EXHIBIT 99.1
[FIRST UNION LETTERHEAD]
May 6, 2003
William A. Ackman, Authorized Signatory
Gotham Partners L.P.
110 East 42nd Street
New York, New York 10017
Dear Bill:
I am writing at the direction of First Union's Board of Trustees in
response to your April 28, 2003 letter to the Special Committee.
I would like to address first your assertions about inaccuracies in my
letter to you of April 1, 2003 and in First Union's Form 10-K for the year ended
December 31, 2002.
Section 7.09 of the Merger Agreement does, in fact, specifically provide
that, except under limited circumstances, "all fees, costs and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such fees, costs and expenses . . . ." Section
7.09 goes on to set out the limited circumstances, arising out of Gotham's or
First Union's termination of the Merger Agreement for specified reasons, under
which First Union is required to reimburse Gotham and its affiliates and GGP and
its affiliates for their reasonable and documented out-of-pocket expenses. None
of those reasons - (i) the failure of First Union to have obtained shareholder
approval of the Merger Agreement, (ii) the material breach by First Union of any
representation, warranty, covenant or agreement in the Merger Agreement that
would have the specified effects (other than with respect to the failure to
obtain approvals or consents in connection with the Park Plaza Mall), (iii) the
withdrawal or amendment by the First Union Board of Trustees of its approval or
recommendation of the Merger and the Merger Agreement, or (iv) First Union
entering into a definitive agreement providing for an "Acquisition Transaction"
which is a "Superior Proposal" - has occurred. In the absence of any of the
specified exceptions to the general rule, the general rule prevails and each
party is required to pay its own expenses.
I did not assert in my April 1 letter that the failure to obtain the
consent of Wachovia would provide either party with a right to terminate the
Merger Agreement. Rather, I stated that, if your belief that Wachovia is
unlikely to continue to consent to the Merger is well-founded, both Gotham and
First Union could be spared considerable expense, time and aggravation by
mutually agreeing to terminate the Merger Agreement now, with each of us paying
our own expenses, as provided in the Merger Agreement. I continue to believe
that discussions toward a mutual termination of the Merger Agreement on that
basis could be a productive approach to resolving our current impasse.
As to our statement in the Form 10-K, it was and continues to be an
accurate summary of First Union's contractual obligations under Section 7.04 of
the Merger Agreement. Under the
William A. Ackman
May 6, 2003
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Merger Agreement, and in exercising its fiduciary duties to the common
shareholders as a whole, the First Union Board has no obligation to negotiate an
alternative acquisition proposal, particularly an acquisition proposal that
clearly does not provide superior benefits to the common shareholders as a whole
when compared with the transactions contemplated by the Merger Agreement. The
fact that you claim to have waived certain of Gotham's rights under the Merger
Agreement with respect to the Arbor proposal, and have offered to permit First
Union to negotiate with Corporex in exchange for the advance payment by First
Union of half of Gotham's expenses, does not change either First Union's
obligations under the Merger Agreement or the fiduciary duty of the Board of
Trustees with respect to the consideration of those acquisition proposals or
acquisition proposals generally. In fact, your advocacy of First Union's
consideration of the Corporex and Arbor proposals suggests a lack of commitment
on Gotham's part to completing the transactions contemplated by the Merger
Agreement, which would provide the greatest benefit to all of First Union's
common shareholders. Rather, it suggests that Gotham's primary interest is in
encouraging the Board of Trustees to agree to a transaction that would provide a
demonstrably lesser benefit to First Union's common shareholders but would
require First Union to pay Gotham's costs and expenses incurred in connection
with the Merger Agreement, which you have asserted at various times to us or our
counsel to be anywhere from $8 million to $15 million, or $0.23 to $0.43 per
common share. The Board believes it would be a breach of our fiduciary duty to
the shareholders to engage in a transaction that would transfer that much of the
shareholders' money to Gotham, but provide the rest of the common shareholders
with far less than the $2.33 per share to be paid under the Merger Agreement.
The Board of Trustees is aware of its responsibility to oversee the
management of the assets of First Union for the benefit of the shareholders and,
in that regard, the Board has been working closely with First Union's management
team to find ways to reduce First Union's expenses, which should help the
post-merger Gotham Golf Corp., as the surviving corporation, meet any net worth
requirements imposed by Wachovia in consenting to the Merger. To that end, First
Union has over the last few months reduced various administrative costs relating
to rent and insurance, significantly reduced the substantial outside management
fees incurred with respect to VenTek International and, to the extent possible,
reduced professional fees not associated with the Merger. We continue to
believe, however, that the more significant matters that would affect the
surviving entity's net worth are Gotham-related matters about which we have no
current information, such as the current value of the Gotham Golf business and
the potential success of the subscription rights offering for Gotham Golf Corp.
common shares. If you were to share with us current financial information about
the Gotham Golf business we would be in a better position to assess the
likelihood of obtaining an updated consent from Wachovia. In that regard, we
note that Gotham Golf Corp. has not filed with the SEC the Annual Report on Form
10-K that it was required by law to file not later than March 31, 2003.
Contrary to your view, we do not believe that it is appropriate at this
time for First Union to conduct either a tender offer for its senior debt or any
repurchase of its common shares. Your
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William A. Ackman
May 6, 2003
Page 3
right to request First Union to take certain actions pursuant to Section 7.01(b)
of the Merger Agreement is expressly "subject to applicable law and the
fiduciary duties of the Company's Board of Trustees" [emphasis added]. As you
know, the senior debt comes due in less than six months, and it currently trades
at a premium to par. The combination of the expense of conducting a tender offer
for the debt and the need to pay a substantial premium for debt that First Union
will pay at par upon maturity in October of this year cannot be cost-justified.
Such a program would result in a needless transfer of shareholders' equity to
the senior debt holders and various service providers. Further, a tender offer
for common shares at this time would be inconsistent with and require a
substantive revision to the shareholder-approved Merger Agreement, would be
prohibitively expensive and, with the required SEC review, would almost
assuredly take an excessive amount of time to complete. While the Board could
authorize an open-market share repurchase program without SEC pre-clearance, in
your letter you did not specify a maximum price per common share for share
repurchases. Accordingly, the Board is not able to consider fully whether it has
fiduciary obligations and what they might be with respect to such a program
undertaken at Gotham's direction. I should note that, given the restraints on
open-market repurchase programs imposed by SEC Rule 10b-18 and First Union's
thin trading volume, an open-market repurchase program is not likely to result
in the repurchase of many common shares at attractive prices and, therefore, is
unlikely to result in any substantial increase in First Union's net asset value
per common share. It is also unclear what implications, if any, such repurchases
would have on the ongoing litigation.
Your request, given its timing, vagueness and context, has caused the
Board to speculate whether it was made in complete good faith or whether you may
be attempting to construct artificial circumstances in order to set up an
alleged breach by us of the Merger Agreement so that you can attempt to
terminate it and try to collect your excessive expenses from First Union's
shareholders. We would hope the latter is not the case, but if it is, First
Union will not fall into that trap.
The tone of your recent communications with First Union suggests to the
Board that Gotham Partners and Gotham Golf Partners are no longer willing, and
perhaps are no longer able, to carry through with their obligations under the
Merger Agreement. Indeed, based on various reports in the news media, it appears
that Gotham Golf Partners may be in breach of a number of its representations
and warranties in the Merger Agreement, including those contained in Sections
5.07 and 5.11, and that Gotham Partners and Gotham Golf Partners may not be able
to satisfy the conditions to closing under the Merger Agreement.
In contrast, First Union continues to be fully committed to performing its
obligations under the Merger Agreement and to obtaining the benefits to all its
shareholders provided by that agreement. However, if Gotham has reason to
believe that the transactions contemplated by the Merger Agreement cannot be
consummated, it does not make sense for the parties to the Merger Agreement to
continue to expend time and money pursuing the impossible. If the Merger
Agreement were terminated, the Board of Trustees would be able, once again, to
consider all of
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William A. Ackman
May 6, 2003
Page 4
its options to maximize the value of First Union for all of its shareholders. As
I have said before, I believe our Board would be inclined to evaluate seriously
a mutually agreeable termination of the Merger Agreement with full releases to
all parties.
Please contact me if you have any interest in pursuing this discussion.
Cordially yours,
By: /s/ Daniel J. Altobello
---------------------------
Daniel J. Altobello, Chair
Special Committee of the Board of
Trustees
cc: David S. Klafter
Adam O. Emmerich
Thomas H. McCormick
Thomas J. Plotz
F. Ronald O'Keefe
Neil Koenig
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