Union's tactics were clearly seen for
what they are - a blatant attempt to entrench senior management at
all costs by disenfranchising shareholders. We intend to proceed with
our efforts to elect new Trustees of First Union and look forward to
the vote on April 14. If victorious, we will work hard on behalf of
all shareholders to maximize the value inherent in First Union."
Gotham is soliciting proxies to replace the entire class of three
First Union Trustees up for election at this year's annual meeting,
which includes First Union chairman and chief executive officer James
C. Mastandrea, with Gotham nominees Ackman, David P. Berkowitz, also
a principal of Gotham Partners, and James A. Williams, chairman of
Michigan National Bank. Gotham is also proposing to increase the size
of the First Union Board of Trustees from nine members to 15 members
and to fill the six new seats with Gotham nominees. In its ruling,
the Court found no grounds to invalidate any of Gotham's proposals or
any of its nominees for election to the First Union Board of
Trustees. If all of the Gotham proposals are approved by First Union
shareholders and its nominees elected, the Gotham nominees would hold
nine of the 15 seats on the First Union Board.
If elected, the Gotham nominees intend to propose changes in the
senior management of First Union and explore other alternatives to
maximize shareholder value.
Gotham Partners is a private New York investment partnership.
---------
On March 27, 1998, the Company issued the following press release:
FIRST UNION ANNOUNCES COURT RULING
CLEVELAND, OHIO, March 27, 1998 - FIRST UNION REAL ESTATE INVESTMENTS
(NYSE: FUR) announced today that the Cuyahoga County Common Pleas
Court declined today to issue a preliminary injunction that would
have clarified procedures and voting rights at the Trust's Annual
Meeting.
James C. Mastandrea, Chairman and Chief Executive Officer of the
Trust, stated, "It's unfortunate that Gotham prevailed in this round
as it only means further costly time delays and expense to the Trust.
We will have to continue the litigation to get the real decision
about the Trust's rights and duties."
Gotham takes the position in its court filings that nothing done in
the state court is final, and the entire issue will have to be
reconsidered in the pending federal case.
Mastandrea continued, "Our position remains the same. As we have said
in our federal court complaint, a group of hostile shareholders, led
by Gotham, wants to take over control of the Board without following
the Trust's long-established rules. In our view their proposal to
pack the Board with nine of their own people is not allowed under the
Declaration of Trust."
Mastandrea continued, "The Board has worked hard to settle this
situation. It is blatantly unfair to allow Gotham, an 8.3%
shareholder, to choose nine nominees. The Board of Trustees met twice
with representatives of Gotham and once with representatives of
Apollo. We believe the fairest approach is to build a consensus slate
that reflects representation by several of our large shareholders."
Month-long settlement discussions broke down on announcement
yesterday that a bill had been introduced in the House and Senate
that would curb the tax advantages of paired-share REITs. An article
in The Wall Street Journal today states that the legislation is
almost certain to be enacted.
The Trust also announced that it has postponed its Annual Meeting and
record date. Thomas T. Kmiecik, Senior Vice President and Treasurer
of First Union, stated, "We had held off sending out our own proxy
materials in hopes of reaching a settlement. In fact, last Friday
night we reached an agreement in principle in the Judge's chambers.
Now, we'll send out our proxy statement, and we need to give
shareholders time to consider their choices."
First Union Real Estate Investments is a unique stapled-stock real
estate investment trust (REIT) headquartered in Cleveland, Ohio, and
traded on the NYSE.
---------
On March 31, 1998, the Company issued the following press release:
FIRST UNION RESCHEDULES ANNUAL MEETING
CLEVELAND, March 31 -- First Union Real Estate Investments (NYSE:
FUR) today announced, with state court approval, that it has
rescheduled its 1998 annual meeting of shareholders for Tuesday, May
19, at 10:00 AM. Shareholders of record as of Tuesday, April 28, will
be entitled to vote. The meeting will be held at One Cleveland Center
in Cleveland.
The Trustees believe the May meeting date will provide shareholders
with sufficient time to evaluate both the First Union and Gotham
plans before voting their proxies. The annual meeting had previously
been scheduled for Tuesday, April 14.
First Union Real Estate Investments is a unique stapled-stock real
estate investment trust (REIT) headquartered in Cleveland, Ohio, and
traded on the New York Stock Exchange.
In connection with the annual meeting of the beneficiaries of First
Union Real Estate Equity and Mortgage Investments ("First Union"),
First Union will be soliciting proxies against a proposal of certain
beneficiaries and related nominations for seats on the Board of
Trustees of First Union. First Union and certain persons named below
may be deemed to be "participants" within the meaning of Regulation
14A under the Securities Exchange Act of 1934 in the solicitation of
proxies. The "participants" in this solicitation may include the
Trustees of First Union (James C. Mastandrea, Kenneth K. Chalmers,
William E. Conway, Daniel G. DeVos, Allen H. Ford, Russell R.
Gifford, Spencer H. Heine, James M. Delaney and Herman J. Russell)
and the following executive officers of First Union: James C.
Mastandrea, Steven M. Edelman, Paul F. Levin, John J. Dee and Thomas
T. Kmiecik. As of February 13, 1998, Mr. Mastandrea beneficially
owned 915,559 shares (including shares subject to options exercisable
within 60 days) of beneficial interests in First Union. None of the
remaining "participants" beneficially owns in excess of 1 percent of
First Union's equity securities. Because the dissident beneficiaries
have threatened to terminate certain executives of The Trust
including Mr. Mastandrea if they win, the named executive officers
and certain other officers and employees party to change in control
agreements with First Union may be deemed to have an "interest" in
the solicitation of proxies.
---------
On April 1, 1998, Gotham issued the following press release:
OHIO COURT ORDERS FIRST UNION NOT TO INCREASE
COMPENSATION AND BENEFITS OR SELL ASSETS BEFORE
SHAREHOLDER VOTE ON DIRECTORS
REQUIRES CANCELED SHAREHOLDER MEETING
BE HELD ON MAY 19
NEW YORK, April 1, 1998 - Gotham Partners, L.P. today announced that
pursuant to an agreement between Gotham and First Union Real Estate
Investments (NYSE: FUR), the Court of Common Pleas, Cuyahoga County,
Ohio, has ordered First Union not to provide any new employment
benefits or compensation outside the ordinary course of business and
has prohibited First Union from any transfer of assets not for fair
value prior to the election and seating of directors. Under the
order, First Union is required to distribute Gotham's proxy materials
in compliance with Federal proxy rules, which First Union had
previously refused to do. Gotham is one of First Union's largest
shareholders.
In addition, the Court ordered First Union to hold a special meeting
of shareholders on May 19, 1998 in lieu of the 1998 annual meeting.
The record date for the meeting will be April 28. First Union's
annual meeting of shareholders was scheduled for April 14, but was
canceled by First Union last week when the same Ohio Court ruled
against First Union and in favor of allowing Gotham's proposal to
proceed. Among other items, Gotham has proposed an alternative slate
of directors.
In last week's decision, Judge Timothy J. McGinty stated, "First
Union's management's efforts to disenfranchise Gotham do not appear
to be designed to protect First Union's REIT status but rather
management."
Gotham is soliciting proxies to replace the entire class of three
First Union Trustees up for election at this year's annual meeting,
which includes First Union chairman and chief executive officer James
C. Mastandrea, with Gotham nominees William A. Ackman and David P.
Berkowitz, both principals of Gotham Partners, and James A. Williams,
chairman of Michigan National Bank. Gotham is also proposing to
increase the size of the First Union Board of Trustees from nine
members to 15 members and to fill the six new seats with Gotham
nominees. If all of the Gotham proposals are approved by First Union
shareholders and its nominees elected, the Gotham nominees would hold
nine of the 15 seats on the First Union Board.
If elected, the Gotham nominees intend to propose changes in the
senior management of First Union and explore other alternatives to
maximize shareholder value.
Gotham Partners is a private New York investment partnership. First
Union is a stapled-stock real estate investment trust (REIT).
---------
On April 14, 1998, the Company issued the following press release:
FIRST UNION ANNOUNCES FIRST QUARTER EARNINGS OUTLOOK
CLEVELAND, OHIO, APRIL 14, 1998 - FIRST UNION REAL ESTATE INVESTMENTS
(NYSE:FUR) announced today that a preliminary estimate for the first
quarter of 1998, ended March 31, indicated that earnings are likely
to be below market expectations.
The Company said its core real estate property and parking management
operations continue to perform generally as expected, but two factors
have contributed to the shortfall in funds from operations. First,
the proxy challenge by Gotham Partners has resulted in incremental
costs associated with the proxy process and related litigation.
Second, sales in Imperial Parking's equipment manufacturing and
distribution subsidiaries will be lower than expected.
"Despite the uncertainty and the expense caused by Gotham Partners'
proxy challenge, we remain focused on executing our plan in our core
real estate and parking businesses, including improving sales in the
parking equipment area," stated Steven M. Edelman, Executive Vice
President and Chief Financial Officer. "As we moved ahead to deliver
on our business plan, we are going to do everything possible to
remain focused on maximizing shareholder value, and keep the
distractions and expense associated with the proxy challenge to a
minimum."
First Union Real Estate Investments is a unique stapled-stock real
estate investment trust (REIT) headquartered in Cleveland, Ohio, and
traded on the NYSE.
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 defend vigorously 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 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. On that date, Gotham also
filed an answer and asserted counterclaims, which were amended on January
23, 1998, 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 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.
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.
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.
On January 30, 1998, Gotham filed a separate civil action against
First Union in the United States District Court for the Northern District
of Ohio. Gotham's complaint asserts essentially the same claims as those
asserted in its counterclaims against the Company. Gotham filed the new
action because a substantial question arose regarding whether the federal
court would remand the Company's action to state court. On that date,
Gotham also filed a motion in the new action for an order granting
preliminary injunctive relief on certain of its claims, and a motion for
expedited discovery.
On February 5, 1998, the Company filed an answer to Gotham's complaint
filed January 30, and asserted counterclaims, which were amended on
February 10, 1998, against Gotham alleging, among other things, that Gotham
has violated state law by maliciously interfering with the Company's
business relationships and business opportunities and by making false and
misleading statements about the Company. The counterclaims also allege that
Gotham has violated the Exchange Act by: (i) making false and misleading
statements about material facts in documents filed with the Commission; and
(ii) inappropriately using inadequate Schedule 13D filings as unlawful
proxy solicitations. The Company's counterclaims seek, among other things,
damages based on Gotham's alleged malicious interference and
misrepresentation, and preliminary and permanent injunctive relief for
Gotham's alleged violations of the Exchange Act.
Gotham believes that the Company's allegations and claims in its
counterclaims are without merit, and Gotham intends to defend vigorously
against such allegations and claims.
On February 11, 1998, the federal court remanded the Company's action
to state court, on the grounds that certain trustees of the Company share
Ohio citizenship with a limited partner of a limited partnership that is
itself a limited partner of Gotham.
On February 12, 1998, Gotham filed a motion in state court for a stay
of the Company's action pending final resolution of the action filed by
Gotham in federal court on January 30, 1998.
On February 18, 1998, the Company filed a motion in state court for an
order dismissing certain of Gotham's counterclaims. The Company asserts in
its motion that: (i) Gotham's federal securities law claims should be
dismissed by the state court because they are within the exclusive
jurisdiction of the federal courts; (ii) Gotham's claim that the Company
has violated its Declaration of Trust is premised entirely upon the
Company's filing of its state court complaint and does not, as a matter of
law, state a claim upon which relief may be granted; and (iii) Gotham's
breach of fiduciary duty claim is an invalid, improperly pled derivative
claim.
Gotham believes that the Company's arguments in its motions to dismiss
are without merit.
The state court convened a hearing on the Company's preliminary
injunction motion on March 2, 1998. On March 5, 1998, the state court
adjourned the hearing until March 11, 1998.
On March 27, 1998, following an evidentiary hearing, the court issued
a judgment entry denying the Company's motion and stating, among other
things, that: (i) Gotham's proposal and nominations do not violate the
provisions in the Declaration of Trust concerning the classification of the
board of trustees; (ii) "Gotham appears to have made reasonable attempts to
comply with all of First Union's demands for information [and t]here is no
credible evidence that Gotham then or now endangered First Union's REIT
status"; (iii) the Company's allegation that Gotham threatened the
Company's REIT status, "like the other [issues] raised by First Union,
[were] simply pretextual"; (iv) the Company's demand for information
exceeded the requirements of the Internal Revenue Code, the Company's
Declaration of Trust, and its By-Laws; and (v) the Company's management's
efforts to disenfranchise Gotham "were primarily motivated by a desire to
derail Gotham's efforts to change the Company's course and replace top
management" and did "not appear to be designed to protect First Union's
REIT status but rather management."
On March 27, 1998, following issuance of the judgment entry, the
Company issued a press release stating, among other things, that it
intended to postpone the Company's annual meeting from April 14, 1998 to an
undisclosed date, and to reset the record date from February 13, 1998 to an
unspecified date.
On March 30, 1998, Gotham filed in state court a motion for a
preliminary injunction, alleging that the Company's management was acting
in a continued effort to entrench itself by, among other things, (i)
announcing its intent to postpone the annual meeting, and (ii) attempting,
without shareholder approval, to confer millions of dollars of benefits
upon the Company's management and employees. In particular, Gotham alleged
that the Company's management purportedly had attempted to amend Mr.
Mastandrea's employment agreement to, inter alia, eliminate a provision
requiring his compensation to be reduced to comply with Internal Revenue
Code limitations on excessive executive compensation and to increase his
compensation to pay him for taxes that he may owe for receipt of excessive
executive compensation. Gotham sought in its motion to enjoin the Company
from, among other things: (i) taking any steps to postpone or delay the
annual meeting or to change the record date for determining shareholders
entitled to vote at that meeting; (ii) taking or authorizing any action
outside the ordinary course of business pending the conclusion of the
annual meeting and the seating of trustees following that meeting; and
(iii) taking any action to effectuate any decisions made by the Company's
trustees since January 8, 1998 that would have the purpose or effect of
bestowing any benefits upon any trustee, officer, or employee, including
amending Mr. Mastandrea's employment agreements or any policies concerning
employee severance and accelerated vesting of stock options and restricted
stock. On March 31, 1998, the Company filed a memorandum in opposition to
Gotham's motion for a preliminary injunction.
On March 31, 1998, the state court convened a hearing on Gotham's
preliminary injunction motion. Following the testimony of a Gotham witness,
it was agreed by the Company and Gotham and ordered by the Court that: (i)
the Company will set its record date as April 28, 1998; (ii) the Company
will hold a special meeting on May 19, 1998 in lieu of the annual meeting
previously scheduled for April 14, 1998; (iii) the Company will mail
Gotham's proxy materials to the extent required by federal proxy rules,
which the Company had previously refused to do; (iv) the Company will not
provide any new employment benefits or compensation outside the ordinary
course of business and will not transfer assets except for fair value prior
to the election and seating of trustees; and (v) the change in the
characterization of the annual meeting to a special meeting will be without
prejudice to Gotham's proposal and nominations.
On April 1, 1998, the Company filed a motion in the state court
seeking an order certifying the judgment entry as final under Rule 54(b) of
the Ohio Rules of Civil Procedure so as to permit an appeal of that entry.
Gotham has opposed that motion.
On February 19, 1998, and March 6, 1998, the federal court conducted
status conferences.
On March 6, 1998, the Company filed a motion for a preliminary
injunction in federal court, alleging that Gotham and Gotham II: (i)
violated Section 13(d) of the Exchange Act ("13(d)") by failing to disclose
the identity and background of their limited partners and the existence of
their "group," which allegedly includes other unspecified large
shareholders of the Company with whom Gotham and Gotham II are "acting in
concert" to take control of First Union; (ii) violated 13(d) by failing to
timely disclose their plans and intentions for the Company, including their
intention to control the Company; (iii) violated federal proxy rules by
using "various means" to solicit proxies of Company shareholders, including
communications in their Schedule 13D amendments; (iv) issued proxy
solicitations containing false and misleading statements and material
omissions, including: (1) a lack of disclosure about their "long standing
intent and plan to take control of First Union"; (2) statements intended to
"convince shareholders that its Board nominees are qualified to serve as
Trustees when they are not"; and (3) statements that "malign First Union's
incumbent management," including the allegation that management failed to
understand the significance of First Union's paired-share structure; and
(v) engaged in illegal tender offer practices under Section 14(d) of the
Exchange Act and Regulations 14D and 14E, by: (1) failing to file a
Schedule 14D-1 "relating to their control acquisition scheme"; (2) filing a
Schedule 13D and amendments "understood, and intended to be understood,
only by sophisticated investors, market arbitrageurs and friends of Gotham
as a signal that [Gotham and Gotham II] stood ready to acquire control of
First Union"; and (3) "publicizing their offer in coded language calculated
to be understood only by sophisticated market arbitrageurs . . . [in an
attempt] to evade federal tender offer requirements and to deprive ordinary
shareholders of an opportunity to participate in the offer on an equal
footing." The Company is seeking in its motion to enjoin Gotham from (i)
"exercising . . . influence upon the Board or management" of the Company;
(ii) "soliciting proxies and communicating with First Union shareholders in
violation of the Exchange Act and the rules and regulations promulgated
thereunder"; and (iii) acting "in furtherance of their strategy to seize
control" of the Company.
Gotham believes that the Company's allegations and claims are without
merit, and Gotham intends to defend vigorously against such allegations and
claims.
On March 31, 1998, the federal court allowed the Company to withdraw
its motion to dismiss Gotham's complaint.
On April 16, 1998, the federal court held a case management
conference. The federal court reserved judgment on whether and when to hold
a hearing to decide the Company's motion for a preliminary injunction.
SETTLEMENT DISCUSSIONS
Prior to the issuance of the state court's ruling against the Company
on March 27, 1998, Gotham negotiated in good faith to attempt to settle the
litigation and proxy contest in a manner that would benefit all
shareholders. Both sides agreed that part of such a settlement would have
to include the ouster of Mr. Mastandrea from the Company. As part of the
potential settlement, four current Trustees would have resigned, Gotham
would have received the right to appoint three of the nine members to the
Board, and one additional new trustee mutually agreeable to Gotham and the
Company would have been appointed. Because of Gotham's growing discomfort
with actions and positions taken by the Company and its Board during the
settlement discussions, Gotham's last proposal required that an additional
fifth seat be given to a nominee of Apollo Real Estate, another large
shareholder of the Company, which would have resulted in five new trustees
out of a total of nine. However, Gotham's discomfort with the Company's
actions and positions, described below, as well as the introduction of
legislation in both houses of the U.S. Congress that if passed into law
would impair the Company's ability to utilize its paired share structure,
forced Gotham to decide to cease settlement discussions.
The Company has made statements in the Company's Proxy Statement and
in the press to the effect that Gotham abruptly retreated from a settlement
for no stated reason. Such statements are completely false and baseless.
The principal reasons for Gotham ceasing settlement discussions, all of
which were communicated to the Company during the course of settlement
discussions, were as follows:
First, as part of the potential settlement, Mr. Mastandrea was to
receive compensation and benefits of over $15 million upon his resignation,
a large portion of which was to be paid by Gotham to purchase unvested
options (which the Board was to vest) and restricted stock (the Board would
lift the restrictions). In the end, Gotham decided that it was not
comfortable being a party to a settlement that would so richly reward Mr.
Mastandrea after the Company had underperformed the other paired share
REITs and not taken meaningful advantage of the paired share structure.
Second, in the midst of the settlement discussions, Gotham was
informed that Mr. Mastandrea's contract had purportedly been amended only
days earlier in ways that could cost the Company over $8 million under
certain circumstances, such as a sale of the Company, in addition to his
severance package already worth over $15 million. See "Possible Effects of
the Adoption of the Gotham Proposal and the Election of the Gotham
Nominees--Mastandrea Employment Agreement." No word of these purported
amendments had previously been given to Gotham or the trial court, nor had
they been publicly disclosed. Gotham insisted that these amendments be
rescinded, but this was never accepted by the Company. Gotham finds the
actions of the parties involved in the enactment of these amendments highly
distressing, considering the context of the impending proxy contest.
Third, Gotham learned that Mr. Mastandrea had made an offer to Apollo
that would result in Apollo having the right to appoint four trustees if it
would support the Company against Gotham in the proxy contest and keep Mr.
Mastandrea in place. This was not the proposal described in the Company's
Proxy Statement of four different shareholders each appointing a
representative to the Board, which Gotham first heard about at the same
time it withdrew from the settlement discussions. Rather, this appears to
Gotham to have been an attempt by the Company, or at least Mr. Mastandrea,
to sabotage Gotham's proxy contest and the settlement discussions at the
same time the Company claims to have been negotiating with Gotham in good
faith.
Fourth, at the same time that Gotham was negotiating with the Board
concerning (i) a severance plan for certain of the Company's employees and
(ii) a policy pursuant to which options held by certain employees would be
vested and restrictions on restricted stock held by certain employees would
be lifted upon termination of such employees' employment under certain
circumstances, such negotiations were rendered moot by unilateral action
taken by the Board. Without first informing Gotham or the state court, the
Board granted more valuable packages than those even the Company had sought
in its discussions with Gotham. See "Possible Effects of the Adoption of
the Gotham Proposal and the Election of the Gotham Nominees--Other
Severance Arrangements."
Fifth, the introduction of the paired share legislation drove home
once and for all to Gotham the huge mistake Gotham believes current
management had made in not heeding Gotham's advice to take meaningful
advantage of the paired share structure. When added to the rich package to
be given to Mr. Mastandrea and the behind the scenes maneuvering of the
Company and its Board, Gotham decided there was no course open to it but to
cease the discussions and request that the state court issue its ruling.
Sixth, the Company had indicated during the course of the discussions
an intention to give certain members of senior management, including Mr.
Mastandrea, a general release, including a release from breaches of duties
owed by such persons to the Company. Such release would encompass breaches,
if any were later deemed to have occurred, relating to matters such as (i)
what in Gotham's view was a squandering of the opportunity to profit from
the paired share structure of the Company, (ii) the conduct of the
litigation against Gotham and what in Gotham's view has been a campaign of
harassment against Gotham, and (iii) recent modifications to Mr.
Mastandrea's employment contract and other compensation and benefits
provided to Mr. Mastandrea and other employees of the Company. While no
claims alleging breaches of duty have been made to date concerning such
matters, Gotham believes that it is possible that such claims could be made
in the future, and Gotham does not feel it is appropriate for releases to
be given in such circumstances.
FORMATION BY THE BOARD OF A SPECIAL COMMITTEE OF
INDEPENDANT TRUSTEES
Following the termination of settlement discussions (see "Settlement
Discussions" above), Gotham was contacted by Russell R. Gifford, a Trustee
of the Company, who informed Gotham that the Board had formed an
independent committee of Trustees in connection with matters relating to
the Gotham Proposal and the Gotham Nominees. While Gotham has had no
further discussions with any representative of such committee, Gotham
supports any actions by independent Trustees to address Gotham's concerns
with the Company and its current management.
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 "Employment
Agreement"). The Employment 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 Employment Agreement 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; split-dollar life insurance in the benefit amount of
$2,500,000 (plus reimbursement for any taxes attributable to such policy);
and certain executive perquisites, including an executive class automobile
and membership in at least two country-social clubs. According to the
Company's Proxy Statement, Mr. Mastandrea's total salary, bonus and other
cash compensation for the Company's 1997 fiscal year was $585,416. In
addition, he was awarded 228,390 restricted Shares (valued at $3,471,428 at
the date of grant) and options to acquire 225,000 Shares (valued in the
"Option Grants in Last Fiscal Year" table of the Company's Proxy Statement
at $765,421 based on 5% annual appreciation and $1,833,316 based on 10%
annual appreciation), and received $13,094 in other compensation. Added
together, these amounts equal $4,835,359 or $5,903,254 of compensation for
Mr. Mastandrea in 1997, depending on which option appreciation assumption
is used.
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 Employment Agreement), or if he terminates his
employment for good reason (as defined in the Employment 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 and
to fully fund the split-dollar life insurance policy. All or a portion of
the Shares of restricted stock previously granted to Mr. Mastandrea would
also vest.
In addition, all of Mr. Mastandrea's options would remain outstanding
for three years (permitting him to receive the benefit of any stock price
appreciation notwithstanding that the applicable stock option plans would
otherwise cause such options to expire shortly after termination of his
employment).
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" (which would include the adoption of the Gotham Proposal and the
election of the Gotham Nominees) or "shift in ownership," in addition to
the provisions described in the preceding paragraph, the base salary, bonus
and pension and insurance contributions payable to Mr. Mastandrea following
termination become due immediately in lump sum, and all grants (options and
stock) under the 1994 Long Term Incentive Performance Plan become fully
vested. The adoption of the Gotham Proposal and the election of the Gotham
Nominees will not trigger a "change of control" in the Employment Agreement
if the nomination or election of the Gotham Nominees is approved by a
majority of the current Trustees. Gotham believes that the current Trustees
should approve the nomination and, if elected, the election of the Gotham
Nominees in accordance with their fiduciary duties to prevent the Company
from having to bear unnecessary costs as a result of such an acceleration
of its obligations under the Employment Agreement if a "change of control"
is triggered.
On March 19, 1998, after Gotham began to solicit proxies for the
Annual Meeting, the Company purportedly amended the Employment Agreement to
provide additional benefits to Mr. Mastandrea potentially worth over
$8,000,000 upon the occurrence of a change in control or ownership of the
Company within the meaning of Section 280G of the Internal Revenue Code (a
"280G Event"). The Company's Proxy Statement states that these amendments
were made because Mr. Mastandrea agreed to remain as an employee for 90
days following a "change of control" (which would include the adoption of
the Gotham Proposal and the election of the Gotham Nominees) or a "shift of
ownership." The amendment eliminated a provision in the original Employment
Agreement which would have limited the aggregate amount payable to Mr.
Mastandrea under the Employment Agreement upon the occurrence of a 280G
Event to the maximum amount deductible for federal income tax purposes
without constituting "excess parachute payments" under Section 280G. The
amendment also provides that Mr. Mastandrea would receive an additional
payment (net of taxes, including interest or penalties) to compensate him
for any excise tax imposed by the Internal Revenue Code if any payment or
distribution to him under the Employment Agreement or any other
compensation arrangement is determined to be an "excess parachute payment."
In addition, the Company has agreed to reimburse Mr. Mastandrea for certain
legal services.
Senior Notes. Pursuant to the terms of the Indenture, dated as of
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
unless, as discussed below, the nomination of the Gotham Nominees is
approved by two-thirds of the Trustees currently in office, 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.
In addition, Gotham does not anticipate that the holders of the Senior
Notes will choose to accelerate because on April 16, 1998 the Senior Notes
were trading at $103, a higher level than 101% of the principal amount of
the Senior Notes. The outstanding aggregate principal amount under the
Senior Notes is $100,000,000.
The adoption of the Gotham Proposal and the election of the Gotham
Nominees will not trigger a "change in control" in the Indenture if the
nomination of the Gotham Nominees is approved by two-thirds of the current
Trustees. Gotham believes that the current Trustees should approve the
nomination of the Gotham Nominees in accordance with their fiduciary duties
to prevent the Company from having to bear unnecessary costs as a result of
any acceleration of its obligations under the Indenture if a "change in
control" is triggered.
On April 2, 1998, S&P's CreditWire announced that S&P placed the
ratings of the Company on CreditWatch with negative implications because of
the probability that the Company's current management team and strategic
direction of the Company will change, if there were to be a change in
control. In addition, the S&P release stated that a restructuring of the
Company as a "paper-clip" REIT and its operation as a real estate
opportunity fund was highly speculative in nature and introduced more risk
to the holders of the Senior Notes. See "Gotham's Proposed Business Plan
for the Company" above. Gotham believes that changes in the Company's
management team and, if the pending paired share REIT legislation is
passed, changes in the Company's business plan and structure (as described
above) will be beneficial to the future performance of the Company and
potentially maximize value for the shareholders, although there is no
assurance that the changes will have such effects. See "Gotham's Proposed
Business Plan for the Company." In addition, as described above, Gotham
believes the Company should consider utilizing non-recourse individual
asset-based indebtedness for future borrowings, as opposed to the recourse
indebtedness often used by the Company in the past. This change could
result in less risk to the holders of the Senior Notes.
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 (A) following the occurrence of "trigger events" (as defined in
such agreement), which would include the adoption of the Gotham Proposal
and the election of the Gotham Nominees, unless, as discussed below, the
nomination of the Gotham Nominees is approved by two-thirds of the Trustees
currently in office, or (B) 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.
The adoption of the Gotham Proposal and the election of the Gotham
Nominees will not be a "trigger event" under the Impark Put-Call Agreement
if the nomination of the Gotham Nominees is approved by two-thirds of the
current Trustees. Gotham believes that the current Trustees should approve
the nomination of the Gotham Nominees in accordance with their fiduciary
duties to prevent the Company from having to bear unnecessary costs as a
result of any acceleration of its obligations under the Impark Put-Call
Agreement if a "trigger event" occurs.
Impark Credit Agreement. Unless, as discussed below, the nomination of
the Gotham Nominees is approved by two-thirds of the Trustees currently in
office, 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") and the Company (the "Impark Ancillary
Agreement"). 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, 504463
N.B. Inc. and BT. 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. According to the Company's Proxy
Statement, as of April 3, 1998, the aggregate principal amount outstanding
under the Impark Credit Agreement was the equivalent of approximately US
$24,822,000.
The adoption of the Gotham Proposal and the election of the Gotham
Nominees will not trigger a "collateralization event" in the Impark
Ancillary Agreement if the nomination of the Gotham Nominees is approved by
two-thirds of the current Trustees. Gotham believes that the current
Trustees should approve the nomination of the Gotham Nominees in accordance
with their fiduciary duties to prevent the Company from having to bear
unnecessary costs as a result of any acceleration of its obligations under
the Impark Credit Agreement if a "collateralization event" is triggered.
Company Credit Agreement. The Amended and Restated Credit Agreement,
dated as of November 1, 1997, among the Company, First Union Management,
Inc., the lending institutions named therein, Keybank National Association,
as Documentation Agent, Bankers Trust Company, as Syndication Agent, and
National City Bank, as Administrative Agent (the "Company Credit
Agreement") provides that if (i) a "collateralization event" (which would
include the adoption of the Gotham Proposal and the election of the Gotham
Nominees, unless, as discussed below, the nomination of the Gotham Nominees
is approved by two-thirds of the Trustees currently in office) occurs under
the Impark Ancillary Agreement and such event is not waived as provided for
therein (see "Impark Credit Agreement" above), and (ii) lenders holding 66
2/3% of the then outstanding loans and unutilized commitments under the
Company Credit Agreement (the "Required Lenders") determine in their
reasonable judgment that as a result of such a "collateralization event",
the Company's ability to refinance its obligations under the Company Credit
Agreement is materially adversely affected, then the Required Lenders may
terminate the Company Credit Agreement and declare all principal and
accrued interest thereunder immediately due and payable. Gotham does not
believe that the occurrence of a "collateralization event" under the Impark
Ancillary Agreement would materially adversely affect the Company's ability
to refinance its obligations under the Company Credit Agreement. The total
aggregate amount of borrowings that may be outstanding at any time under
the Company Credit Agreement is $125,000,000. According to the Company's
Proxy Statement, as of the date thereof there was $101,000,000 of
indebtedness outstanding under the Company Credit Agreement.
The adoption of the Gotham Proposal and the election of the Gotham
Nominees will not trigger a "collateralization event" in the Impark
Ancillary Agreement (and, as a result, any acceleration of the Company
Credit Agreement) if the nomination of the Gotham Nominees is approved by
two-thirds of the current Trustees. Gotham believes that the current
Trustees should approve the nomination of the Gotham Nominees in accordance
with their fiduciary duties to prevent the Company from having to bear
unnecessary costs as a result of any acceleration of its obligations under
the Company Credit Agreement if a "collateralization event" is triggered in
the Impark Credit Agreement.
1994 Option Plan. Under the Company's 1994 Long Term Incentive
Performance 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, unless, as discussed below, the
election of the Gotham Nominees is approved by a majority of the Trustees
currently in office, 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 Company's Proxy Statement in
connection with the 1997 Annual Meeting of Beneficiaries, 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.
The adoption of the Gotham Proposal and the election of the Gotham
Nominees will not trigger a "change of control" in the 1994 Option Plan if
the nomination or election of the Gotham Nominees is approved by a majority
of the current Trustees. Gotham believes that the current Trustees should
approve the nomination and, if elected, the election of the Gotham Nominees
in accordance with their fiduciary duties to prevent the Company from
having to bear unnecessary costs as a result of any acceleration of its
obligations under the 1994 Option Plan if a "change of control" is
triggered.
Change in Control Agreements. According to the Company's Proxy
Statement, the Company has entered into new agreements (each, a "Change in
Control Agreement") with five executive officers, including all of the
named executive officers, and various other senior officers and key
employees of the Company. The Company indicated during the settlement
discussions with Gotham that there were between twenty and thirty such
agreements, but the Company has not indicated publicly the exact number or
potential value of such agreements. From the statement in the Company's
Proxy Statement that the Company's named executive officers are party to
Change in Control Agreements, it appears that the Company has entered into
a Change in Control Agreement with Mr. Mastandrea. However, a
representative of the Company informed representatives of Gotham in the
course of the settlement discussions that Mr. Mastandrea is not party to a
Change in Control Agreement. Each Change in Control Agreement provides that
in the event such executive's or employee's employment with the Company is
terminated within two years following a "change in control" of the Company
(as defined in the Change in Control Agreement), which would include the
adoption of the Gotham Proposal and the election of the Gotham Nominees,
either by the officer or employee for "Good Reason" or by the Company
"Without Cause" (each as defined in the Change in Control Agreement), such
executive or employee will be entitled to receive (i) accrued salary and
other benefits earned or accrued, (ii) an amount equal to a multiple of
such person's base salary and "Additional Compensation," (iii) cash in lieu
of shares receivable upon the exercise of options awarded under the 1994
Plan, and (iv) cash for such unvested portion of such person's interest in
any of the Company's pension plans. "Additional Compensation" means an
employee's annual total incentive compensation, including dollar value of
awards granted under the 1994 Plan, commissions, bonuses, amounts deferred
under any non-qualified deferred compensation program of the Company,
including under the 1994 Plan, and any elective contributions that are made
under any plan maintained by the Company not includible in gross income,
but excluding certain expenses, amounts realized from the exercise of any
stock options, and imputed income attributable to any fringe benefit. In
addition, if any payment options, and imputed income attributable to any
fringe benefit. distribution (including payments under the Change in
Control Agreement, any stock option agreement or otherwise) to an officer
or employee is determined to be an "excess parachute payment" under the
Code, such officer or employee would be entitled to receive an additional
payment (net of taxes, including interest and penalties) to compensate such
officer or employee for any excise tax imposed by the Code on such payment
or distribution. The specified multiple for a person's Base Salary and
Additional Compensation referred to above are: two, in the case of the
named executive officers and one senior officer; one, in the case of
certain other officers; and one-half, in the case of certain key employees.
In addition to the above-described agreements, the Company indicated
that it has agreed to reimburse each officer and employee party to a Change
in Control Agreement for certain legal, financial and other professional
services. For instance, in the event that an employee believes that the
Company has failed to comply with its obligations under the Change in
Control Agreement or in the event that the Company or any other person
takes any action to declare such agreement void or unenforceable, or
institutes any arbitration or litigation designed to deny, or to recover
from, such person's benefits provided under such agreement, the Company has
authorized the employee to retain counsel at the Company's expense. The
Company has also agreed to reimburse employees party to a Change in Control
Agreement for fees and other expenses in connection with determinations and
calculations of amounts of excise tax that may be imposed on such employees
for underpayments, if any, and for contests with the Internal Revenue
Service. The Company has also agreed to pay for outplacement services and
benefits for employees party to Change in Control Agreements, if they are
terminated.
The adoption of the Gotham Proposal and the election of the Gotham
Nominees will not trigger a "change in control" in any of the Change in
Control Agreements if the nomination or election of the Gotham Nominees is
approved by a majority of the current Trustees. Gotham believes that the
current Trustees should approve the nomination and, if elected, the
election of the Gotham Nominees in accordance with their fiduciary duties
to prevent the Company from having to bear unnecessary costs as a result of
any acceleration of its obligations under the Change in Control Agreements
if a "change in control" is triggered.
Other Severance Agreements. On March 24, 1998, the Board passed a
resolution to provide severance payments to employees who are terminated
other than for cause. This action was taken at the same time that the
Company was negotiating a severance policy for employees with Gotham as
part of a potential settlement, but the policy adopted by the Board is
potentially far more costly to the Company than anything that was discussed
by Gotham and the Company. The Board's action was a principal reason that
Gotham felt compelled to cease settlement discussions with the Company. See
"Settlement Discussions." According to the Company's Proxy Statement, the
policy provides (i) for employees at the level of vice president or higher,
two months compensation for every year employed by the Company and (ii) for
employees below the level of vice president, one month compensation for
every year employed by the Company, in each of the foregoing (i) and (ii),
up to, but not to exceed, twenty-four months compensation. According to the
Company's Proxy Statement, this policy would apply only to holders of
Change in Control Agreements and would not apply if the Change in Control
Agreements were triggered.
Certain Provisions of the Declaration of Trust. Article VIII, Section
8.10 of the Company's Declaration of Trust provides that:
any person who owns, directly or indirectly, more than one
percent (1%) of the securities of, or acts as an officer,
trustee, director or employee of or consultant for, or is
otherwise affiliated with or controlled by, any real estate
company (a) that competes with the Trust for investments, (b)
that is a major supplier of services to the Trust, or (c) in
which the Trust has a significant financial interest, or any
person who is an agent of, or is otherwise affiliated with or
controlled by any such person, shall not be qualified to serve
as a Trustee.
Gotham believes that each of the Gotham Nominees is fully qualified
under the Company's Declaration of Trust and By-Laws to serve as a Trustee
of the Company, and that none of the restrictions contained in the
foregoing provision will prevent any Gotham Nominee from serving as a
Trustee if elected. The Company has alleged that the Gotham Nominees are
not qualified to serve as Trustees in filings made in connection with its
litigation against Gotham, but the Company has not provided any specifics
relating to such allegations. Gotham believes that such allegations are
without merit and that Gotham will prevail on this issue in the litigation.
See "Certain Litigation." In addition, it is Gotham's view that the Company
has waived any right to challenge the qualifications of any Gotham Nominee
to serve as a Trustee by not making such challenge at the time Gotham
provided notice to the Company of the making of the Gotham Proposal and the
nomination of the Gotham Nominees, as Gotham believes is required under the
Company's By-Laws.
In addition, Section 8.1 of the Declaration of Trust provides in
relevant part that "[t]he number of Trustees shall be not less than three
nor more than fifteen, as from time to time determined at annual . . .
meetings of the Beneficiaries by affirmative vote of the holders of a
majority of the shares represented and entitled to vote at such meetings."
In its litigation against Gotham and Gotham II, the Company has presented
its view that seats created by an increase in the size of the Board would
be vacancies, which under Section 8.4 of the Declaration of Trust would be
filled by the incumbent Trustees. Gotham believes that the right to elect
Trustees at an annual meeting is expressly reserved to the Beneficiaries in
Section 8.2 of the Declaration of Trust and that nothing in the Declaration
of Trust derogates that right. The structure and order of Sections 8.1
through 8.4 of the Declaration of Trust indicate that the right of the
Trustees to fill vacancies arises only when a Trustee resigns or is removed
(Section 8.3) or when it is determined subsequent to an election that a
newly-elected Trustee is not qualified to serve as a Trustee under the
Declaration of Trust (Section 8.2), and not in connection with an increase
in the size of the Board of Trustees. Gotham believes that this conclusion
is consistent with well-established law which provides that absent an
explicit provision in the governing documents to the contrary, shareholders
have the right to vote for newly-created seats on a board and these seats
are not deemed to be vacancies.
Gotham believes that the Company's view is without merit and that
Gotham and Gotham II will prevail on this issue in the litigation. However,
if the Company prevails on this issue in the litigation and the Gotham
Proposal is adopted, a majority of the incumbent Trustees would be entitled
to select the individuals to fill the six newly-created positions on the
Board of Trustees. If the Company prevails on this issue in the litigation
and the Current Board's Proposal is adopted, a majority of the incumbent
Trustees would be entitled to select the individuals to fill the three
newly-created positions on the Board of Trustees. See "Certain Litigation."
Pending Litigation. Gotham believes that if the Gotham Proposal is
adopted and each of the Gotham Nominees are elected to the Board of
Trustees, the litigation between the Company and Gotham and Gotham II will
be terminated. See "Certain Litigation."
Cost of Proxy Solicitation. Gotham intends to seek reimbursement from
the Company for its costs incurred in connection with this proxy
solicitation. Such request for reimbursement will not be submitted to a
vote of the Company's Beneficiaries.
Gotham disclaims any responsibility for the accuracy of the
information set forth herein relating to the Mastandrea Employment
Agreement, the Senior Notes, the Impark Put-Call Agreement, the Impark
Credit Agreement, the Impark Ancillary Agreement, the Company Credit
Agreement, the 1994 Plan, the Change in Control Agreements and the Other
Severance Agreements. Except where expressly indicated, such information
has been extracted from the Company's public filings.
CERTAIN EFFECTS OF THE CLINTON ADMINISTRATION'S BUDGET PROPOSALS
AND PROPOSED CONGRESSIONAL LEGISLATION
The Company is one of a small number of REITs with a stapled-stock or
paired share structure, which allows it through its stapled management
company to acquire and hold operating businesses. The Company's structure
(as well as similar structures of certain other REITs) was grandfathered
when similar structures for most other REITs were prohibited under the
Deficit Reduction Act of 1984. The Clinton Administration's current
proposed Budget of the United States Government for the Fiscal Year 1999,
dated February 2, 1998, contains a proposal which would limit the
grandfathered status of existing stapled-stock REITs, including the
Company. According to the proposal, "for purposes of determining whether
any grandfathered entity is a REIT, the stapled entities would be treated
as one entity with respect to properties acquired on or after the date of
the first committee action and with respect to activities or services
relating to such properties (i.e., properties that are acquired after the
[date of such first committee action]) that are undertaken or performed by
one of the stapled entities on or after such date." Legislation has been
proposed in both the House of Representatives and Senate to enact the
proposal. If enacted, the proposed legislation would apply to the
acquisition of assets after March 26, 1998 unless covered by existing
written contracts or already announced acquisitions that have not yet
closed. On March 27, 1998, The Wall Street Journal reported that the U.S.
Congress is almost certain to enact this legislation. If this legislation
is enacted, the Company will not be able to make investments which take
advantage of its stapled-stock structure following the date of the first
committee action relating to the proposal. In addition, if enacted the
proposed legislation will make it difficult for the Company to pursue
strategic alternatives to maximize the value inherent in its stapled-stock
structure. It cannot be predicted at the present time whether this proposed
legislation or any other proposal which would serve to limit the advantages
to the Company of its stapled-stock structure will be adopted.
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. Gotham Advisors
provides investment advisory services, including acting as the investment
manager of one or more investment funds or other similar entities including
Gotham Partners International, Ltd. ("Gotham International"). 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 (other
than Gotham International) is 110 East 42nd Street, 18th Floor, New York,
New York 10017. The principal business address of Gotham International is
care of Goldman Sachs (Cayman) Trust, Limited, Harbour Centre, 2nd Floor,
P.O. Box 896, George Town, Grand Cayman, Cayman Islands, British West
Indies.
Gotham, Gotham II, Gotham Advisors, Gotham International, 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 any of the Participants 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.
VOTING AND PROXY PROCEDURES
The Company has set April 28, 1998 as the Record Date. Only
Beneficiaries of record on the Record Date will be entitled to notice of
and to vote at the Special 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 Special 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 Special Meeting is the class constituting the Shares. According
to publicly available information, as of April 9, 1998, there were
31,597,999 Shares issued and outstanding.
Shares represented by properly executed WHITE AND BLUE proxy cards
will be voted at the Special Meeting as marked and, in the absence of
specific instructions, will be voted FOR the Gotham Proposal, FOR the
election of the Gotham Nominees, AGAINST the Current Board's Proposal and
in the discretion of the persons named as proxies on all other matters as
may properly come before the Special 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 or the Current Board's Proposal
requires the affirmative vote of a majority of Shares represented by person
or proxy and entitled to vote at the Special Meeting. Broker non-votes will
not be treated as entitled to vote on the Gotham Proposal or the Current
Board's Proposal and, therefore, will have no effect on whether the Gotham
Proposal or the Current Board's Proposal is adopted. Abstentions from
voting on the Gotham Proposal or the Current Board's Proposal have the same
effect as a vote "against" the Gotham Proposal or the Current Board's
Proposal, respectively.
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 Special Meeting and voting in person
(although attendance at the Special 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 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, FOR THE ELECTION OF THE
GOTHAM NOMINEES TO THE BOARD AND AGAINST THE CURRENT BOARD'S PROPOSAL,
PLEASE SIGN, DATE AND RETURN PROMPTLY THE ENCLOSED WHITE AND BLUE PROXY
CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. GOTHAM RECOMMENDS THAT YOU VOTE
"FOR" THE GOTHAM PROPOSAL AND GOTHAM NOMINEES AND "AGAINST" THE CURRENT
BOARD'S PROPOSAL.
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 Special 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 $3,250,000. Gotham estimates that through the
date hereof, its expenses in connection with this solicitation are
approximately $2,750,000.
Gotham intends to seek reimbursement from the Company for its costs
incurred in connection with this proxy solicitation. Such request for
reimbursement will not be submitted to a vote of the Company's
Beneficiaries.
BENEFICIARY PROPOSALS FOR 1999 ANNUAL MEETING
The Company's Proxy Statement indicates 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 November 5, 1998 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 Special
Meeting. Gotham has notified the Company of its intention to bring before
the Special Meeting the Gotham Proposal and its nomination of the Gotham
Nominees. Should other proposals be brought before the Special Meeting, the
persons named as proxies on the enclosed WHITE AND BLUE 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.
April 20, 1998
SCHEDULE I
SHARES HELD BY THE PARTICIPANTS
Gotham is the beneficial owner of an aggregate of 2,601,951 Shares.
Gotham II is the beneficial owner of an aggregate of 30,449 Shares. Gotham
Advisors is the beneficial owner of an aggregate of 415,400 Shares. Within
the past two years, Gotham, Gotham II and Gotham Advisors 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
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
2/04/98 100,000 11.66800
- --------------------
(1) Cash settled call option on 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
modified to physical settlement 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) Cash settled call option on 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 ("Bankers Trust"), as
modified to physical settlement by the First Transaction Amendment,
dated as of June 4, 1997, by and between Gotham and Bankers Trust. The
option was exercised by Gotham on January 21, 1998 at an aggregate
exercise price of $5,326,020.
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
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
- --------------------
(1) Cash settled call option on 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 modified to physical settlement 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) Cash settled call option on 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, as modified to physical
settlement by the First Transaction Amendment, dated as of June
4, 1997, by and between Gotham II and Bankers Trust. The option
was exercised by Gotham II on January 21, 1998 at an aggregate
exercise price of $73,980.
III. Transactions in Shares by Gotham Advisors
TRANSACTION NUMBER OF SHARES PRICE PER
DATE ACQUIRED/(DISPOSED OF) (1) SHARE OR OPTION
----------- ---------------------- ---------------
3/27/98 5,000 $11.17500
3/30/98 282,900 11.86250
4/06/98 32,100 11.92500
4/07/98 20,000 11.84690
4/08/98 30,400 11.80000
4/14/98 45,000 11.30000
- -----------------------
(1) Shares were purchased by Gotham International. Shares are
beneficially owned by Gotham Advisors which has the sole power to
vote and to dispose of the Shares pursuant to an Investment
Management Agreement between Gotham Advisors and Gotham
International.
IV. 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. Mr.
Ackman and Mr. Berkowitz are Senior Managing Members of Gotham Advisors and
may be deemed beneficial owners of Shares owned by Gotham International.
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, 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. Mr. Klafter and Mr. Shuchman are Members of Gotham Advisors
but have no right to vote or dispose of any Shares held by Gotham
International, and therefore do not beneficially own any Shares held by
Gotham International.
BENEFICIAL OWNERSHIP OF SHARES BY THE GOTHAM NOMINEES
The following table sets forth the beneficial ownership of Shares as
of April 14, 1998 by each of the Gotham Nominees.
Amount of Approximate
Name Beneficial Ownership Percentage of Class (1)
- ------------------------ -------------------- -----------------------
William A. Ackman(2) 3,047,800 9.65%
Daniel J. Altobello -0- -0-
David P. Berkowitz(2) 3,047,800 9.65
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-
- --------------------
(1) Based on 31,597,999 Shares outstanding as of April 9, 1998, as
listed in the Company's Proxy Statement.
(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. Mr. Ackman and Mr. Berkowitz are Senior
Managing Members of Gotham Advisors and may be deemed beneficial
owners of Shares owned by Gotham International. For purposes of this
table, such ownership is included.
(3) Mr. Klafter and Mr. Shuchman are limited partners of Section H
Partners, L.P. and Members of Gotham Advisors. 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. As Members of Gotham
Advisors, Mr. Klafter and Mr. Shuchman have no right to vote or
dispose of any Shares held by Gotham International, and therefore do
not beneficially own any Shares held by Gotham International.
(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 to vote or dispose of any Shares held by
Gotham, and therefore do not beneficially own any Shares held by
Gotham.
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 Special 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 and a
Senior Managing Member of Gotham Advisors; (iii) Mr. Berkowitz is the
President of DPB Corporation, a general partner of Section H Partners,
L.P., and a Senior Managing Member of Gotham Advisors; (iv) Mr. Klafter and
Mr. Shuchman are limited partners of Section H Partners, L.P. and Members
of Gotham Advisors; (v) Gotham had a cash settled call option on 493,150
Shares pursuant to an Option Agreement, dated as of January 29, 1997, by
and between Gotham and Bankers Trust, as modified to physical settlement by
the First Transaction Amendment, dated as of June 4, 1997, by and between
Gotham and Bankers Trust; (vi) Gotham had a cash settled call option on
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 modified to physical settlement 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 a cash settled call option on 6,850 Shares
pursuant to an Option Agreement, dated as of January 29, 1997, by and
between Gotham II and Bankers Trust Company, as modified to physical
settlement by the First Transaction Amendment, dated as of June 4, 1997, by
and between Gotham and Bankers Trust; (viii) Gotham II had a cash settled
call option on 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 modified to physical settlement by a Letter Agreement,
dated as of June 10, 1997, by and between Gotham II and J.P. Morgan, as
agent for Morgan Guaranty; and (ix) Gotham Advisors has the power to vote
and dispose of the Shares owned by Gotham International pursuant to an
Investment Management Agreement between Gotham Advisors and Gotham
International. 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 from,
Gotham Partners Management Co. LLC, and Messrs. Ackman and Berkowitz each
hold 50% of the outstanding equity interests in the managing member of 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 Special
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.
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.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE OF
OF BENEFICIAL OWNER OWNERSHIP CLASS (1)
- --------------------------------------- -------------------- -------------
Apollo Real Estate Investment 2,135,987 Shares (2) 6.76%
Fund II, L.P.
Apollo Real Estate Advisors II, L.P.
1301 Avenue of the Americas
New York, New York 10019
Gotham Partners, L.P. 3,047,800 Shares (3) 9.65
Gotham Partners II, L.P.
110 East 42nd Street, 18th Floor
New York, New York 10017
Franklin Resources, Inc. 2,900,418 Shares (4) 9.18
777 Mariners Island Blvd.
San Mateo, CA 94404
Charles B. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
Rupert H. Johnson
777 Mariners Island Blvd.
San Mateo, CA 94404
Franklin Mutual Advisors, Inc.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Franklin Mutual Series Fund, Inc.
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Stephen Feinberg 1,602,327 Shares(5) 5.07
450 Park Avenue, 28th Floor
New York, New York 10022
- ----------------------------
(1) Based upon 31,597,999 Shares outstanding as of April 9, 1998, as
listed in the Company's Proxy Statement.
(2) An Amendment No. 4 to Schedule 13D filed with the Commission on
February 18, 1998 with respect to Shares reflects that Apollo Real
Estate Investment Fund II, L.P. and Apollo Real Estate Advisors II,
L.P. beneficially own an aggregate of 2,135,987 Shares. Apollo Real
Estate Investment Fund II, L.P. and Apollo Real Estate Advisors II,
L.P. are deemed to have shared voting and dispositive power with
respect to such Shares.
(3) As of April 14, 1998, Gotham beneficially owned 2,601,951 Shares. As
of April 14, 1998, Gotham II beneficially owned 30,449 Shares. As of
April 14, 1998, Gotham Advisors beneficially owned 415,400 Shares.
Each of Gotham and Gotham II has sole voting and dispositive power
with respect to the Shares beneficially owned by it. Pursuant to an
Investment Management Agreement, Gotham Advisors has sole voting and
dispositive power with respect to the Shares owned by Gotham
International.
(4) A Schedule 13D filed with the Commission on February 23, 1998 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
2,900,418 Shares. FMAI has the sole voting and dispositive power with
respect to such Shares.
(5) A Schedule 13D filed with the Commission on February 17, 1998 reflects
that Mr. Feinberg has sole voting and dispositive power with respect
to 348,000 Shares owned by Cerberus Partners, L.P., 869,931 Shares,
consisting of 769,000 Shares and 30,500 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"), owned by Cerberus International Ltd., and
70,300 Shares owned by Ultra Cerberus Funds, Ltd., and dispositive
power with respect to 314,096 Shares owned in the aggregate by certain
other private investment funds.
The table below sets forth, with respect to Trustees and nominees,
certain named executive officers, and as to all Trustees and executive
officers as a group, information relating to their beneficial ownership of
Shares of the Company, as of the most recent practicable date, according to
the Company's Proxy Statement:
AMOUNT AND NATURE
NAME OF OF BENEFICIAL PERCENTAGE OF
BENEFICIAL OWNER OWNERSHIP (1) CLASS
---------------- ----------------- -------------
TRUSTEES AND NOMINEES
Kenneth K. Chalmers 8,768 .028%
William E. Conway 19,511 .062
James M. Delaney 2,198 .007
Daniel G. DeVos 15,745 .050
Allen H. Ford 25,000 .079
Russell R. Gifford 16,240 .051
Spencer H. Heine 5,000 .016
Herman J. Russell 8,733 .028
James C. Mastandrea 915,559(2) 2.898
(also an Executive Officer)
EXECUTIVE OFFICERS
Steven M. Edelman 117,670(3) .331
Paul F. Levin 104,728(4) .372
John J. Dee 108,022(5) .342
Thomas T. Kmiecik 76,304(6) .241
All Trustees and executive officers 1,423,478(7) 4.505
as a group (13 persons)
- --------------------
(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 Trustee and executive officer has sole voting and
investment power with respect to the amounts shown or shared
voting and investment powers with his spouse, except for
restricted shares which have only voting power and no investment
power.
(2) Includes 565,890 Shares in the form of restricted stock over
which Mr. Mastandrea has sole voting power but no investment
power, 286,441 Shares that Mr. Mastandrea has the vested right to
acquire through the exercise of options, and 3,000 Preferred
Shares.
(3) Includes 55,000 Shares in the form of restricted stock over which
Mr. Edelman has sole voting power but no investment power and
55,307 Shares that Mr. Edelman has the vested right to acquire
through the exercise of options.
(4) Includes 50,000 Shares in the form of restricted stock over which
Mr. Levin has sole voting power but no investment power and
51,617 Shares that Mr. Levin has the vested right to acquire
through the exercise of options.
(5) Includes 50,500 Shares in the form of restricted stock over which
Mr. Dee has sole voting power but no investment power and 52,307
Shares that Mr. Dee has the vested right to acquire through the
exercise of options.
(6) Includes 30,000 Shares in the form of restricted stock over which
Mr. Kmiecik has sole voting power but no investment power and
44,647 Shares that Mr. Kmiecik has the vested right to acquire
through the exercise of options.
(7) Includes 490,319 Shares which executive officers have the vested
right to acquire through the exercise of options and 751,390
Shares in the form of restricted stock.
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, FOR the election of the Gotham Nominees and AGAINST the Current
Board's Proposal by taking three steps:
1. SIGNING the enclosed WHITE AND BLUE proxy card,
2. DATING the enclosed WHITE AND BLUE proxy card, and
3. MAILING the enclosed WHITE AND BLUE proxy card TODAY in the envelope
provided (no postage is required if mailed in the United States).
Even if you have already voted on the white proxy card previously
distributed by Gotham, which will be counted at the Special Meeting, we
urge you to vote FOR the Gotham Proposal and the Gotham Nominees and
AGAINST the Current Board's Proposal, on the enclosed WHITE AND BLUE proxy
card.
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 AND BLUE proxy card representing your Shares.
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
WHITE AND BLUE PROXY CARD
SPECIAL MEETING OF BENEFICIARIES OF FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
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 Special Meeting of the Beneficiaries of First Union Real Estate Equity
and Mortgage Investments (the "Company") to be held in the Forum Conference
& Education Center, One Cleveland Center, 1375 East 9th Street, Cleveland,
Ohio, on May 19, 1998, commencing at 10:00 A.M. local time, and at any and
all adjournments or postponements thereof and any special meeting called in
lieu thereof (the "Special Meeting"), and to vote all shares of Beneficial
Interest of the Company ("Shares"), 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 ITEMS 1, 2 and 3
1. ELECTION OF TRUSTEES: To elect William A. Ackman, David P. Berkowitz and
James A. Williams as Class II Trustees.
[ ] FOR all nominees except [ ] WITHHOLD AUTHORITY
as marked below for all nominees
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:
2. PROPOSAL OF GOTHAM PARTNERS, L.P.: To fix the number of Trustees at
fifteen and to assign two of the six newly-created seats to each of
the three existing classes of Trustees.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. ELECTION OF TRUSTEES: To elect Daniel Shuchman and Steven S. Snider as
Class I Trustees, Mary Ann Tighe and Stephen J. Garchik as Class II
Trustees, and David S. Klafter and Daniel J. Altobello as Class III
Trustees.
[ ] FOR all nominees except [ ] WITHHOLD AUTHORITY
as marked below for all nominees
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 AGAINST THE FOLLOWING PROPOSAL
4. PROPOSAL OF THE COMPANY: To fix the number of Trustees at twelve
with one vacancy to be added to each existing class of Trustees.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(This proxy is continued and is to be signed and dated on the reverse side)
(continued from reverse side)
5. In their discretion, each of the Proxy Agents is authorized to vote upon
any other matters as may properly come before the Special Meeting.
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 the nominees set forth in Items 1 and 3, FOR
the proposal set forth in Item 2, AGAINST the proposal set forth in Item 4
and in the manner set forth in Item 5.
This proxy will be valid until the sooner of one year from the date
indicated below and the completion of the Special Meeting.
DATED: ________________________, 1998
-------------------------------------
(Signature)
-------------------------------------
(Signature, if held jointly)
-------------------------------------
(Title)
Please sign exactly as your shares are
registered. When shares are held
jointly, joint owners should each sign.
Executors, administrators, trustees,
etc., should indicate the capacity in
which signing. If a corporation, sign in
full corporate name by authorized
officer. If a partnership, sign in
partnership name by authorized person.
IMPORTANT: PLEASE SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
