-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I7lPpzxQL+2+fx1g1AwzY3i5js4aJcl3jTceA+lckaz3S87U0X86INy3afopue9D KJlLzh8FPG7BKeAgEPUnug== 0000898822-01-500349.txt : 20010704 0000898822-01-500349.hdr.sgml : 20010704 ACCESSION NUMBER: 0000898822-01-500349 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 20010703 GROUP MEMBERS: GOTHAM INT'L ADVISORS, L.L.C. GROUP MEMBERS: GOTHAM PARTNERS II, L.P. GROUP MEMBERS: GOTHAM PARTNERS III, L.P. GROUP MEMBERS: GOTHAM PARTNERS LP /NY/ SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FIRST UNION REAL ESTATE EQUITY & MORTGAGE INVESTMENTS CENTRAL INDEX KEY: 0000037008 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 346513657 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: SEC FILE NUMBER: 005-19676 FILM NUMBER: 1674445 BUSINESS ADDRESS: STREET 1: 551 FIFTH AVE STREET 2: STE 1416 CITY: NEW YORK STATE: NY ZIP: 10176 BUSINESS PHONE: 2129051104 MAIL ADDRESS: STREET 1: 551 FIFTH AVE STREET 2: SUITE 1416 CITY: NEW YORK STATE: NY ZIP: 10176 FORMER COMPANY: FORMER CONFORMED NAME: FIRST UNION REALTY DATE OF NAME CHANGE: 19691012 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: GOTHAM PARTNERS LP /NY/ CENTRAL INDEX KEY: 0000899983 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 363593298 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 110 EAST 42ND ST 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2122860300 MAIL ADDRESS: STREET 1: 110 EAST 42 ND ST 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 SC 13D/A 1 sch13d-agothampart01jul2.txt SCHEDULE 13D/A - AMENDMENT NO. 40 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------------------- SCHEDULE 13D/A UNDER THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. 40) ----------------------------------------- FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (NAME OF ISSUER) SHARES OF BENEFICIAL INTEREST, $1.00 PAR VALUE (TITLE OF CLASS OF SECURITIES) 337400105 (CUSIP NUMBER) ----------------------------------------- DAVID S. KLAFTER, ESQ. GOTHAM PARTNERS MANAGEMENT CO., LLC 110 EAST 42ND STREET NEW YORK, NEW YORK 10017 (212) 286-0300 (NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS) ----------------------------------------- JULY 3, 2001 (DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box. [ ] Check the following box if a fee is being paid with the statement. [ ] (A fee is not required only if the reporting person: (1) has a previous statement on file reporting beneficial ownership of more than five percent of the class of securities described in Item 1; and (2) has filed no amendment subsequent thereto reporting beneficial ownership of five percent or less of such class.) (See Rule 13d-7.) Note: Schedules filed in paper format shall include a signed original and five copes of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). ================================================================================ - -------------------- --------------------------- CUSIP NO. 337400105 SCHEDULE 13D (PAGE 2 OF 10) - -------------------- --------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON/ S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Gotham Partners, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 2,873,158 BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH --------------------------------------------------------------- 8 SHARED VOTING POWER 0 --------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 2,873,158 --------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,873,158 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 8.24% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- * See Instructions - -------------------- --------------------------- CUSIP NO. 337400105 SCHEDULE 13D (PAGE 3 OF 10) - -------------------- --------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON/ S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Gotham International Advisors, L.L.C. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 2,431,664 BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH --------------------------------------------------------------- 8 SHARED VOTING POWER 0 --------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 2,431,664 --------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,431,664 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 6.97% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* OO;IA - -------------------------------------------------------------------------------- * See Instructions - -------------------- --------------------------- CUSIP NO. 337400105 SCHEDULE 13D (PAGE 4 OF 10) - -------------------- --------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON/ S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Gotham Partners III, L.P. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 58,448 BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH --------------------------------------------------------------- 8 SHARED VOTING POWER 0 --------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 58,448 --------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 58,448 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.17% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- * See Instructions - -------------------- --------------------------- CUSIP NO. 337400105 SCHEDULE 13D (PAGE 5 OF 10) - -------------------- --------------------------- - -------------------------------------------------------------------------------- 1 NAME OF REPORTING PERSON/ S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Gotham Holdings II, L.L.C. - -------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [ ] - -------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------- 4 SOURCE OF FUNDS* WC - -------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) or 2(e) [ ] - -------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION New York - -------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 477,963 BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH --------------------------------------------------------------- 8 SHARED VOTING POWER 0 --------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 477,963 --------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER 0 - -------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 477,963 - -------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] - -------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.37% - -------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* PN - -------------------------------------------------------------------------------- * See Instructions This Amendment No. 40 (this "Amendment") amends and supplements the Statement on Schedule 13D, as amended (the "Schedule 13D"), relating to the shares of beneficial interest, par value $1.00 per share (the "Shares"), of First Union Real Estate Equity and Mortgage Investments, an Ohio business trust, (the "Issuer") previously filed by Gotham Partners, L.P. ("Gotham") and Gotham Partners III, L.P., New York limited partnerships, and Gotham Holdings II, L.L.C. and Gotham International Advisors, L.L.C., Delaware limited liability companies (together, the "Reporting Persons"). This Amendment is being filed to update the Schedule 13D in light of certain recent events. Capitalized terms used and not defined in this Amendment have the meanings set forth in the Schedule 13D. Except as specifically provided herein, this Amendment does not modify any of the information previously reported on the Schedule 13D. ITEM 4. PURPOSE OF TRANSACTION Item 4 is hereby amended to add the following: (a)-(j) On July 3, 2001 the Reporting Persons delivered a letter (the "Proposal Letter") (a copy of which is attached as an exhibit hereto and incorporated herein by reference, and the description herein of which is qualified in its entirety by reference thereto) proposing certain transactions between the Reporting Persons and the Issuer, as more fully described in the Proposal Letter (the "Proposed Transaction"), to a special committee of the Issuer's board of directors. In connection with their proposal, the Reporting Persons hope to enter into discussions (with a view toward entering into definitive binding agreements) with the board of directors, management and certain existing stockholders of the Issuer regarding the Proposed Transaction or alternative transactions between or among such persons, including disposition or combination transactions involving the Issuer and certain of the Reporting Persons or their affiliates and/or certain assets of such persons. The Reporting Persons have filed this Amendment to reflect their proposal as to the Proposed Transaction. If the Proposed Transaction is consummated, among other matters, there may be a change of control of the Issuer, with the Reporting Persons and/or their affiliates controlling the Issuer thereafter. In addition to and in light of the foregoing matters, the Reporting Persons intend to review their holdings in the Issuer on a continuing basis. As part of this ongoing review, the Reporting Persons have engaged or may in the future engage, legal and financial advisors to assist them in such review and in evaluating strategic alternatives that are or may become available with respect to the Issuer and their holdings in the Issuer. In respect of that review, and depending upon, among other things, current and anticipated future trading prices for the Issuer's equity, the financial condition, results of operations and prospects of the Issuer and its businesses, general economic, market and industry conditions, and the Reporting Persons' overall investment portfolio, strategic objectives and financial condition, the Reporting Persons may from time to time consider a number of possible alternative strategies for enhancing the value of their investment in the Issuer, enhancing the value of the Issuer's assets or enhancing the value of the Reporting Persons' assets through the involvement of the Issuer, or other extraordinary matters relating to the Issuer, including, among other things: (i) proposing or taking actions with the purpose and/or effect of causing the Issuer to engage in self-tender or buyback of Shares; (ii) continued ownership of the Issuer's equity currently beneficially owned by the Reporting Persons; (iii) acquiring additional securities of the Issuer in the open market, in privately negotiated transactions or otherwise; (iv) a sale or transfer of a material amount of assets of (A) the Reporting Persons and/or their affiliates to the Issuer and/or its affiliates or (B) the Issuer and/or any of its affiliates to the Reporting Persons and/or their affiliates; (v) proposing or seeking a business combination with the Issuer or otherwise proposing or seeking to take control of the Issuer or otherwise effect an extraordinary corporate transaction such as an acquisition, merger, recapitalization, reorganization or liquidation involving the Issuer, the Reporting Persons or any of their respective subsidiaries and/or affiliates or assets; (vi) or proposing or effecting any other transaction or matter that would constitute or result in any of the transactions, matters or effects enumerated in Item 4(a)-(j) of Schedule 13D. In light of the preliminary nature of the Proposed Transaction and the considerations noted above, there can be no assurance that the Reporting Persons will continue to pursue the Proposed Transaction or that the Proposed Transaction or any similar transaction will be acceptable to the Issuer or as to the terms of any transaction that may be entered into by the Issuer, the Reporting Person or any of their respective affiliates. Moreover, there can be no assurance that the Reporting Persons will or will not develop any alternative plans or proposals with respect to any of the foregoing matters or take any particular action or actions with respect to some or all of their holdings in the Issuer, or as to the timing of any such matters should they be so pursued by the Reporting Persons. The Reporting Persons reserve the right, at any time and in each Reporting Person's sole discretion, to take or refrain from taking any of the actions set forth above. Except as set forth above, the Reporting Persons have no present plans or intentions that would result in any of the matters required to be set forth in items (a) through (j) of Item 4 of Schedule 13D. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS 99.1 Letter from Gotham Partners, L.P. to the Special Committee of the Board of Directors of First Union Real Estate Equity and Mortgage Investments. After reasonable inquiry and to the best of our knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. July 3, 2001 GOTHAM PARTNERS, L.P. By: Section H Partners, L.P., its general partner By: Karenina Corporation, a general partner of Section H Partners, L.P. By: /s/ William A. Ackman ------------------------------------- William A. Ackman President GOTHAM PARTNERS III, L.P. By: Section H Partners, L.P., its general partner By: Karenina Corporation, a general partner of Section H Partners, L.P. By: /s/ William A. Ackman ------------------------------ William A. Ackman President GOTHAM INTERNATIONAL ADVISORS, L.L.C. By: /s/ William A. Ackman ------------------------------------ William A. Ackman Senior Managing Member GOTHAM HOLDINGS II, L.L.C. By: Gotham Holdings Management LLC, the Manager By: /s/ William A. Ackman ------------------------------------ William A. Ackman Senior Managing Member EX-99 2 gothpartofferletter01jul3.txt EXHIBIT 99.1 - LETTER FROM GOTHAM PARTNERS, L.P. Exhibit 99.1 GOTHAM PARTNERS, L.P. 110 EAST 42ND STREET NEW YORK, NY 10017 July 3, 2001 BY FED EX AND FACSIMILE Mr. Daniel Altobello Mr. Bruce Berkowitz Chairman and Member of Special Committee of the Board of Directors of First Union Real Estate 125 Park Avenue New York, New York Gentlemen: Since the withdrawal of our prior proposal to First Union Real Estate Equity and Mortgage Investments ("First Union"), we have had time to consider issues that were raised by shareholders, members of the board, the special committee and its advisors. Based on the feedback we received, we have constructed an alternative transaction (the "Proposed Transaction") that we believe maximizes shareholder value and minimizes valuation considerations. As explained below, the transaction will allow all shareholders to ------------------------------------------------------------------ receive a minimum value of $2.70 per share in cash without risk of pro-ration, - ------------------------------------------------------------------------------ or up to a maximum of $3.53 per share plus the value of the Peach Tree Mall - --------------------------------------------------------------------------- litigation in a combination of cash and stock if they elect to continue to - -------------------------------------------------------------------------- retain an equity interest in the current non-cash assets of First Union through - ------------------------------------------------------------------------------- the ownership of shares in a newly distributed company. - ------------------------------------------------------- The transaction is structured to permit all shareholders the option to: (1) sell their entire interest in First Union for total consideration of $2.70 per share in cash; this value would be available for every share tendered without risk of pro-ration, (2) elect to continue to participate in the value of the current non-cash assets of First Union through a newly distributed com- First Union Real Estate Equity and Mortgage Investments July 3, 2001 Page 2 pany, First Union Asset Company ("FAC"), and receive $2.35 per share in cash, (3) elect to receive $0.35 per share in lieu of participating in FAC, but continue as a shareholder of First Union, which will combine with a new real-estate-related operating company, or (4) continue as a shareholder of both FAC and First Union. The Proposed Transaction contemplates three related elements. In the first, First Union will contribute all of its existing assets other than cash to a newly formed publicly traded company, FAC. All of the shares in FAC will be distributed to the existing shareholders of First Union. All shareholders will have the option to receive cash of $0.35 in lieu of their distribution of FAC shares. We expect that the distribution will qualify as a return of capital that will be non-taxable to most shareholders. FAC's organizational documents will provide for an orderly sale and/or distribution of its assets, which will include 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 current and contingent liabilities of First Union other than the $12.5 million of 8.875% Senior Notes due September 15, 2003 and the $24.7 million of 8.4% convertible preferred stock which will remain obligations of First Union. FAC will have a net asset value of approximately $0.35 to $1.18 per share, plus the value of the Peach Tree Mall litigation. In order for shareholders to have the option to exchange their interest in FAC for cash, Gotham Partners, L.P. or an affiliate ("Gotham") will agree to acquire any FAC shares at the time of the distribution for $0.35 per share from shareholders who wish to sell their interest in FAC for that price. We anticipate that, after the completion of the distribution of FAC shares, First Union will have approximately $119 million in cash as its only asset, and the $12.5 million of 8.875% Senior Notes due September 15, 2003 and the $24.7 million of 8.4% convertible preferred stock as its only liabilities. First Union will accordingly have a net asset value equal to its cash net of debt and preferred stock, which will be $81.8 million ($119 million minus $37.2 million). With 34.8 million common shares outstanding, the net asset value per common share of First Union post-distribution would be $2.35 per share. This estimated net asset value is subject to change in the event that the cash at First Union is higher or lower than estimated as a result of cash generated, or transaction and other expenses incurred, between now and the time of closing. In the second element of the Proposed Transaction, Gotham will contribute Gotham Golf Partners, L.P. and related assets ("GGP") to First Union (or a newly formed holding company in which First Union's stockholders would also become stockholders) in exchange for newly issued common stock. For purposes of determining the number of shares issued to Gotham, the stock of First Union will be valued at its net asset value. For the purposes of the share exchange, we would agree to value GGP at fair value as determined by negotiation between First Union and Gotham. First Union Real Estate Equity and Mortgage Investments July 3, 2001 Page 3 Because FAC shares will be distributed to existing First Union -------------------------------------------------------------- shareholders before the contribution of GGP to First Union, there is no risk - ---------------------------------------------------------------------------- that existing First Union shareholders that elect to retain their interest in - ----------------------------------------------------------------------------- FAC will be unfairly diluted out of their interest in the existing assets of - ---------------------------------------------------------------------------- First Union. This transaction structure thereby minimizes valuation issues, as - ------------------------------------------------------------------------------ cash will be First Union's only remaining asset following the distribution of - ----------------------------------------------------------------------------- FAC and before the contribution of GGP. - --------------------------------------- The third element of the Proposed Transaction would be a self-tender by First Union for up to 34.8 million shares at net asset value, which we believe will be approximately $2.35 per share. Shareholders who wish to continue to participate in First Union can elect not to tender their shares and instead retain their equity interest. All shareholders who tender shares will receive net asset value for their shares or approximately $2.35 per share for their interest in First Union in addition to their previous receipt of FAC shares, which they may elect to sell to Gotham for $0.35 per share, sell in the market for their public traded value or retain. Gotham will commit not to tender any of the shares received in respect of its contribution of GGP. First Union would agree to provide or cause to be provided up to $6 million of secured working capital financing on market terms to support FAC's requirements. We would anticipate that FAC would be externally advised and managed. The Proposed Transaction would be subject to approval by the stockholders of First Union and to other customary conditions, including registration of the shares to be issued as part of the Proposed Transaction. The Proposed Transaction would 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 the unaffiliated members of the First Union Board of Directors, who we would expect to serve as a Special Committee of the Board in connection with the consideration of the Proposed Transaction, and (ii) receipt by First Union of an opinion from your independent financial advisor as to the fairness from a financial point of view of the Proposed Transaction to the stockholders of First Union unaffiliated with Gotham. We and our financial and legal advisors are prepared to meet with the Special Committee and your advisors at your convenience to review the Proposed Transaction. In addition, we would like to arrange for you or such other members of the Special Committee as may be appropriate, together with your financial and legal advisors, to meet the management of Gotham Golf. Of course, we reserve the right to amend or withdraw the proposal at any time at our sole discretion. First Union Real Estate Equity and Mortgage Investments July 3, 2001 Page 4 We look forward to continuing to work with you on the Proposed Transaction. Very truly yours, /s/ William A. Ackman William A. Ackman cc: Thomas H. McCormick, Esq., Shaw Pittman W. Jonathan Finch, U.S. Bancorp Libra Steven F. Mayer, U.S. Bancorp Libra -----END PRIVACY-ENHANCED MESSAGE-----