UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 2 TO 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 |X|
Filed by a Party other than the Registrant |_| Check the appropriate box: |X| Preliminary Proxy Statement |_| CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2)) |_| Definitive Proxy Statement |_| Definitive Additional Materials |_| Soliciting Material Pursuant to ss.240.14a-12 WELLSFORD REAL PROPERTIES, INC. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): |_| No fee required |_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 (1) Title of each class of securities to which transaction applies: ______________________________________________________________________ (2) Aggregate number of securities to which transaction applies: ______________________________________________________________________ (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): ______________________________________________________________________ (4) Proposed maximum aggregate value of transaction: ______________________________________________________________________ (5) Total fee paid: ______________________________________________________________________ |X| 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: ______________________________________________________________________
TABLE OF CONTENTS
INTRODUCTION....................................................................................................1
Summary of Proposed Plan of Liquidation..................................................................2
Risk Factors.............................................................................................4
Stockholders Entitled to Vote at the Meeting............................................................10
How to Vote Your Shares.................................................................................10
How to Revoke Your Proxy................................................................................11
Voting at the Annual Meeting............................................................................11
The Board's Recommendation..............................................................................11
Votes Required to Approve Each Item.....................................................................11
PROPOSAL 1 -- PLAN OF LIQUIDATION..............................................................................12
What You Are Being Asked To Approve.....................................................................12
The Board's Recommendation..............................................................................12
What the Plan of Liquidation Contemplates...............................................................12
Key Provisions of the Plan..............................................................................13
Reasons for the Liquidation.............................................................................14
Background..............................................................................................16
Expected Distributions..................................................................................23
Modification of Plan of Liquidation; No Further Stockholder Action Required.............................25
How Stock Options Will Be Affected by Distributions Made Under the Plan.................................25
Cancellation of Common Shares...........................................................................26
Steps Taken Consistent with the Plan....................................................................26
Dissolution.............................................................................................27
Transferability of Shares; AMEX Listing.................................................................27
Liquidating Trust.......................................................................................28
Our Advisor.............................................................................................29
Certain Transactions and Possible Effects of the Approval of the Plan of Liquidation
Upon Directors and Officers.......................................................................... 29
Appraisal Rights of Stockholders........................................................................31
Material Federal Income Tax Consequences of the Plan of Liquidation.....................................32
PROPOSAL 2 -- ELECTION OF DIRECTORS............................................................................35
Nominees for Election as Directors......................................................................35
The Board's Recommendation..............................................................................36
Other Directors.........................................................................................36
Board of Directors' Meetings............................................................................36
Board Committees........................................................................................37
Code of Business Conduct and Ethics.....................................................................39
Compensation of Directors...............................................................................39
Executive Officers......................................................................................40
Executive Compensation..................................................................................41
Employment Agreements...................................................................................43
Management Incentive Plans..............................................................................45
Compensation Committee Interlocks and Insider Participation.............................................45
Compensation Committee Report on Executive Compensation.................................................46
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters..........48
Certain Relationships and Related Transactions..........................................................49
Audit Committee Report..................................................................................52
Principal Independent Registered Public Accounting Firm Fees and Services...............................53
Common Share Price Performance Graph....................................................................54
PROPOSAL 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.....................55
The Board's Recommendation..............................................................................55
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE........................................................55
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION....................................................55
WHERE YOU CAN FIND MORE AVAILABLE INFORMATION..................................................................56
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..............................................................56
WHO CAN HELP ANSWER YOUR QUESTIONS.............................................................................57
STOCKHOLDER PROPOSALS..........................................................................................57
FINANCIAL AND OTHER INFORMATION................................................................................57
EXPENSES OF SOLICITATION.......................................................................................57
OTHER MATTERS..................................................................................................58
PLAN OF LIQUIDATION....................................................................................Appendix A
APPRAISAL OPINION......................................................................................Appendix B
REVIEW APPRAISAL.......................................................................................Appendix C
WELLSFORD REAL PROPERTIES, INC.
535 MADISON AVENUE, 26TH FLOOR
NEW YORK, NY 10022
(212) 838-3400
_____ __, 2005
Dear Stockholder:
You are cordially invited to attend the 2005 Annual Meeting of
Stockholders which will be held on ____ __, 2005, at 9:30 a.m., local time, at
the offices of Bryan Cave LLP, 1290 Avenue of the Americas, 31st floor, New
York, New York 10104.
Information about the meeting and the various matters on which the
stockholders will act is included in the Notice of Annual Meeting of
Stockholders and Proxy Statement which follow. Also included is a Proxy Card and
postage paid return envelope.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. WHETHER
OR NOT YOU PLAN TO ATTEND, WE HOPE THAT YOU WILL COMPLETE AND RETURN YOUR PROXY
CARD IN THE ENCLOSED ENVELOPE AS PROMPTLY AS POSSIBLE.
Sincerely,
JEFFREY H. LYNFORD
Chairman of the Board, Chief Executive Officer
and President
WELLSFORD REAL PROPERTIES, INC.
535 MADISON AVENUE, 26TH FLOOR
NEW YORK, NY 10022
(212) 838-3400
____________________
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD _____ __, 2005
____________________
The 2005 Annual Meeting of Stockholders of Wellsford Real Properties,
Inc., a Maryland Corporation (the "Company"), will be held at the offices of
Bryan Cave LLP, 1290 Avenue of the Americas, 31st floor, New York, NY 10104 on
______ __, 2005 at 9:30 a.m., local time, for the following purposes:
1. To consider and vote upon the plan of liquidation and dissolution of
the Company.
2. To elect three directors to terms expiring at the 2008 annual
meeting of stockholders and upon the election and qualification of
their successors.
3. To ratify the appointment of Ernst & Young LLP as the Company's
independent registered public accounting firm for the fiscal year
ending December 31, 2005.
4. To transact such other business as may properly come before the meeting
or any adjournment(s) or postponement(s) thereof.
These items are fully described in the Proxy Statement, which is part
of this notice. We have not received notice of any other matters that may be
properly presented at the annual meeting.
The Board of Directors has fixed the close of business on _____ __,
2005 as the record date for determining the stockholders entitled to receive
notice of and to vote at the meeting.
STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO COMPLETE, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND
THE MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
JAMES J. BURNS
Secretary
____ ___, 2005
New York, New York
WELLSFORD REAL PROPERTIES, INC.
535 MADISON AVENUE, 26TH FLOOR
NEW YORK, NY 10022
____________________
PROXY STATEMENT
____________________
_____ __, 2005
2005 ANNUAL MEETING OF STOCKHOLDERS
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
by the Board of Directors (the "Board") of Wellsford Real Properties, Inc., a
Maryland corporation (which we refer to as "Wellsford," the "Company," "we,"
"our," or "us"), of proxies from the holders of the Company's issued and
outstanding shares of common stock, par value $.02 per share (the "Regular
Common Shares"), and Class A-1 common stock, par value $.02 per share (the "A-1
Common Shares" and, together with the Regular Common Shares, the "Common
Shares"), to be exercised at the 2005 Annual Meeting of Stockholders to be held
on ____ __, 2005, at the offices of Bryan Cave LLP, 1290 Avenue of the Americas,
31st floor, New York, NY 10104, at 9:30 a.m., local time, and at any
adjournment(s) or postponement(s) of such meeting (the "Annual Meeting"), for
the purposes set forth in the accompanying Notice of Annual Meeting of
Stockholders.
This Proxy Statement and enclosed Proxy Card are being mailed to the
stockholders on or about _____ __, 2005.
Among the matters to be considered at the Annual Meeting are:
o A proposal to adopt a plan of liquidation (the "Plan"), which
would authorize the Board to liquidate all of the Company's
assets and, after making the necessary and appropriate
reserves against liabilities, make distributions of the
proceeds of the liquidation to the Company's stockholders and
dissolve the Company;
o The election of three directors; and
o The ratification of the selection of Ernst & Young LLP as the
Company's independent registered public accounting firm.
The Summary of Proposed Plan of Liquidation which follows provides a
summary of the material terms of the Plan and the transactions contemplated in
connection with the Plan. The Proxy Statement contains a more detailed
description and background of each of the proposals, and we encourage you to
read the entire Proxy Statement and each of the documents that we have attached
as exhibits.
SUMMARY OF PROPOSED PLAN OF LIQUIDATION
The following is a summary of the steps to be undertaken in connection
with, and the material terms of, the proposed Plan, which is attached as
Appendix A to this Proxy Statement, and the other transactions contemplated in
connection with the Plan. We encourage you to read carefully the entire Proxy
Statement and Appendix A for a more detailed description of the terms of the
proposed Plan.
o General. Under the Plan, we intend to effectuate the orderly
sale of each of the Company's remaining assets, which may take
place in connection with the dissolution of substantially all
Company joint ventures, partnerships and limited liability
companies, the collection of all outstanding loans and
receivables, an orderly disposition or completion of
construction of our development projects, the discharge of all
outstanding liabilities to third parties, and, after the
provision of appropriate reserves, the distribution of all
remaining cash to our stockholders and the dissolution of the
Company. See also the information under the caption "Proposal
1--What the Plan of Liquidation Contemplates."
o Total Distributions. Through the execution of the Plan, we
expect that stockholders will receive aggregate cash
distributions of between $18.00 and $20.50 per Common Share.
At June 30, 2005, our book value per Common Share was $15.30.
On September 13, 2005 the closing price of a Regular Common
Share was $9.14.
o Initial Distribution. We anticipate making an initial
distribution ("Initial Distribution") of between $12.00 to
$14.00 per Common Share. The amount of the Initial
Distribution will be a function primarily of the net sale
proceeds received by the Company upon its sale of the three
rental phases of Palomino Park ("Palomino Park"), which
comprise 1,184 units within our multifamily residential rental
project in Highlands Ranch, a southern suburb of Denver,
Colorado. On August 24, 2005, our subsidiary entered into an
agreement to sell the three residential rental phases of
Palomino Park for $176 million to TIAA-CREF, a national
financial services organization. This agreement and the
purchase price are subject to the satisfactory completion, by
September 23, 2005, of due diligence by the purchaser.
We anticipate making the Initial Distribution within 30 days
after completion of the sale of the rental phases of Palomino
Park. The sale is subject to the approval of the Plan by our
stockholders. See the information under the caption "Proposal
1--What the Plan of Liquidation Contemplates; --Expected
Distributions: Calculation of Estimated Distributions; and
--Certain Transactions and Possible Effects of the Approval of
the Plan of Liquidation upon Directors and Officers: Purchase
of Beekman by the Beekman Acquirors."
o Additional Distributions. The balance of the cash to be
received by stockholders is anticipated to be distributed in
one or more installments, over a 12 to 36 month period after
adoption of the Plan, as we wind up our operations and
dissolve the Company. See the information under the caption
"Proposal 1--Key Provisions of the Plan of Liquidation;
--Dissolution." These distributions will be the result of
several transactions, including:
o the direct or indirect sale of the Company's interest
in two contiguous undeveloped parcels of land in
Beekman, New York (the "Beekman Properties"), to
Jeffrey H. Lynford, the Company's Chief Executive
Officer, and Edward Lowenthal, a member of the Board,
or an entity controlled by them (the "Beekman
Acquirors") at a price determined by the independent
members of the Board to be equal to the greater of
(i) the fair market value of the Beekman Properties,
based on an independent appraisal, or (ii) the total
costs incurred by the Company with respect to the
Beekman Properties (which through August 31, 2005
aggregated approximately $1.1 million, an amount
greater than the appraised fair market value);
2
o the orderly sale of the remaining unsold condominium
units at The Fordham residential tower in Chicago
("Fordham Tower") owned by a joint venture in which
we have a 10% equity interest;
o the redemption by Wellsford/Whitehall Group, LLC
("Wellsford/Whitehall"), of our entire interest in
Wellsford/Whitehall, a joint venture in which we have
a 35.21% equity interest, for an agreed price of
approximately $8.3 million, the consummation of which
is subject to final negotiation and execution of
documents;
o the collection of a note payable to the Company (the
"Mantua Loan");
o the sale to a third party of Reis, Inc. ("Reis"), a
real estate information and database company (our
interest is approximately 21.6% of Reis' equity on an
as-converted basis at August 31, 2005), or a sale of
our ownership interest in Reis; and
o the completion of construction and sale of
residential units at the Gold Peak phase of Palomino
Park ("Gold Peak"), Claverack, New York ("Claverack")
and East Lyme, Connecticut ("The Orchards").
Alternatively, or in combination, the Company may
sell the land at Gold Peak and The Orchards projects
to another developer and our joint venture interest
in Claverack to our partner in that venture.
o Distribution to a Liquidating Trust. Upon a determination made
by the Board at any time prior to the dissolution of the
Company, the Board may transfer and assign to a liquidating
trust the Company's remaining cash and property to pay (or
adequately provide for) all the remaining debts and
liabilities of the Company. Any remaining assets of the
liquidating trust would be distributed to the holders of our
Common Shares. See the information under the caption "Proposal
1--Key Provisions of the Plan of Liquidation; --Liquidating
Trust."
o Amending or Abandoning the Plan. The Board may amend or
abandon the Plan for any reason without further action by our
stockholders. See the information under the caption "Proposal
1--Key Provisions of the Plan of Liquidation; --Modification
of Plan of Liquidation; No Further Stockholder Action
Required."
o Appraisal Rights. No appraisal rights are available under
Maryland law to stockholders in connection with the
liquidation and dissolution of the Company. See also the
information under the caption "Proposal 1 -- Appraisal Rights
of Stockholders."
o Required Vote. The affirmative vote of two-thirds of all the
votes entitled to be cast by holders of the Common Shares is
required to approve and adopt the Plan. On August 31, 2005,
our directors and officers, as a group, and our non-qualified
deferred compensation trust, under which some members of
management are beneficiaries, beneficially owned 6.3% of the
Common Shares (exclusive of any options that may have been
exercisable as of August 31, 2005). Our directors and officers
have indicated that they intend to vote in favor of the Plan.
In addition, the Company has directed the trustee of the
Company's non-qualified deferred compensation trust to vote
all of the Regular Common Shares held in the non-qualified
defined compensation trust in favor of the Plan.
In March 2004, the Board retained the services of Lazard Ltd.
("Lazard"), an international investment banking firm, for advice as to the
strategic alternatives available to the Company, among which were the Company's
continuation of its business operations as an independent public entity, a sale
of the Company and a liquidation of the Company. As part of its engagement,
Lazard assisted management in connection with its determination of a range of
potential liquidation proceeds. This included performing various sensitivity
analyses of management's projections relating to the amount of cash
distributions that could be made to stockholders. Lazard did not independently
verify management's budgets and projections, and it did not appraise any of the
assets of the Company, although Lazard did perform the mathematical compilations
and computations of management's budgets and projections necessary to complete
the sensitivity analysis. A full description of assumptions made, procedures
followed, matters considered, and the qualifications and limitations on the
scope of the review undertaken by the Board in connection with its determination
of the range of liquidation values is set forth under the captions
"Introduction--Risk Factors; Proposal 1--Background"; and " -- Expected
Distributions" in this Proxy Statement.
3
RISK FACTORS
RISKS RELATED TO PLAN OF LIQUIDATION
We do not know the exact amount or timing of liquidation distributions.
We cannot assure you of the precise nature and amount of any
distribution to our stockholders pursuant to the Plan. Furthermore, the timing
of our distributions will be affected, in large part, by our ability to sell in
a timely and orderly manner our remaining assets.
The methods used by management in estimating the values of our assets
(other than cash and cash equivalents) and liabilities are based on estimates
which are inexact and may not approximate values actually realized or the actual
costs incurred. The Board's assessment assumes that the estimates of our assets,
liabilities, construction and operating costs, and sale prices of our remaining
assets are accurate, but those estimates are subject to numerous uncertainties
beyond our control, including any new contingent liabilities that may
materialize and other matters discussed below. In addition, the Board has relied
on (i) management's estimates as to the value of the Company's properties, other
assets, costs and operating expenses and (ii) Lazard's mathematical compilations
and computations of such estimates and has not obtained or sought an appraisal
of any of the properties that it proposes to liquidate except for the Beekman
Properties. For all of these reasons, the actual net proceeds distributed to
stockholders in liquidation may be more or less than the estimated amounts.
We have estimated the range of distributions based upon management's
estimates of the values of the assets after considering, among other factors,
internally prepared budgets, projections and models, comparable sales figures,
and values ascribed to certain assets during discussions with bidders and
brokers for the Company. Lazard assisted us by helping to develop and
stress-test financial models and providing sophisticated analyses of these
models. There can be no assurance that we will be able to find buyers for all
the remaining assets, and if we are able to sell such assets, there can be no
guaranty that the value received upon such sale will be consistent with
management's estimates.
If our stockholders approve the Plan, potential purchasers of our
assets may try to take advantage of our liquidation process and offer
less-than-optimal prices for our assets. We intend to seek and obtain the
highest sales prices reasonably available for our assets, and believe that we
can out-wait bargain-hunters; however, we cannot predict how changes in local
real estate markets or in the national economy may affect the prices that we can
obtain in the liquidation process. Therefore, there can be no assurance that the
announcement and approval of our Plan will not hinder management's ability to
obtain the best price possible in the liquidation of our assets.
We currently estimate that an aggregate of between $116 million and
$133 million may be available for distribution to holders of our Common Shares
under the Plan, which would result in a total distribution of between $18.00 and
$20.50 per Common Share. The actual amount available for distribution could be
more or less or could be delayed, depending on a number of other factors
including (i) unknown liabilities or claims, (ii) unexpected or greater or
lesser than expected expenses, and (iii) greater or lesser than anticipated net
proceeds of asset sales. Alternatively, if we sold the land at the Gold Peak or
The Orchards projects to another developer, or our joint venture interest in
Claverack to our partner in that venture, the net proceeds from such a sale or
sales would be less than the net proceeds from the sale of completed residential
units.
Although we anticipate making an initial distribution of $12.00 to
$14.00 per Common Share to our stockholders within 30 days after the sale of the
three rental phases of Palomino Park (which is conditioned upon stockholder
approval of the Plan), interim and final distributions will depend on the amount
of proceeds we receive, when we receive them, and the extent to which we must
establish reserves for current or future liabilities. In this regard, we note
that although we have entered into an agreement to sell the three rental phases
of Palomino Park, the agreement is subject to the purchaser completing its due
diligence and the purchaser may, for any reason, negotiate to reduce the
purchase price or terminate its purchase obligation at any time during its
diligence review period, which expires September 23, 2005. In addition, although
we expect that a distribution of substantially all of the remaining amount will
be made to stockholders within three years following the adoption of the Plan by
our stockholders, the actual time of distribution may be longer in the event
that we have difficulties disposing of our properties or if a creditor seeks the
intervention of the Maryland courts to enjoin dissolution.
4
We are currently unable to predict the precise timing of any
distributions pursuant to the Plan. The timing of any distribution will depend
upon and could be delayed by, among other things, the timing of the sale of the
Company's assets, in particular, the three rental phases of Palomino Park, Gold
Peak, Wellsford/Whitehall, Fordham Tower, The Orchards, Claverack, and Reis or
the Company's interests in Reis. Additionally, a creditor could seek an
injunction against our making distributions to our stockholders on the ground
that the amounts to be distributed were needed for the payment of the
liabilities and expenses. Any action of this type could delay or substantially
diminish the amount, if any, available for distribution to our stockholders.
Valuations of our real estate assets are subject to general risks associated
with real estate assets and within the real estate industry.
The value of our real estate assets and consequently the value of your
investment, is subject to certain risks applicable to our assets and inherent in
the real estate industry. The following factors, among others, may adversely
affect the value of our real estate assets:
o downturns in the national, regional and local economic climate
where our properties are located;
o macroeconomic as well as specific regional and local market
conditions;
o competition from other rental residential properties and
for-sale housing developments;
o local real estate market conditions, such as oversupply of, or
reduction in demand for, residential homes and condominium
units;
o declines in occupancy and lease rents;
o increased operating costs, including insurance premiums,
utilities, and real estate taxes;
o increases in interest rates on financing; and
o cost of complying with environmental, zoning, and other laws.
We face specific risks associated with property development and construction.
We currently intend to continue to develop residential projects at Gold
Peak, The Orchards and Claverack, through the subdivision, construction, and
sale of condominium units or single family homes. Alternatively, or in
combination, we may sell the land at the Gold Peak and The Orchards projects to
another developer and sell our joint venture interest in Claverack to our
partner in that venture, thus foregoing potential development profits associated
with these properties. Our development and construction activities give rise to
risks, which, if they materialize, could have a material adverse effect on our
business, results of operations and financial condition or the timing or amount
of distributions made to our stockholders and include:
o the possibility that we may abandon development opportunities
after expending significant resources to determine
feasibility;
o the possibility that we may not obtain for the Claverack
project construction financing on reasonable terms and
conditions or an increased number of building lots, which
would affect the number of single family homes we can build
and sell;
5
o the possibility that development, construction, and the sale
of our projects, may not be completed on schedule resulting in
increased debt service expense, construction costs and general
and administrative expenses;
o our inability to obtain, or costly delays in obtaining,
zoning, land-use, building, occupancy and other required
governmental permits and authorizations, which could delay or
prevent commencement of development activities or delay
completion of such activities;
o the fact that properties under development or acquired for
development usually generate little or no cash flow until
completion of development and sale of a significant number of
units and may experience operating deficits after the date of
completion; and
o increases in the cost of construction materials.
We face potential risks with asset sales.
Risks associated with the sale of properties which, if they
materialize, may have a material adverse effect on amounts you may receive,
include:
o lack of demand by prospective buyers;
o inability to find qualified buyers;
o inability of buyers to obtain satisfactory financing;
o lower than anticipated sale prices; and
o the inability to close on sales of properties under contract.
Our ownership interest in Reis is relatively illiquid and we may not be able to
sell such interest for an undiscounted amount.
Our estimate of the total liquidation value of the Company assumes a
sale of Reis as an entity to a third-party buyer. However, we only own a
minority interest in Reis and therefore have no control over whether or when a
sale would take place or at what price. It is likely that if we sold our
interest in Reis outside of the context of the sale of Reis as an entity to a
third party, we would receive a discounted purchase price to reflect the fact
that our interest represents a minority interest and is relatively illiquid. Any
attempt to sell our interest independently of concurrent sales by other Reis
stockholders may be restricted or impeded as a result of agreements made among
Reis's stockholders or with Reis. These provisions may also decrease the value
of the interest being sold. Furthermore, a portion of our ownership interest in
Reis is through an entity in which we have two partners, all of whom must
consent to any disposition of assets owned by that entity.
Our stockholders could vote against the Plan of Liquidation.
Our stockholders could vote against the Plan. If our stockholders do
not approve the Plan, we would have to continue our business operations from a
difficult position, in light of the announced intent to liquidate and dissolve.
Employees, customers and other third parties may refuse to continue to conduct
business with us if they are uncertain as to our future, particularly with
respect to long-term relationships that would be advantageous to the conduct of
our business as a going concern. In addition, the Company will have to continue
operations while being faced with the same strategic issues it considered in
determining to adopt the Plan.
6
If we are unable to satisfy all of our obligations to creditors, or if we have
underestimated our future expenses, the amount of liquidation proceeds will be
reduced.
We have current and future obligations to creditors. Claims,
liabilities and expenses from operations (such as operating costs, salaries,
directors' and officers' insurance, payroll and local taxes, legal, accounting
and consulting fees and miscellaneous office expenses) will continue to be
incurred through the liquidation process. As part of this process, we will
attempt to satisfy any obligations with creditors remaining after the sale of
our assets. These expenses will reduce the amount of assets available for
ultimate distribution to our stockholders. To the extent our liabilities exceed
the estimates that we have made, the amount of liquidation proceeds will be
reduced.
Stockholders may be liable to our creditors for amounts received from us if our
reserves are inadequate.
If the Plan is approved by the stockholders, we intend to file Articles
of Dissolution with the State Department of Assessments and Taxation of Maryland
("SDAT") promptly after the sale of all our remaining assets or at such time as
our directors have transferred the Company's remaining assets, subject to its
liabilities, into a liquidating trust. Pursuant to the MGCL, the Company will
continue to exist for the purpose of discharging any debts or obligations,
collecting and distributing its assets, and doing all other acts required to
liquidate and wind up its business and affairs. We intend to pay for all
liabilities and distribute all of our remaining assets before we file our
Articles of Dissolution.
Under the MGCL, certain obligations or liabilities imposed by law on
our stockholders, directors, or officers cannot be avoided by the dissolution of
a company. For example, if we make distributions to our stockholders without
making adequate provisions for payment of creditors' claims, our stockholders
would be liable to the creditors to the extent of the unlawful distributions.
The liability of any stockholder is, however, limited to the amounts previously
received by such stockholder from us (and from any liquidating trust).
Accordingly, in such event, a stockholder could be required to return all
liquidating distributions previously made to such stockholder and a stockholder
could receive nothing from us under the Plan. Moreover, in the event a
stockholder has paid taxes on amounts previously received as a liquidation
distribution, a repayment of all or a portion of such amount could result in a
stockholder incurring a net tax cost if the stockholder's repayment of an amount
previously distributed does not cause a commensurate reduction in taxes payable.
Therefore, to the extent that we have underestimated the size of our contingency
reserve and distributions to our stockholders have already been made, our
stockholders may be required to return some or all of such distributions.
You will not be able to buy or sell our Common Shares after we file our Articles
of Dissolution.
If the Plan is approved by our stockholders, we intend to close our
transfer books on the date on which we file Articles of Dissolution with the
SDAT (the "Final Record Date"). We anticipate that the Final Record Date will be
shortly after the sale of all of our assets or such earlier time as when our
Board transfers all of our remaining assets into a liquidating trust. The Final
Record Date is likely to be 12 to 36 months after the approval of the Plan by
our stockholders. Your interests in a liquidating trust are likely to be
non-transferable except in certain limited circumstances. After the Final Record
Date, we will not record any further transfers of our Common Shares except
pursuant to the provisions of a deceased stockholder's will, intestate
succession or operation of law and we will not issue any new stock certificates
other than replacement certificates or certificates representing your interest
in a liquidating trust. In addition, after the Final Record Date, we will not
issue any Common Shares upon exercise of outstanding options. It is anticipated
that no further transfers of our Common Shares will occur after the Final Record
Date.
Our success depends on key personnel whose continued service is not guaranteed.
Jeffrey H. Lynford has been Chairman of the Board since our formation
in 1997. He has also been our President and Chief Executive Officer since April
1, 2002. Mr. Lynford's employment agreement with us expires December 31, 2007.
Our ability to locate buyers for our remaining assets and negotiate and complete
those sales depend to a large extent upon the experience and abilities of Mr.
Lynford. The loss of the services of Mr. Lynford could have an adverse effect on
our operations and the terms and conditions under which we dispose of our assets
and consequently the amounts and timing of distributions to our stockholders.
Furthermore, Mr. Lynford's contract provides that since the Company has disposed
of all or substantially all of two of its business units, he is no longer
required to devote substantially all of his time, attention and energies during
business hours to the Company's activities. He may now perform services for and
engage in business activities with other persons so long as such services and
activities do not prevent him from fulfilling his fiduciary responsibilities to
the Company.
7
In addition, our business operations and ability to complete the Plan
in a timely manner and sell our assets for the estimated proceeds could be
negatively impacted if we are unable to retain the services of other key
personnel or hire suitable replacements.
Our Chief Executive Officer and one of our directors have conflicts of interest.
The employment agreement of Mr. Lynford contains provisions which
entitles him to certain benefits and payments, including, but not limited to,
health, dental and life insurance benefits, in the event he terminates his
employment agreement following a "change of control" (as defined in his
employment agreement and which definition includes adoption of a plan of
liquidation as a "change of control"). Accordingly, if the Plan is approved by
our stockholders, Mr. Lynford, if he elects to terminate his employment with the
Company, would be entitled to the payment of $643,000, which would otherwise be
due to him on January 1, 2008, and an amount equal to the balance of his salary
and minimum annual bonus (each payable at a rate of $375,000 per year) due to
him through December 30, 2007 plus the continued payment by the Company of
certain other benefits such as health, dental and life insurance premiums
through December 30, 2007. Consequently, Mr. Lynford may have been influenced by
the potential severance payment to support and to vote to approve the Plan.
Messrs. Lynford and Lowenthal have expressed an interest to directly or
indirectly acquire the Beekman Properties if our stockholders adopt the Plan.
The independent members of our Board believe that the appraisal process that was
used in determining the minimum purchase price to be paid by Messrs. Lynford and
Lowenthal is fair to the Company and that Messrs. Lynford and Lowenthal have
fully disclosed their interests in the purchase of the Beekman Properties.
Although the Plan was unanimously approved by the Board, Messrs. Lynford and
Lowenthal may have had a conflict of interest in approving the Plan in light of
their interest in acquiring the Beekman Properties.
As part of the transaction, certain assets (including Company Regular
Common Shares) held in our deferred compensation trust, representing vested
compensation previously earned by Messrs. Lynford and Lowenthal, and deferred by
them beginning in 1994 by a predecessor company (the "Deferred Compensation
Assets") will be transferred to an entity owning the Beekman Properties for the
benefit of Messrs. Lynford and Lowenthal. In connection therewith, the Company
will be relieved of its obligations to pay to Messrs. Lynford and Lowenthal an
amount equal to the Deferred Compensation Assets (the "Deferred Compensation
Obligations"). To simplify the structure and for tax purposes, the Company's
Regular Common Shares comprising the Deferred Compensation Assets may be
transferred back to the Company and canceled and the Company's obligations to
make the distributions with respect to such shares would then be evidenced by a
written agreement to satisfy those obligations as if such shares remained
outstanding.
Mr. Lynford, the Company's Chairman, is the brother of Lloyd Lynford, a
stockholder, director and the president of Reis. Mr. Lowenthal, who currently
serves on the Company's Board of Directors, has served on the Board of Directors
of Reis since the third quarter of 2000.
Our Board may abandon or amend the Plan even if our stockholders approve it.
Even if our stockholders vote to approve the Plan, our Board may
abandon the Plan without further stockholder approval. Furthermore, the Plan
provides that it may be modified as necessary to implement this Plan but any
material amendments to the Plan must be approved by the affirmative vote of the
holders of a majority of our issued and outstanding Common Shares. Thus, we may
decide to conduct the liquidation differently than described in this Proxy
Statement, to the extent we are permitted to do so by Maryland law.
8
Liquidation and dissolution may not maximize value for our stockholders.
Although our Board believes that the Plan is more likely to result in
greater returns to stockholders than if we continued the status quo or pursued
other alternatives, it is possible that one or more of the other alternatives
would be better for us and our stockholders, in which case, we will be foregoing
such alternatives if we implement the Plan.
Approval of the Plan may reduce our stock price, increase its volatility and
reduce the liquidity of our shares.
If our stockholders approve the Plan, but believe that we will be
unable to complete our Plan in a timely manner, the price of our Regular Common
Shares may decline. In addition, as we sell our assets, pay off our liabilities
and make liquidating distributions to stockholders, our stock price will likely
decline and our Regular Common Shares will likely become less liquid.
In addition, Our Regular Common Shares may no longer be eligible for
listing on the American Stock Exchange (the "AMEX") as a result of adopting the
Plan, thus reducing liquidity of the Regular Common Shares. Being delisted by
the AMEX would further decrease the market demand and liquidity for, and price
of, our Regular Common Shares. The policy of the AMEX is to consider delisting a
company if, among other reasons:
o the total number of public stockholders is less than 300;
o if the aggregate market value of shares publicly held is less
than $1 million; or
o if liquidation has been authorized by a company's board of
directors and stockholders.
Furthermore, in the event that the Board elects to transfer the
Company's remaining assets into a liquidating trust, the trust certificates to
be issued to each stockholder will not be transferable except in certain very
limited circumstances, such as upon death of the holder.
Approval of the Plan may lead to stockholder litigation which could result in
substantial costs and distract management.
Historically, extraordinary corporation actions, such as the proposed
Plan, often lead to securities class action lawsuits being filed against a
company. Such litigation is likely to be expensive and, even if we ultimately
prevail, the process will be time consuming and divert management's attention
from implementing the Plan and otherwise operating our business. If we do not
prevail in any such lawsuit, we may be liable for damages, the validity of a
stockholder vote approving the Plan may be challenged, or we may be unable to
complete some transactions that we contemplate as part of the Plan. We cannot
predict the cost of defense or the amount of such damages but they may be
significant and would likely reduce our cash available for distribution.
Approval of the Plan could cause our methodology of accounting to change, which
may require us to reduce the net carrying value of our assets.
Once our stockholders approve the proposed Plan, we could change our
basis of accounting from the going-concern basis to that of the liquidation
basis of accounting.
In order for our financial statements to be in accordance with
generally accepted accounting principles under the liquidation basis of
accounting, all of our assets must be stated at their estimated net realizable
value, and all of our liabilities (including those related to commitments under
employment agreements) must be recorded at the estimated amounts at which the
liabilities are expected to be settled. Based on the most recent available
information, if the Plan is adopted, we expect to make liquidating distributions
that exceed the carrying amount of our net assets. However, we cannot assure you
what the ultimate amounts of such liquidating distributions will be. Therefore,
there is a risk that the liquidation basis of accounting may entail write downs
of certain of our assets to values substantially less than their current
respective carrying amounts, and may require that certain of our liabilities be
increased or certain other liabilities be recorded to reflect the anticipated
effects of an orderly liquidation.
9
Until we determine that the Plan is about to be approved, we will
continue to use the going-concern basis of accounting. If our stockholders do
not approve the Plan, we will continue to account for our assets and liabilities
under the going-concern basis of accounting. Under the going-concern basis,
assets and liabilities are expected to be realized in the normal course of
business. However, long-lived assets to be sold or disposed of should be
reported at the lower of carrying amount or estimated fair value less costs to
sell. For long-lived assets to be held and used, when a change in circumstances
occurs, our management must assess whether we can recover the carrying amounts
of our long-lived assets. If our management determines that based on all of the
available information, we cannot recover those carrying amounts, an impairment
of value of our long-lived assets has occurred and the assets would be written
down to their estimated fair value.
Our management has determined that the carrying amounts of our
long-lived assets at June 30, 2005, had not been impaired, other than to the
extent of amounts already recorded in prior accounting periods. We may, however,
be required to make write downs of our assets in the future. Such write downs
could reduce our stock price.
We may be subject to regulation under the Investment Company Act of 1940.
If we were deemed to be an investment company as that term is defined
under the Investment Company Act of 1940 (the "1940 Act") because of our
investment securities holdings, we must register as an investment company under
the 1940 Act. As a registered investment company, we would be subject to the
further regulatory oversight of the Securities Exchange Commission, and our
activities would be subject to substantial regulation under the 1940 Act and the
federal securities law in general, and we would be subject to additional
compliance and regulatory expenses.
We are not registered as an investment company under the 1940 Act. We
believe that either we are not within the definition of "investment company"
thereunder or, alternatively, may rely on one or more of the 1940 Act's
exemptions. We intend to continue to conduct our operations in a manner that
will exempt us from the registration requirements of the 1940 Act. If we were to
become an "investment company" under the 1940 Act and if we failed to qualify
for an exemption thereunder, we would have to change how we conduct business.
The 1940 Act places significant restrictions on the capital structure and
corporate governance of a registered investment company, and materially
restricts its ability to conduct transactions with affiliates. Such changes
could have a material adverse affect on our business, results of operations and
financial condition.
In addition, if we were deemed to have been an investment company and
did not register under the 1940 Act, we would be in violation of the 1940 Act
and we would be prohibited from engaging in business or certain other types of
transactions and could be subject to civil and criminal actions for doing so. In
addition, our contracts would be voidable and a court could appoint a receiver
to take control of us and liquidate us. Therefore, our classification as an
investment company could materially adversely affect our business, results of
operations, financial condition and ability to liquidate the Company pursuant to
the Plan if it is adopted by our stockholders.
STOCKHOLDERS ENTITLED TO VOTE AT THE MEETING
Only the holders of record of Common Shares at the close of business on
____ __, 2005 (the "Record Date") are entitled to notice of and to vote at the
Annual Meeting. Each Common Share is entitled to one vote on all matters with
each vote having equal weight, regardless of the class of common stock. As of
the Record Date, an aggregate of 6,297,736 Regular Common Shares and 169,903
Class A-1 Common Shares were outstanding.
HOW TO VOTE YOUR SHARES
Your vote is important. Your shares can be voted at the Annual Meeting
only if you are present in person or represented by proxy. Even if you plan to
attend the meeting, we urge you to vote now by completing and submitting the
attached Proxy Card. If you own your shares in record name, you may cast your
vote by marking your Proxy Card, and then dating, signing, and returning it in
the postage-paid envelope provided.
10
Stockholders who hold their shares beneficially in street name through
a nominee (such as a bank or broker) may be able to vote by telephone or the
internet as well as by mail. You should follow the instructions you receive from
your nominee to vote these shares.
HOW TO REVOKE YOUR PROXY
You may revoke your proxy at any time before it is voted at the meeting
by:
o properly executing and delivering a later-dated proxy;
o voting by ballot at the meeting; or
o sending a written notice of revocation to the inspectors of
election in care of the Secretary of the Company at the
address disclosed on the cover of this Proxy Statement.
VOTING AT THE ANNUAL MEETING
The method by which you vote will in no way limit your right to vote at
the meeting if you later decide to attend in person. If you hold your shares in
street name, you must obtain a proxy executed in your favor from your nominee
(such as a bank or broker) to be able to vote at the meeting.
Your shares will be voted at the meeting as directed by the
instructions on your Proxy Card if: (i) you are entitled to vote, (ii) your
proxy was properly executed, (iii) we received your proxy prior to the Annual
Meeting, and (iv) you did not revoke your proxy prior to the meeting.
THE BOARD'S RECOMMENDATION
If you send a properly executed Proxy Card without specific voting
instructions, your shares represented by that proxy will be voted as recommended
by the Board:
o FOR THE APPROVAL AND ADOPTION OF THE PLAN AND THE DISSOLUTION
OF THE COMPANY;
o FOR THE ELECTION OF THE NOMINATED SLATE OF DIRECTORS; AND
o FOR APPROVAL OF RATIFICATION OF THE APPOINTMENT OF ERNST &
YOUNG LLP AS THE COMPANY'S INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005.
The Company does not presently know of any other business which may
come before the Annual Meeting.
VOTES REQUIRED TO APPROVE EACH ITEM
A majority of all the votes entitled to be cast at the Annual Meeting
will constitute a quorum for the transaction of business at the Annual Meeting.
The following votes are required to approve each item of business at
the meeting:
o Plan of Liquidation Proposal: The affirmative vote of
two-thirds of all the votes entitled to be cast by the holders
of the Common Shares is required to approve and adopt the Plan
(Proposal 1).
o Election of Directors: A plurality of all the votes cast at
the Annual Meeting is sufficient to elect a director (Proposal
2).
11
o Ratification of Independent Registered Public Accounting Firm:
The affirmative vote of a majority of all the votes entitled
to be cast by the holders of the Common Shares is required to
ratify the appointment of Ernst & Young LLP as the Company's
independent registered public accounting firm (Proposal 3).
Abstentions and broker non-votes will be counted for purposes of
determining the presence of a quorum. Abstentions have no effect on the outcome
of the vote for the election of directors (Proposal 2). However, abstentions and
broker non-votes will have the effect of a vote against the proposals to adopt
the Plan and the ratification of the independent registered public accounting
firm (Proposals 1 and 3, respectively). A "broker non-vote" occurs when a
nominee (such as a bank or broker) returns an executed proxy, but does not have
the authority to vote on a particular proposal because it has not received
voting instructions from the beneficial owner and has no discretionary authority
to vote on the proposal.
As of August 31, 2005, the directors and executive officers of the
Company collectively own an aggregate of 1.7% of all outstanding Common Shares.
As of August 31, 2005, our non-qualified deferred compensation trust owned 4.6%
of all outstanding Common Shares. The Company has directed the trustee of the
Company's non-qualified deferred compensation trust to vote all of the Regular
Common Shares held in the non-qualified defined compensation trust in favor of
all of the Proposals.
PROPOSAL 1 -- PLAN OF LIQUIDATION
WHAT YOU ARE BEING ASKED TO APPROVE
You are being asked to approve our proposed Plan. By voting in favor of
the Plan, you will also approve the transactions described in this Proxy
Statement, including the sale of all or substantially all of our assets, which
we and our Board have undertaken or will undertake in connection with the
recommendation that the stockholders approve the Plan.
THE BOARD'S RECOMMENDATION
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PLAN OF LIQUIDATION.
WHAT THE PLAN OF LIQUIDATION CONTEMPLATES
The Plan contemplates the orderly sale of each of the Company's
remaining assets which may take place in connection with the dissolution of
substantially all Company joint ventures, partnerships and limited liability
corporations, the collection of all outstanding loans to third parties, an
orderly disposition or completion of construction of development properties, the
discharge of all outstanding liabilities to third parties, and after the
establishment of appropriate reserves, the distribution of all remaining cash to
stockholders. Specifically, we intend to take the following steps in connection
with the Plan once we receive our stockholders' approval:
o the sale to TIAA-CREF, a national financial services
organization, of the three rental phases of Palomino Park and
related amenities for $176 million (which sale is subject to
satisfactory completion of due diligence by the purchaser by
September 23, 2005);
o making the Initial Distribution within 30 days after the sale
of the three rental phases of Palomino Park;
o the redemption by Wellsford/Whitehall of our entire interest
in that entity for approximately $8.3 million, subject to
execution of documents;
o the sale of the remaining unsold condominium units at Fordham
Tower;
o the collection of the Mantua Loan;
12
o the participation in a sale to a third party of Reis, or our
ownership interests in Reis;
o the completion of construction and sale of residential units
at Gold Peak, Claverack and The Orchards, or alternatively, or
in combination, the Company could sell the land at Gold Peak
and The Orchards projects to another developer and our joint
venture interest in Claverack to our partner in that venture;
o the direct or indirect sale of our interests in the Beekman
Properties to the Beekman Acquirors and the transfer of the
Deferred Compensation Assets to an entity owning the Beekman
Properties in connection with relieving the Company of the
Deferred Compensation Obligations in an amount equal to the
Deferred Compensation Assets.
o the orderly sale of the remainder of our assets for cash or
such other form of consideration, depending on the value of
the non-cash consideration being offered, as may be
conveniently distributed to stockholders;
o paying (or providing for) our liabilities and expenses;
o after the establishment of appropriate reserves, the
distribution of the balance of the proceeds from the sale of
our assets or the collection of all outstanding loans to third
parties, which may occur in one or more installments over a 12
to 36 month period after adoption of the Plan;
o winding up our operations and dissolving the Company, in
accordance with the Plan; and
o filing Articles of Dissolution with the SDAT.
KEY PROVISIONS OF THE PLAN
The Plan provides, in part, that:
o we may not engage in any business activities, except to the
extent necessary to (i) exercise our right to acquire land
contiguous to The Orchards, (ii) acquire one of the parcels of
land comprising the Beekman Properties, assuming that we have
not sold the Beekman Properties (or the interests in an entity
that owns the Beekman Properties) to the Beekman Acquirors;
(iii) complete the financing and development of The Orchards,
Claverack, and Gold Peak; (iv) sell the homes or condominiums,
as the case may be, to be built at The Orchards, Claverack,
and Gold Peak; (v) to the extent that we do not develop any of
The Orchards, Claverack and Gold Peak, then the sale of the
land at the Gold Peak and The Orchards projects to another
developer and the sale of our joint venture interest in
Claverack to our partner in that venture; (vi) repurchase our
Common Shares (vii) purchase additional shares of Reis from
other investors in Reis or Reis itself; (viii) preserve and
sell our assets; (ix) wind up our business and affairs; (x)
discharge and pay all our liabilities; and (xi) distribute our
assets to our stockholders. We may also engage in any
activities that the Board determines will enhance the value of
our assets or business and any other activities related to or
incidental to the foregoing.
o we will sell the Beekman Properties (or our interests in an
entity that owns the Beekman Properties) to the Beekman
Acquirors in a transaction approved by our independent
directors;
o if the Board determines that we will not have completed the
full distribution of our assets within three years after the
effectiveness of the proposed Plan, or if our Board determines
it to be necessary to do so at an earlier date, we may
transfer to a liquidating trust our remaining cash and
property and pay for (or adequately provide for) all our
remaining debts and liabilities so that the liquidating trust
can make liquidating distributions to stockholders;
13
o the Board has the discretion, without further stockholder
approval, to determine the terms of any liquidating trust and
to appoint the trustees of any such trust;
o upon our transfer to a liquidating trust of our remaining
assets, those assets will be held solely for the benefit of an
ultimate distribution to our stockholders after payment of
unsatisfied debts and liabilities;
o if we form a liquidating trust, the stockholders' certificates
for shares will be deemed to represent certificates for
identical interests in the liquidating trust, unless separate
trust certificates are issued in place of the shares, and the
certificates representing an interest in the trust will not be
transferable except under limited circumstances such as the
death of the holder;
o if we form a liquidating trust, the distributions of cash or
other property to our stockholders, or the transfer to a
liquidating trust of our remaining cash and property, are
anticipated to be in complete liquidation of the Company and
in cancellation of all issued and outstanding Common Shares;
o until the date we file our Articles of Dissolution, our
Charter and bylaws will not contain provisions relating to the
liability and indemnification of our officers and directors
that are any less favorable to such officers and directors
than those that existed immediately before the approval of the
Plan, and our Charter and bylaws will not be amended in any
manner that adversely affects the rights of such persons;
furthermore, the Company will be required to maintain
directors' and officers' insurance to cover these individuals;
o our Board and officers are, or the trustees of the liquidating
trust will be, authorized to interpret the provisions of the
Plan and to take such further actions and to execute such
agreements, conveyances, assignments, transfers, certificates
and other documents, as may in their judgment be necessary or
desirable in order to wind up expeditiously our affairs and
complete the liquidation; and
o notwithstanding approval of the Plan by our stockholders, the
Board may abandon, modify, or amend the plan without further
action by the stockholders to the extent permitted under then
current law.
REASONS FOR THE LIQUIDATION
In reaching its determination that the Plan is fair to, and in the best
interests of, our stockholders and approving the Plan and recommending that our
stockholders vote to approve the Plan, our Board consulted with our senior
management and our financial and legal advisors and considered the following
factors:
o the Board's review of possible alternatives to the proposed
liquidation, including consolidating or merging the Company
with other companies, selling the Company, going private,
conducting a self-tender offer for a limited number of shares,
repurchasing our shares in the open market, distributing
excess cash to our stockholders, acquiring other companies,
selling some of the Company's assets, and continuing our
operations in the ordinary course of business. Based on a
variety of factors, including the analyses and presentations
by our senior management and Lazard, the Board concluded that
none of the alternatives considered was reasonably likely to
provide equal or greater value to our stockholders than the
proposed Plan;
o the inability to identify a buyer or strategic alliance
partner who offered terms acceptable to the Board;
14
o the Board's belief that management and the Board had, with the
assistance of Lazard, thoroughly explored the market interest
in various strategic alternatives;
o if we continued our operations as a going concern, the length
of time necessary to evaluate and restructure our business,
which our management estimated to be at least two years, and
the significant risks associated with restructuring our
business, which would require a substantial influx of
additional capital and affect the Company's ability to raise
that additional capital on satisfactory terms and conditions;
o the prevailing economic conditions, both generally and within
the real estate development and merchant banking sectors and,
in particular, management's belief that premiums are being
paid for many real estate asset categories;
o the aggregate cash liquidating distributions, which we
estimate will range between $18.00 and $20.50 per Common
Share, and the fact that a distribution of $18.00 per Common
Share (which is at the lower end of that range), or $20.50 per
Common Share (which is at the high end of that range), would
represent a 27% and 44% premium, respectively, over the
average closing trading price over the 30 days from April 19,
2005 to May 18, 2005, which is the day preceding the
announcement of the Board's adoption of the Plan;
o the Board's belief that the range of cash liquidating
distributions that we estimate we will make to our
stockholders was fair relative to the Board's own assessment,
based on presentations made by our management, of our current
and expected future financial condition, earnings, business
opportunities, strategies and competitive position and the
nature of the market environment in which we operate;
o the per Common Share price to be received by our stockholders
in the liquidation is likely to be payable in cash, thereby
eliminating any uncertainties in valuing the consideration to
be received by our stockholders; and
o the terms and conditions of the Plan.
The Board believed that each of the above factors generally supported
its determination and recommendation. The Board also considered and reviewed
with management potentially negative factors concerning the Plan, including
those listed below:
o there can be no assurance that the Company would be successful
in disposing of its assets for amounts equal to or exceeding
its estimates or that these dispositions would occur as early
as expected;
o our costs while executing the Plan may be greater than we
estimated;
o the fact that following the adoption of the proposed Plan and
the sale of our assets, our stockholders will no longer
participate in any future earnings or growth from any
additional investments or from acquisitions of additional
assets except to the extent additional land may be acquired or
developed with respect to our existing residential development
projects;
o the potential that our stock price may decline or become more
volatile, due to the existing illiquidity of our Common Shares
and our gradual liquidation of our assets and the distribution
of proceeds from these liquidations;
o if we establish a liquidating trust, the trust will provide
for a prohibition of the transfer of trust interests subject
to certain limited exceptions;
15
o the actual or potential conflicts of interest which certain of
our executive officers and directors have in connection with
the liquidation, including those specified under the heading
"Introduction -- Risk Factors" and "Proposal 1 -- Certain
Transactions and Possible Effects of the Approval of the Plan
of Liquidation Upon Directors and Officers," such as certain
severance payments and the sale of the Beekman Properties to
the Beekman Acquirors;
o the costs to be incurred by the Company including significant
accounting, financial advisory and legal fees in connection
with the liquidation process;
o the possibility that stockholders may, depending on their tax
basis in their stock, recognize taxable gains (ordinary and/or
capital gains) in connection with the completion of the
liquidation; and
o the fact that no fairness opinion with respect to the
liquidation was obtained, nor were there any formal
third-party appraisals (other than for the Beekman Properties)
made of our assets to determine their liquidation value.
The above discussion concerning the information and factors considered
by the Board is not intended to be exhaustive, but includes the material factors
considered by the Board in making its determination. In view of the variety of
factors considered in connection with its evaluation of the Plan and the
proposed liquidation, the Board did not quantify or otherwise attempt to assign
relative weights to the specific factors it considered. In addition, individual
members of the Board may have given different weight to different factors and,
therefore, may have viewed certain factors more positively or negatively than
others.
BACKGROUND
On May 19, 2005, the Board unanimously voted to adopt and recommend the
Plan and a 1-for-100 reverse stock split and 100-for-1 forward stock split
(together, the "Stock Split") to stockholders, to be voted on at the Company's
2005 Annual Meeting. The purpose of the Stock Split was to terminate our
registration and periodic reporting obligations under the Exchange Act of 1934
(the "Exchange Act"), terminate the AMEX listing of our Regular Common Shares,
and continue future operations as a non-public company. As a result of these
actions, our Board and management expected that the Company would be relieved of
significant costs, administrative burdens and compliance obligations associated
with operating as a listed public company. On September 12, 2005, the Board
unanimously voted to abandon the Stock Split. The background of the Board's
decisions is as follows:
For the past few years, the Company has followed a plan of selling
assets, retiring debt and maximizing cash. In the context of this general plan
and market conditions, management has considered alternatives to maximize
stockholder value.
On February 13, 2004, Third Avenue Management LLC ("Third Avenue")
converted its previous ownership filing on Schedule 13G to a filing on Schedule
13D. Third Avenue filed a Schedule 13D because it had been contacted by a third
party interested in discussing a possible acquisition of the Company's Common
Shares beneficially owned by Third Avenue's clients in a transaction which could
include an acquisition of all of the Company's outstanding securities. Third
Avenue indicated in its Schedule 13D filing that it did not intend for the
Schedule 13D filing to be interpreted as an indication that Third Avenue changed
its position with respect to being supportive of management or that Third Avenue
had initiated discussions concerning a potential transaction. Third Avenue
stated that the Schedule 13D filing was intended to provide it with the
flexibility to listen to and discuss these proposals with the respective third
parties and with management of the Company, as a means of fulfilling its
fiduciary duties to its clients.
On February 17, 2004, Kensington Investment Group, Inc. ("Kensington")
converted its previous ownership filing on Schedule 13G to a filing on Schedule
13D. Kensington had also been contacted by the same third party that contacted
Third Avenue. The third party had indicated that it was interested in discussing
a possible acquisition of the Company's Common Shares beneficially owned by
Kensington's clients in a transaction which could include an acquisition of all
of the Company's outstanding securities. In addition, Kensington indicated that
it had discussed the third-party contact with one other stockholder. Kensington
indicated in its Schedule 13D filing that it did not intend for the Schedule 13D
filing to be interpreted as an indication that Kensington changed its position
with respect to being supportive of management of the Company or that Kensington
had initiated discussions concerning a potential transaction. Kensington stated
that the Schedule 13D was intended to provide it with the flexibility to listen
to and discuss these proposals with the respective third parties and with
management of the Company, as a means of fulfilling its fiduciary duties to its
clients.
16
From February 13, 2004 through March 16, 2004, the Company's management
considered the various issues raised by the Schedule 13D filings and consulted
with Bryan Cave LLP ("Bryan Cave"), the Company's outside counsel, and Willkie
Farr & Gallagher LLP ("Willkie Farr"), the Company's special counsel. On
February 19, 2004, the Company's Chairman and one of its directors met with
Third Avenue to discuss its Schedule 13D filing. At this meeting, and during
subsequent conversations with management, Third Avenue indicated its interest in
obtaining liquidity for its investment in the Company. At Third Avenue's
request, management had several conversations and meetings with the CEO of First
Union Real Estate Equity and Mortgage Investments ("FUR"), the third party that
had contacted Third Avenue and Kensington. Between February 13, 2004 and March
16, 2004, the Company's management met with the CEO of FUR three times with
representatives of Bryan Cave in attendance. The Company and FUR reviewed each
other's assets and liabilities, properties, business operations and perceived
business opportunities.
On March 16, 2004, the Board held a meeting and reviewed the Schedule
13D filings and the reasons the filers expressed for making these filings. The
two Schedule 13D filers held at that time approximately 2.5 million (or 39%) of
the Company's 6.45 million outstanding Common Shares. It was noted at the time
that the Company's public trading volume averaged approximately 3,000 shares
daily. In addition, the Board reviewed the Company's existing equity and debt
capitalization including the specific names and total shareholdings of its 17
largest common stockholders who in the aggregate held approximately 5.77 million
shares (or 92%) of the outstanding Common Shares. Also, the Board reviewed the
terms and conditions of the Company's outstanding $25 million 8.25% convertible
trust preferred securities issue (the "Convertible Trust Preferred Securities")
which was convertible into an additional 1,123,696 additional Regular Common
Shares at $22.248 per share. It was further noted that on three previous
occasions over the last five years, the Company had purchased a total of
approximately 4 million Regular Common Shares from stockholders.
The Board also discussed with counsel various matters, including: (i)
relevant provisions of the Maryland Business Combination Act and various
provisions within the Company's Charter and bylaws relating thereto; (ii)
various procedures relating to corporate liquidations and self-tenders; and
(iii) various covenants in the Company's Indenture Agreement relating to the
outstanding Convertible Trust Preferred Securities. Management then presented
the following five alternatives that initially should be examined in order to
maximize stockholder value in a responsible way: (a) continuing business
operations as they existed; (b) repurchasing approximately 1.95 million Regular
Common Shares held by Third Avenue; (c) entering into a business combination;
(d) undertaking a corporate liquidation, or (e) some combination of these
alternatives. Management also discussed with the Board its belief that it would
be worthwhile to discuss possible business opportunities with other third
parties and consider other strategic alternatives and that the Company was
requiring any party who wanted to have substantive discussions with the Company
to execute a confidentiality agreement. Management reported to the Board that as
of that date, four parties, including FUR, had executed confidentiality
agreements. Management informed the Board that it would continue to sell assets
owned by the Company and its joint ventures in the ordinary course of their
businesses and as appropriate prices could be obtained.
Management advised the Board that it had been consulting with Bryan
Cave and Willkie Farr as special counsel, and Venable LLP ("Venable"), the
Company's Maryland counsel, regarding all strategic alternatives and their
respective legal implications. The Board also directed management to retain a
financial advisor to assist in evaluating the strategic alternatives, with a
view to maximizing stockholder value. Based on prior informal conversations with
Board members regarding the retention of a financial advisor, management had
invited representatives of two investment banking firms to make presentations to
the Board at the meeting.
The representatives of the two investment banking firms then met with
the Board, described their background, experience and expertise, reviewed the
written materials they had distributed and responded to questions from the
Board. After the representatives of the two investment banking firms departed
the meeting, the Board authorized the Company to retain Lazard as the Company's
financial advisor. Bryan Cave and Willkie Farr responded to questions during the
meeting.
17
Between March 16, 2004 and May 19, 2004, management regularly met with
representatives from Lazard to construct financial models to value the Company's
assets and liabilities, analyze existing joint ventures and their covenants, and
evaluate a wide range of financial considerations. Also, management met and
consulted extensively with Bryan Cave regarding the legal and tax implications
of the various strategic alternatives and met with representatives from Ernst &
Young regarding certain tax issues. Specifically, management requested that
Bryan Cave explore the positive and negative legal implications, consequences,
processes and procedures relating to the Company's strategic alternatives and
methods of obtaining value for the Company's substantial net operating losses.
Management, on an informal but periodic basis, updated Board members on these
discussions with Lazard, its legal counsel and its accountants. Also during that
time, management spoke to or met with representatives from several of the
parties who had executed confidentiality agreements. During this period,
management determined that to maintain or increase the Company's value, the
Company would have to reinvest the proceeds from recent and ongoing sales, raise
additional capital and realize the value from new investments.
On March 22, 2004, the Company announced that Wellsford/Whitehall, of
which the Company is a member, had withheld partial payment on a venture debt
(the "Nomura Loan") in order to initiate a dialogue with the special servicer of
this obligation. On April 13, 2004, the Company announced that the same venture
sold an office building for $18.4 million. On May 4, 2004 the Company announced
that it sold an office building it owned directly for $2.7 million and 10
condominium units at the Silver Mesa phase of Palomino Park for $2.3 million
during the first quarter of operations.
On May 19, 2004, the Board held a meeting at which Lazard reported on
its activities since being retained, reviewed the Company's current economic and
financial condition, reviewed asset valuations and alternatives to monetize such
assets, and reviewed issues and benefits relative to the various strategic
alternatives being considered, with particular emphasis on the value of the
Company's interests in Palomino Park, Wellsford/Whitehall and Second Holding and
the Company's business alternatives with respect to such assets. Lazard also
indicated its belief that the restrictive nature of the agreements governing the
aforementioned investments could potentially negatively impact sales values.
Management reported to the Board about their previous discussions with Bryan
Cave regarding the legal and tax implications of the various strategic
alternatives including, but not limited to, a reverse stock split followed by a
modified Dutch auction which would result in deregistration of the Regular
Common Shares from the Exchange Act and delisting from the AMEX, the increased
costs of operating as a public company since the adoption of the Sarbanes-Oxley
Act of 2002, and the limited transferability of the Company's net operating
losses. The Board authorized Lazard to speak to some of the Company's largest
stockholders and to prepare a confidential information memorandum and other
written materials for discussions with third parties regarding possible business
combinations. The Board, however, did not make any decision regarding the
strategic alternatives. Bryan Cave, Willkie Farr and Lazard responded to
questions during the meeting.
Following the May 19, 2004 Board meeting, Lazard prepared a
confidential information memorandum for distribution to select parties that
management and Lazard believed might be interested in, and capable of
completing, a business combination with the Company. On July 24, 2004, Lazard
distributed the confidential information memorandum to 12 interested parties,
all of whom had signed confidentiality agreements. Lazard requested initial
responses from the parties by August 13, 2004. After July 24, 2004, management
responded to questions raised by various parties who received the confidential
information memorandum.
Between May 19, 2004 and August 12, 2004, management continued
discussions with its joint venture partners in Wellsford/Whitehall relating to
the sale of venture assets subject to existing agreements. On July 28, 2004, the
Company announced that Wellsford/Whitehall had transferred six office properties
and a land parcel to one of the partners in this venture. With this transfer
came the elimination of a tax indemnity which restricted most future asset sales
of Wellsford/Whitehall through 2007 and simultaneously resolved the outstanding
negotiations with the special servicer of the Nomura Debt discussed above. On
August 3, 2004, the Company announced the sale of 19 Silver Mesa condominiums
for $4.7 million during the second quarter of operations and that one partner in
Second Holding would not approve the purchase of any further investments. The
Company's management and its other partners began to evaluate the alternative
business strategies available to Second Holding, including holding its existing
approximately $1.466 billion of investment grade rated securities maturing
principally through April 2010.
18
On August 12, 2004, the Board held a meeting at which representatives
from Lazard discussed their activities since the last Board meeting in May 2004.
Specifically, Lazard reported on their initial discussions with some of the
Company's largest stockholders (who generally expressed respect for management
but frustration with the Company's stock price), its marketing efforts and
discussions with third parties regarding a potential merger, sale or investment
in the Company, and its evaluation of the Company's strategic alternatives. In
addition, Lazard discussed specific asset valuations and the valuation of the
Company as a whole that were provided by management and updated the Board on
issues and benefits relating to various strategic and cash distribution
alternatives. As part of its presentation, Lazard discussed the sensitivity
analysis of cash distributions to stockholders, which was based on management's
projections with respect to the possibility of a near-term liquidation and
liquidation over a longer period of time. The Board also considered Lazard's
discussion on the sensitivity analysis of stockholder returns, which was based
on management's projections. The sensitivity models were designed by and
mathematically compiled and computed by Lazard and based on parameters jointly
selected by management and Lazard which took into account various discount
rates, the range of management values that might be obtained in liquidation and
the length of time to complete the Company's liquidation. The Board made
inquiries of the sources of financial information and reviewed for accuracy and
completeness the information provided by management and found Lazard's reliance
on such information to be reasonable. Representatives of Lazard reported that
they had distributed the confidential information memorandum to 12 parties who
indicated initial interest in a transaction with the Company and that three
additional interested parties were not distributed the confidential information
memorandum because they were only interested in specific strategic business
units or assets. In addition, Lazard also reported that it was not yet clear
whether the interested parties would ascribe a higher value to the Company than
the value management ascribed to the Company. Lazard indicated that if the
responses did not ascribe a higher value to the Company, other alternatives to
maximizing stockholder value should be evaluated. Also at this meeting, the
Board had a general discussion regarding ways in which the Company could return
some of its excess cash to its stockholders, including a special dividend,
self-tender and the buy-back of some of its outstanding Common Shares. The Board
also discussed the implication of the Company's terminating its registration and
periodic reporting requirements under the Exchange Act and delisting its Regular
Common Shares from the AMEX as proposed by management. Bryan Cave, Willkie Farr
and Lazard responded to questions during the meeting.
Between August 12, 2004 and October 1, 2004, management continued to
market and sell properties and negotiate with its several remaining venture
partners. On September 14, 2004, the Company announced that through its
Clairborne Fordham venture ("Clairborne Fordham"), a joint venture with an
affiliate of Prudential Life Insurance Company, it had executed an agreement
with the owners of Fordham Tower, a 50-story condominium project in Chicago, to
obtain title to all the project's unsold apartment units, its attached parking
garage and accompanying commercial rental space in full satisfaction of an
outstanding loan. It was the intention of Clairborne Fordham to complete the
orderly sale of the remaining components of Fordham Tower.
On October 1, 2004, the Board held a meeting at which representatives
of Lazard reported on the status of their activities since the August 2004 Board
meeting. During such time, Lazard had obtained responses from some of the
interested parties for a potential merger, sale or investment in the Company. It
indicated that six additional parties expressed initial interest in the Company,
four of whom had signed the confidentiality agreement and received the
confidential information memorandum. The other two interested parties were not
distributed the confidential information memorandum because they expressed
initial interest only in specific strategic business units or assets. Two of the
16 parties to whom Lazard distributed the confidential information memorandum
submitted cash offers for the entire Company and one party submitted a bid for
Palomino Park only. Lazard reported that the two offers for the entire Company
of $14.74 per share and $14.39 per share, which were not firm offers because
they were subject to further due diligence, were near the low end of
management's near-term liquidation value range of $14.28 to $18.95 per share and
less than the low end of management's medium-term valuation range of $16.49 to
$21.46 per share. The Company's near-term liquidation value range assumed the
total liquidation of our assets within one year whereas the Company's
19
medium-term liquidation value range assumes the orderly liquidation of our
assets, in some case, as they are developed, over the course of three years.
Management arrived at these valuation ranges in the manner described under the
caption "Proposal 1 -- Expected Distributions -- Calculation of Estimated
Distributions." In light of management's estimated liquidation valuations, the
Board concluded that none of the offers sufficiently maximized stockholder value
because they were lower than management's estimates of net proceeds derived from
a liquidation and that the Company should continue the sale of individual
assets. The Board authorized management and Lazard to explore further certain
offers. In addition, representatives of Lazard reviewed management's updated
projections (which Lazard did not independently verify) regarding the valuation
of the Company's assets, and the Company as a whole, and discussed with the
Board alternatives for use of the Company's approximately $82 million of cash
and U.S. Government securities (amount as of September 30, 2004) in connection
with its ongoing business operations and investments. The Board made inquiries
of the sources of financial information and reviewed for accuracy and
completeness the information provided by management and found Lazard's reliance
on such information to be reasonable. There was also a discussion of the
Company's future capital requirements if it continued as an operating company as
well as ways in which it could return some of its available cash to its
stockholders. Bryan Cave, Willkie Farr and Lazard responded to questions during
the meeting.
Between October 1, 2004 and November 17, 2004, management continued to
work with Lazard to respond to questions posed by various potential acquirers
and continued to consult with Bryan Cave regarding the tax ramifications of the
various strategic alternatives. Specifically, management sought ways in which it
might obtain value for the Company's substantial net operating losses in
connection with the pursuit of its strategic alternatives. In addition,
management explored with Bryan Cave the positive and negative legal
implications, consequences, processes and procedures relating to the Company's
strategic alternatives. On November 5, 2004, management executed an agreement to
sell its 51.09% interest in Second Holding to a group affiliated with one of its
venture partners subject to Board approval.
On November 17, 2004, the Board held a meeting at which representatives
from Lazard updated the Board on its activities. Lazard indicated that it had
received an additional offer for the entire Company for $12.29 per share in cash
and $4.21 per share in stock, increasing the number of offers received for the
entire Company to three. The additional offer was also made subject to further
due diligence and, therefore, was not a firm offer. The cash/stock combination
offer was contingent upon the Company retaining its interest in Second Holding,
which the Company had already contracted to sell, subject to obtaining Board
approval. The Board determined that the Company should reject the cash/stock
combination offer and proceed with the sale of Second Holding because the
cash/stock combination offer was also at the low end of the Company's revised
near-term liquidation range and because of the uncertainty with respect to the
intrinsic value of the stock being offered. Lazard also presented to the Board
some matters that should be considered for a potential plan of liquidation for
the Company. Ways in which the Company could return some of its available cash
to its stockholders were also discussed.
Between November 17, 2004 and January 27, 2005, management continued to
work with Lazard and the Company's outside counsel. On December 6, 2004, the
Company announced the sale of its entire interest in Second Holding.
On December 17, 2004, management of the Company met with
representatives of MacKenzie Partners, the Company's proxy solicitor, to review
the Company's stockholder list and the number of shares held by various
stockholders, with a view toward considering the appropriate ratio for a reverse
stock split to meet Exchange Act and AMEX regulations relating to deregistration
and delisting of the Company's Regular Common Shares.
On January 27, 2005, the Board held a meeting at which management set
forth the Company's business objectives during 2005, including the sale of the
remaining assets of the Wellsford/Whitehall joint venture, the continued
development of three residential projects, including the Gold Peak condominiums
and The Orchards and Claverack single family home projects, the possible sale of
the three rental phases of Palomino Park, reviewing new investment
opportunities, and continuing to review and pursue the various strategic
alternatives. Management considered such business plans to be consistent with
the Company's announced plans of selling assets, retiring debt and accumulating
cash. Representatives of Lazard then updated the Board on their activities since
the November 17, 2004 Board meeting and, once again, reviewed the Company's
strategic alternatives. The Board discussed the various strategic alternatives
in detail, but did not make a decision. In this regard, the Board also discussed
how best to accomplish terminating its registration and periodic reporting
requirements under the Exchange Act and delisting its Regular Common Shares from
the AMEX in the event that the Company adopted a plan of liquidation or
continued its present business operations, including a modified Dutch auction
20
tender offer. If such an auction were undertaken, management stated that they
would probably not tender their shares, thus potentially increasing their
ownership in the surviving entity. Management indicated that given the Company's
cash resources it could not acquire enough shares from a sufficient number of
stockholders to ensure that the tender offer alone would result in the Company
having less than 300 stockholders so that the Company could terminate its
registration and periodic reporting requirements under the Exchange Act.
Management indicated that the Company would need to effectuate a reverse stock
split, with or without a tender offer, in order to enable the Company to
terminate its registration and periodic reporting requirements under the
Exchange Act. The Board also discussed that indefinitely continuing the
Company's present operations as a public company, with its accompanying
Sarbanes-Oxley reporting requirements, could erode the value of the
stockholders' equity. Bryan Cave, Willkie Farr and Lazard responded to questions
during the meeting.
In February and March 2005, the Company had preliminary discussions
with another public company regarding a possible merger, but these talks did not
result in an offer. In the first quarter of 2005, after extensive consultation
with counsel and Lazard and consideration of a variety of options for maximizing
stockholder value, management increasingly considered recommending a plan of
liquidation accompanied by terminating its registration and periodic reporting
requirements under the Exchange Act and delisting its Regular Common Shares from
the AMEX. On February 1, 2005, the Company announced that Wellsford/Whitehall
had sold a portfolio of seven office buildings, one land parcel, and five
net-leased properties, leaving only three office buildings and a development
parcel in the venture. On March 15, 2005, the Company announced its intention to
redeem the outstanding $25 million Convertible Trust Preferred Securities and
its intent to repay $10.4 million of Palomino Park tax-exempt bonds in advance
of the May 2005 expiration of the credit enhancement. From January 1, 2004
through March 30, 2005, the Company sold $38.7 million of wholly owned assets
and investments and $172 million of properties by Wellsford/Whitehall.
On March 22, 2005, the Board held a meeting at which management
recommended consideration of a plan of liquidation and a reverse stock split.
Management advised that, based on current shareholdings, the intended effect
from the reverse stock split could be accomplished through a 1-for-100 reverse
stock split because the 1-for-100 ratio would allow the Company to cash out
odd-lot stockholders to reduce the number of stockholders to below 300.
Management based its recommendation for the reverse stock split in part upon the
Board's consideration, in its January 27, 2005 meeting, of the advantages and
disadvantages of various options to terminate its registration and periodic
reporting requirements under the Exchange Act. Management and Lazard reviewed
the recommendations with the Board. In addition, management and Bryan Cave
reviewed with the Board written materials prepared by Bryan Cave regarding the
legal and procedural issues relating to a possible liquidation, as well as
written materials prepared by Venable regarding the fiduciary obligations of the
Board in considering and evaluating the Company's strategic alternatives. The
Board discussed the advantages and disadvantages associated with the Company's
various strategic alternatives, including a Plan of Liquidation. Management was
instructed to ascertain how much cash could be available for distribution to
stockholders if such a Plan were adopted, and over what period of time and in
how many installments, would this cash could be made available. The Board
authorized management to continue consulting with the Company's counsel
regarding legal and procedural implications of these transactions and with
Lazard to finalize its analysis of the Company's strategic alternatives. In
addition, in order to obtain a better understanding of the disclosure that would
be required in connection with the pursuit of a plan of liquidation and a
reverse stock split, the Board directed Bryan Cave to prepare a draft Proxy
Statement. However, the Board did not make any decision regarding the adoption
of a plan of liquidation or a reverse stock split or the filing of a Proxy
Statement. Bryan Cave, Willkie Farr and Lazard responded to questions during the
meeting. Also the Board accepted management's recommendation to begin marketing
for the sale of the three rental phases of Palomino Park, which aggregate 1,184
rental units.
On May 19, 2005, the Board held another meeting. At the meeting, Mr.
Lynford noted that at the March 22, 2005 meeting there was a review and
discussion of written materials provided by Bryan Cave and Venable regarding the
liquidation process and the Board's fiduciary duties, respectively. Mr. Lynford
then reviewed with the Board the general features of the Plan, the estimated
liquidation value of the Company, the factors favoring adoption of the Plan, the
disadvantages of the Plan, the general purpose and features of the Stock Split
(and how it compared favorably to effectuating solely a reverse stock split
because among other reasons, obviated a need to exchange stock certificates),
the advantages and disadvantages of the Stock Split and other matters relating
to the Plan and Stock Split. He noted that the foregoing matters were previously
considered by the Board and are set forth in the draft of the Proxy Statement
previously distributed to the Board.
Also at the May 19, 2005 Board meeting, representatives from Lazard
reviewed with the Board the information in the written materials they prepared
and circulated in advance of the meeting. In this regard, Lazard's
representatives reviewed the services performed by Lazard; Lazard's observations
about the Company and its assets; Lazard's view of the benefits and
considerations associated with various strategic alternatives; the process
Lazard and the Company engaged in relating to a merger or sale of the Company;
the Company's cash distribution alternatives; a review of a possible range of
values of the Company's assets in a liquidation based on management's
projections and assumptions; and a sensitivity analysis with respect to the
timing and amount of the potential cash distributions to shareholders in a
liquidation based on management's projections and assumptions. The Board made
inquiries of the sources of the financial information and reviewed for accuracy
and completeness the information provided by management and found Lazard's
21
reliance on such information to be reasonable. Following the presentation made
by Lazard's representatives, the Board discussed the presentation and questioned
Lazard's representatives as well as management about the proposed Plan and the
proposed Stock Split. The Board determined, after discussions among themselves
and with Lazard and counsel, that a fairness opinion, which usually considers
the value of an entity or its assets in connection the sale of a going concern,
would not be an appropriate method to test the fairness of the Plan or the Stock
Split. Following such discussion, the Board voted unanimously in favor of the
Plan and the Stock Split and in favor of recommending to the stockholders the
Plan and the Stock Split, to be voted on at the Company's 2005 Annual Meeting,
In addition, the Board approved the form of Proxy Statement presented to it. The
Board also voted to amend the Company's bylaws to enable the Company to postpone
the Company's 2005 annual meeting, usually held in May of each year, until some
time during the period between September 25 to October 25, 2005.
With respect to the direct or indirect sale of the Beekman Properties
to Messrs. Lynford and Lowenthal (or an entity controlled by them), the
independent directors of the Board, at their May 19, 2005 meeting, met in
executive session without Messrs. Lynford and Lowenthal to discuss the merits of
the sale of the Beekman Properties. After considering the possible difficulties
in obtaining the necessary municipal approvals, the costs expended by the
Company to date and costs which may be required in the future, and the length of
time it might take to construct and sell residential units, the Board concluded
and unanimously agreed (without the votes of Messrs. Lynford and Lowenthal) that
(i) an independent third-party appraiser should be retained to appraise the
Beekman Properties; (ii) it was in the Company's interest to enter into a
contract with the Beekman Acquirors to establish the minimum amount of
consideration to be received by the Company in connection with the sale of the
Company's interests in the Beekman Properties pursuant to the Plan; (iii) the
price of the Beekman Properties would be equal to the higher of either the fair
market value (based on the appraiser's valuation and as confirmed by another
independent appraiser) or the total costs incurred by the Company with respect
to the Beekman Properties; and (iv) notwithstanding any contract of sale to be
entered into with the Beekman Acquirors, the Company should preserve the right
to accept higher offers from third parties should any offers be made prior to
stockholder approval of the Plan. The Board also determined that the Company
should also obtain a review appraisal of the third-party appraisal. As part of
the transaction, the Board also agreed to transfer the Deferred Compensation
Assets to an entity owning the Beekman Properties in connection with relieving
the Company of the Deferred Compensation Obligations.
Bryan Cave, Willkie Farr and Lazard responded to questions during the
meeting.
On May 26, 2005, the Board held a meeting at which it discussed the
abnormally high trading volume of its Regular Common Shares and the fact that
many of the trades were in lots of less than 100 shares. It was noted that since
only holders of less than 100 Regular Common Shares would be cashed out in
connection with the Stock Split, the purchase of Regular Common Shares in lots
of less than 100 shares could result in a substantial increase in the aggregate
payments made by the Company to holders of less than 100 Regular Common Shares
in connection with the Stock Split. It was also noted that these additional
payments would reduce the distributions to holders of 100 or more Common Shares
in connection with the Plan. Accordingly, the Board unanimously agreed to
reserve the right not to effectuate the Stock Split if the aggregate amount to
be paid to cash-out fractional shares exceeds $1 million.
On August 18, 2005, the Board held a meeting at which it discussed the
status of our progress in obtaining SEC approval of its proxy statement and the
status of negotiations relating to our interest in Wellsford/Whitehall being
redeemed by that entity. The Board also reviewed and unanimously approved
certain changes to the Plan which provided the Company with greater flexibility
in implementing and modifying the Plan and approved the redemption of its
interest in Wellsford/Whitehall for $8.3 million. In addition, management
reported to the Board regarding the progress that the Company had made in
connection with the sale of the rental phases of Palomino Park.
On September 12, 2005, the Board met and discussed with management the
status of the SEC's review of our proxy materials, the amount that might be
expended by the Company in connection with the Stock Split to cash out
22
fractional shares, and the status and timing of the sale of Palomino Park. Bryan
Cave discussed the status of the SEC's review of the proxy statement, noting
that the processing of the proxy statement with the SEC had been more complex
and was taking longer than expected because of the inclusion of the Stock Split
as one of the proposals. Bryan Cave also indicated that at this time, it could
not ascertain when the proxy statement would be available to be mailed to our
stockholders and when a stockholders' meeting could take place. Mr. Lynford
reminded the Board that the sale of the rental phases of Palomino Park is
subject to approval of the Plan by the Company's stockholders. Mr. Lynford also
indicated that any significant delay in the stockholders' meeting to approve the
Plan could jeopardize the sale of the rental phases of Palomino Park. Mr.
Lynford also reported that based on information received from its proxy
solicitor, we would spend significantly more to cash out the fractional shares
than the $1 million limit previously anticipated. In addition, he noted that in
preparation for the board meeting, management had sent to the Board, for their
review, a copy of the proxy statement deleting references to the Stock Split as
one of the proposals. Based on the foregoing, the Board determined that it would
be in the Company's best interest to abandon the Stock Split.
EXPECTED DISTRIBUTIONS
Timing and Amount
At present, we anticipate making a distribution in an amount ranging
from $12.00 to $14.00 per Common Share within 30 days after the closing of the
sale of the three rental phases of Palomino Park. On August 24, 2005, our
wholly-owned subsidiaries entered into an agreement to sell the three
residential phases of Palomino Park for $176 million to TIAA-CREF, a national
financial services organization. This agreement and the purchase price is
subject to the satisfactory completion, by September 23, 2005, of due diligence
by the purchaser. The sale is subject to the approval by the Company's
stockholders of the Plan. Our Board has not established a firm timetable for
distributions to stockholders. Under the terms of the Plan and the MGCL, we may
make one or more distributions from time to time, after providing for or
reserving for the payment of our obligations and liabilities, as we sell or
otherwise liquidate our assets. Alternatively, if the Board elects, we may
transfer our remaining assets to a liquidating trust and issue each stockholder
an interest, which may be certificated, in such liquidating trust. All
distributions will be paid to stockholders of record at the close of business on
the record dates to be determined by the Board, pro rata based on the number of
shares owned by each stockholder.
The final distribution from the Company to our stockholders, or
alternatively to a liquidating trust, is expected to be made, if possible, no
later than the third anniversary of the date on which our stockholders approve
the Plan. However, we cannot assure you that the final distribution of the
proceeds of all of our assets will be made in such time period.
Although we cannot be sure of the amounts, we currently believe that
you will receive cash distributions totaling in the range of about $18.00 to
$20.50 per Common Share. However, should actual circumstances differ from our
assumptions, you could receive more or less than that amount. The indicated
amount and timing of the distributions represent our current estimates, but it
is not possible to determine with certainty the aggregate net proceeds that may
ultimately be available for distribution to stockholders. See "Risk Factors."
The actual amount, timing of and record dates for stockholder distributions will
be determined by our Board in its sole discretion and will depend upon the
timing and proceeds of the sale of our remaining assets, and the amounts deemed
necessary by our Board to pay or provide for all of our liabilities and
obligations.
Calculation of Estimated Distributions
To estimate the amounts that may be available for distribution from the
liquidation proceeds, we estimated the costs of liquidation. We also estimated
general and administrative costs during the liquidation process. The payment of
the distributions is in each case subject to the payment or provision for
payment of our obligations to the extent not assumed by any purchasers of our
assets and any tax liabilities. We believe that we will have sufficient cash and
cash equivalents to pay all of our current and accrued obligations as a result
of cash from operations and asset sales. Furthermore, we believe that our
existing net operating and capital losses for Federal income tax purposes will
be sufficient and available to offset any Federal taxable income that we may
23
realize as a result of our liquidation. However, if contingent or unknown
liabilities exist, distributions to stockholders may be reduced or delayed.
Also, claims, liabilities and expenses will continue to accrue following
approval of the Plan, as the expenses that we have estimated for professional
fees and other expenses of liquidation are significant. These expenses will
reduce the amount of cash available for ultimate distribution to stockholders.
See "Risk Factors" for a more detailed discussion of these risks.
We base our estimates of the net proceeds from the sale of the three
rental phases of Palomino Park upon a composite of sources, including
information from and discussions that we have had with local real estate
brokers, our analysis of comparable sales figures, and our internal budgets of
costs and operating expenses and other analyses. We base our estimates of the
net proceeds from the sale of the condominiums to be constructed at Gold Peak
upon a composite of a variety of sources, including information from and
discussions that we have had with local real estate brokers, our analysis of
comparable sales figures, and our internal budgets of costs and operating
expenses and other analyses. Our estimates of the net proceeds from the sale of
condominiums at Fordham Tower, from the sale of single family homes at The
Orchards and Claverack, and from the sale of Wellsford/Whitehall's remaining
assets (one office building and one vacant land parcel) are based on a similar
combination of considerations. Our estimates of the net proceeds from the sale
of the Beekman Properties is based upon the total costs incurred by the Company
with respect to the Beekman Properties. Our valuation of the Mantua Loan is
based upon our assumption that the note will be paid in full. The valuation of
our ownership interests in Reis assumes that Reis will be sold for an amount
such that the Company will receive an amount not less than its original
investment. Other than an appraisal of the Beekman Properties, which is attached
as Appendix B, we neither have obtained nor will obtain formal independent
appraisals of the fair market value of our properties or any fairness opinions
with respect to the liquidation. The most significant factor which will affect
the total liquidation value of the Company is the sales price of the rental
residential phases of Palomino Park.
Uncertainties Relating to Estimated Distributions
Our estimates of potential distributions were prepared solely for
planning purposes. The preparation of these estimates involved judgments and
assumptions with respect to the liquidation process that, although considered
reasonable at the time by management, may not be realized. We cannot assure you
that actual results will not vary materially from the estimates. As we have
disclosed under "Risk Factors," certain examples of uncertainties that could
cause the aggregate amount of distributions to be less or more than our
estimates include the following:
o The agreement to sell the three rental phases of Palomino Park
for $176 million is subject to the purchaser completing its
due diligence and the purchaser may, for any reason, negotiate
to reduce the purchase price or terminate the agreement prior
to September 23, 2005.
o The value of our assets and the time required to sell our
assets may change due to a number of factors beyond our
control, including market conditions in the residential real
estate market and the length of time it takes to develop or
sell our residential real estate projects.
o The sale of undeveloped land at Gold Peak and The Orchards to
another developer, and the sale of our joint venture interest
in Claverack to our partner in that venture, would likely
result in net proceeds less than we would have realized from
the sale of completed residential units at such projects;
however, proceeds from the sale of undeveloped land and our
joint venture interest would likely be received sooner than
the proceeds from the sale of completed units and the Company
would likely incur less aggregate general and administrative
costs.
o The redemption by Wellsford/Whitehall of our entire interest
in Wellsford/Whitehall, a joint venture in which we have a
35.21% equity interest, may not be finalized, or if finalized,
the proceeds may be less than the approximately $8.3 million
currently anticipated.
o Our estimate of distributable cash resulting from our
liquidation is based on estimates of the costs and expenses of
the liquidation and operating the Company. If actual costs and
expenses exceed or are less than such estimated amount,
aggregate distributions to stockholders from liquidation could
be less or more than estimated.
24
o If properties are not sold by the times and at prices we
currently expect, the liquidation may yield distributions less
than or greater than the recent market prices of the Common
Shares.
o There is no assurance that Reis will be sold as an entity to a
third party. Because of transfer restrictions and the fact
that we only own a minority interest (a portion of which is
held through a partnership), if we cannot liquidate our
ownership interests in Reis as part of a sale of Reis, we may
have to sell our ownership interest in Reis to a third party
at an amount that cannot be readily ascertained.
Alternatively, after the expiration of three years (or
earlier, if our Board determines that it is in the best
interest of the Company), our ownership interests in Reis,
together with any other remaining assets, may be contributed
to a liquidating trust from which distributions would
subsequently be made.
o If liabilities, unknown or contingent at the time of the
mailing of this Proxy Statement, later arise which must be
satisfied or reserved for as part of the Plan, the aggregate
amount of distributions to stockholders as a result of the
Plan could be less than estimated.
o Delays in consummating the Plan could result in additional
expenses and result in actual aggregate distributions to
stockholders less than our estimated amount.
o If the Company experiences a "change in control," as defined
under the Internal Revenue Code, during the liquidation
period, it is possible that certain limitations on the use of
loss carryforwards could cause the Company to incur some
regular U.S. Federal income tax on the disposition of its
assets occurring after such change in control.
We do not anticipate updating or otherwise publicly revising the
estimates presented in this document to reflect circumstances existing or
developments occurring after the preparation of these estimates or to reflect
the occurrence of anticipated events. The estimates have not been audited,
reviewed or compiled by independent auditors.
MODIFICATION OF PLAN OF LIQUIDATION; NO FURTHER STOCKHOLDER ACTION REQUIRED
Notwithstanding approval of the Plan by the stockholders of the
Company, our directors or the trustees of any liquidating trust may modify or
amend the Plan without further action by or approval of our stockholders to the
extent permitted under then-current law. However, in the event that a
modification or amendment to the Plan would represent a material change to the
intent of the Plan, we would seek further stockholder approval of such material
change, which approval would only require the approval of a majority of the
holders of outstanding Common Shares. Our directors may also, at their
discretion, abandon the Plan even after it has been approved by our
stockholders.
Once our stockholders have approved the Plan, no further stockholder
action will be required to sell the remainder of our assets and to make the
distributions described in the Plan. Furthermore, if our stockholders approve
the Plan, the Board will have the authority to sell any and all of the Company's
assets on such terms as the Board determines appropriate, subject to the
provisions of the Plan. Notably, our stockholders will have no subsequent
opportunity to vote on such matters and will, therefore, have no right to
approve or disapprove the terms of such sales.
HOW STOCK OPTIONS WILL BE AFFECTED BY DISTRIBUTIONS MADE UNDER THE PLAN
No liquidating distributions will be made to our option holders.
However, the exercise price of options held by certain of our option holders may
be reduced, and certain other adjustments to such options may be made, including
an increase in the number of options outstanding, to account for the reduction
in value of the Common Shares as a result of cash distributions made to
shareholders, including the Initial Distribution. In such case, adjustments will
be undertaken to prevent the dilution of benefits for the options in accordance
with applicable federal tax laws and regulations and the relevant provisions of
the option plans pursuant to which such options were issued.
25
CANCELLATION OF COMMON SHARES
Our final distribution, which may be either in cash or in the form of
trust certificates representing interests in a liquidating trust, will be in
complete redemption and cancellation of our outstanding Common Shares. Upon such
final distribution, you may be required to surrender your share certificates. If
we cannot make distributions to a stockholder because mail is not deliverable to
the last known address of that stockholder on the stockholder list we or our
transfer agents maintain, we will hold the funds subject to unclaimed funds or
escheat statutes of the state of the stockholder's last known address. If such
state does not have an escheat law, the law of Maryland will govern. If a
stockholder does not claim such funds within the statutory period, the funds may
escheat to the state.
STEPS TAKEN CONSISTENT WITH THE PLAN
Consistent with the Company's plan to sell assets, retire debt and
accumulate cash to enhance its business options, and with due consideration of
its on-going evaluation of its strategic alternatives, the following
transactions have been consummated and the following actions taken, all of which
the Board believes to have been in the best interests of the Company and
consistent with the proposed Plan:
o The sale by the Company in November 2004 of its entire
interest in Second Holding, a joint venture special purpose
finance company, organized to purchase investment and
non-investment grade rated real estate debt instruments and
investment grade rated other asset-backed securities.
o The sale by Wellsford/Whitehall, on January 21, 2005, of five
retail stores.
o The sale by Wellsford/Whitehall, on January 27, 2005, of seven
office properties and a land parcel.
o The sale by Wellsford/Whitehall, in April and May 2005, of two
office properties.
o The redemption by the Company, on April 6, 2005, of $25
million of Convertible Trust Preferred Securities held by an
affiliate of Equity Residential Trust ("EQR"). The Company
utilized a portion of its available cash to complete the
transaction. The securities were issued in May 2000, had an
interest rate of 8.25% per annum and were convertible into
1,123,696 Common Shares at $22.248 per share.
o On April 6, 2005, the Company obtained development and
construction financing for the construction of 259 condominium
units at Gold Peak. The aggregate amount of the development
and construction loans is $28.8 million. The loans bear
interest at LIBOR + 1.65% per annum and mature in May 2008
with respect to the construction loan and September 2006 with
respect to the development loan, both of which have additional
extension options, subject to the satisfaction of certain
conditions being met by the borrower.
o The Company began development and construction of the Gold
Peak property with the intention of closing condominium sales
commencing in 2006. As of August 31, 2005, the Company has
entered into contracts to sell a total of [___] condominium
units at an aggregate sales price of approximately [___]. We
can give no assurance as to the number of units that will be
sold pursuant to these contracts.
o The Company proceeded with development of residential housing
units at The Orchards and Claverack with the intention of
commencing sales at these developments in 2006.
o In April 2005, the Company exercised its contingent purchase
option on a parcel of land contiguous to the Orchards, which
could be used to develop an additional 60 single family homes.
However, the seller at this time cannot deliver the parcel in
accordance with the terms and conditions of the agreement.
Therefore, until such time as the seller can remedy specific
issues under dispute, we are not obligated to complete the
purchase of the property.
26
o The Company, in April 2005, retained a real estate brokerage
firm to market and sell the three rental phases of Palomino
Park.
o The Company, on May 2, 2005, repaid the $10.4 million Palomino
Park tax-exempt bonds.
o The independent members of the Board approved the direct or
indirect sale of the Company's interests in the Beekman
Properties to the Beekman Acquirors and the transfer of the
Deferred Compensation Assets to an entity owning the Beekman
Properties in connection with relieving the Company of the
Deferred Compensation Obligations in an amount equal to the
Deferred Compensation Assets.
o On August 24, 2005, our wholly-owned subsidiaries entered into
an agreement to sell the three residential phases of Palomino
Park for $176 million to TIAA-CREF, a national financial
services organization. This agreement and the purchase price
is subject to the satisfactory completion, by September 23,
2005, of due diligence by the purchaser. The sale is also
subject to approval of the Plan by the Company's stockholders.
o An agreement with Wellsford/Whitehall, a joint venture in
which we have a 35.21% equity interest, for it to redeem our
entire interest in that entity for approximately $8.3 million.
The consummation of the transaction is subject to final
negotiation and execution of documents. This transaction is
expected to close before the end of the year.
In connection with the proposed purchase of the Beekman Properties (or
of the interests in an entity that owns the Beekman Properties) by the Beekman
Acquirors, a committee consisting of all of the independent directors, Bonnie R.
Cohen, Douglas Crocker II, Meyer "Sandy" Frucher, and Mark S. Germain, have
retained an independent, third party appraiser, to value the Beekman Properties,
which will be sold at a price equal to the greater of either (i) the fair market
value of the Beekman Properties, based on an appraisal conducted by an
independent appraiser retained by the independent members of our Board (and as
confirmed by another independent appraiser) or (ii) the total costs incurred by
the Company with respect to the Beekman Properties (which through August 31,
2005, aggregated approximately $1.1 million, an amount greater than the
appraised fair market value).
DISSOLUTION
No later than three years from the date our stockholders approve the
Plan, we will file Articles of Dissolution with the Maryland SDAT to dissolve
the Company. The Board, however, reserves the discretion and authority to file
the Articles of Dissolution at an earlier date, subject to the final liquidation
of the Company's assets or to the transfer of the Company's remaining assets
into a liquidating trust. The dissolution will become effective upon acceptance
for record of the Articles of Dissolution by the SDAT and our obtaining a tax
clearance certificate from the SDAT. Although we intend to wind up our affairs,
pay or provide for all of our debts and liabilities before we file our Articles
of Dissolution, under the MGCL, even after we file Articles of Dissolution, we
will continue to exist for the purpose of winding up our affairs by marshalling
our assets, selling or otherwise transferring assets which are not to be
distributed in kind to our stockholders, paying our debts and other liabilities
and doing all other acts incident to liquidation of our business and affairs.
However, after the Articles of Dissolution have been filed, we will not carry on
any other business.
TRANSFERABILITY OF SHARES; AMEX LISTING
We anticipate that the market price of our Common Shares will decline
as we make liquidating distributions to our stockholders. It is likely that AMEX
will consider suspending trading in or remove from listing our Regular Common
Shares, for among other reasons, if the aggregate market value of shares
publicly held is less than $1 million or if liquidation has been authorized. In
the event that AMEX acts to delist our Regular Common Shares, we, at present, do
not intend to interpose any objections. In the event that AMEX delisted our
Regular Common Shares, we could still be subject to the periodic reporting and
disclosure requirements of the Exchange Act.
27
We may close our stock transfer books at any time after the Articles of
Dissolution have been filed or after we have transferred all of our assets to a
liquidating trust and, in any event, will close our stock transfer books and
discontinue recording transfer of Common Shares on the earliest to occur of:
o the close of business on the record date fixed by the Board
for the final liquidating distribution,
o the close of business on the date on which our remaining
assets are transferred to a liquidating trust, or
o the date on which we cease to exist under Maryland law.
After the stock transfer books have been closed, certificates
representing Common Shares will not be assignable or transferable on the
Company's books except by will, intestate succession or operation of law. After
the final record date for the recording of stock transfers, the Company will not
issue any new stock certificates, other than replacement certificates.
LIQUIDATING TRUST
We may distribute our assets at any time into a liquidating trust. If
all of our assets are not sold or distributed prior to the third anniversary of
the approval of the Plan by our stockholders, we may transfer any assets not
sold or distributed, including any contingency reserve or other cash on hand, to
a liquidating trust. Furthermore, the Board and management may determine to
transfer assets to a liquidating trust in circumstances where the nature of an
asset is not susceptible to distribution (such as interests in real property,
securities in privately held companies, or promissory notes) or where the Board
determines that it would not be in the best interests of the Company and the
stockholders for the assets to be distributed directly to the stockholders at
the time. The Board may elect to distribute our assets to a liquidating trust
prior to the third anniversary of stockholder approval of the Plan if they
determine that the liquidating trust is in the best interest of the
stockholders. We anticipate that by distributing assets to the liquidating
trust, savings may result from reductions in the costs of (i) preparing certain
periodic reports required by, and complying with the rules and regulations of,
the SEC and the AMEX; (ii) state franchise taxes; (iii) audit and legal fees;
and (iv) other company costs.
If a liquidating trust is established, we would distribute to the then
holders of our Common Shares interests in the liquidating trust in proportion to
the number of Common Shares owned by such stockholders. This distribution would
be a taxable event to such stockholders. The sole purpose of the liquidating
trust would be to distribute or liquidate any remaining assets on terms
satisfactory to the liquidating trustees and, after paying any of our remaining
liabilities, distribute the proceeds of the sale of assets formerly owned by us
to the holders of the interests in the liquidating trust. The liquidating trust
will be obligated to pay any of our expenses and liabilities that remain
unsatisfied.
Approval of the Plan will constitute the approval by our stockholders
of the establishment of a liquidating trust if determined to be necessary or
appropriate by the Board, its appointment of one or more individuals to act as
trustee or trustees and the terms of any liquidating trust agreement adopted by
our Board. Our Board reserves the right to appoint, at its discretion, existing
Company officers or Board members to serve as trustees of the liquidating trust.
We anticipate that the Board will select trustees on the basis of the experience
of each individual or entity in administering and disposing of assets and
discharging liabilities of the kind to be held by the liquidating trust and the
ability of the individual or entity to serve the best interests of the holders
of trust interests. Stockholder approval of the Plan will also constitute
stockholder approval of any liquidating trust agreement with the trustee or
trustees on such terms and conditions as may be approved by the Board.
We anticipate that the trust agreements would provide that the trust
property would be transferred to the trustees immediately prior to the
distribution of interests in the trust to the Company's stockholders and that
the trust property would be held in trust for the benefit of the stockholder
beneficiaries subject to the terms of the trust agreement. In the discretion of
the trustees, the stockholders' interests in the trust may be represented by
certificates or by noting such interests in the trust's records, in which case
28
there would be no certificates or other tangible evidence of trust interests. No
stockholder will be required to pay any cash or other consideration for the
interests to be received in the distribution or to surrender or exchange Common
Shares in order to receive the interests, unless the interests in the trust are
certificated. In addition, we anticipate that the trust would be irrevocable and
would terminate after the earliest of (i) the date the trust property is fully
distributed, (ii) a majority in interest of the beneficiaries of the trust, or a
majority of the trustees, have approved the termination, or (iii) a specified
number of years have elapsed after the creation of the trust.
We do not anticipate that interests in the liquidating trust will be
freely transferable except in limited circumstances such as death of the holder
of trust interests. Therefore, the recipients of the interests in the
liquidating trust will not realize any value from these interests unless and
until the trust distributes cash or other assets to them, which will be solely
in the discretion of the trustees.
Our Board has not determined the detailed terms or structure for a
liquidating trust. The characteristics of any liquidating trust will be
determined by our Board at a future date depending on factors such as the number
and value of assets to be held by the liquidating trust and the number of
holders of interests in the liquidating trust.
OUR ADVISOR
Lazard has acted as our advisor since March 2004 in connection with the
evaluation of our strategic alternatives. They assisted us in analyzing and
evaluating our strategic alternatives, the implementation of such alternatives,
the valuation of the Company and creating financial models. Lazard is an
international investment banking firm headquartered in New York, New York.
CERTAIN TRANSACTIONS AND POSSIBLE EFFECTS OF THE APPROVAL OF THE PLAN OF
LIQUIDATION UPON DIRECTORS AND OFFICERS
Possible effects of the approval of the Plan of Liquidation upon directors and
officers
The approval of the Plan by our stockholders may have certain effects
upon our officers and directors, including those set forth below. A majority of
the members of the Board qualify as independent directors under the listing
standards of the AMEX, the Exchange Act, and the requirements of any other
applicable regulatory authority, including the SEC.
All of our current, and certain of our former, officers and directors
hold Regular Common Shares and/or options to acquire Regular Common Shares. In
addition, the Company's non-qualified deferred compensation trust holds Regular
Common Shares for the benefit of some members of management. On August 31, 2005,
our directors and officers, as a group, and our non-qualified deferred
compensation trust, under which some members of management are beneficiaries,
beneficially owned 6.3% of the Common Shares (exclusive of any options that may
have been exercisable as of August 31, 2005). Our directors and officers have
indicated that they intend to vote in favor of the Plan. The Company has
directed the trustee of the Company's non-qualified deferred compensation trust
to vote all of the Regular Common Shares held in the non-qualified defined
compensation trust in favor of all of the Plan.
In addition, the exercise price of options held by certain of our
option holders may be reduced, and certain other adjustments to such options may
be made, to account for the reduction in value of the Common Shares as a result
of cash distributions made to shareholders, including the Initial Distribution.
In such case, adjustments will be undertaken solely to prevent the dilution of
benefits for the options in accordance with the relevant provisions of the
option plans pursuant to which such options were issued.
No officer or director who served as an officer or director on the day
the Board adopted the Plan is party to an agreement with the Company providing
for compensation for a fixed term or for severance upon termination other than
Jeffrey H. Lynford, James J. Burns, William H. Darrow II, David M. Strong, and
Mark P. Cantaluppi. However, only the employment agreement between the Company
and Mr. Lynford has specific provisions applicable to the adoption of a plan of
liquidation by the Company's stockholders. For a description of the arrangements
between the Company and Mr. Lynford, see "Proposal 1 --Certain Transactions and
Possible Effects of the Approval of the Plan upon Directors and Officers: Effect
of Plan of upon senior management's employment agreements" and "Proposal 2
- --Employment Agreements"
29
The Board may confer other benefits or bonuses to the Company's
officers and employees, including Mr. Lynford who is also a director, in
recognition of their services to the Company based on the performance of
officers and employees, including performance during our liquidation process.
Although the matters set forth above may be deemed to give rise to a
potential conflict of interest with respect to the Board's adoption of the Plan,
the Plan was adopted by the unanimous vote of all of the directors, including
the directors believed by the Board to be independent. The Board determined that
no independent committee was required to review and approve the Plan because the
provisions of the Plan would affect all stockholders equally and none of the
Board members would benefit in a way that would be disproportionately different
than any other stockholder of the Company.
Effect of Plan of Liquidation upon senior management's employment agreements
Mr. Lynford's employment agreement contains provisions which grant him
certain benefits and payments, including, but not limited to, health, dental and
life insurance benefits and severance payments if he terminates his employment
in the event of a "change of control." The adoption of the Plan by the Board and
the Company's stockholders and the consummation of the transactions contemplated
by the Plan would constitute a "change of control" under Mr. Lynford's
employment agreement, which is discussed below. Furthermore, Mr. Strong's
employment agreement provides for certain payments to be made to him upon the
occurrence of certain events that are contemplated by the Plan.
In August 2004, the Company and Mr. Lynford entered into a Second
Amended and Restated employment agreement which provides, among other things,
that Mr. Lynford receive from January 1, 2005 until the expiration of the
agreement on December 31, 2007, a base salary of $375,000 per year and a minimum
annual bonus of $375,000. The employment agreement of Mr. Lynford contains
provisions which entitles him to certain benefits and payments, including, but
not limited to, health, dental and life insurance benefits, in the event he
terminates his employment agreement following a "change of control" (as defined
in his employment agreement and which definition includes adoption of a plan of
liquidation as a "change of control"). Accordingly, if the Plan is approved by
our stockholders, Mr. Lynford, if he elects to terminate his employment with the
Company, would be entitled to the payment of $643,000, which would otherwise be
due to him on January 1, 2008, and an amount equal to the balance of his salary
and minimum annual bonus (each payable at a rate of $375,000 per year) due to
him through December 30, 2007, plus the continued payment by the Company of
certain other benefits such as health, dental and life insurance premiums
through December 30, 2007. In addition, if there is a sale or series of sales of
Palomino Park having a value on the Company's financial statements equal to or
in excess of 80% of the value of Palomino Park on such financial statements, Mr.
Lynford will be entitled to receive $643,000, which would be in lieu of the
accelerated $643,000 payment described above. The closing of the sale of the
three rental phases of Palomino Park under the existing contract between our
subsidiaries and TIAA-CREF would entitle Mr. Lynford to receive the remaining
$643,000 payment.
In October 2004, the Company and Mr. Strong entered into a Third
Amended and Restated Employment Agreement which provides, among other things,
that Mr. Strong receive, effective January 1, 2005, a base salary of $205,500
per year, increased at the rate of 3% for 2006, and a minimum annual bonus of
75% of his base salary. The agreement expires on December 30, 2006. Mr. Strong
is also entitled to receive a lump sum special bonus payment of up to $1 million
based upon the level of the Company's return on its investment in the Palomino
Park project, above certain defined thresholds. Mr. Strong will also be entitled
to receive an additional lump sum bonus payment based upon the number of units
sold (at $1,000 per unit) as well as the amount equal to 5% of any Profit, as
defined in his employment agreement, in excess of $8,259,000 in the Gold Peak
portion of the Palomino Park project following the construction of the project
and the sale of all condominium units.
30
Purchase of Beekman Properties by the Beekman Acquirors
As described earlier, the Beekman Properties are comprised of two
contiguous parcels of land located in Beekman, New York. In February 2005, the
Company purchased one of the parcels, consisting of approximately ten acres, for
$650,000. In December 2004, we entered into a contract to purchase the second
parcel consisting of 14 acres contiguous to the first parcel, subject to
municipal site plan approval, for $1,080,000. Our $300,000 deposit under this
contract is secured by a first mortgage lien on the property.
Under the Plan, which you are being asked to approve, the Beekman
Acquirors will purchase the Beekman Properties (or our interests in entities
that own the Beekman Properties), which consists of a ten acre parcel and a
contract to acquire a contiguous 14 acre parcel. As part of the sale of the
Beekman Properties (or of our interests in entities owning the Beekman
Properties), the Beekman Acquirors shall also acquire the Deferred Compensation
Assets in connection with relieving the Company of the Deferred Compensation
Obligations in an amount equal to the Deferred Compensation Assets. To simplify
the structure and for tax purposes, the Company's Regular Common Shares
comprising the Deferred Compensation Assets may be transferred back to the
Company and canceled and the Company's obligations to make the distributions
with respect to such shares would then be evidenced by a written agreement to
satisfy those obligations as if such shares remained outstanding. The Beekman
Acquirors will be comprised of Jeffrey H. Lynford, the Company's Chairman, Chief
Executive Officer, President and director of the Company, and Edward Lowenthal,
a director and the former Chief Executive Officer and President of the Company,
or an entity controlled by them.
In connection with the proposed purchase of the Beekman Properties by
the Beekman Acquirors, the independent directors of the Board unanimously
approved a resolution to retain an independent, third party appraiser to value
the Beekman Properties. The committee of independent directors of Board approved
the sale of the Beekman Properties (or, in the alternative, of our interests in
an entity that owns the Beekman Properties) to the Beekman Acquirors at a price
equal to the greater of either (i) the fair market value of the Beekman
Properties, based on an appraisal conducted by an independent appraiser retained
by the independent members of our Board (and as confirmed by another independent
appraiser) or (ii) the total costs incurred by the Company with respect to the
Beekman Properties (which through August 31, 2005 aggregated approximately $1.1
million, an amount greater than the appraised fair market value). The appraisal
opinion, without the appraisal report, is attached as Appendix B and the review
appraisal confirming the independent appraisal, without exhibits, is attached as
Exhibit C.
The independent members of the Board determined that it would not be
necessary to obtain a fairness opinion regarding this transaction because
fairness opinions are typically rendered in the context of the sale of a going
concern and not in the direct or indirect sale of an asset such as real
property. Furthermore, the Board determined, after discussions among themselves
and with Lazard, that a fairness opinion, which usually considers the value of
an entity or its assets in connection the sale of a going concern, would not be
an appropriate method to test the fairness of this transaction. In addition, the
independent members of the Board determined that the appraisal rendered by an
independent third-party appraiser was an appropriate method to establish the
value of the Beekman Properties.
Directors' and officers' insurance
We intend to maintain an insurance policy for our officers, directors,
employees, agents and representatives against liability asserted against or
incurred by such persons in their capacity as such or arising from their status
as officer, director, employee, agent, or representative, and for actions taken
in connection with the Plan and the winding up of our affairs, which will
continue in effect for a period of up to six years following the completion of
the liquidation.
APPRAISAL RIGHTS OF STOCKHOLDERS
Under the MGCL, you are not entitled to any rights of appraisal or
similar rights in connection with the approval of the Plan.
31
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF LIQUIDATION
The following discussion summarizes the material U.S. Federal income
tax considerations that may be relevant to you as a result of the liquidation.
This discussion is based upon interpretations of the Internal Revenue Code,
Treasury regulations promulgated under the Internal Revenue Code, judicial
decisions, and administrative rulings as of the date of this Proxy Statement,
all of which are subject to change or differing interpretations, including
changes and interpretations with retroactive effect. The discussion below does
not address all U.S. Federal income tax consequences or any state, local or
foreign tax consequences of the liquidation. Your tax treatment may vary
depending upon your particular situation. Also, U.S. stockholders subject to
special treatment, including dealers in securities or foreign currency,
tax-exempt entities, subchapter S corporations, REITs, regulated investment
companies, persons who acquired our stock upon exercise of stock options or in
other compensatory transactions, banks, thrifts, insurance companies, persons
that hold our capital stock as part of a "straddle", a "hedge", a "constructive
sale" transaction or a "conversion transaction", persons that have a "functional
currency" other than the U.S. dollar, and investors in pass-through entities,
may be subject to special rules not discussed below. This discussion also does
not address the U.S. Federal income tax consequences of the liquidation to
holders of our capital stock that do not hold that stock as a capital asset.
This discussion assumes that the Company will make distributions pursuant to,
and in accordance with the Plan of Liquidation.
For purposes of this discussion, a U.S. stockholder means any of the
following: (1) a citizen or resident of the United States; (2) a corporation or
other entity taxable as a corporation created or organized under U.S. law
(Federal or state); (3) an estate the income of which is subject to U.S. Federal
income taxation regardless of its sources; (4) a trust if a U.S. court is able
to exercise primary supervision over administration of the trust and one or more
U.S. stockholders have authority to control all substantial decisions of the
trust, or if the trust has a valid election in effect under applicable U.S.
Treasury regulations to be treated as a U.S. stockholder; and (5) any other
person whose worldwide income and gain is otherwise subject to U.S. Federal
income taxation on a net basis.
If a partnership holds Common Shares, the tax treatment of a partner
will generally depend upon the status of the partner and the activities of the
partnership. This summary does not address the tax treatment for U.S. Federal
income tax purposes of partnerships or pass-through entities that hold Common
Shares or persons who hold their interests through such a partnership or
pass-through entity. Such persons are urged to consult their tax advisors.
This U.S. Federal income tax discussion is for general information only
and may not address all tax considerations that may be significant to a holder
of our Common Shares. You are urged to consult your own tax advisor as to the
particular tax consequences of the liquidation, including the applicability and
effect of any state, local or foreign laws and changes in applicable tax laws.
Tax Consequences to the Company
The sale of the Company's assets pursuant to the Plan will be taxable
transactions with respect to the Company to the extent that any gain or loss is
realized. The Company will realize gains or losses measured by the difference
between the proceeds received by them on such sale and the Company's tax basis
in the assets. For purposes of calculating a gain or loss, the proceeds received
by the Company will include the cash received by the Company, the amount of the
Company's indebtedness that is cancelled or assumed, and any other consideration
received by the Company for their assets. In general, it is anticipated that
during the winding-up period the Company will have sufficient current losses and
loss carryforwards to offset the expected income for regular Federal income tax
purposes. However, if the Company experiences a "change in control" (as defined
under the Internal Revenue Code) during the liquidation period, it is possible
that certain limitations on the use of loss carryforwards could cause the
Company to incur some regular federal income tax on the disposition of its
assets occurring after such change in control. In addition, the transfer of
certain Deferred Compensation Assets and Deferred Compensation Liabilities to an
entity owning the Beekman Properties would likely result in the loss of the
related compensation deduction to the Company, estimated to be an amount equal
to the value of the assets so transferred. However, since it has been estimated
that the Company currently has more net operating and capital loss carryforwards
available to it than the amount of income and gain expected to be realized
during the wind-up period, the value of the deferred compensation deductions, if
allowable to the Company, is remote, and the loss of such deduction would not
likely be materially detrimental to the Company.
32
Due to limitations on the use of net operating losses to offset
alternative minimum taxable income, the company may be liable for alternative
minimum tax during the winding-down period. In addition, the Company may be
subject to state income taxes to the extent that gains exceed losses for state
tax law purposes, but the Company does not anticipate that such taxes, if any,
will be significant except with respect to the sale of the three rental phases
of Palomino Park.
Tax Consequences to Stockholders
Generally, any gain or loss recognized by a U.S. stockholder of the
Company on the liquidation of the Company will constitute a capital gain or loss
so long as such U.S. stockholder holds his shares as a capital asset. In
general, the amount of gain or loss recognized by a U.S. stockholder on the
liquidating distribution by the Company will be measured as the amount by which
the cash (and value of any other property) received by such U.S. stockholder in
the liquidating distribution of the Company exceeds or is less than his tax
basis in the Common Shares redeemed in the liquidation.
Liquidating distributions to Stockholders will first be applied against
the total adjusted basis of each block of Common Shares and gain will be
recognized only after an amount equal to his or her adjusted basis in such block
of Common Shares has been fully recovered. For the purposes of this discussion,
a "block of Common Shares" means the number of Common Shares purchased by a U.S.
stockholder at any one time in a given transaction. Where a U.S. stockholder of
the Company owns more than one block of Common Shares and if he or she were to
receive a series of distributions in complete liquidation of the Company, each
distribution would be allocated ratably among the several blocks of Common
Shares owned by that U.S. stockholder in the proportion that the number of
shares in the particular block bears to the total number of Common Shares held
by that U.S. stockholder. Gain or loss must be computed separately with respect
to each block of Common Shares, and gain will be recognized with respect to a
block of Common Shares only after the adjusted basis of that block has been
recovered. Once the adjusted basis of a specific block of Common Shares has been
recovered, any subsequent distributions allocable to that block would be
recognized as gain in their entirety. Any losses resulting from the liquidation
would be recognized only after the Company has made its final liquidation
distribution.
Gain or loss recognized by a U.S. stockholder with respect to Common
Shares constituting capital assets in his or her hands will be characterized as
long-term capital gain or loss, provided such stockholder meets the one-year
capital gain holding period required under the Internal Revenue Code. In the
case of a U.S. stockholder other than a corporation, capital losses must be
offset against capital gains. Any net short-term and long-term capital losses of
U.S. stockholders other than a corporation are also allowed as a deduction
against ordinary income in any one year up to a maximum of $3,000. Any net
capital losses not allowed in one year can be carried over to subsequent years.
In the case of a corporate U.S. stockholder, capital losses can be used
only to offset capital gains. Corporations may generally carry back unused
capital losses three years and/or carry them forward five years.
Tax Consequences of Liquidating Trust
The Company may, at some point during the winding-up period, decide to
transfer its then assets subject to Company liabilities to a liquidating trust.
In that event, you will be treated as having received a liquidating distribution
equal to your share of the amount of cash and the fair market value of any asset
distributed to the liquidating trust, net of any accompanying liabilities. As
with other liquidating distributions described above, you will be required to
recognize a gain to the extent the value of such liquidating distribution is
greater than your basis in your stock notwithstanding that you may not currently
receive a distribution of cash or any other assets with which to satisfy the
resulting tax liability.
An entity classified as a liquidating trust may receive assets,
including cash, from the liquidating entity without incurring any tax. It will
be treated as a grantor trust, and accordingly will also not be subject to tax
on any income or gain recognized by it. Instead, you will be treated as the
owner of your pro rata portion of each asset, including cash, received by and
held by the liquidating trust. Accordingly, you will be required to take into
account in computing your taxable income your pro rata share of each item of
income, gain and loss of the liquidating trust.
33
An individual U.S. stockholder who itemizes deductions generally may
deduct his pro rata share of fees and expenses of the liquidating trust only to
the extent that such amount, together with the U.S. stockholder's other
miscellaneous deductions, exceeds 2% of his adjusted gross income. A U.S.
stockholder will also recognize taxable gain or loss when all or part of his pro
rata portion of an asset is disposed of for an amount greater or less than his
pro rata portion of the fair market value of such asset at the time it was
transferred to the liquidating trust. Any such gain or loss will be capital gain
or loss so long as the U.S. stockholder holds his interest in the assets as a
capital asset.
If the liquidating trust fails to qualify as such, its treatment will
depend, among other things, upon the reasons for its failure to so qualify. In
such case, the liquidating trust would most likely be taxable as a partnership.
If the Board avails itself of the use of a liquidating trust, it is anticipated
that every effort will be made to ensure that it will be classified as such for
Federal income tax purposes.
Consequences to Non-U.S. Stockholders
Generally, a non-U.S. stockholder's gain or loss from the liquidation
will be determined in the same manner as that of a U.S. stockholder. If a
non-U.S. stockholder's capital stock constitutes a "U.S. real property interest"
within the meaning of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA") or if the gain from the liquidating distributions is otherwise
effectively connected with a U.S. trade or business of the non-U.S. stockholder,
that non- U.S. stockholder will generally be subject to U.S. Federal income tax
with respect to any gain recognized in the liquidation. In the case of an
individual non-U.S. stockholder whose gain from the liquidating distributions is
not effectively connected with a U.S. trade or business, that tax will generally
be at capital gains rates. In addition, in the case of non-U.S. corporations,
the non-U.S. stockholder may be subject to applicable alternative minimum tax
and the possible application of the 30% branch profits tax. An applicable income
tax treaty may modify these consequences for a non-U.S. stockholder eligible for
treaty benefits and non-U.S. stockholders should consult with their tax advisors
regarding the possible application of such a treaty.
Our capital stock owned by a non-U.S. stockholder will generally not
constitute a U.S. real property interest if, at the time such non-U.S.
stockholder receives a liquidating distribution, our stock is regularly traded
on an established securities market and such non-U.S. stockholder has not held
more than 5% of the total fair market value of our capital stock at any time
during the five-year period ending on the date of receipt of the final
liquidating distribution. It is not known whether, at the time you receive the
final liquidating distribution, the Company's stock will be regularly traded on
an established securities market. Other exceptions may apply to treat the
capital stock you own as other than a "U.S. real property interest." This
discussion assumes that the Company's capital stock will constitute a U.S. real
property interest at the time of any liquidating distributions.
Any liquidating distributions paid to non-U.S. stockholders will be
subject to income tax withholding at the rate of 10% if our capital stock in the
hands of a non-U.S. stockholder constitutes a U.S. real property interest.
Because of the difficulties of determining whether a particular non-U.S.
stockholder's capital stock constitutes a U.S. real property interest, non-U.S.
stockholders should anticipate that 10% of each liquidating distribution will be
withheld and paid over to the Internal Revenue Service. A non-U.S. stockholder
may be entitled to a refund or credit against the non-U.S. stockholder's U.S.
tax liability with respect to the amount withheld, provided that the required
information is furnished to the Internal Revenue Service on a timely basis.
Non-U.S. stockholders should consult their own tax advisors regarding
the U.S. tax consequences of the liquidation, the FIRPTA rules, and withholding
tax considerations.
Backup Withholding
Unless you comply with applicable reporting and/or certification
procedures or are an exempt recipient under applicable provisions of the
Internal Revenue Code and Treasury regulations promulgated under the Internal
Revenue Code, you may be subject to backup withholding tax with respect to any
cash payments received pursuant to the liquidation. You should consult your own
tax advisors to ensure compliance with these procedures.
34
Backup withholding generally will not apply to payments made to exempt
recipients such as a corporation or financial institution or to a U.S.
stockholder who furnishes a correct taxpayer identification number or a non-U.S.
stockholder who provides a certificate of foreign status and provides other
required information. If backup withholding applies, the amount withheld is not
an additional tax but is credited against that stockholder's U.S. Federal income
tax liability.
Foreign, State and Local Income Tax
You may also be subject to foreign, state or local taxes with respect
to the liquidating distributions received from us pursuant to the plan. You
should consult your tax advisors regarding such taxes.
PROPOSAL 2 -- ELECTION OF DIRECTORS
The directors are divided into three classes, consisting of (i) three
members whose terms expire at the Annual Meeting, (ii) two members whose terms
expire at the 2006 Annual Meeting of Stockholders and (iii) one member whose
term expires at the 2007 Annual Meeting of Stockholders. At the Annual Meeting,
three directors will be elected to hold office until the 2008 Annual Meeting of
Stockholders and until their successors are duly elected and qualify. Douglas
Crocker II, Mark S. Germain and Jeffrey H. Lynford, who are presently directors
of the Company, are nominees for election as directors for such term. The terms
of Meyer "Sandy" Frucher and Bonnie R. Cohen expire in 2006. The term of Edward
Lowenthal expires in 2007.
The Nominating Committee of the Board has nominated each of the
following nominees based on various criteria, including, among others, a desire
to maintain a balanced experience and knowledge base within the Board, the
nominees' personal integrity and willingness to devote necessary time and
attention to properly discharge the duties of director, and the ability of the
nominees to make positive contributions to the leadership and governance of the
Company.
For information regarding the beneficial ownership of Common Shares and
Class A-1 Common Shares by the current directors of the Company, see "Security
Ownership of Certain Beneficial Owners and Management."
EXCEPT WHERE OTHERWISE INSTRUCTED, PROXIES SOLICITED BY THIS PROXY
STATEMENT WILL BE VOTED FOR THE ELECTION OF EACH OF THE BOARD'S NOMINEES LISTED
BELOW. Each such nominee has consented to be named in this Proxy Statement and
to continue to serve as a director if elected.
NOMINEES FOR ELECTION AS DIRECTORS
The following individuals have been nominated by the Board for election
as directors at the Annual Meeting based upon the review and recommendation of
the Nominating Committee:
Douglas Crocker II, age 65, has been a director of the Company since
May 1997. Mr. Crocker was Chief Executive Officer, President and a Trustee of
EQR, from March 1993 until December 31, 2002, and also served as Vice Chairman
of EQR from January 1, 2003 through May 2003. EQR is a real estate investment
trust ("REIT") that owns and operates residential properties and is the general
partner of ERP Operating Limited Partnership. Mr. Crocker remains very active in
the multifamily housing industry, serving on boards or committees of various
multifamily housing associations. Mr. Crocker is a past Trustee of the
Multifamily Council of the Urban Land Institute and former member of the Board
of Governors of NAREIT. Mr. Crocker is past chairman of the National Multi
Housing Council and on the Advisory Board of the DePaul University Real Estate
School. Mr. Crocker also serves as a director of the following companies in the
real estate industry: Reckson Associates, an office building REIT specializing
in the New York metropolitan area; Ventas, Inc., a leading healthcare related
REIT; Prime Group Realty Trust, an owner and operator of office and industrial
properties; Post Properties, a multifamily REIT; and Acadia Realty Trust, a REIT
which owns and operates shopping centers.
Mark S. Germain, age 54, has been a director of the Company since May
1997. Mr. Germain served as a trustee of the Wellsford Residential Property
Trust (the "Trust") from November 1992 until the consummation of its merger with
EQR in May 1997 (the "Merger"). For more than the past five years, he has been
employed by Olmsted Group L.L.C., which is a consultant to biotechnology and
other high technology companies. Mr. Germain also serves as a board member of
several privately-held biotechnology companies. He is a graduate of NYU School
of Law, cum laude, and Order of the Coif, and was a partner in a New York law
firm prior to his current activities.
35
Jeffrey H. Lynford, age 57, has been the Chairman of the Board and a
director of the Company since its formation in January 1997. Mr. Lynford has
also been the President and Chief Executive Officer of the Company since April
1, 2002. Mr. Lynford previously served as Chief Financial Officer ("CFO") of the
Company from June 2000 until December 2000 and as Secretary of the Company from
January 1997 to March 2002. Mr. Lynford served as the Chairman of the Board and
Secretary of the Trust from its formation in July 1992 until consummation of the
Merger. Mr. Lynford served as the CFO of the Trust from July 1992 until December
1994. Mr. Lynford currently serves as a trustee and vice-chairman of Polytechnic
University, Caramoor Center for Music and the Arts and is a trustee emeritus of
the National Trust for Historic Preservation.
THE BOARD'S RECOMMENDATION
THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF EACH NOMINEE
FOR DIRECTOR.
OTHER DIRECTORS
Information concerning the other directors whose terms of office
continue after the Annual Meeting is set forth below:
Bonnie R. Cohen, age 62, has been a director of the Company since June
2003. Ms. Cohen has been a principal of B R Cohen and Associates, a consulting
firm, since January 2002. From 1998 to 2002, Ms. Cohen served as Under Secretary
for Management of the U.S. Department of State where she was responsible for the
day-to-day operations of the State Department including all embassies,
personnel, finance, budget, information systems and consultant affairs. Prior to
assuming the position at the State Department, Ms. Cohen was Assistant Secretary
for Policy, Management and Budget at the U.S. Department of the Interior. Ms.
Cohen is also a director of Cohen and Steers Investment Company, a manager of
nine real estate mutual funds, the Washington Film Festival, Moriah Fund and
Friends of Art and Preservation in Embassies. Ms. Cohen received a Masters in
Business Administration from Harvard Business School.
Meyer "Sandy" Frucher, age 59, has been a director of the Company since
June 2000. Mr. Frucher has served as Chairman and Chief Executive Officer of the
Philadelphia Stock Exchange since June 1998 after serving on its Board of
Governors since September 1997. From 1988 to 1997, Mr. Frucher was Executive
Vice President-Development of Olympia & York Companies (U.S.A.) and coordinated
and oversaw all of Olympia & York's development projects in the United States.
From 1988 to 1999, Mr. Frucher was Trustee and then Chairman of the New York
City School Construction Authority. From 1984 to 1988, he was President and
Chief Executive Officer of Battery Park City Authority.
Edward Lowenthal, age 60, has been a director of the Company since its
formation in January 1997. Mr. Lowenthal served as the President and Chief
Executive Officer from the Company's formation until his retirement on March 31,
2002. Mr. Lowenthal served as the President and Chief Executive Officer and as a
trustee of the Trust from its formation in July 1992 until consummation of the
Merger. Mr. Lowenthal is President of Ackerman Management LLC, a real estate
advisory and investment firm. Mr. Lowenthal currently serves as a director of
Reis, Inc. ("Reis"), Omega Healthcare, Inc., a healthcare REIT, American Campus
Communities, a student housing REIT, Homex, a Mexican home builder and Ark
Restaurants, Inc., an owner/operator of restaurants. He is also a trustee of the
Manhattan School of Music.
BOARD OF DIRECTORS' MEETINGS
The Board held five meetings during 2004. Every director attended at
least 75% of the Board meetings held in 2004. The Company has adopted a policy
that expects that each director of the Company attend annual meetings commencing
with the 2005 Annual Meeting. Last year, before the effective date of the
Board's policy regarding attendance at annual meetings, only two directors
attended the Company's 2004 Annual Meeting. Management also confers frequently
with the members of the Board on an informal basis to discuss Company affairs.
36
A majority of the members of the Board qualify as independent directors
under the listing standards of the AMEX, the Exchange Act, and the requirements
of any other applicable regulatory authority, including the SEC. The Board
annually reviews the relationship of each director with the Company, and only
those directors who the Board affirmatively determines have no material
relationship with the Company are deemed to be independent directors.
Accordingly, the Board determined that all members of the Board are independent
directors and have no material relationship with the Company other than as a
director, except for Messrs. Lynford and Lowenthal.
Directors who are employees of the Company receive no additional
compensation by virtue of being directors of the Company. Non-employee directors
receive compensation for their service as directors and reimbursement of their
expenses incurred as a result of their service as directors. See "Compensation
of Directors" for a detailed description of director compensation.
Directors have complete access to management and the Company's outside
advisors, and senior officers and other members of management frequently attend
Board meetings at the discretion of the Board. It is the policy of the Board of
Directors that independent directors also meet privately without the presence of
any members of management at each regularly scheduled meeting of the Board and
at such other times as the Board shall determine. In addition, the Board may
retain and have access to independent advisors of its choice with respect to any
issue relating to its activities, and the Company pays the expenses of such
advisors.
Stockholders and other interested parties who wish to communicate
directly with any of the Company's directors, or the non-management directors as
a group, may do so by writing to the Board of Directors, Wellsford Real
Properties, Inc., 535 Madison Avenue, 26th Floor, New York, NY 10022. All
communications will be received, sorted and summarized by the Chief Financial
Officer of the Company, as agent for the non-management directors.
Communications relating to the Company's accounting, internal accounting
controls or auditing matters will be referred to the Chairman of the Audit
Committee. Other communications will be referred to the Chairman of the Board or
to such non-management director as may be appropriate. Communications may be
submitted anonymously or confidentially.
BOARD COMMITTEES
The Board has established an Executive Committee, a Compensation
Committee, an Audit Committee, a Nominating Committee and a Governance
Committee.
Executive Committee. During 2004, the Executive Committee consisted of
Messrs. Lynford, Lowenthal and Crocker. The Executive Committee has the
authority to acquire, dispose of and finance investments for the Company and
execute contracts and agreements, including those related to the borrowing of
money by the Company, and generally to exercise all other powers of the Board
except for those which may not be delegated to a committee under Maryland law
and those which require action by all directors or the independent directors
under the charter or bylaws of the Company or under applicable law. During 2004,
the Executive Committee did not hold any formal meetings; however, the members
met from time to time on an informal basis and acted by written consent on one
occasion.
Compensation Committee. The Compensation Committee acts pursuant to the
Compensation Committee Charter adopted by the Board on March 10, 2003, a copy of
which is posted on the Company's website at
www.wellsford.com/CompanyInfo/BoardCommittees.html. Messrs. Crocker, Frucher and
Germain were Compensation Committee members for all of 2004 and continue to be
members through the date of this Proxy Statement. Ms. Cohen was appointed to the
Compensation Committee on March 16, 2004 and continues to be a member through
the date of this Proxy Statement. None of the members of the Compensation
Committee are employees of the Company. The Compensation Committee reviews the
Company's compensation and employee benefit plans, programs and policies,
approves employment agreements and monitors the performance and compensation of
the Executive Officers and other employees. During 2004, the Compensation
Committee held one meeting and met from time to time on an informal basis as
well. During 2004, the Compensation Committee acted by written consent on one
occasion.
37
Audit Committee. The Audit Committee acts pursuant to the Audit
Committee Charter adopted by the Board on April 20, 2000, as amended on March
10, 2003, a copy of which is posted on the Company's website at
www.wellsford.com/CompanyInfo/BoardCommittees.html. Ms. Cohen and Messrs.
Frucher and Germain were Audit Committee members for all of 2004 and continue to
be members through the date of this Proxy Statement. Mr. Crocker was appointed
to the Audit Committee on March 16, 2004 and continues to be a member through
the date of this Proxy Statement. The Audit Committee held six meetings during
2004.
Each member of the Audit Committee is required to be financially
literate or must become financially literate within a reasonable time after
appointment to the Audit Committee, and at least one member of the Audit
Committee must have accounting or related financial management expertise. The
Board believes that each of the current members of the Audit Committee has such
accounting or financial management expertise. The Board has also determined that
Mr. Crocker is an "audit committee financial expert," as such term is defined
under the regulations of the SEC. All of the Audit Committee members are
considered independent by the AMEX's standards and Section 10A(m)(3) Exchange
Act.
The Audit Committee is responsible for engaging, setting compensation
for and overseeing the work of the independent registered public accounting
firm. The Audit Committee has established a policy requiring its pre-approval of
all audit and permissible non-audit services provided by the independent
registered public accounting firm. The policy provides for the general
pre-approval of specific types of services, gives detailed guidance to
management as to the specific services that are eligible for general
pre-approval and provides specific cost limits for each such service on an
annual basis. The policy requires specific pre-approval of all other permitted
services. For both types of pre-approval, the Audit Committee considers whether
such services are consistent with the rules of the SEC on auditor independence.
The policy prohibits the Audit Committee from delegating to management the Audit
Committee's responsibility to pre-approve permitted services of the independent
registered public accounting firm.
Requests for pre-approval for services that are eligible for general
pre-approval must be detailed as to the services to be provided and the
estimated total cost and must be submitted to the Company's CFO. The CFO then
determines whether the services requested are of the type that are eligible for
general pre-approval by the Audit Committee. The independent registered public
accounting firm and management must report to the Audit Committee on a timely
basis regarding the services provided by the independent registered public
accounting firm in accordance with the procedures for general pre-approval.
During 2004, the Audit Committee engaged the independent registered
public accounting firm, reviewed with the independent registered public
accounting firm the plans for and results of the audit engagement including the
audit of the Company's internal controls over financial reporting as required by
Section 404 of the Sarbanes-Oxley Act of 2002, approved the professional
(including non-audit) services provided by the independent registered public
accounting firm, reviewed the independence of the independent registered public
accounting firm, considered the range of audit and non-audit fees, discussed the
adequacy of the Company's internal accounting controls with management and the
independent registered public accounting firm, periodically monitored throughout
the year the Company's and the independent registered public accounting firm
progress and status in meeting the Section 404 internal control reporting
requirements, reviewed any related party transactions and reviewed and approved
the issuance of the Company's quarterly financial statements and disclosures in
the Form 10-Qs and year-end financial statements and disclosures in the Form
10-K prior to each document being filed with the SEC. The Audit Committee held
six meetings during 2004.
Nominating Committee. The Nominating Committee acts pursuant to the
Nominating Committee Charter adopted by the Board on January 31, 2003, a copy of
which is posted on the Company's website at
www.wellsford.com/CompanyInfo/BoardCommittees.html. The Nominating Committee
generally consists of non-employee directors whose terms as directors of the
Company will not expire at the next annual meeting of stockholders. Accordingly,
the Nominating Committee for the 2005 Annual Meeting consists of Ms. Cohen and
Mr. Frucher, neither of whom is up for re-election as a director during 2005.
Both members of the Nominating Committee for the 2005 Annual Meeting are
considered independent by the AMEX's standards. The Nominating Committee held
one meeting during 2004.
38
The Nominating Committee reviews and makes recommendations to the Board
as to the nominees for election as directors of the Company including
recommendations concerning the qualifications and desirability of any
stockholder nominees. The Nominating Committee will consider candidates for
nomination as a director recommended by the Company's stockholders, directors,
officers, third-party search firms and other sources. For details on how
stockholders may submit nominations for director, see "Stockholder Proposals."
In evaluating a candidate, the Nominating Committee considers the
attributes of the candidate, including his or her independence, integrity,
diversity, experience, sound judgment in areas relevant to the Company's
businesses, and willingness to commit sufficient time to the Board, all in the
context of an assessment of the perceived needs of the Board at that point in
time. Maintaining a balanced experience and knowledge base within the total
Board includes considering whether the candidate: (i) has work experience with
publicly traded and/or privately held for profit businesses in the real estate
market or in other industries; (ii) has significant direct management
experience; (iii) has knowledge and experience in financial services and capital
markets; and (iv) has unique knowledge and experience and can provide
significant contributions to the Board's effectiveness. Each director is
expected to ensure that other existing and planned future commitments do not
materially interfere with his or her service as a director. There are no
specific, minimum qualifications that the Nominating Committee believes must be
met by a candidate. All candidates are reviewed in the same manner, regardless
of the source of the recommendation.
Governance. The Governance Committee acts pursuant to the Governance
Committee Charter adopted by the Board on March 10, 2003; a copy of which is
posted on the Company's website at
www.wellsford.com/CompanyInfo/BoardCommittees.html. Ms. Cohen and Messrs.
Crocker, Frucher and Germain were Governance Committee members for all of 2004
and continue to be members through the date of this Proxy Statement.
The Board as a whole believes it is important for the Company not only
to comply with all current regulatory and legislative requirements, but also to
adopt and abide by high standards in its governance structure and activities.
The Board ensures compliance with the Sarbanes-Oxley Act of 2002 as well as the
corporate governance and other provisions of the AMEX.
CODE OF BUSINESS CONDUCT AND ETHICS
The Company adopted the Wellsford Real Properties, Inc. Code of
Business Conduct and Ethics for Directors, Senior Financial Officers, Other
Officers and All Other Employees (the "Code of Business Conduct and Ethics") as
well as a Policy for Protection of Whistleblowers from Retaliation (the
"Whistleblower Policy") on January 31, 2003. The Code of Business Conduct and
Ethics is a set of written standards reasonably designed to deter wrongdoing and
to promote: honest and ethical conduct; full, fair, accurate, timely and
understandable disclosure; compliance with applicable governmental laws, rules
and regulations; prompt internal reporting of code violations; and
accountability for adherence to the code. The Company periodically reviews,
updates and revises its Code of Business Conduct and Ethics when it considers
such action to be appropriate. The Code of Business Conduct and Ethics and the
Whistleblower Policy are both posted on the Company's website at
www.wellsford.com/CompanyInfo/Company.html. The Company has also filed a copy of
the Code of Business Conduct and Ethics with the SEC as an exhibit to its
December 31, 2002 Annual Report on Form 10-K as filed on March 26, 2003. The
Company will provide a copy of the Code of Ethics to any person without charge,
by contacting Investor Relations at the Company's principal executive office at
535 Madison Avenue, 26th Floor, New York, NY 10022 or through email at
wrpny@wellsford.com.
COMPENSATION OF DIRECTORS
During 2004, the Company paid or issued to each of its non-employee
directors (i) an annual fee of $16,000, payable quarterly in Regular Common
Shares, (ii) a fee of $3,800 payable in cash for each Board meeting at which
such director was present in person or by telephone and (iii) options to
purchase 2,500 Regular Common Shares. Also during 2004, members of the Audit
Committee received a fee of $1,000 payable in cash for each Audit Committee
meeting at which such Audit Committee member was present in person or by
telephone and annual compensation of $10,000 payable in cash to each Audit
Committee member, except for Mr. Germain, who received annual compensation of
$15,000 payable in cash for his role as chairman of the Audit Committee.
Directors who are full time employees of the Company and Mr. Lowenthal were not
paid any directors' fees during 2004. In addition, the Company reimbursed the
directors for travel expenses incurred in connection with their activities on
behalf of the Company. All fees paid to David J. Neithercut, who resigned from
his position as director on April 8, 2005, were paid in cash to a subsidiary of
EQR, including the $16,000 annual fee.
39
Effective January 1, 2005, the Board eliminated the annual stock
payments and grant of options to its directors. In lieu of the stock payments
and option grants, the Board agreed to pay annual fees of $20,000 to each
director.
EXECUTIVE OFFICERS
Each Executive Officer of the Company holds office at the pleasure of
the Board. The Executive Officers of the Company are as set forth below:
Jeffrey H. Lynford, Chairman of the Board, President and Chief
Executive Officer. Biographical information regarding Mr. Lynford is set forth
above under "Nominees for Election as Directors."
James J. Burns, age 66, has been CFO of the Company since December 2000
and a Senior Vice President of the Company since October 1999. He was appointed
Secretary of the Company in April 2002. Mr. Burns served as Chief Accounting
Officer of the Company from October 1999 until December 2000. Mr. Burns was
previously a Senior Audit Partner with Ernst & Young's E&Y Kenneth Leventhal
Real Estate Group where he was employed for 25 years, including 23 years as a
partner. Mr. Burns is a director of One Liberty Properties, Inc., and of Cedar
Shopping Centers, Inc., both of which are REITs. Mr. Burns is a Certified Public
Accountant and a member of the American Institute of Certified Public
Accountants.
William H. Darrow II, age 58, has been a Managing Director of the
Company since August 1997 and a Vice President since January 2003. From 1993 to
1997, Mr. Darrow was a founder and partner of Mansfield Partners, Inc., a real
estate investment, management and consulting firm. From 1989 until 1993, Mr.
Darrow was Senior Vice President and Manager of the US Real Estate Group of
Banque Indosuez, a French merchant bank. From 1987 until 1989, he was President
of CRI Institutional Real Estate. From 1984 to 1987, Mr. Darrow was a managing
director in the corporate finance group of Prudential-Bache Securities. From
1983 to 1984, he was President of Dade Savings and Loan Association. Prior to
joining Dade Savings, Mr. Darrow was a Senior Vice President with Chemical Bank,
which he joined in 1969.
David M. Strong, age 47, has been the Senior Vice President -
Development of the Company, since October 2004. Mr. Strong previously served as
a Vice President - Development of the Company, from the Company's formation in
January 1997 until October 2004. Mr. Strong served as a Vice President of the
Trust from July 1995 until consummation of the Merger in May 1997. From July
1994 until July 1995, he was Acquisitions and Development Associate of the
Trust. From 1991 to 1994, Mr. Strong was President and owner of LPI Management,
Inc., a commercial real estate company providing management and consulting
services. From 1984 to 1991, he was a senior executive with the London Pacific
Investment Group, a real estate development, investment and management firm
active in Southern California and Western Canada. From 1979 through 1984, Mr.
Strong worked for Arthur Young and Company (currently known as Ernst & Young), a
public accounting firm where he attained the level of manager. Mr. Strong is a
member of the Canadian Institute of Chartered Accountants.
Mark P. Cantaluppi, age 34, has been Vice President, Chief Accounting
Officer and Director of Investor Relations of the Company since December 2000.
He joined the Company in November 1999 as a Vice President, Controller and
Director of Investor Relations. From January 1998 to November 1999, he was the
Assistant Controller of Vornado Realty Trust, a diversified REIT. From 1993 to
1998, Mr. Cantaluppi worked for Ernst & Young, a public accounting firm, where
he attained the level of manager. Mr. Cantaluppi is a Certified Public
Accountant and a member of the American Institute of Certified Public
Accountants.
40
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain information concerning the
compensation of the Chief Executive Officer and the four other most highly
compensated executive officers of the Company as measured by salary and bonus
for the year ended December 31, 2004:
41
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------- -------------------------------------
AWARDS PAYOUTS
----------------------- ----------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL SALARY COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR (A) BONUS (B) (C) (D) (E) (D)(F) (G)
- --------------------- ----- -------- ---------- ------------- --------- -------------- --------- -------------
Jeffrey H. Lynford
Chairman of the Board,
Chief Executive
Officer and President 2004 $318,800 $325,000 $678,348 (H) $ -- -- $ -- $2,500
2003 $318,800 $325,000 $35,348 (H) $ -- -- $ -- $2,500
2002 $318,800 $325,000 $36,199 (H) $ -- 22,585 $ -- $21,968
James J. Burns
Senior Vice President -
Chief Financial Officer
and Secretary...... 2004 $214,324 $175,000 $ -- $ -- -- $ -- $2,500
2003 $222,790 $175,000 $ -- $ -- -- $ -- $2,500
2002 $216,300 $175,000 $ -- $ -- -- $ -- $2,500
William H. Darrow II
Vice President--
Managing Director (I) 2004 $218,545 $175,000 $ -- $ -- -- $ 50,000 $2,500
2003 $212,180 $175,000 $ -- $ -- -- $ 50,000 $2,500
2002 $206,000 $175,000 $ -- $ -- -- $ 50,000 $2,500
David M. Strong
Senior Vice President -
Development........ 2004 $199,465 $150,000 $ -- $ -- -- $ -- $2,500
2003 $191,853 $150,000 $ -- $ -- -- $ -- $2,500
2002 $185,658 $150,000 $ -- $ -- -- $ -- $2,500
Mark P. Cantaluppi
Vice President - Chief
Accounting Officer. 2004 $177,000 $160,000 $ -- $ -- -- $ -- $2,500
2003 $168,000 $110,000 $ -- $ -- -- $ -- $2,500
2002 $160,000 $110,000 $ -- $ -- -- $ -- $2,500
- -------------
(A) Amounts shown are actual payments by the Company.
(B) Bonus amount includes each Executive Officer's minimum bonus pursuant to
their employment agreement, plus any discretionary incentive bonus as
described herein. Bonus amounts presented above which were awarded for
2004 were paid in January 2005. The bonus amounts awarded for 2003 and
2002 were paid in January 2004 and January 2003, respectively.
(C) No named Executive Officer received perquisites or other personal
benefits aggregating more than the lesser of 10% of his total annual
salary and bonus or $50,000 other than provided in the table and
footnotes.
(D) There were no restricted share grants to Executive Officers during the
years ended December 31, 2004, 2003 and 2002. Restricted share grants to
Executive Officers which occurred prior to 2002 were contributed to the
Company's non-qualified deferred compensation trust, and, therefore, the
respective Executive Officers do not have voting power with respect to
such Common Shares until such Common Shares vest and are distributed
from the deferred compensation accounts.
(E) See "Management Incentive Plans" regarding certain other options issued
by the Company.
(F) "LTIP Payouts" refers to long-term incentive plan payouts. In the case
of Mr. Darrow, such amount represents the release of certain vested
shares from the 2000 Restricted Share Grants.
(G) The amounts set forth include annual premiums of $19,468 made by the
Company related to split dollar life insurance plans for the benefit of
Mr. Lynford in 2002. The amounts set forth also include contributions to
the Company's defined contribution savings plan pursuant to ss.401 of
the Internal Revenue Code of 1986, as amended. Contributions of $2,500
were made by the Company on behalf of Messrs. Lynford, Burns, Darrow,
Strong and Cantaluppi for 2004, 2003 and 2002.
(H) The 2004 amount includes $643,000 which was paid to Mr. Lynford in
December 2004 pursuant to the Second Amended and Restated Employment
Agreement. The remaining other annual compensation amounts of $35,348,
$35,348 and $36,199 in 2004, 2003 and 2002, respectively, relates to an
additional payment to Mr. Lynford for him to make premium payments under
a split dollar life insurance program as provided for in Mr. Lynford's
employment contract.
(I) Mr. Darrow received a loan of $75,000 upon joining the Company in August
1997. Payments of his annual bonus amount for 2002 was reduced by
$12,500 as a principal payment on the loan. Upon payment of the 2002
bonus in January 2003, the loan was repaid in full.
42
The following table sets forth certain information concerning the value of
unexercised options as of December 31, 2004 held by the Executive Officers named
in the Summary Compensation Table above:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR END (A) FISCAL YEAR END (B)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED (C) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ------------ ------------ ------------ ------------- ------------ ------------
Jeffrey H. Lynford.. -- $ -- 256,517 -- $ -- $ --
James J. Burns...... -- $ -- 25,000 -- $ -- $ --
William H. Darrow II -- $ -- 5,000 -- $ -- $ --
David M. Strong..... 4,693 $ 6,852 70,869 -- $ -- $ --
Mark P. Cantaluppi.. -- $ -- 5,000 -- $ -- $ --
- ---------
(A) The right to receive reload options was given in connection with
certain options. The reload options enable the Executive Officer to
purchase a number of Regular Common Shares equal to the number of
Regular Common Shares delivered by him to exercise the underlying
option. The effective date of the grant of the reload options
("Reload Effective Date") will be the date the underlying option is
exercised by delivering Regular Common Shares to the Company. The
reload options have the same expiration date as the underlying
options and will have an exercise price equal to the fair market
value of the Regular Common Shares on the Reload Effective Date.
(B) The fair market value on December 31, 2004 of the Regular Common
Shares underlying the options was $14.42 per Regular Common Share.
(C) Value realized is based on the fair market price of the Regular
Common Shares on the respective dates of exercise, minus the
applicable exercise price and does not necessarily indicate that the
Executive Officer sold stock on that date, at that price, or at all.
EMPLOYMENT AGREEMENTS
Mr. Lynford
In August 2004, the Company and Mr. Lynford entered into a Second
Amended and Restated Employment Agreement which provides, among other things,
that Mr. Lynford receive, through December 31, 2004, a base salary of $318,000
per year and a minimum annual bonus of $325,000 and, after December 31, 2004 and
until the expiration of the agreement, a base salary of $375,000 per year and a
minimum annual bonus of $375,000. The agreement expires on December 30, 2007. In
addition, Mr. Lynford is entitled to receive a payment of $1,929,000 on January
1, 2008, unless such payment is accelerated in the event that (i) his employment
is terminated by reason of his death or disability, (ii) his employment is
terminated by the Company other than for proper cause (as defined in the
agreement), (iii) his employment is terminated by him for good reason (as
defined in the agreement, the definition of which includes the adoption of a
plan of liquidation), or (iv) the Company has been liquidated or the assets of
the Company are distributed to a liquidating trust. In addition, if there is a
sale of the assets of one or more of the three strategic business units of the
Company having a value of the Company's financial statements equal to or in
excess of 80% of the value of all assets of any such strategic business unit,
Mr. Lynford will be entitled to receive $643,000 following any such sale. Any
such payment shall be credited against the $1,929,000 amount as described above.
In 2004, Mr. Lynford received $643,000 related to the sale of 100% of the
Company's investment in Second Holding pursuant to the terms of the Second
Amended and Restated Employment Agreement, and in June 2005, Mr. Lynford
received an additional $643,000 related to the cumulative sales and reduction of
assets of more than 80% of the value of all assets of Wellsford/Whitehall since
June 30, 2004. Accordingly, Mr. Lynford remains entitled to receive only
$643,000 in the future of the above $1,929,000. The closing of the sale of the
three rental phases of Palomino Park under the existing contract with TIAA-CREF
would entitle Mr. Lynford to receive the remaining $643,000 payment.
43
The employment agreement of Mr. Lynford contains provisions which
entitles him to certain benefits and payments, including but not limited to
health, dental and life insurance benefits available to Mr. Lynford, in the
event he terminates his employment agreement following a "change of control" (as
defined in his employment agreement and which definition includes adoption of a
plan of liquidation as a "change of control"). Accordingly, if the Plan is
approved by our stockholders, Mr. Lynford, if he elects to terminate his
employment with the Company, would be entitled to the payment of $643,000, which
would otherwise be due to him on January 1, 2008, and an amount equal to the
balance of his salary and minimum annual bonus (each payable at a rate of
$375,000 per year) due to him through December 30, 2007, plus the continued
payment by the Company of certain other benefits such as health, dental and life
insurance premiums through December 30, 2007.
Other Executive Officers
The Company has also entered into employment agreements with Mr. Strong
(which expires on December 30, 2006, with automatic one-year extensions unless
either party gives notice of termination), Mr. Darrow (which expires on June 30,
2005), Mr. Burns (which expires on December 31, 2005) and Mr. Cantaluppi (which
expires on June 30, 2006). Pursuant to these employment agreements, the
aforementioned Executive Officers are entitled to a minimum salary, a minimum
bonus and consideration by the Compensation Committee for incentive
compensation.
In October 2004, the Company and Mr. Strong entered into a Third
Amended and Restated Employment Agreement which provides, among other things,
that Mr. Strong receive, effective January 1, 2005, a base salary of $205,500
per year, increased at the rate of 3% for 2006, and a minimum annual bonus of
75% of his base salary. The agreement expires on December 30, 2006. If Mr.
Strong's employment is terminated following a "change in control" (as defined in
his agreement), other than a termination by the Company for "cause" (as defined
in his agreement), Mr. Strong will be entitled to receive a lump sum bonus
payment equal to the greater of (i) his full base salary through the then
expiration date of his employment and a bonus equal to his base salary for the
full calendar year in which such termination occurs through the expiration date,
multiplied by the greater of 50% or the percentage of his base salary for the
immediately preceding year that he received and/or was paid into the Company's
non-qualified deferred compensation trust as a bonus on his behalf, or (ii) a
lump sum severance payment equal to twice his average annual compensation during
the three immediately preceding calendar years. Mr. Strong will also be entitled
to receive a lump sum special bonus payment based upon the level of the
Company's return on its investment in the Palomino Park project, above certain
defined thresholds. Mr. Strong's right to receive the special bonus will vest on
the earlier of December 31, 2005 and the sale by the Company of 90% of its
interest in the Palomino Park project. Mr. Strong will also be entitled to
receive an additional lump sum bonus payment based upon the number of units sold
(at $1,000 per unit) and Company's profits, as defined, if any, in the Gold Peak
portion of the Palomino Park project following the construction of the project
and the sale of all condominium units.
If Mr. Cantaluppi terminates his employment following a "change in
control" of the Company (as defined in his agreement) and provided he has not
been offered "comparable employment" (as defined in his agreement) within 15
days after the event resulting in such change in control of the Company, Mr.
Cantaluppi shall be entitled to receive a lump sum payment equal to the sum of
(i) twice the amount of his annualized salary for the full calendar year in
which the event occurs, (ii) a pro rata portion of a bonus equal to 50% of his
annual salary for the calendar year in which the event occurs, and (iii)
previously unused vacation time (the calculation for which will be a daily rate
based upon your current annual salary at the time of termination), in lieu of
any salary, bonus or other compensation to which he would otherwise be entitled.
If Mr. Darrow terminates his employment following a "change in control"
of the Company (as defined in his agreement) and provided he has not been
offered "comparable employment" (as defined in his agreement) within 60 days
after the event resulting in the change in control of the Company, Mr. Darrow
shall be entitled to receive a lump sum payment equal to the sum of (i) twice
the amount of his annual salary for the calendar year in which the event occurs
and (ii) consideration of a discretionary bonus in lieu of any salary, bonus or
other compensation to which he would otherwise be entitled.
If Mr. Burns terminates his employment following a "change in control"
of the Company (as defined in his agreement) and provided he has not been
offered "comparable employment" (as defined in his agreement) within 60 days
after the event resulting in the change in control of the Company, Mr. Burns
shall be entitled to receive a lump sum payment equal to the sum of (i) twice
the amount of his annual salary for the calendar year in which the event occurs
and (ii) a pro rata portion of a bonus equal to 50% of his annual salary for the
calendar year in which the event occurs.
44
MANAGEMENT INCENTIVE PLANS
The Company has a 1997 Management Incentive Plan and a 1998 Management
Incentive Plan (collectively, the "Management Incentive Plans") and a Rollover
Stock Option Plan (the "Rollover Plan"; together with the Management Incentive
Plans, the "Plans") for the purpose of aligning the interests of the Company's
directors, Executive Officers and employees with those of the stockholders and
to enable the Company to attract, compensate and retain directors, Executive
Officers and employees and provide them with appropriate incentives and rewards
for their performance. The existence of the Management Incentive Plans should
enable the Company to compete more effectively for the services of such
individuals. The Rollover Plan was established for the purpose of granting
options and corresponding rights to purchase Regular Common Shares in
replacement of former Trust share options. Each Plan provides for administration
by a committee of two or more non-employee directors established for such
purpose.
Awards to directors, Executive Officers and other employees under the
Plans may take the form of stock options, including corresponding stock
appreciation rights and reload options. Under the Management Incentive Plans,
the Company may also provide restricted stock awards and stock purchase awards.
The following table details information for the Plans at December 31,
2004:
NUMBER OF SECURITIES
REMAINING AVAILABLE
FOR FUTURE ISSUANCE
UNDER EQUITY
NUMBER OF SECURITIES WEIGHTED AVERAGE COMPENSATION PLANS
TO BE ISSUED UPON EXERCISE PRICE OF (EXCLUDING SECURITIES
EXERCISE OF OPTIONS OUTSTANDING OPTIONS REFLECTED IN COLUMN (A))
--------------------- -------------------- ---------------------------
(a) (b) (c)
Equity compensation plans approved by
Stockholders:
Rollover Stock Option Plan................ 329,667 $ 20.55 316,168
1997 Management Incentive Plan............ 199,187 $ 21.51 635,465
1998 Management Incentive Plan............ 134,125 $ 17.13 533,574
--------- -----------
662,979 $ 20.15 1,485,207
Equity compensation plans not approved
by Stockholders.............................. -- $ -- --
--------- -----------
Total............................................ 662,979 $ 20.15 1,485,207
========= ======== ===========
During the period between January 1, 2005 and August 31, 2005, the
number of options outstanding was reduced to 524,205 as a result of the
expiration of 138,774 options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Crocker, Frucher and Germain were Compensation Committee
members for all of 2004 and Ms. Cohen was appointed to the Compensation
Committee on March 16, 2004. None of the Compensation Committee members is, or
has been, an officer or employee of the Company. Mr. Lynford, the Company's
Chairman of the Board, and Mr. Lowenthal, the Company's former President and
Chief Executive Officer, were members of the EQR board of trustees from the date
of the Merger through their retirements from the EQR board in May 2003. In
addition, the former President and Vice-chairman of EQR, Mr. Crocker, is a
member of the Company's Board of Directors. David J. Neithercut, the Executive
Vice President - Corporate Strategy of EQR served on the Company's Board of
Directors from January 1, 2004 through April 8, 2005.
45
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee reviews and adopts compensation plans, programs and
policies and monitors the performance and compensation of Executive Officers.
The key elements of the Company's executive compensation package are base
salary, minimum bonus, incentive bonus and long-term incentives. The policies
with respect to each of these elements are discussed below.
COMPENSATION PHILOSOPHY
The Compensation Committee seeks to enhance the profitability of the Company,
and thus stockholder value, by aligning closely the financial interests of the
Company's Executive Officers with those of its stockholders. The Compensation
Committee believes that the Company's compensation program should:
o Emphasize stock ownership and, thereby, tie long-term
compensation to increases in stockholder value.
o Enhance the Company's ability to attract and retain qualified
Executive Officers.
o Stress teamwork and overall Company results.
BASE SALARY AND MINIMUM BONUSES
Base salaries and minimum bonuses for Executive Officers are, in each case,
subject to employment contracts and have been determined by evaluating the
responsibilities of the position held and the experience and qualifications of
the individual, with reference to the competitive marketplace for Executive
Officers at certain other similarly situated companies. The Company believes
that the base salaries and minimum bonuses for its Executive Officers are equal
to or less than the average minimum compensation for Executive Officers at such
other similar companies.
ANNUAL INCENTIVE BONUS
Pursuant to their respective employment agreements, in addition to base salaries
and minimum bonuses, each of the Executive Officers is entitled to be considered
for incentive compensation amounts to be determined by the Compensation
Committee. For each of the last three years (2002 through 2004), Mr. Lynford did
not receive any incentive bonus payments, other than amounts contractually
required.
The incentive bonuses awarded to other Executive Officers reflect the financial
and strategic business accomplishments which the Company achieved for its assets
and businesses in 2004, as well as each respective Executive Officer's time and
efforts during the year.
LONG-TERM INCENTIVE
Long-term incentives are designed to align the interests of the Executive
Officers with those of the stockholders. In awarding grants of restricted
Regular Common Shares to Executive Officers and granting them options to
purchase Regular Common Shares, consideration is given to the long-term
incentives previously granted to them.
Options to purchase Common Shares will generally be granted with an exercise
price equal to the fair market value of the Regular Common Shares and vest and
become exercisable over a period of years based upon continued employment. This
is intended to create stockholder value over the long term since the full
benefit of the compensation package cannot be realized unless share price
appreciation occurs over a number of years. In making grants of options to
purchase Regular Common Shares, the Compensation Committee will consider and
give approximately equal weight to an individual's scope of responsibilities,
experience, past contributions to the Company and anticipated contributions to
the Company's long-term success.
Grants of restricted Regular Common Shares also form a part of the Company's
long-term incentive package. Typically, some portion of such grants will vest
annually over a period of several years if the Executive Officer remains
employed by the Company. In making grants of restricted Regular Common Shares,
the Compensation Committee will consider and give approximately equal weight to
an individual's scope of responsibilities, experience, past contributions to the
Company and anticipated contributions to the Company's long-term success.
46
The Compensation Committee believes that options to purchase Common Shares and
grants of restricted Regular Common Shares promotes loyalty to the Company and
encourages the recipients to coordinate their interests with those of the
stockholders. The Compensation Committee may consider additional types of
long-term incentives in the future.
COMPENSATION OF CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
Mr. Lynford's compensation as set forth in his 2001 Amended and Restated
Employment Agreement was fixed until December 31, 2004. During 2004, the
Compensation Committee engaged a compensation consultant to review Mr. Lynford's
expiring contract and provide comparable market information and suggestions for
structuring his future compensation. In August 2004, Mr. Lynford's compensation
was established through December 31, 2007 by the Second Amended and Restated
Employment Agreement. Specific consideration has been given to his
qualifications, responsibilities and experience in the real estate industry, and
the compensation package awarded to the most senior executive officers of other
comparable companies with similar market capitalization. The Compensation
Committee believes that Mr. Lynford's compensation was equal to or less than the
average base salary for a comparable senior officer of such other similar
companies. In addition, the Compensation Committee considered additional
factors, including the fact that the Company was considering various strategic
alternatives, the fact that the Company would have to pay a third party a
premium in compensation to agree to employment in an uncertain environment (i.e.
to agree to be employed for what may be a limited time if the Company adopts one
of its strategic alternatives), and Mr. Lynford's unique knowledge of the
Company's assets and joint venture and other agreements.
It is the responsibility of the Compensation Committee to address the issues
raised by the tax laws which make certain non-performance-based compensation to
executives of public companies in excess of $1 million non-deductible to the
Company. In this regard, the Compensation Committee must determine whether any
actions with respect to this limit should be taken by the Company. At this time,
other than the payment to Mr. Lynford of certain amounts due under his
employment agreement, it is not generally anticipated that any Executive Officer
will receive any such compensation in excess of this limit during fiscal year
2005. However, in light of the amount of the Company's net operating losses, the
Compensation Committee believes that any increase in income tax liability
arising from payments to Mr. Lynford exceeding $1 million will be offset by such
net operating losses. In the unlikely event that net operating losses are
unavailable, the Compensation Committee has deemed any increase in income tax
liability to be a reasonable expense to retain an executive of Mr. Lynford's
caliber. Therefore, the Compensation Committee has not taken any action to
comply with the limit.
CONCLUSION
Through the programs described above, a significant portion of the Company's
executive compensation is linked to individual and Company performance and the
creation of stockholder value. However, periodic business cycle fluctuations may
result in an imbalance for a particular period.
The foregoing report has been furnished by the Compensation Committee.
May 19, 2005
Douglas Crocker II, Chairman Mark S. Germain
Meyer S. Frucher Bonnie R. Cohen
47
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following table sets forth information regarding the beneficial ownership of Common Shares by each person known by the Company to be the beneficial owner of more than five percent of the Company's outstanding Common Shares, by each director of the Company, by each Executive Officer of the Company and by all directors and Executive Officers of the Company as a group, as of September 12, 2005. Each person named in the table has sole voting and investment power with respect to all Shares shown as beneficially owned by such person, except as otherwise set forth in the notes to the table. AMOUNT AND NATURE OF NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP PERCENTAGE OF CLASS (2) - -------------------------------------------------------------- -------------------- ----------------------- Jeffrey H. Lynford (3)........................................ 458,898 6.56% Edward Lowenthal (4).......................................... 138,364 1.98% David M. Strong (5)........................................... 93,005 1.33% Mark S. Germain (6)........................................... 63,868 * 6 Olmsted Road Scarsdale, New York 10583 James J. Burns (7)............................................ 40,936 * Douglas Crocker II (8)........................................ 37,413 * c/o DC Partners LLC One North Wacker Drive Suite 4343 Chicago, Illinois 60606 Mark P. Cantaluppi (9)........................................ 13,478 * Meyer S. Frucher (10)......................................... 12,500 * 324 West 101 Street, #2 New York, New York 10025 William H. Darrow II (11)..................................... 9,438 * Bonnie R. Cohen (12).......................................... 7,552 * c/o B.R. Cohen Consultancy 1824 Phelps Place, NW, Unit 1810 Washington, DC 20008 All directors and Executive Officers as a group (10 persons) (13)....................................................... 875,452 12.52% Caroline Hunt Trust Estate (14)............................... 405,500 5.80% 500 Crescent Court, Suite 300 Dallas, Texas 75201 Cardinal Capital Management LLC (14).......................... 368,396 5.27% One Fawcett Place Greenwich, Connecticut 06830 Davidson Kempner Partners (14)................................ 847,870 12.13% 885 Third Avenue New York, New York 10022 Kensington Investment Group, Inc. (14)....................... 584,900 8.37% 4 Orinda Way, Suite 220D Orinda, California 94563 Sagamore Hill Capital Management L.P. (14) ................... 378,900 5.42% 10 Glenville Street Greenwich, CT 06831 - -------------------------------------------------- * Less than 1.0% (1) Unless otherwise indicated, the address of each person is c/o Wellsford Real Properties, Inc., 535 Madison Avenue, 26th Floor, New York, New York 10022. (2) Assumes the conversion or exercise of the following items at August 31, 2005: (i) 169,903 A-1 Common Shares issued to ERP Operating Limited Partnership, an Illinois limited partnership, into 169,903 Regular Common Shares and (ii) options to acquire 524,205 Regular Common Shares (all of which are exercisable at August 31, 2005). 48 (3) Includes 256,517 Regular Common Shares issuable upon the exercise of options, all of which are exercisable at August 31, 2005. Options to purchase 213,767 of these shares represent replacement options for Trust share options. Also includes 163,787 Regular Common Shares contributed to the Company's non-qualified deferred compensation trust with respect to which Mr. Lynford will not have voting power until the Regular Common Shares are distributed from the deferred compensation account. Also includes 17,956 Regular Common Shares held by the Lynford Family Charitable Trust; Mr. Lynford disclaims beneficial ownership of such shares. Also includes 3,554 Regular Common Shares held by Mr. Lynford's Keogh account and 310 Regular Common Shares held in his 401(K) account. (4) Includes 92,700 Regular Common Shares contributed to the Company's non-qualified deferred compensation trust with respect to which Mr. Lowenthal will not have voting power until the Regular Common Shares are distributed from the deferred compensation account. Also includes 145 Regular Common Shares held by Mr. Lowenthal's wife; Mr. Lowenthal disclaims beneficial ownership of such shares. Also includes 1,000 Regular Common Shares held by Mr. Lowenthal's Keogh account and 5,519 Regular Common Shares held in his 401(K) account. (5) Includes 70,869 Regular Common Shares issuable upon the exercise of options, all of which are exercisable at August 31, 2005. Options to purchase 15,619 of these shares represent replacement options for Trust share options. Also includes 14,786 Regular Common Shares contributed to the Company's non-qualified deferred compensation trust with respect to which Mr. Strong will not have voting power until the Regular Common Shares are distributed from the deferred compensation account. (6) Includes 60,632 Regular Common Shares issuable upon the exercise of options, all of which are exercisable at August 31, 2005. Options to purchase 19,257 of these shares represent replacement options for Trust share options. (7) Includes 25,000 Regular Common Shares issuable upon the exercise of options, all of which are exercisable at August 31, 2005. Also includes 12,749 Regular Common Shares contributed to the Company's non-qualified deferred compensation trust with respect to which Mr. Burns will not have voting power until the Regular Common Shares are distributed from the deferred compensation account. (8) Includes 30,687 Regular Common Shares issuable upon the exercise of options, all of which are exercisable at August 31, 2005. (9) Includes 5,000 Regular Common Shares issuable upon the exercise of options, all of which are exercisable at August 31, 2005. Also includes 8,478 Regular Common Shares contributed to the Company's non-qualified deferred compensation trust with respect to which Mr. Cantaluppi will not have voting power until the Regular Common Shares are distributed from the deferred compensation account. (10) Includes 12,500 Regular Common Shares issuable upon the exercise of options, all of which are exercisable at August 31, 2005. (11) Includes 5,000 Regular Common Shares issuable upon the exercise of options, all of which are exercisable at August 31, 2005. Also includes 1,250 Regular Common Shares held in Mr. Darrow's IRA account. (12) Includes 5,000 Regular Common Shares issuable upon the exercise of options, all of which are exercisable at August 31, 2005. (13) Includes the Regular Common Shares referred to in footnotes (3) through (12) above. (14) This information is based solely upon our review of the most recent Schedule 13G, or amendment thereof, or Form 4 filed by such filer with the Securities and Exchange Commission and responses given to director and officer questionnaires circulated in April 2005. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In May 2000, the Company privately placed with a subsidiary of EQR 1,000,000 8.25% Convertible Trust Preferred Securities, representing beneficial interests in the assets of WRP Convertible Trust I, a Delaware statutory business trust which was a consolidated subsidiary of the Company ("WRP Trust I"), with an aggregate liquidation amount of $25,000,000. WRP Trust I also issued 31,000 8.25% Convertible Trust Common Securities to the Company, representing beneficial interests in the assets of WRP Trust I, with an aggregate liquidation amount of $775,000. The proceeds from both transactions were used by WRP Trust I to purchase $25,775,000 of the Company's 8.25% convertible junior subordinated debentures ("Debentures"). On April 6, 2005, the Company redeemed in cash the $25,775,000 of Debentures and WRP Trust I redeemed in cash the outstanding $25,000,000 of Convertible Trust Preferred Securities and the outstanding $775,000 of Convertible Trust Common Securities. 49 The Convertible Trust Preferred Securities were convertible into 1,123,696 common shares at $22.248 per share and were redeemable in whole or in part by the Company on or after May 30, 2002. EQR could have required redemption on or after May 30, 2012 unless the Company exercised one of its two five-year extensions (subject to an interest adjustment to the then prevailing market rates if higher than 8.25% per annum). The redemption rights were subject to certain other terms and conditions contained in the related agreements. Messrs. Lynford and Lowenthal were members of the EQR Board of Directors from the date of the Merger through their retirements from the EQR board in May 2003. In addition, the former President and Vice Chairman of EQR, Mr. Crocker, is a member of the Company's Board of Directors. Mr. Neithercut, an Executive Vice President of EQR, was elected to the Company's Board of Directors on January 1, 2004 to represent EQR's interests in the Company, which he did until April 8, 2005. A subsidiary of EQR was the holder of the Convertible Trust Preferred Securities and is the holder of 169,903 shares of A-1 Common Shares. EQR held a 14.15% interest in Palomino Park at December 31, 2004 and 2003, respectively. EQR provided credit enhancement for bonds issued with respect to the Palomino Park project prior to the repayment in full on May 2, 2005. With respect to EQR's 14.15% interest in Palomino Park, there exists a put/call option between the Company and EQR related to one-half of such interest (7.075%). In February 2005, the Company informed EQR of its exercise of this option at a purchase price of approximately $2,100,000; such purchase has not been completed as of the filing of this Proxy Statement. Any transaction for EQR's remaining interest in Palomino Park would be subject to negotiation between the Company and EQR. Additionally, EQR is the beneficiary of certain rights of first offer on the Blue Ridge and Red Canyon phases at Palomino Park. 50 The following table details revenues and expenses for transactions with affiliates: FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------------- 2004 2003 2002 --------------- --------------- --------------- Revenues: WP Commercial fees (A): Asset acquisition fee revenue................ $ -- $ -- $ 22,000 Asset disposition fee revenue................ 46,000 430,000 7,000 Second Holding fees, net of fees paid to Reis of $100,000, $120,000 and $120,000, respectively (B).......................................... 751,000 930,000 646,000 --------------- --------------- --------------- $ 797,000 $ 1,360,000 $ 675,000 =============== =============== =============== Costs and expenses: Affiliates of the Whitehall Funds (A): Management fees for VLP properties (C)....... $ -- $ -- $ 20,000 EQR credit enhancement.......................... 81,000 81,000 81,000 Fees to our partners, or their affiliates, on residential development projects............. 431,000 -- -- --------------- --------------- --------------- $ 512,000 $ 81,000 $ 101,000 =============== =============== =============== - ---------- (A) Wellsford/Whitehall is a joint venture by and among the Company, various entities affiliated with the Whitehall Funds, private real estate funds sponsored by The Goldman Sachs Group, Inc. ("Goldman Sachs"). The managing member ("WP Commercial") is a Goldman Sachs and Whitehall affiliate. (B) The Company sold its investment in Second Holding in November 2004 and earned management fees through the date of the sale. (C) This arrangement was terminated during the second quarter of 2002. The Company had an approximate 51.09% non-controlling interest in a joint venture special purpose finance company, Second Holding, organized to purchase investment and non-investment grade rated real estate debt instruments and investment grade rated other asset-backed securities. An affiliate of a significant stockholder of the Company, the Caroline Hunt Trust Estate, (which owns 405,500 Regular Common Shares at December 31, 2004 and 2003 ("Hunt Trust")) together with other Hunt Trust related entities, own an approximate 39% interest in Second Holding. In the fourth quarter of 2004, the Company sold its interest in Second Holding for $15,000,000 in cash. The Company has direct and indirect equity investments in a real estate information and database company, Reis, a provider of real estate market information to institutional investors. At December 31, 2004 and 2003, the Company's aggregate investment in Reis (which is accounted for under the cost method as its ownership interest is in non-voting preferred shares and the Company's interests are represented by one member of Reis' seven member board), was approximately $6,790,000 ($2,231,000 of which is held directly by the Company and $4,559,000 of which is our share held through Reis Capital Holding, LLC ("Reis Capital"), a company which was organized to hold this investment). The Hunt Trust, together with other Hunt Trust related entities, own an approximate 39% interest in Reis Capital. Mr. Lynford, the Company's Chairman, is the brother of Lloyd Lynford, a stockholder, director and the president of Reis. Mr. Lowenthal, who currently serves on the Company's Board of Directors, has served on the Board of Directors of Reis since the third quarter of 2000. During April 2000, the management of Reis offered certain persons the opportunity to make an individual investment in Reis, including, but not limited to, certain directors and officers of the Company who purchased an aggregate of $410,000 of Series C preferred shares. During the year ending December 31, 2002, the Company committed to invest an aggregate of $629,000 in Reis Series D preferred shares of which $209,800 was invested in June 2002, and the balance of the commitment of $419,600 expired at December 31, 2003 without being called by Reis. Other preferred stockholders invested $456,800 directly at the time of the Company's fiscal 2002 investment and committed to invest an additional $913,600 which also expired unused by Reis at December 31, 2003. The other preferred stockholders included the Hunt Trust and certain Company officers and directors. 51 At December 31, 2004, the Company's investment in Reis, through direct ownership and its pro rata share of its investment in Reis Capital, amounted to approximately 21.6% of Reis' equity on an as converted basis. The pro rata converted interests in Reis owned by the other members of Reis Capital, either directly or indirectly through Reis Capital, aggregate 18.5%. The investments of the Company's officers and directors at December 31, 2004, together with common shares previously held by Mr. Lynford represent approximately 2.5% of Reis' equity, on an as converted basis. Additionally, a company controlled by the Chairman of EQR owns Series C and Series D preferred shares with an aggregate 4.5% converted interest. Mr. Neithercut, the executive vice president of EQR, served as a director of the Company from January 1, 2004 through April 18, 2005. Mr. Crocker, former Vice Chairman, Chief Executive Officer and trustee of EQR, continues to serve as a director of the Company. Messrs. Lynford and Lowenthal have and will continue to recuse themselves from any investment decisions made by the Company pertaining to Reis. Reis provided information to Second Holding for due diligence procedures on certain real estate-related investment opportunities through October 31, 2004. Second Holding incurred fees of $200,000, $240,000 and $240,000 in connection with such services for each of the years ended December 31, 2004, 2003 and 2002, respectively. The Company's share of such fees was $100,000, $120,000 and $120,000 for the years ended December 31, 2004, 2003 and 2002, respectively. AUDIT COMMITTEE REPORT The Audit Committee operates under a written charter adopted by the Board of Directors on April 20, 2000, as amended on March 10, 2003. The Audit Committee is currently comprised of four independent directors as defined by the American Stock Exchange's listing standards and Section 10A(m)(3) of the Securities Exchange Act of 1934. Each member of the Audit Committee is able to understand fundamental financial statements. Ms. Cohen and Messrs. Frucher and Germain were Audit Committee members for all of 2004 and continue to be members through the date of this Audit Committee report. Mr. Crocker was appointed to the Audit Committee on March 16, 2004 and continues to be a member through the date of this Audit Committee report. The Audit Committee held six meetings during fiscal 2004. The function of the Audit Committee is to report to the Board various auditing and accounting matters, review the Company's accounting practices and policies, select and engage the independent registered public accounting firm, and review the scope of the audit procedures, the nature of all audit and nonaudit services to be performed, the fees to be paid to the independent registered public accounting firm and the performance of the independent registered public accounting firm. The Audit Committee has met and held discussions with management and the independent registered public accounting firm. Management represented to the Audit Committee that the Company's consolidated financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the audited consolidated financial statements with management and the independent registered public accounting firm. The Audit Committee reviewed with the independent registered public accounting firm, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability of the Company's accounting principles and also discussed with the independent registered public accounting firm the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). The Audit Committee also discussed with management and the independent registered public accounting firm the results of the audit of the Company's internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002. The Company's independent registered public accounting firm provided to the Audit Committee the written disclosures required by the Independence Standards Board's Standard No. 1, and the Audit Committee discussed with the independent registered public accounting firm that firm's independence. 52 Based on the Audit Committee's discussion with management and the independent registered public accounting firm and the Audit Committee's review of the representations of management and the reports of the independent registered public accounting firm to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2004 filed with the Securities and Exchange Commission. March 10, 2005 Mark S. Germain, Chairman Douglas Crocker II Bonnie R. Cohen Meyer S. Frucher PRINCIPAL INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND SERVICES During the fiscal years ended December 31, 2004 and 2003, Ernst & Young LLP provided various audit and non-audit services to the Company. Set forth below are the aggregate fees billed for these services: a) Audit Fees: Aggregate fees billed for professional services rendered for (i) the audit of the Company's annual financial statements for the years ended December 31, 2004 and 2003, (ii) the reviews of the financial statements included in the Company's quarterly reports on Form 10-Q during 2004 and 2003 and (iii) the internal control audit associated with the Sarbanes-Oxley Act Section 404 requirements in 2004 were $982,500 and $369,220 for 2004 and 2003, respectively. b) Audit Related Fees: Fees billed for other audit related services to the Company for the years ended December 31, 2004 and 2003 were $0 and $3,500, respectively. c) Tax Fees: Aggregate fees billed for tax services, including tax return preparation, other tax compliance and tax consulting services were $137,130 and $121,500 for the years ended December 31, 2004 and 2003, respectively. d) All Other Fees: No other fees were billed by Ernst & Young LLP for the years ended December 31, 2004 and 2003. 53 COMMON SHARE PRICE PERFORMANCE GRAPH The following graph compares the cumulative total stockholder return on the Common Shares for the period commencing December 31, 1999 through December 31, 2004 and through August 31, 2005, with the cumulative total return on the Russell 2000 Index ("Russell 2000"), the S&P 500 Index ("S&P 500") and the Company's peer group for the same period. Total return values were calculated based on cumulative total return assuming (i) the investment of $100 in the Russell 2000, the S&P 500, in the Company's peer group and in the Common Shares on December 31, 1999, and (ii) reinvestment of dividends, which in the case of the Company have not been declared or paid. The total return for the Common Shares from December 31, 1999 to December 31, 2004, was approximately (15.2)% versus approximately 97.6% for the Company's peer group, approximately 38.2% for the Russell 2000 and (11.0)% for the S&P 500. The total return of the Common Shares from December 31, 1999, to August 31, 2005, was approximately 11.4% versus approximately 111.2% for the Company's peer group, approximately 42.5% for the Russell 2000 and (9.3%) for the S&P 500. The Company's peer group consists of LNR Property Group, Inc., Capital Trust, Inc., Prime Legacy Corporation and Stratus Properties, Inc. Dec 31 1999 2000 2001 2002 2003 2004 Aug 31 2005 - -------------------------------------------------------------------------------------------------------------- - -o- WRP 100 $ 92.65 $113.06 $ 92.71 $109.41 $ 84.82 $111.41 - -------------------------------------------------------------------------------------------------------------- - -[]- Peer group average 100 $101.91 $105.85 $109.47 $144.62 $197.55 $211.15 - -------------------------------------------------------------------------------------------------------------- - -^- Russell 2000 100 $ 97.09 $ 99.64 $ 79.25 $116.71 $138.21 $142.49 - -------------------------------------------------------------------------------------------------------------- - -*-S&P 500 100 $ 90.90 $ 80.10 $ 62.41 $ 80.30 $ 89.02 $ 90.75 - -------------------------------------------------------------------------------------------------------------- 54 PROPOSAL 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee has appointed the firm of Ernst & Young LLP, the Company's independent registered public accounting firm for the fiscal year ended December 31, 2005, to audit the financial statements of the Company for the fiscal year ending December 31, 2005. A proposal to ratify this appointment is being presented to the stockholders at the Annual Meeting. A representative of Ernst & Young LLP is expected to be present at the meeting and available to respond to appropriate questions and, although that firm has indicated that no statement will be made, an opportunity for a statement will be provided. THE BOARD'S RECOMMENDATION THE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSED RATIFICATION OF APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 2005. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater-than-ten-percent beneficial owners are required by regulation of the SEC to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it, or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that, during the fiscal year ended December 31, 2004, its officers, directors and greater-than-ten-percent beneficial owners complied with all Section 16(a) filing requirements applicable to them with respect to their transactions during 2004. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION This Proxy Statement, and the documents to which we refer you in this Proxy Statement, include statements that are not historical facts. These statements are "forward-looking statements" (as defined in the Private Securities Litigation Reform Act of 1995) based, among other things, on our current expectations and beliefs and are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those described in the forward-looking statements. There are forward-looking statements throughout this Proxy Statement, including in statements containing the words "will," "plan," "believe," "expect," "anticipate," "should," "target," "intend," "may," "could," "would" and similar expressions. Forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those described in the forward-looking statements. Many of these risks and uncertainties are beyond our control and their potential effect on the Company is difficult or impossible to predict accurately. You should not place undue reliance on forward-looking statements. In light of the significant uncertainties inherent in forward-looking statements, the inclusion of such information in this Proxy Statement should not be regarded as a representation by the Company or any other person that our objectives or plans, including the Plan, will be realized. The forward-looking statements contained in this Proxy Statement speak only as of the date that they are made and we do not undertake any obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting these forward-looking statements. 55 WHERE YOU CAN FIND MORE AVAILABLE INFORMATION We are subject to the information filing requirements of the Exchange Act and, in accordance with that act, are obligated to file with the SEC periodic reports, proxy statements and other information relating to our business, financial condition and other matters. These reports, proxy statements and other information may be inspected at the SEC's office at the public reference facilities of the SEC at 450 Fifth Street, NW, Washington, D.C. 20549. Copies of these materials can be obtained, upon payment of the SEC's customary charges, by writing to the SEC's principal office at 450 Fifth Street, NW, Washington, D.C. 20549. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy statements and other information. The information is also available at the offices of the American Stock Exchange, 86 Trinity Place, New York, New York 10006. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The SEC allows us to "incorporate by reference" information into this Proxy Statement. This means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be part of this Proxy Statement, and later information filed with the SEC will update and supersede the information in this Proxy Statement. We incorporate by reference into this Proxy Statement the following documents that we filed with the SEC (File No. 001-12917) under the Exchange Act: o Our Annual Report on Form 10-K for the year ended December 31, 2004, filed March 15, 2005, and as amended on April 21, 2005; o Our Quarterly Report on Form 10-Q for the quarters ended March 31, 2005, filed on May 6, 2005, and June 30, 2005, filed on August 3, 2005; and o Our Current Reports on Form 8-K, filed on April 11, 2005, April 22, 2005, May 19, 2005, May 23, 2005, June 2, 2005, August 30, 2005, and September 13, 2005. All subsequent documents filed by us with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy Statement and prior to the date of the Annual Meeting will be deemed to be incorporated by reference into this Proxy Statement and to be a part of the Proxy Statement from the date of the filing of those documents. Documents incorporated by reference are available from us without charge, excluding all exhibits (unless we have specifically incorporated by reference an exhibit into this Proxy Statement). You may obtain documents incorporated by reference by contacting Investor Relations at the Company's principal executive office at 535 Madison Avenue, New York, NY 10022; email at wrpny@wellsford.com; or by accessing the Company's website at www.wellsford.com. If you would like to request documents from us, please do so by ______, 2005 in order to ensure timely receipt before the Annual Meeting. You should rely only on the information contained in this Proxy Statement to vote your shares of Common Shares at the Annual Meeting. We have not authorized anyone to provide you with information that is different from what is contained in this Proxy Statement. This Proxy Statement is dated ________, 2005. You should not assume that the information contained in this Proxy Statement is accurate as of any date other than that date, and the mailing of this Proxy Statement to stockholders does not create any implication to the contrary. This Proxy Statement does not constitute a solicitation of a proxy in any jurisdiction where, or to or from any person to whom, it is unlawful to make such proxy solicitation in that jurisdiction. 56 WHO CAN HELP ANSWER YOUR QUESTIONS If you would like additional copies of this Proxy Statement, or if you have questions about the Plan, election of directors, or ratification of the independent registered public accounting firm, or need assistance voting your shares, you should contact: MacKenzie Partners, Inc. 105 Madison Avenue, 14th Floor New York, NY 10016 Telephone: (800) 322-2885 Email: proxy@mackenziepartners.com You may also contact your Company: Wellsford Real Properties, Inc. 535 Madison Avenue, 26th Floor New York, NY 10022 Attention: Investor Relations Telephone: (212) 838-3400 Email: wrpny@wellsford.com STOCKHOLDER PROPOSALS Stockholders may request proposals be presented at the annual meeting of stockholders to be held in 2006. Such Proposals must be received by the Company at its principal executive offices no later than _______, 2005 for inclusion in the Company's Proxy Statement and form of proxy relating to that meeting. In addition, nominations by stockholders of candidates for election as a director or submission of new business proposals must be submitted in compliance with the Company's current Bylaws. The Company's Bylaws currently provide that in order for a stockholder to nominate a candidate for election as a director at an annual meeting of stockholders or propose business for consideration at such a meeting, notice must be given to the Secretary of the Company no more than 90 days nor less than 60 days prior to the first anniversary of the preceding year's annual meeting. Accordingly, under the current Bylaws, for a stockholder nomination or business proposal to be considered at the 2006 Annual Meeting of stockholders, a notice of such nominee or proposal must be received not earlier than _____, 2006 and not later than _____, 2006. For additional requirements, a Stockholder may refer to the Company's Bylaws, a current copy of which may be obtained without charge upon request from the Company's Secretary. FINANCIAL AND OTHER INFORMATION The Company's Annual Report for the fiscal year ended December 31, 2004, including financial statements, together with all amendments thereto, have been sent to the stockholders. The Annual Report and all amendments thereto are not a part of the proxy solicitation materials. Additional copies of the Company's Annual Report on Form 10-K for the year ended December 31, 2004 as filed with the SEC on March 15, 2005 and the Form 10-K as amended and filed with the SEC on April 21, 2005, may be obtained without charge by contacting Investor Relations at the Company's principal executive office at 535 Madison Avenue, 26th Floor, New York, NY 10022, email at wrpny@wellsford.com or by accessing the Company's website at www.wellsford.com. EXPENSES OF SOLICITATION The cost of soliciting proxies will be borne by the Company. Brokers and nominees should forward soliciting materials to the beneficial owners of the Common Shares held of record by such persons, and the Company will reimburse them for their reasonable forwarding expenses. In addition to the use of the mails, proxies may be solicited by directors, officers and regular employees of the Company, who will not be specially compensated for such services, by means of personal calls upon, or telephonic or telegraphic communications with stockholders or their personal representatives. MacKenzie Partners, Inc. has been retained to assist in the solicitation of proxies for a fee not to exceed $7,500 plus reimbursement of out-of-pocket expenses. No officer or director of the Company has an interest in, or is related to any principal of, MacKenzie Partners, Inc. 57 OTHER MATTERS The Board knows of no matters other than those described in this Proxy Statement which are likely to come before the Annual Meeting. If any other matters properly come before the Annual Meeting, the persons named in the accompanying form of proxy intend to vote the proxies in their discretion. 58 APPENDIX A WELLSFORD REAL PROPERTIES, INC. PLAN OF LIQUIDATION 1. This Plan of Liquidation (the "Plan") of Wellsford Real Properties, Inc., a Maryland corporation (the "Company"), has been approved by the Company's Board of Directors (the "Board") as being advisable and in the best interests of the Company and its stockholders. The Board has directed that the Plan be submitted to the stockholders of the Company for approval. The Plan shall become effective upon approval of the Plan by the holders of at least a two-thirds of the aggregate outstanding shares of (a) the Company's common stock, $0.02 par value per share (the "Regular Common Shares") and (b) the Company's Class A-1 common stock, $0.02 par value per share (together with the Regular Common Shares, the "Common Shares"), voting together as one class. The date of the stockholders' approval is hereinafter referred to as the "Effective Date." 2. On or after the Effective Date, the Company shall be voluntarily liquidated and dissolved in a transaction intended to qualify as a complete liquidation as contemplated by Section 331 of the Internal Revenue Code of 1986, as amended. Pursuant to the Plan, the Board shall cause the Company to sell, convey, transfer and deliver or otherwise dispose of any and/or all of the assets of the Company in one or more transactions, without further approval of the stockholders. 3. Within 30 days after the Effective Date, an authorized officer of the Company shall (i) file Form 966 with the Internal Revenue Service, together with certified copies of the Plan and the Board's and stockholders' resolutions approving the Plan; and (ii) mail notice to all known creditors of the Company, if any, at their respective addresses shown on the records of the Company as well as all employees of the Company, if any, either at their home addresses as shown on the records of the Company, or at their business address, that the dissolution of the Company has been approved (alternatively, the Board may determine that the Company has no employees or known creditors). 4. The Company shall not engage in any business activities, except, to the extent determined appropriate by the Board to (i) exercise our right to acquire land contiguous to The Orchards in East Lyme, Connecticut (the "Orchards"), (ii) acquire one of the parcels of land comprising the land owned by the Company in Beekman, New York (the "Beekman Properties"), assuming that we have not sold the Beekman Properties (or the interests in an entity that owns the Beekman Properties) to Jeffrey H. Lynford, the Company's Chief Executive Officer, and Edward Lowenthal, a member of the Board, or an entity controlled by them; (iii) complete the financing and development of The Orchards, our property in Claverack, New York ("Claverack"), and the Gold Peak phase of the Palomino Park development in Highlands Ranch, Colorado ("Gold Peak"); (iv) sell the homes or condominiums, as the case may be, to be built at The Orchards, Claverack, and Gold Peak; (v) to the extent that we do not develop any of The Orchards, Claverack and Gold Peak, then the sale of the land at the Gold Peak and The Orchards projects to another developer and the sale of our joint venture interest in Claverack to our partner in that venture; (vi) repurchase our Common Shares; (vii) purchase additional shares of Reis Inc. ("Reis") from other investors in Reis or Reis itself; (viii) preserve and sell our assets; (ix) wind up our business and affairs; (x) discharge and pay all our liabilities; and (xi) distribute our assets to our stockholders. The Company may also engage in any activities that the Board determines will enhance the value of our assets or business and any other activities related to or incidental to the foregoing. 5. The appropriate officers of the Company shall take such actions as may be necessary or appropriate to marshal the assets of the Company and convert the same, in whole or in parts, into cash or such other form as may be conveniently distributed to the stockholders. 6. After provision for all debts and other reserves as may be deemed necessary or appropriate by the Board, the appropriate officers of the Company shall distribute, by means of one or more distributions (one or more of which distributions may be in the form of beneficial interests in the Liquidating Trust (as hereinafter defined), all of the assets of the Company to the stockholders. Subject to the terms of the Charter and in connection therewith such officers shall execute all checks, instruments, notices and any and all other documents necessary to effectuate such distribution. The final distribution shall be made no later than the third anniversary of the Effective Date. 59 APPENDIX A 7. Subject to Section 8 below and the Charter, the distributions contemplated by Section 6 above shall be in complete liquidation of the Company and in cancellation of all shares of Common Stock issued and outstanding, and all certificates representing such issued and outstanding shares of Common Stock shall thereupon be canceled. The Board shall make such provisions as it deems appropriate regarding the cancellations, in connection with the making of distributions hereunder, of certificates representing the shares of Common Stock (or certificates evidencing interests in the Liquidating Trust as provided in Section 8 hereof) outstanding. 8. In the event that it should not be feasible, in the opinion of the Board, for the Company to pay, or adequately provide for, all debts and liabilities of the Company (including costs and expenses incurred and anticipated to be incurred in connection with the liquidation of the Company) at the time the final liquidation distribution is made pursuant to Section 5 hereof, or the Board shall determine that it is not advisable to distribute at such time any of the property then held by or for the account of the Company because such property is not reasonably susceptible of distribution to stockholders or otherwise, the Company shall transfer and assign, at such time as is determined by the Board, to a liquidating trust as designated by the Board (the "Liquidating Trust") sufficient cash and property to pay, or adequately provide for, all such debts and liabilities and such other property as it shall have determined is appropriate. Upon such transfer and assignment, certificates for shares of Common Stock will be deemed to represent certificates for identical interests in the Liquidating Trust. The Liquidating Trust shall be constituted pursuant to a Liquidating Trust Agreement in such form as the Board may approve and its initial trustees shall be appointed by the Board, it being intended that the transfer and assignment to the Liquidating Trust pursuant hereto and the distribution to the stockholders of the beneficial interest therein shall constitute a part of the final liquidating distribution by the Company to the stockholders of their pro rata interest in the remaining amount of cash and other property held by or for the account of the Company. The initial trustees of the Liquidating Trust may be existing members of the Board or officers of the Company. From and after the date of the Company's transfer of cash and property to the Liquidating Trust, the Company shall have no interest of any character in and to any such cash and property and all of such cash and property shall thereafter by held by the Liquidating Trust solely for the benefit of an ultimate distribution to the stockholders, subject to any unsatisfied debts, liabilities and expenses. Adoption of the Plan will constitute the approval by the stockholders of the Liquidating Trust Agreement and the appointment of trustees. 9. Upon assignment and conveyance of the assets of the Company to the stockholders, in complete liquidation of the Company as contemplated by the Plan, and the taking of all actions required under the law of the State of Maryland in connection with the liquidation and dissolution of the Company, the appropriate officers of the Company shall execute and cause to be filed with the State Department of Assessments and Taxation of the State of Maryland, and elsewhere as may be required or deemed appropriate, such documents as may be required to dissolve the Company. 10. Adoption of this Plan by holders of two-thirds of the outstanding Common Shares shall constitute the approval of the dissolution of the Company and the sale, exchange or other disposition in liquidation of all of the property and assets of the Company, whether such sale, exchange or other disposition occurs in one transaction or a series of transactions, or with one or more affiliates of the Company, and shall constitute ratification of all contracts for sale, exchange or other disposition which are conditioned on adoption of this Plan. Adoption of this Plan shall also constitute approval of all financing and all other arrangements and agreements that may be made to accomplish the purposes of this Plan as determined by the Board. Nothing in this Plan shall prevent an affiliate of the Company from acquiring any asset of the Company provided that such transaction has been approved by an independent committee of the Board. 11. In connection with and for the purpose of implementing and assuring completion of this Plan, the Company may, in the absolute discretion of the Board, pay any brokerage, agency, professional and other fees and expenses of persons rendering services to the Company in connection with the collection, sale, exchange or other disposition of the Company's property and assets and the implementation of this Plan. 60 APPENDIX A 12. In connection with and for the purpose of implementing and assuring completion of this Plan, the Company may, in the absolute discretion of the Board, pay to the Company's officers, directors, employees, agents and representatives, or any of them, compensation or additional compensation above their regular compensation, in money or other property, in recognition of the extraordinary efforts they, or any of them, will be required to undertake, or actually undertake, in connection with the implementation of this Plan. Adoption of this Plan by two-thirds of the outstanding Common Shares shall constitute the approval of the holders of the Common Shares of the payment of any such compensation. 13. The Board, or the trustees of the Liquidating Trust, and such officers of the Company as the Board may direct, are hereby authorized to interpret the provisions of the Plan and are hereby authorized and directed to take such further actions, to execute such agreements, conveyances, assignments, transfers, certificates and other documents, as may in their judgment be necessary or desirable in order to wind up expeditiously the affairs of the Company and complete the liquidation thereof, including, without limitation, (i) the execution of any contracts, deeds, assignments or other instruments necessary or appropriate to sell or otherwise dispose of, any and all property of the Company, whether real or personal, tangible or intangible, (ii) the making of any financing or other arrangements or agreements that may be made to accomplish the purposes of this Plan as determined by the Board, (iii) the appointment of other persons to carry out any aspect of this Plan, (iv) the temporary investment of funds in such medium as the Board may deem appropriate, and (v) the modification of this Plan as may be necessary to implement this Plan. 14. The Company shall continue to indemnify its officers, directors, employees, agents and representatives in accordance with its Charter and any contractual arrangements for actions taken in connection with this Plan and the winding up of the affairs of the Company. The Company's obligation to indemnify such persons may also be satisfied out of the assets of the Liquidating Trust. The Board, or the trustees of the Liquidating Trust, in their absolute discretion, are authorized to obtain and maintain insurance as may be necessary or appropriate to cover the Company's obligations and Liquidating Trust's obligations hereunder. Any Liquidating Trust created pursuant to this Plan shall also indemnify its trustees, employees, agents and representatives to the maximum extent permissible by law, but in no event greater than the extent that the Company may currently indemnify its officers, directors, employees, agents and representatives. 15. The Board may terminate this Plan for any reason. The power of termination shall be exercisable both before and after approval of the Plan by the stockholders of the Company, but such power shall not continue after Articles of Dissolution have been accepted for record by the State Department of Assessments and Taxation of Maryland. Notwithstanding approval of the Plan by the stockholders of the Company, the Board may modify or amend the Plan without further action by the stockholders of the Company but any material amendment to the Plan shall be approved by the affirmative vote of the holders of a majority of the Company's issued and outstanding Common Shares. 61 APPENDIX B Appraisal Opinion 62
APPENDIX B
APPRAISAL
SELF-CONTAINED REPORT - LIMITED APPRAISAL
PROPERTY
Beekman Properties
9.03 and 14.36 Acre Parcels
Route 55
Town of Beekman
Dutchess County, NY
CLIENT
Mr. Douglas Crocker as representative of
The Independent Members of the Board of Directors of Wellsford Real Properties, Inc.
c/o Wellsford Real Properties, Inc.
535 Madison Avenue
26th Floor
New York, New York 10022
June 28, 2005
Mr. Douglas Crocker as representative of
The Independent Members of the Board of Directors of Wellsford Real Properties, Inc. c/o Wellsford Real Properties, Inc.
535 Madison Avenue
26th Floor
New York, New York 10022
Re: Beekman Properties; 9.03 and 14.36 Acre Parcels;
Dear Mr. Crocker:
In accordance with your request, I have completed an appraisal of the above-referenced properties. The purpose of the appraisal is to estimate the market value of the fee simple interest of the subject properties as two separate parcels as of the inspection dates, June 12, 2005 for the 9.03 acre parcel and June 20, 2005 for the 14.36 acre parcel. The report to follow sets forth the most pertinent data gathered, the techniques of valuation, the reasoning leading to the opinion of value, is subject to the enclosed limiting conditions and has been made in conformance to the Code of Professional Ethics and Standards of Professional Conduct of the Appraisal Institute and New York State DEC Appraisal Standards.
The 9.03 acre subject property located on Route 55 is an oddly rectangular shaped parcel of vacant land, zoned C-2, Central Commercial district located in the Town of Beekman. The site is a moderately sloping open field with road frontage on Roue 55.
The 14.36 acre subject property located at 2640 Route 55 is an oddly rectangular shaped parcel of land with a small 660 square foot cottage built in 1940, zoned C-2, Central Commercial district located in the Town of Beekman. The site contains a mix of open fields, some level areas and woodlands. The property contains road frontage on Route 55.
The scope of the appraisal includes a physical inspection of the property, collecting basic background data on the area, neighborhood, and competitive properties, etcetera. As part of this process, local, regional and national economic trends were analyzed, in addition to the local real estate market conditions.
Beekman Properties
June 28, 2005
page 2
Hypothetical Condition Per client request, a 660 square foot wood frame cottage built in 1940 located on the 14.36 acre subject property are ignored in this analysis. The value is based on the hypothetical condition that the improvements do not exist.
Based on an exposure time of approximately twelve months, it is our opinion that the market value estimate of the fee simple interest of the subject properties as of June 12, 2005 for the 9.03 acre tract and June 20, 2005 for the 14.36 acre tract are:
9.03 ACRE TRACT
SIX HUNDRED SIXTY DOLLARS
($660,000)
14.36 ACRE TRACT
ONE MILLION SIXTY THOUSAND DOLLARS
($1,060,000)
This report will contain the descriptive data, reasoning and analysis used to develop the opinions of value of the subject property.
I appreciate the opportunity to be of service in this matter. If you have any questions, please contact me.
Very truly yours,
HUBBELL REALTY SERVICES, INC.
R. Peters Hubbell, Jr., MAI
State Certified Real Estate Appraiser No. 46...3185
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page i
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page ii
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 1
ASSUMPTIONS & LIMITING CONDITIONS
This appraisal report, letter of transmittal, and certification are made expressly subject to the following assumptions, limiting conditions, any special limiting conditions contained in this report and are incorporated herein by reference.
| 1. | The legal description furnished is assumed to be correct. I assume no responsibility for matters legal in character, nor do I render any opinion as to the Title, which is assumed to be good and marketable. All existing liens and encumbrances, if any, have been disregarded and the property appraised as though free and clear, under responsible ownership and competent management. |
| 2. | The sketches in this report are included to assist the reader in visualizing the property. I have made no survey of the property and assume no responsibility in connection with such matters. |
| 3. | I assume to be reliable the information which was furnished by others, but I assume no responsibility for its accuracy. |
| 4. | Possession of this report, or a copy thereof, does not carry with it the right of publication, nor may it be used for any purpose other than the intended use by the appraiser or the applicant without the previous written consent of the appraiser or the applicant, and then only with proper qualification. |
| 5. | I am not required to give testimony or to appear in court by reason of this appraisal, with reference to the property in question, unless arrangements have been previously made therefor. |
| 6. | The distribution of the total valuation in this report between land and improvements applies only under the existing program of utilization. The separate valuations for land and building(s) must not be used in conjunction with any other appraisal and are invalid if so used. |
| 7. | No investigation has been made to determine if there are subsurface deposits of gas or minerals. |
| 8. | The comparable sales data relied upon in this appraisal is believed to be from reliable sources; however, it was not possible to inspect the comparables completely, and it was necessary to rely on information furnished by others as to said data. Therefore, the value conclusions are subject to the correctness and verification of said data. |
| 9. | The appraiser has inspected, as far as possible, by observation the land and any improvements thereon. However, it was not possible to personally observe conditions beneath the soil or hidden structural components within any improvements. Therefore, no representations are made herein as to these matters, and unless specifically considered in the report, the value estimate is subject to any such conditions that could cause a loss in value. Condition of heating, cooling, ventilating, electrical and plumbing equipment is considered to be commensurate with the condition of the balance of any improvements, unless otherwise stated. |
| 10. | Neither all nor any part of the contents of this report shall be conveyed to the public through advertising, public relations, news, sales, or other media, without the written consent and approval of the author, particularly as to valuation and conclusions and the identity of the appraiser or the firm with which he is connected. |
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 2
Hypothetical Condition
Per client request, a 660 square foot wood frame cottage built in 1940 located on the 14.36 acre subject property are ignored in this analysis. The value is based on the hypothetical condition that the improvements do not exist.
CERTIFICATION
I certify that, to the best of my knowledge and belief:
The statements of fact contained in this report are true and correct.
The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are my personal, unbiased professional analyses, opinions, and conclusions.
I have no present or prospective interest in the property that is the subject of this report, and I have no personal interest or bias with respect to the parties involved.
My compensation and employment for this appraisal is not contingent upon the reporting of a predetermined, minimum, specific or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, the occurrence of a subsequent even or the approval of a loan.
To the best of my knowledge and belief, the analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the Uniform Standards of Professional Appraisal Practice, the requirements of the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute and New York State DEC Appraisal Standards.
I have not made a personal inspection of the property that is the subject of this report.
No one provided significant professional assistance to the persons signing this report other than Andrew Ward, staff appraiser.
The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives.
As of the date of this report, I have completed the requirements of the continuing education program of the Appraisal Institute.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 3
| It is my opinion that the market value as defined herein of these properties: | |
| • | 9.03 acre tract as of June 12, 2005 is: $660,000. |
| • | 14.36 acre tract as of June 20, 2005 is: $1,060,000. |
| Date: | July 1, 2005 | |
| Signature: |  | |
| Andrew Ward | ||
| Staff Appraiser | ||
| Signature: |  | |
| R. Peters Hubbell, Jr., MAI | ||
| State Certified General Real Estate Appraiser No. 46..3185 |
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 4
1 Appraisal Institute, The Dictionary of Real Estate Appraisal, 3rd ed. (Chicago: Appraisal Institute, 1993), p. 222.
2 Rules and Regulations, Federal Register, Vol. 55, No. 165, Page 34696.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 5
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 6
| SUMMARY OF SALIENT FACTS | ||||||
| TYPE OF PROPERTY: | 9.03 acre tract: | Vacant land tract; | ||||
| 14.36 acre tract: | Land tract with minor improvements - viewed | |||||
| as a Vacant land tract; | ||||||
| LOCATION: | Route 55, Town of Beekman, Dutchess County, NY | |||||
| OWNER OF RECORD: | 9.03 acre tract: | Beekman Housing Ventures, LLC | ||||
| 14.36 acre tract: | Diamondhorse Developers Inc. | |||||
| PROPERTY RIGHTS | ||||||
| APPRAISED: | Fee simple interest | |||||
| DEED REFERENCE: | 9.03 acre tract: | Liber 22005 - Page 1766 | ||||
| 14.36 acre tract: | Liber 22004 - Page 3812 & | |||||
| Liber 22003 - Page 7710 | ||||||
| TAX MAP REFERENCE: | 9.03 acre tract: | 6758-00-914970 | ||||
| 14.36 acre tract: | 6758-00-870046 | |||||
| ACREAGE: | Two tracts of approximately 9.03 acres and 14.36 acres; | |||||
| ACREAGE SOURCE: | Assessor records; | |||||
| ZONING: | C-2, Central Commercial District | |||||
| IMPROVEMENTS: | 9.03 acre tract: | None | ||||
| 14.36 acre tract: | 660 square foot cottage built in 1940 of | |||||
| nominal value; | ||||||
| UTILITIES: | Access to municipal water and sewer; | |||||
| DEED RESTRICTIONS | ||||||
| & EASEMENTS: | None noted; | |||||
| ASSESSMENT: | 9.03 acre tract - | $338,500 | ||||
| 14.36 acre tract - | Total - $195,700; Land - $120,100 | |||||
| TOPOGRAPHY: | 9.03 acre tract - | moderately sloping; open field; | ||||
| 152.25 acre tract - | moderately sloping, some level areas; mix of | |||||
| open fields and woodlands; | ||||||
| FLOOD ZONE: | Zone C, areas of minimal flooding per comm-panels; Panel # 361333 | |||||
| 0001 0014 C; not printed; | ||||||
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 7
| WETLANDS: | None; | |||
| SOIL TYPES: | 9.03 acre tract - | Stockbridge silt loam, 3 to 8 percent slopes; | ||
| Stockbridg silt loam, 8 to 15 percent slopes; | ||||
| Stockbridge silt loam, 15 to 25 percent slopes; | ||||
| 152.25 acre tract - | Stockbridge silt loam, 3 to 8 percent slopes; | |||
| Stockbridg silt loam, 8 to 15 percent slopes; | ||||
| Stockbridge silt loam, 15 to 25 percent slopes; | ||||
| Georgia silt loam, 3 to 8 percent slopes; | ||||
| HIGHEST AND | ||||
| BEST USE: | Commercial Development; Multi-Family Development | |||
| DATE OF VALUATION: | 9.03 acre tract - | June 12, 2005 | ||
| 14.36 acre tract - | June 20, 2005 | |||
| ESTIMATE OF | ||||
| MARKET VALUE: | 9.03 acre tract - | $660,000 | ||
| 14.36 acre tract - | $1,060,000 | |||
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 8
IDENTIFICATION AND HISTORY OF THE SUBJECT PROPERTY
9.03 acre tract
Based on publicly available documents and deeds reviewed by this appraiser, the subject property is a vacant land parcel of 9.03 acres. It may be further described as parcel number 6758-00-914970. The 9.03 acre parcel has apparently been vacant land for some time and was a piece of subdivided site. The subject property is located in the Town of Beekman, Dutchess County on Route 55. The property was last purchased by the current owner of record, Beekman Housing Ventures, LLC for $650,000 from CMJ Properties, LLC in deed dated February 15, 2005, recorded in Liber 22005, Page 1766. The original deed is included in the addenda of this report.
14.36 acre tract
Based on publicly available documents and deeds reviewed by this appraiser, the subject property is a 14.36 acre parcel improved with a 660 square foot wood frame cottage, built in 1940. It may be further described as parcel number 6758-00-870046. The subject property is located in the Town of Beekman, Dutchess County at street address 2640 Route 55. The property was last purchased by the current owner of record, Diamondhorse Developers Inc. for $450,000 from Poughquag Associates, LLC in deed dated September 11, 2003, recorded in Liber 22003, Page 7710. Additionally, a portion (.02 acres) of Tax Map Parcel 6759-04-800112 was deeded to Diamondhorse Developers Inc. for no consideration from John C. Garito in deed dated December 30, 2003, recorded in Liber 22004, Page 3812. According to Dutchess County Records, this .02 acre portion of land is a part of the 14.36 acre tract identified as 6758-00-870046. The original deed is included in the addenda of this report. According to a representative of the client, Beekman Housing Ventures, LLC has an option contract with the current owners of the 14.36 acre tract that states that Beekman Housing Ventures, LLC has the right (not the obligation) to purchase the land based on a subdivision approval (not yet applied for) for 80 units at $18,000 per unit for a total of $1,440,000. The option contract was signed in December of 2004.
Dutchess County is one of seven counties in the Mid-Hudson Valley Region of New York State. A region termed New York's natural growth areas due to the proximity of New York City and its attractive landscape. Dutchess County is located in the center of this Mid-Hudson Region which also includes Columbia, Ulster, Orange, Putnam, Rockland, and Westchester. Dutchess is bounded by:
– Columbia County to the north - primarily a rural farming area;
– Putnam County to the south - with a rugged, tree covered landscape, a suburban location for many who work in Westchester County and New York City;
– Orange and Ulster Counties lies to the west sharing the Hudson River with Dutchess;
– Connecticut in New England forms the eastern border;
Population Trends
The 2000 Census indicates the mid-Hudson region (counties of Dutchess, Orange, Ulster and Putnam) continues to enjoy a population growth of approximately 10% that is double that of New York State’s growth rate of 5.5%. As a comparison, the lower Valley counties of Westchester and Rockland experienced slower growth rates. These growth rates have exceeded mid-census projections by the Dutchess County Planning Department; our estimates are that the 8% growth over the past ten years in Dutchess will continue through the year 2005 with an estimated population, as of mid decade, of 291,500.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 9
Dutchess has traditionally been considered a part of the metropolitan New York region. In recent years the County is becoming a bedroom community for out-of-county employees due to lower housing costs than those found in Queens, Bronx and Westchester Counties, Long Island and Fairfield County, Connecticut.
Annual migration from Internal Revenue Service data indicates that from the period 1996 to 2002 that the number of tax returns for filers who moved to the mid-Hudson Valley from the New York/New Jersey metro region exceeded the numbers of filers who moved to the metropolitan area. The southern portion of the region, Westchester, Orange and Rockland Counties experienced the larger numbers of in-migrants. There was considerable migration within the region, also. In migration from other “high tech” states such as California, Massachusetts, Texas and North Carolina was a net gain to the region.
Recent figures shows that 76% of the County’s workforce of over 120,000 work within the County and 91% work within the mid-Hudson region. Recent commuting figures indicate approximately 30,000 commuters cross Dutchess County borders to employment centers to the south and east. A significant number of these persons commute to Manhattan daily, while many more commute to Westchester County, Danbury in Connecticut and northern New Jersey.
The population of the county is unevenly distributed with 62% in the southwestern quadrant in the Towns of: Fishkill, East Fishkill, Wappinger, LaGrange and Poughkeepsie, and the cities and villages of Beacon, Poughkeepsie, Wappingers Falls and Fishkill.
Transportation and Market Access
Three major highways traverse Dutchess County and provide easy accessibility into the Metro New York and New Jersey areas:
| – | Interstate 84 is a major east/west artery running from Scranton, Pennsylvania through New York and into New England. | ||
| – | NYS Route 9 intersects Interstate 84 at Fishkill then running into Putnam and Westchester Counties to the south and north to the Capital District in Albany, New York. | ||
| – | Taconic State Parkway bisects the county in a north and south direction. It is a scenic route used by many tourists leading into the New England area. In a southerly direction, the TSP leads directly into New York City. |
Continued business and residential growth are anticipated near these major transportation corridors.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 10
Air Service
The influence of two airports is supporting the growth strategy of the Dutchess County area:
| Stewart International Airport | |||
| – | Located in the Towns of Newburgh and New Windsor, near the I-87 and I-84 intersection. | ||
| – | One of the largest airports in the United States with over 10,000 acres of land, 12,000 foot runway, and an instrument landing system capable of handling any type of aircraft. | ||
| – | American Airlines, American Eagle, Delta Airlines, United Express, USAir and USAir Express provide daily service. | ||
| – | Certified US Free Trade Zone. | ||
| Dutchess County Airport | |||
| – | Located in Wappinger Falls. | ||
| – | The facility provides services for small corporate and private aircraft with two runways ranging in length of up to 5,000 feet. | ||
| – | Operated by Dutchess County, the airport no longer offers commercial air service. | ||
Commuter Rail Service
The Metro Transportation Authority provides two terminuses’ for the commuter rail lines from Poughkeepsie in western and Wassaic in eastern Dutchess County, reaching Manhattan by rail in approximately two hours. Construction was completed in 1999 extending the Harlem Valley Line north from Dover Plains to the hamlet of Wassaic in the Town of Amenia, thereby opening much of northeastern Dutchess County to commuter rail access serving New York City. Amtrak also has a passenger station in Rhinecliff with direct service into New York City on the southbound and to the Capital district and beyond northbound. The number of weekday commuters has risen significantly over the last few years to a total of 4,362 inbound riders over both Metro-North lines. The Hudson line is up by 187% and the Harlem line is up 549% since 1985. Weekend trips over the same lines is also up in similar proportions. This increase in commutation has been so extensive that a multi-tier parking deck has just been completed at the Poughkeepsie railroad station and the parking lots along the Harlem Valley line are running at capacity with many Connecticut cars evident.
Economic Trends
Dutchess County's economic base has historically been strong but manufacturing employment base declined during the last half of the 1990's into 2000. There was a slight up-tick in 2001 with declines continuing into 2002 and 2003. The 2003 change in the national employment categories manufacturing now falls under “goods producing”, “Goods producing” employment has been stable to declining within the County with the manufacturing segment decline steadily since 1998, the last positive year. Manufacturing employment represented 43.1% of the Dutchess County non-farm work force in 1980, compared to only 14.8% as of 2002 and 13.7% in 2003. IBM employment represents almost 70% of total manufacturing employment and 9.5% of total County employment. While in 1992 nearly three-quarters of County wide manufacturing employment was at IBM Corporation representing 15% of the total County workforce. In comparison to both the mid-Hudson region and New York State, the county manufacturing employment, as a percent of total employment, is almost 60% greater.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 11
Principle IBM plant locations are in East Fishkill and Poughkeepsie; the now closed Kingston (Ulster County) facility has been acquired by a private developer. IBM employment as of January 2003 was 11,346 down from the 1985 peak of 30,700, a 62% decline, and a slight decline from year end 2001. The bottom for employment levels at IBM was 9,800 employees reached at the end of 1996. Plans are for the computer giant to slowly increase employment. The announcement in October 2000 of the construction of a new $2.5 billion chip plant a 1,000 new employees were expected to be fully added by January 2003. This has not happened; the new jobs announced are to be over and above the June 2000 employment levels at the Hudson Valley Research Park and not limited to the new 300-millimeter chip plant specifically, but to any IBM jobs at the site. As illustrated by the history of IBM employment below, this dramatic increase in employment has not occurred.
| IBM Employment - at end of each year (in thousands) |
| 1990* | 1991* | 1992* | 1993* | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002* | ||||||||||||||
| 26.4 | 24.4 | 21.4 | 13.1 | 9.7 | 10.1 | 9.8 | 10.0 | 10.4 | 11.0 | NA | 11.8 | 11.4 | ||||||||||||||
| Source: *IBM as reported to Poughkeepsie Journal; all others as reported by IBM, compiled by Marist College Bureau of Economic Research. |
IBM, the dominating economic force in the region, will continue to provide stability to the local economy. The East Fishkill plant with a $700 million investment is producing a new generation of chips for use in both IBM main frames and sale to outside makers. The Poughkeepsie plant will continue to produce main frame computers; however, the market for these products is considered to have matured with slow growth forecast. However, the recent development of parallel computing systems for main frames gives some upside potential. The Kingston facility sold early in 1998 for combined amount of $3,100,000 plus an additional $13,500,000 as a reimbursement to IBM for the Fleet build-out cost and renamed Tech City. The first major tenant was announced in late April 1998 reportedly taking 168,000 square feet on fifteen year terms at an average rent of $4.56 per square foot including CAM. There previously were two small users of not more than 37,000 square feet occupying part of the site. New York State facilitated a lease deal in October 1996 between Fleet Financial and IBM of 600,000 square feet moving 3,500 full and part-time jobs to the site.
Historically, Dutchess County has led the state in percentage of employed during recent years. This trend reversed during the early 1990's with the Poughkeepsie area (Dutchess County) peaking at an 11.2% unemployment rate in June 1993, in comparison to New York State in total at 8%. The shift in jobs continues away from manufacturing in general with a net loss of 300 manufacturing jobs in the County during 2003. The service providing sector is currently (as of 2003 averages) the single largest employer with 81% of the labor force; followed by government with approximately 19% each, stable from the year before.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 12
The mid-Hudson region has benefitted from Westchester County's increased commercial real estate activity. Since the "9-11" terrorist attacks on the New York World Trade Center major Manhattan based financial companies looking to decentralize are looking to Westchester as a viable alternative for new office or redundant operations. In 2002 Morgan Stanley purchased the former Chevron/Texaco building with plans to invest more than $200 million in the property, house more than 1,500 workers and contain a 120,000 square foot trading floor in the 750,000 square foot facility located in Harrison. The law firm Skadden Arps has recently established regional offices in the County. In April of 2003 New York Life Insurance Company announce that they have closed on the 383,00 square foot Mount Pleasant Executive Center located in Sleepy Hollow. The insurance company has plans to house 1,000 workers and invest approximately $20 million in the former IBM facility. Regional real estate brokers have commented that “more New York City companies are looking at Westchester County”; because of its strategic location just north of Manhattan, its fine rail and highway systems and attractive pricing. Office space in the County goes for $19 to $28 per square foot, while Fairfield County Connecticut rents are running from $22 to as high as $70 per square foot for prime space in Greenwich. Currently it is reported, as of March 2003, there are about 20 New York firms studying the Westchester office market, four of which have large space requirements of 100,000 to 300,000 square feet.
This trend of major companies locating operations in Westchester is expected to further fuel the Dutchess County housing market especially in the more developed southern portion of the County. Salaries are substantially greater in Westchester than in Dutchess for comparable work, while housing prices are substantially lower (see housing activity section of portion of the report).
Sullivan County, considered part of the mid-Hudson region, has been identified as a location for Native American casino gaming as a replacement for the now moribund famous Catskill resorts that once dominated the local economy during the 1950's through 1970's. Presently there are three proposed casino projects; the $500 million Cayuga Nation/Alpha Hospitality Corporation development at the old Monticello Raceway, the $500 million St. Regis Mohawk/Park Place Entertainment at the Kutsher’s resort in the Town of Thompson, and the $500 million Stockbridge Munsee Band of Mohicans/Trading Cove Associates casino near exit 107 off Route 17 also in the Town of Thompson. The Cayuga Nation casino project would entail more than 600,000 square feet of new construction including a 137,00 square foot gaming floor, in addition to improvements to the racetrack. Approvals are expect within the next six months ( late summer 2003); New York State must also approve the project. Local governments are expect to receive approximately $20 million annually from the three gaming casinos.
Building Activity
As of the end of 2004, the number of building permits for all residential construction, County wide, was down in number from 1,045 in 2003 to 904 in 2004. The annual dollar cost was up from $210,956,785 to $221,325,439. For single family homes, the number of construction permits was down from 1,026 in 2003 to 872 in 2004. The annual dollar cost, however was up from $201,597,563 to $207,898,500.
New major projects within the County as reported by the County Planning Department’s August 2004 “Major Projects”summary shows that the number of units for residential projects was up from 10,823 units in 2003 to 12,812 in 2004. The new projects for 2004 include development of 60 condo units on the Hudson River in the City of Poughkeepsie by Ginsburg Development and a large condo and townhouse project at the Casperkill Country Club site of 469 units. A total of 471 units of residential subdivision activity in Amenia, Beekman, Clinton, Hyde Park and Pine Plains. A total of 96 senior housing units at a project in the Village of Red Hook. The Town of Poughkeepsie is experiencing the most diversified development with a 115,000 square feet of self-storage space, a 49 unit mobile home park, a 57,000 square foot retail/hotel development known as “Spackenkill Plaza”, a 76 unit apartment complex and 78,000 square foot retail center.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 13
Completed projects as of February 2004 include Poughkeepsie Galleria’s 38,000 square foot expansion, the Spackenkill plazas retail and hotel project, as well as Montgomery Row, a retail and office project in the Village of Rhinebeck. Withdrawn projects include the Hudson Valley Federal Credit Union’s expansion in the Town of Poughkeepsie and the Holiday Inn’s addition in the Town of Poughkeepsie.
Employment
The 2004 fourth quarter review compiled by the Marist College Bureau of Economic Research indicates that manufacturing employment has yet to reach levels of June 1992 in the IBM impacted counties of Ulster and Dutchess and likely never will. The mid-Hudson Valley continues to experienced further contraction in manufacturing employment while trade and service continues to expand.
New York State is the second largest employer in the County, primarily at the various correction facilities and the regional DOT headquarters. Federal workers number 2,000, while county workers register 1,950. The service providing sector is the largest employment sector in the County with government in second position. The U.S. Postal Service employs 600 individuals at the Remote Encoding Center in Fishkill, which was expected to close in 2004.
| TOP NON-GOVERNMENT EMPLOYERS, Feb, 2003 | |
| Company | Employees |
| IBM | 13,625 |
| Vassar Brothers Hospital | 2,000 |
| St. Francis Hospital | 1,224 |
| Vassar College | 1,800 |
| Marist College | 950 |
| GAP, Old Navy | 950 |
| Philips Semiconductor Corp. | 950 |
| Central Hudson Gas & Electric | 950 |
| Culinary Institute of America | 500 |
Total employment in the mid-Hudson Valley region has realized gains from one year ago, up by 1.48%, exceeding the growth rate of New York State which increased by .55%. The regional growth rate last year was modest compared to the last ten years and the ten year expansion in the work force. The rate of job creation regionally continues to exceed that of the state.
Dutchess County increased in average annual non-farm employment in 2004 compared to 2003, up by 1.83% with the individual sectors as follows.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 14
| Annual Nonagricultural Employment - % change | ||||||
| 2004 | 2003 | 2002 | ||||
| total nonfarm | 1.83 | % | 0.80 | % | 0.20 | % |
| total private | 2.29 | % | 1.30 | % | -0.30 | % |
| goods producing | -0.22 | % | 0.40 | % | -4.90 | % |
| nat resources, mining & construction | 0.70 | % | 7.14 | % | -3.45 | % |
| manufacturing | -0.56 | % | -1.80 | % | -5.40 | % |
| Service-Providing | 2.20 | % | 1.00 | % | 1.20 | % |
| trade, transp, utilities | 2.74 | % | -0.50 | % | -2.50 | % |
| information | 3.35 | % | -5.00 | % | -4.80 | % |
| financial activities | 6.60 | % | 2.10 | % | -4.30 | % |
| prof & business serv | 5.87 | % | 9.20 | % | -1.10 | % |
| educational health serv | 2.69 | % | 0.80 | % | 5.20 | % |
| leisure & hospitality | 1.78 | % | 0.00 | % | 3.40 | % |
| other services | 1.05 | % | 2.50 | % | 0.00 | % |
| government | -0.54 | % | -0.40 | % | 1.30 | % |
Total non-farm employment in all job sectors has finally surpassed the previous peak employment year of 1990 at 121,000 with a total for 2004 of 122,708.
Average hourly earnings for production workers in 2004 within the state increased over the previous year by 3.76% from $17.03 in 2003 to $17.67 in 2004. Figures for the Hudson Valley and Dutchess County were not reported by our data source, the Marist College - Bureau of Economic Research.
The average unemployment rate for the County decreased during the year .77% from 4.92% in 2003 to 4.15 % in 2004, representing a change of 15.65%. In comparison, the other counties in the mid-Hudson Valley region all experienced declines as well.
Tourism
According to two indicators of visitations to historic sites in the Hudson Valley, tourist activity in 2004 decreased from that of 2003 continuing a three year decline. However, total dollar expenditures for Dutchess County have been steadily increasing each year since 1993 with the 2000 figure about equal to the 1999 expenditures of $1,200,000.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 15
| Tourism receipts | ||||||||||||||
| Year | 1993 | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | |||||||
| Total | $660,208 | $730,394 | $777,482 | $865,245 | $921,642 | $1,036,268 | $1,200,000 | |||||||
| source: Poughkeepsie Journal 2/27/00 and DC Tourism Council |
The Poughkeepsie Journal reports that in 2001 3.6 million visitors came to Dutchess County with approximately half a million of those making visits to the Roosevelt, Vanderbilt and Eleanor Roosevelt National Historic Sites. The industry contributed over 11,000 jobs in 2001 for about 9% of the County workforce.
Housing
Current data indicates an increasingly strong market. The number of single family homes sold in the County over the last five years has been consistently in the 2,000+/- units per year range, after three years in the 1,800 to 1,900 range. Prices for residential real estate over the last nine years continues to experience increasingly strong growth rates as illustrated by the following table.3
| Dutchess-Average Selling Price (in thousands) | ||||||||||||||||
| 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | |||||||||
| Yrly Avg | $148.10 | $156.30 | $176.70 | $192.40 | $211.79 | $262.80 | $289.30 | $346.54 | ||||||||
| Ann % Change | 3.7% | 5.5% | 13.1% | 8.9% | 10.1% | 24.1% | 10.1% | 13.1% | ||||||||
| source: Marist College Bureau of Economic Research |
The average price of homes in the county has increased every year since 1995 with an average appreciation of 15.77% over the last three years. The County’s average sale price for 2004 was $346,544 up 13.1% from one year earlier and up 31.9% from two years ago. The mid-Hudson Valley region’s average sale price per home in 2004 was $481,492 up 9.59% from 2003 and 23.45% from two years ago. The average price of a home in Westchester was $826,799 with the next highest average in Rockland County at $462,966. The New York State average selling price for a single family home in 2004 was $293,959, up8.83% from one year earlier and 22.9% from two years ago. Over the last two years, price appreciation in Dutchess County has surpassed that of the region when it had been comparable the previous three. It is superior to that of the state as well. The percent annual change in prices for 2005 is expected to continue the trend of the last three years given the expected in-migration from the New York City metro area. As of the first quarter of 2005 (the latest data available), the average selling home price was $367,394 up from the price of the fourth quarter of 2004 at $355,844.
According to figures compiled by the Wall Street Journal regarding housing price trends in selected areas of the country, the Hudson Valley rate of price increase was among the highest throughout the country. This rapid pace of home price inflation has raised some concern about a housing bubble in the region. This student of the local housing market has noticed that over the past twenty years housing prices tend to be somewhat “sticky” or inelastic during market downturns without large and/or rapid decline in prices; any market price correction is not expected to exceed a total of 10% to 15% from current levels. We expect the price appreciation to continue at a slower pace through 2005.
3 Source: NYSAR, Marist College Bureau of Economic Research.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 16
The County had a 146.9 home afford ability index in 1999 (the last available data), 37.2 points above the region at 109.7. An index of 100 indicates that the combination of sale price, 30-year fixed rate mortgage and median family income meets the requirement that 25% or less of median family income be allocated to home payments. Indexes under 100 are less affordable than an index over 100. In comparison to competing counties such as Orange (139.9) and Ulster (137.6), Dutchess is more affordable to County residents, given the County’s median family income and average home prices.
Neighborhood Data
The subject is located in the center portion of the Town of Beekman (census tract 200.02) in southern Dutchess County, with an estimated tract population of 4,822 as of 2000. The 2000 census indicated a total town population of 11,452 individuals. The 2000 median family income for the subject census tract was $77,681 and an estimated 2005 tract median family income at $90,279. The township is one of upper level incomes and affluence, given the median household income and cost of housing. The 2000 census tract data indicated a total of 1,655 housing units of which 1,357 were owner occupied, 230 renter occupied and 68 units vacant.
Employment is primarily found outside the township with commutation to regional employment centers both within Dutchess County and to areas to the south. Businesses within the municipality are a mix of retail, personal service, office and agriculture.
The subject properties are located with in the few commercially zoned areas of the Town of Beekman with the surrounding properties are for the most part single family residential and open space or agricultural. Much of the larger parcels of vacant land in the neighborhood are being acquired for future residential development.
| DESCRIPTION OF SUBJECT PROPERTY | |
| Site Data: The two subject land tracts are described as follows: | |
| • | The 9.03 acre tract is an oddly rectangular shaped parcel of vacant land with approximately 837± feet of frontage along Route 55. There is a small amount of frontage on Church Street that does not connect with Route 55 as shown on local Tax Maps. The site moderately sloping open field. Access to the site is via Route 55 and Church Street. The site has access to public utilities, the former Dalton Farms and Water and Sewer Systems now owned by the Dutchess County Waste and Water Authority. The soils contained on the subject are comprised of Stockbridge silt loam, 3 to 8 percent slopes; which have slight to severe limitations for building (with basements) and septic system development due to percs slowly. Stockbridge silt loam, 8 to 15 percent slopes; which have moderate to severe limitations for building andseptic system development due to percs slowly. Stockbridge silt loam, 15 to 25 percent slopes; which have severe limitations for building and septic system development due to percs slowly and slope. The property is not in a flood zone or designated wetlands as per community panel Panel # 361333 0001 0014 C; not printed; |
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 17
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 18
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 19
PHOTOGRAPHS OF SUBJECT
9.03 Acre Parcel
Northwesterly view along Route 55
Southerly view along Route 55
Southwesterly view across Route 55 along
Church Street
Northwesterly view from near the southeastern
corner
Westerly view along the northern boundary
Southwesterly view from near the northeastern
corner
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 20
14.36 Acre Parcel
Northwesterly view along Route 55
Southeasterly view along Route 55
View of field located towards the southern
portion of the property. Note the woodlands
in the distance.
Northeasterly view from cottage site.
Southwesterly view of entrance to cottage site
Cottage
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 21
| HIGHEST AND BEST USE | ||
| This principle of real estate valuation is defined as, "the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value."4 | ||
| Certain criteria must be met in the economic analysis to distinguish highest and best use. These are: | ||
| 1. | Legally Permissible: Is it permissible, therefore possible? | |
| 2. | Physically Possible: Is the site, or can it be, physically adapted? | |
| 3. | Financially Feasible: Does it appear to make economic or financial sense for the proposed use to be undertaken on the site at this time? | |
| 4. | Maximally Productive: Of the financially feasible uses, what use produces the highest economic return to be undertaken on this site at this time? | |
The highest and best use of the land or a site, vacant and available for use, may be different from the highest and best use of the improved property. This is true when the improvement is not an appropriate use, but it makes a contribution to the total property value in excess of the site. The following tests are applied to the property, both as vacant and as improved, and must be met in estimating the highest and best use: the use must be legal and probable, not speculative or conjectural; demand for the use must exist and must yield the highest net return in terms of dollars to the land among the competing alternatives.
The highest and best use is the best estimate of the appraiser, based on his opinion, as to the most profitable use among those competing alternatives, after analyzing the competitive forces within the market where the property is located, at the date of valuation.
HIGHEST AND BEST USE AS VACANT
Legally Permissible The legal restrictions, as they apply to the subject, would be private restrictions such as easements and covenants, plus public restrictions such as the municipality’s zoning ordinance. There are no noted legal restrictions. Commercial/multi-family residential development is the most likely legal use given the size of the subject and the neighborhood, in addition to meeting the zoning requirement.
Physically Possible This is the constraint imposed on the possible use of the site which is dictated by the physical aspects of the subject site itself. The sites are 9.03 and 14.36 acre parcels, both with good frontage and good access via Route 55. The topography of the 9.03 acre site is a moderately sloping open field. The 14.36 acre site is moderately sloping and a mix of open fields and woodlands. There are some level areas. Both sites contain soil conditions that indicate severe to slight limitations for development. Recent development in the area indicates developers are willing to cover large excavation costs for positive returns on individual lot and home sales. Given the history of the neighborhood and the subject size, it is possible that the subject could be developed with some type of commercial/multi-family residential development.
4 The Appraisal of Real Estate, Tenth Edition, American Institute of Real Estate Appraisers, 875 North Michigan Avenue, Chicago, Illinois, 1992, Page 275. Illinois, 1992, Page 275.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 22
Financially Feasible and Maximally Productive This test analyzes the uses that are both legally permissible and physically possible, eliminating those uses which do not meet the criteria to produce income or return equal to or greater than the amount needed to satisfy operating expenses, financial obligations and capital amortization. Uses that are expected to produce a positive return are now regarded as being financially feasible within some price limit. From those financially feasible uses, the one maximally productive use is then estimated.
Recent residential/commercial projects in the Town of Beekman and the surrounding indicates commercial/multi-family residential development is financially feasible for the subject. Recent approved projects in the Town of Beekman include a 16 unit apartment complex and restaurant, 34 lot approved subdivision called Plum Court and 29 lot subdivision project called Victoria Estates. As recent as the May 19, 2005 Town of Meeting, there has been proposals of a 40 unit townhome project called Victoria Estate Townhomes.
Per client request, the existing improvements , a 660 square foot wood frame cottage built in 1940 located on the 14.36 acre subject property are ignored in this analysis. The value is based on the hypothetical condition that the improvements do not exist. Additionally, it is of the appraiser’s opinion that given the age, condition and under utilization of the commercially zoned land, the cottage is of only nominal value. The 14.36 acre parcel will be treated as vacant land only.
It is the appraiser’s opinion that the subject property would have a highest and best use for some type of commercial/multi-family development.
There are three approaches to value estimation potentially available to the appraiser in every appraisal assignment, namely: the Direct Sales Comparison Approach, the Cost Approach, and the Income Approach. The appraiser has considered each of these approaches in the appraisal process.
The Direct Sales Comparison Approach has as its premise the principle of substitution, which holds that an informed purchaser will pay no more for a property than the cost of acquiring a satisfactory substitute property, with the same utility as the subject property on the current market. The sales adjustment process, which is at the heart of the sales comparison analysis, is based on identification and measurement of the effect that the presence, absence or amount of some characteristics have on the sales price of competitive (comparable) properties and hence on the value of the subject property itself.
The Income Approach has as its premise that value is the present worth of anticipated or forecast future benefits. Present worth is obtained by discounting (i.e., the form of capitalization applied to calculate the present worth of a future income stream). This approach is generally applicable only to investment real estate expected or capable of producing money income.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 23
The Cost Approach has as its premise that the informed rational purchaser will pay not more for a property than the cost of reproducing a substitute property with the same utility as the subject property. To the site value (estimated by the Direct Sales Comparison Approach) is added the present worth of the improvements (reproduction costs less accrued depreciation) thereby developing the value of the entire property.
The applicability of any approach in a given appraisal problem depends on the problem, type of property, the market, the availability and quality of the data. Normally, each approach will indicate a different value and this serves as a check to aid in identifying erroneous assumptions. After all factors in each of the three approaches have been carefully weighed, the estimated indications of value are correlated to arrive at a final estimate of market value.
I have considered the three approaches in estimating the market value of the subject property. The cost approach was not utilized as this approach is most applicable where a new or nearly new construction is evident, and since the subject is vacant land this approach is not applicable. The income approach was not utilized as there is no income related to this subject. The direct sales comparison approach was the sole approach utilized in estimating the current market value of the subject properties as a vacant land parcels.
THE DIRECT SALES COMPARISON APPROACH
The Direct Sales Comparison Approach (Sales Approach) requires the appraiser to research the market for sales of properties similar to the subject properties. The properties are considered as two separate entities of vacant land with the previously described site characteristics.
The appraiser searched for comparable land sales in the subject towns of Beekman as well as other towns in Dutchess County, New York. These sales were chosen for their similar characteristics of location, site character and size. For this assignment, five sales of vacant land similar to the subject are analyzed. The sale properties are compared and adjusted in relation to the subject in the Adjustment Grids for:
| • | market conditions |
| • | location |
| • | land size |
| • | zoning |
| • | site characteristics |
| • | utilities |
| • | approvals |
The grids is included at the end of the valuation section of the report to assist the reader in understanding the adjustment process, while the sales are found in the Addenda.
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 24
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 25
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 26
It is my opinion that the estimate of current market value of the 9.03 acre subject property as of June 12, 2005 is:
9.03 ACRE TRACT
SIX HUNDRED SIXTY DOLLARS
($660,000)
It is my opinion that the estimate of current market value of the 14.36 acre subject property as of June 20, 2005 is:
14.36 ACRE TRACT
ONE MILLION SIXTY THOUSAND DOLLARS
($1,060,000)
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 27
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 28
HUBBELL REALTY SERVICES, INC.
Beekman Properties
June 28, 2005
Page 29
RECONCILIATION AND FINAL VALUE ESTIMATE
The final value estimate indicated for the subject properties are based on the market value of the fee simple interest, as vacant land parcels. The date of valuation is June 12, 2005 for the 9.03 acre parcel and June 20, 2005 for the 14.36 acre parcel. The Direct Sales Comparison Approach is the only approach used in this analysis.
Exposure time is estimated to be approximately twelve months given the average condition of the property and its location within the regional market place. The survey of comparable properties in the Direct Sales Comparison section of the report indicated that such properties take anywhere from one to less than two years to market.
9.03 ACRE TRACT It is my opinion that the current market value of the 9.03 acre subject property as June 12, 2005 with a one-year exposure period is:
SIX HUNDRED SIXTY DOLLARS
($660,000)
14.36 ACRE TRACT It is my opinion that the current market value of the 14.36 acre subject property as June 20, 2005 with a one-year exposure period is:
ONE MILLION SIXTY THOUSAND DOLLARS
($1,060,000)
HUBBELL REALTY SERVICES, INC.
APPENDIX C
Review Appraisal
63
THE LANDMARK APPRAISAL GROUP, INC.
REAL ESTATE APPRAISERS -- CONSULTANTS
RICHARD D. FERRARONE, MAI, SRA 914-422-3500
RICHARD F. WHITTEMORE, MAI, SRA 914-422-3980
September 14, 2005
Douglas Crocker
As representative of the
Independent Members of the
Board of Directors of Wellsford
Real Properties, Inc. c/o
Wellsford Real Properties, Inc
Re: Desk Review of Appraisal for properties located at
Route 55, (9.03 & 14.36 acre parcels)
Town of Beekman
Date of Appraisal: 6-12-2005
Date of Review: 8-25-2005
Dear Mr. Crocker:
At your request I have performed a desk review of the appraisals of
the above mentioned properties completed by Hubbell Realty Services, Inc. The
appraisal gave an adequate description of the subject property and relevant data
was presented. Proper adjustments were made and supported and the appropriate
appraisal methodology and techniques utilized. The value estimate is reasonable
and logical based upon the information presented. The appraisal was accepted
without qualifications. The appraisal is in conformance with USPAP and FIERREA
Policy.
After you have reviewed the enclosed appraisal review, should you
have any questions please do not hesitate to contact me. Thank you.
Respectfully,
The Landmark Appraisal Group, Inc.
/s/ Richard D. Ferrarone
Richard D. Ferrarone MAI, SRA
NY State General Certified R.E. Appraiser
555 E. BOSTON POST ROAD
MAMARONECK NY 10543
64
PROXY
WELLSFORD REAL PROPERTIES, INC.
PROXY FOR THE 2005 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Wellsford Real Properties, Inc., a
Maryland corporation (the "Company"), hereby appoints Jeffrey H. Lynford as
proxy for the undersigned, with full power of substitution, to attend the 2005
Annual Meeting of Stockholders of the Company to be held on _____ __, 2005 at
9:30 a.m., local time, at the offices of Bryan Cave LLP, 1290 Avenue of the
Americas, 31st floor, New York, NY 10104, and at any adjournment(s) or
postponement(s) thereof, to cast on behalf of the undersigned all votes that the
undersigned is entitled to cast at such meeting and otherwise to represent the
undersigned at the meeting with all powers possessed by the undersigned if
personally present at the meeting. The undersigned hereby revokes any proxy
previously given with respect to such shares.
The undersigned acknowledges receipt of the Notice of Annual Meeting of
Stockholders and the accompanying Proxy Statement each of which are hereby
incorporated by reference.
THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS MADE. IF THIS PROXY IS EXECUTED BUT NO
SPECIFICATION IS MADE, THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE
VOTED FOR EACH OF THE NOMINEES AND FOR PROPOSALS 2 AND 3 AND IN THE DISCRETION
OF THE PROXY HOLDERS ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF.
65
/X/ PLEASE MARK VOTES AS IN THIS EXAMPLE
1. The election of the following persons as Directors of the Company to
serve for the term set forth in the accompanying Proxy Statement.
Nominees:
Douglas Crocker II Jeffrey H. Lynford
Mark S. Germain
/ / FOR all nominees
/ / WITHHELD as to all nominees
________________________________________________________________
/ / FOR all nominees except as noted above
2. The adoption of the plan of liquidation.
/ / FOR / / AGAINST / / ABSTAIN
3. The ratification of the appointment of Ernst & Young LLP as the
Company's independent registered public accounting firm for the fiscal year
ending December 31, 2005.
/ / FOR / / AGAINST / / ABSTAIN
4. To vote and otherwise represent the shares on any other matters which
may properly come before the meeting or any adjournment(s) or postponement(s)
thereof, in their discretion.
/ / MARK HERE FOR ADDRESS CHANGE
AND NOTE AT LEFT
/ / MARK HERE IF YOU PLAN TO
ATTEND THE MEETING
Please sign exactly as name appears
hereof and date. If the shares are held
jointly, each holder should sign. When
signing as an attorney, executor,
administrator, trustee, guardian or as
an officer signing for a corporation,
please give full title under signature.
Dated: __________________, 2005
__________________________
Signature
__________________________
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.