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EXHIBIT 99.2
GOTHAM PARTNERS, L.P.
110 EAST 42ND STREET
NEW YORK, NEW YORK 10017
September 19, 2001
Special Committee of the Board of Directors of
First Union Real Estate Equity and Mortgage Investments
Re: Letter of Intent
Gentlemen:
Reference is made to that certain letter, dated July 3, 2001, which set
forth the general outline of the current transaction we are proposing (the
"Proposed Transaction") between First Union Real Estate Equity and Mortgage
Investments ("First Union") and Gotham Partners, L.P. and certain of its
affiliates ("Gotham"). In connection with the foregoing, this letter of intent
(the "Agreement") sets forth the principles and commitments of the parties in
furtherance of the negotiations and definitive agreements to be entered into in
respect of the Proposed Transaction.
You should understand that the Proposed Transaction has been submitted
to you on a preliminary basis and, consequently, this Agreement does not
represent a binding commitment by any party to undertake the Proposed
Transaction. Furthermore, subject to the provisions hereof, each party reserves
the right to discontinue discussions with respect to the Proposed Transaction at
any time, and for any or no reason. Notwithstanding the foregoing, this
Agreement represents a binding commitment on the part of First Union with
respect to the exclusivity and expense reimbursement provisions contained
herein.
In consideration of the premises, covenants and agreements set forth
herein and other good and valuable consideration, the receipt and sufficiency of
which are acknowledged and agreed, the parties hereto agree as follows:
1. Transaction Outline. The Proposed Transaction will require First Union
common shareholder approval, which will be solicited pursuant to a single
proxy statement-prospectus. The Proposed Transaction will be part of an
integrated plan which will be consummated at a single closing occurring
after the effective time of the merger described below. The Proposed
Transaction will consist of the following steps:
(a) First Union will contribute all of its existing assets other than
the Retained Assets (as defined herein) (the "Distributed
Assets") to a newly formed publicly traded company, First Union
Asset Company ("FAC"), in exchange for
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September 19, 2001
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units ("Units") representing all of the equity interests in FAC.
The "Retained Assets" will consist of cash and cash equivalents
in an amount equal to the sum of (x) $114.25 million and (y) an
amount equal to accumulated but unpaid dividends and interest on
debt and preferred stock of First Union (whether or not then due
or payable, but instead calculated on a pro rata basis with
respect to the time since the last payment of dividends or
interest).
(b) The legal form of FAC has not been finally determined but will,
in any event, have limited liability to the Unit holders. FAC's
organizational documents will provide for an orderly sale and/or
distribution of the Distributed Assets, including the Park Plaza
Mall, Circle Tower, HQ Global preferred stock and warrants,
Ventek, the Peach Tree Mall legal claim, and non-cash working
capital. FAC will assume all existing and contingent liabilities
of First Union other than (1) the $12.5 million of 8.875% Senior
Notes due September 15, 2003, (2) the $24.7 million of 8.4%
convertible preferred stock (including any accrued but unpaid
interest and dividends on this debt and preferred stock) and (3)
certain specific liabilities to be scheduled, which will remain
obligations of First Union (or its successor, as described
below).
(c) FAC will provide First Union with a blanket indemnity against any
and all claims of whatever kind or nature including but not
limited to environmental claims relating to the use, ownership,
lease, operation or maintenance of the Distributed Assets and for
any or all liabilities, obligations, claims, causes of action or
any other liabilities arising or related to the Distributed
Assets or the Proposed Transaction.
(d) First Union will agree to provide or cause to be provided up to
$6 million of secured working capital financing to support FAC's
requirements. The working capital facility will have the
following terms, and such other terms as are customary for
similar facilities: 2% per annum facility fee on undrawn
available amounts; 12.75% interest on drawn amounts; 2 year term;
secured by all the assets of FAC; all net proceeds of asset sales
and other extraordinary receipts will be used to repay any
amounts drawn under the facility (and such prepayments, as well
as any other prepayments, will reduce the available amount under
the facility for the remaining term thereof; in the event of what
would otherwise be a required repayment event at a time when
there is no amount drawn under the facility, or when the amount
that would otherwise be required to be repaid is in excess of the
amount then drawn, the amount of such otherwise required or
excess repayment will permanently reduce the availability under
the facility). FAC will be managed by a management team to be
determined by the parties.
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(e) First Union will merge with and into a newly formed company,
Newco, a Delaware corporation. Concurrently, Gotham will
contribute its equity interests in Gotham Golf Partners, L.P. and
related assets ("GGP") to Newco in exchange for newly issued
common stock of Newco. Immediately following the consummation of
the merger, Newco shall be renamed Gotham Golf Corp.
(f) In connection with the merger described in subsection 1(e) above,
First Union common shareholders (other than Gotham with respect
to the shares to be concurrently issued to it in respect of the
contribution of GGP) will receive cash in the amount of the per
share net asset value, subject to certain adjustments (but not to
be adjusted below $2.20 per share of common stock), of First
Union at closing (which will be funded out of First Union's
existing cash on hand) in exchange for their shares of First
Union common stock.
(g) In addition to the foregoing, concurrently with the consummation
of the merger, each former shareholder of First Union common
stock will receive rights to subscribe for stock in Gotham Golf
Corp. in proportion to such shareholder's ownership of common
stock immediately preceding the merger, for up to $40 million in
Gotham Golf Corp. equity with GGP having an equity valuation of
$50 million prior to the subscription offering. If and to the
extent that any such holders of common stock decline to exercise
such rights, the remaining holders of such rights shall be
permitted to subscribe for the remaining Gotham Golf Corp. stock
available in the subscription offering. The parties will endeavor
to encourage a when-issued market in the rights prior to the
close of the subscription offering.
(h) In connection with the matters described in subsection 1(a)
above, First Union common shareholders will have the option (the
"FAC Election") of electing to receive (i) a pro rata
distribution of FAC Units, or (ii) cash of $0.50 per Unit
(subject to possible adjustment as described in the next
sentence, the "FAC Cash Amount") in lieu of their pro rata
distribution of FAC Units. The aggregate FAC Cash Amount will be
subject to reduction on a dollar-for-dollar basis by the amount
by which transaction costs (other than fees and expenses of any
investment banker or legal counsel to GGP retained by GGP in
connection with the $40 million equity offering, and other than
SEC filing fees, reasonable printing costs and any fees and
expenses (including, without limitation, fees for accountants,
lawyers, financial advisors and consultants) incurred by Gotham
for its own account in connection with the Proposed Transaction)
payable by First Union or FAC exceed $2 million, with such
reduction to be applied pro rata on a per Unit basis.
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(i) If and to the extent common shareholders fail to make an election
in connection with the FAC Election, such shareholders shall be
deemed to have elected to receive FAC Units.
(j) In exchange for Gotham paying cash to First Union in an amount
equal to the FAC Cash Amount, First Union will sell and Gotham
will purchase a number of Units equal to the number of Units in
lieu of which First Union common shareholders elected to receive
cash (as described above).
(k) Prior to the consummation of the Proposed Transaction shares of
First Union convertible preferred stock will continue to have the
right to convert into shares of First Union common stock, in
accordance with their existing terms. In connection with the
Proposed Transaction, each current holder of such shares will
receive shares of convertible preferred stock of Gotham Golf
Corp., which will have identical terms to the shares of First
Union convertible preferred stock.
(l) The Proposed Transaction will be effected pursuant to a
combination agreement in form and substance customary for
transactions of this sort, which would be entered into only
following (i) approval and recommendation by a the unaffiliated
members of the First Union Board of Directors in connection with
the consideration of the Proposed Transaction, and (ii) receipt
by First Union of an opinion from its independent financial
advisor as to the fairness from a financial point of view of the
Proposed Transaction to the common shareholders of First Union
unaffiliated with Gotham. The Board of First Union will not be
required to make a recommendation with respect to the
shareholders' election to receive cash in lieu of FAC Units. The
Board of First Union will not be required to make a
recommendation with respect to the exercise of the subscription
rights for Gotham Golf Corp.
2. Conditions. The obligation of First Union and Gotham to consummate the
Proposed Transaction will be conditioned upon, among other items to be
mutually agreed, the satisfaction of the following:
(a) Completion of the definitive documentation of the transactions
described herein on terms and conditions satisfactory to both
parties.
(b) Receipt of all necessary consents to the transactions
contemplated hereby (including the consent of any third parties).
(c) Receipt of all necessary and advisable governmental approvals,
satisfactory to both parties, of the transactions described
herein.
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(d) Approval by no less than a majority of First Union's existing
common shareholders and approval by no less than 70% of the Board
of First Union of the Proposed Transaction. At the time that a
definitive agreement is entered into in respect of the Proposed
Transaction, shareholders represented on the Board will enter
into agreements to vote in favor of the Proposed Transaction.
(e) From the date of execution of the definitive documentation until
the consummation of the transactions described herein and subject
to the operation of First Union's business in accordance with
ordinary course past practices (excluding changes caused (x) by
the announcement of the transaction and (y) economic events
generally related to the U.S. economy or securities markets), and
further subject to the satisfaction or waiver on or prior to the
closing, on the part of Gotham, the absence of any material
adverse change in First Union's businesses and assets including,
without limitation, (A) the commencement of voluntary or
involuntary bankruptcy proceedings, the acceleration of or any
material default under any existing material loan agreement (if
not waived by the relevant creditors or debt holders (but
excluding any waiver that is for a period of time not extending
beyond the end of the immediately following fiscal quarter)), a
general assignment for the benefit of creditors, or the
appointment or motion for the appointment of a trustee, receiver,
or liquidator for all or a substantial part of the assets or
properties with respect to HQ Global or any other material
portion of the Distributed Assets (or any determination or public
announcement to take any such action or any public announcement
that any such action is under consideration); or (B) receipt of a
draw notice with respect to the Ventek performance guarantees.
The parties agree that the following shall not constitute a
"material adverse change": (i) the commencement of construction
of a mall or similar shopping facility in a location that
competes with the Park Plaza Mall and (ii) the insolvency of HQ
Global or Ventek, unless the conditions in (A) above are met.
Subject to their mutual agreement, the parties will also include
in the definitive documentation any further exceptions to the
notion of a "material adverse change."
3. Exclusivity. During the Exclusivity Period (as defined herein), Gotham
shall have the exclusive right to conduct due diligence, evaluate
Confidential Information (as such term is defined in that certain
letter agreement, dated August 9, 2001, by and between the parties
hereto, hereafter the "Confidentiality Agreement") and to conduct
discussions and negotiations with First Union relating to the Proposed
Transaction. The period from the acceptance of this Agreement through
the earlier of (i) November 15, 2001 or (ii) the date Gotham receives
written notice from First Union that it has received a Superior
Proposal (as defined herein) and that First Union believes in good
faith based upon the advice of counsel that its fiduciary duties
require it to terminate discussions relating to the Pro-
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posed Transaction as a result of and to pursue such Superior Proposal is
hereinafter referred to as the "Exclusivity Period." During the
Exclusivity Period, neither First Union nor its Representatives (as such
term is defined in the Confidentiality Agreement) shall, directly or
indirectly, (i) solicit, initiate or encourage any inquiry or proposal,
except from Gotham, that constitutes, or may be reasonably expected to
lead to, a proposal or offer to acquire any interest in, dispose of or
otherwise result in a change of control of First Union or any of its
assets (any of the foregoing inquiries or proposals being referred to in
this Agreement as an "Acquisition Proposal"); (ii) engage in negotiations
or discussions concerning, or provide any information to any person or
entity relating to, an Acquisition Proposal; or (iii) agree to, approve or
recommend any Acquisition Proposal. A "Superior Proposal" is a bona fide
proposal made by a third party to acquire, for consideration consisting of
cash or publicly-traded securities, more than 90% of the common shares of
First Union or all or substantially all of the assets of First Union, on
terms that the Board of Directors of First Union determines in good faith
(based on the advice of a financial advisor of nationally recognized
reputation) to be more favorable to its stockholders than the Proposed
Transaction and for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of Directors
of First Union, is reasonably capable of being obtained.
4. Expenses. Except as provided in the following two sentences, each
party shall bear its own expenses with respect to the Proposed
Transaction, including, without limitation, fees for accountants,
lawyers, financial advisors and consultants. Notwithstanding the
foregoing, First Union shall reimburse Gotham and its affiliates
(including GGP) for their reasonable and documented out-of-pocket
expenses incurred in connection with the Proposed Transaction in the
event that (A) during the Exclusivity Period, First Union terminates
discussions with Gotham relating to the Proposed Transaction if such
termination is in connection with an alternative Acquisition Proposal
or Superior Proposal, or (B) within 9 months from and after the end of
the Exclusivity Period , either (x) a transaction that would constitute
an alternative Acquisition Proposal or Superior Proposal is otherwise
consummated or recommended by First Union or its Board of Directors, or
any definitive agreement with respect to such a transaction is entered
into, or (y) First Union enters into discussions or negotiations with
respect to any such agreement or transaction, which subsequently lead
to any of the events or circumstances set forth in the foregoing clause
(x). Furthermore, notwithstanding the first sentence of this Section
4, in the event that the Proposed Transaction is consummated, the
transaction costs related thereto (including, without limitation, fees
and expenses, but excluding fees and expenses of any investment banker
or legal counsel to GGP retained by GGP in connection with the $40
million equity offering, and the SEC filing fees related to such
offering, all of which will be borne by First Union and its successor
Gotham Golf Corp.) will be borne by FAC, and accordingly FAC will
promptly reimburse the parties' and their affiliates' reasonable
expenses incurred in connection with the Proposed Transaction,
including, without limitation, fees for accountants, lawyers, financial
advisors and consultants.
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5. Enforcement. First Union and Gotham expressly acknowledge that any
breach of any term of this Agreement could severely impact the other
party's business, assets and/or operations. The parties agree that
monetary damages are an insufficient remedy for any actual or anticipatory
breach of this Agreement, and that injunctive relief is an appropriate
remedy to prevent any breach of any term hereof. Such remedy shall not be
deemed the exclusive remedy for any breach of this Agreement but shall be
in addition to all other rights and remedies available at law or in
equity.
6. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York without regard to its
choice of law provisions.
7. Entire Agreement. This Agreement and any agreements and the understandings
related hereto (whether in writing or otherwise) embody the entire
agreement and understanding of the parties hereto; there are no
restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein;
and all prior agreements and understandings between the parties with
respect to the subject matter hereof and thereof are superseded.
8. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be deemed to be an original, but all
of which together shall constitute one and the same instrument.
Facsimile signatures on this Agreement shall be deemed to be original
signatures for all purposes.
9. Interpretation. The section headings contained in this Agreement are
for convenience of reference only, are not part of the agreement of the
parties and shall not affect in any way the meaning or interpretation
of this Agreement.
10. No Partnership or Similar Endeavor. Nothing herein shall be construed (i)
as creating any partnership, joint venture, or similar relationship
between Gotham, First Union or their respective affiliates or (ii) as
creating any obligation on either Gotham and First Union to perform any
work or to enter into any agreement or business arrangement.
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If the foregoing is acceptable, please so signify by executing and
returning to the undersigned a copy of this Agreement.
Very truly yours,
BY AND ON BEHALF OF
GOTHAM PARTNERS, L.P.
By: Section H Partners, L.P.,
its general partner
By: Karenina Corporation,
a general partner of Section H
Partners, L.P.
By:/s/ William A. Ackman
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Name: William A. Ackman
Title: Principal
BY AND ON BEHALF OF
FIRST UNION REAL ESTATE EQUITY
AND MORTGAGE INVESTMENTS
By: /s/ Daniel J. Altobello
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Name: Daniel J. Altobello
Title: Chairman of the Special Committee
of the Board of Trustees
cc. Thomas H. McCormick, Esq., Shaw Pittman LLP