EX-99.(C)(9) 10 dex99c9.txt U.S. BANCORP LIBRA'S UPDATED SUMMARY 3/31/01 Exhibit (c)(9) June 8, 2001 Strictly Confidential --------------------- FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS 125 Park Avenue New York, NY 10017 Attention: Special Committee of the Board of Trustees Gentlemen: At your request, in order to assist the Special Committee (the "Committee") of the Board of Trustees of First Union Real Estate Equity and Mortgage Investments (the "Company") in evaluating strategic alternatives, we have prepared preliminary estimates of the range of orderly liquidation values, under certain assumptions, of the Company's assets and liabilities. The enclosed summary of those preliminary estimates is meant to let you know the direction of our work to date and provide a basis for discussion of our underlying assumptions as well as the Committee's expectations should the Committee in the future engage us to prepare a report on our work. We should note that you have not engaged us to render, nor are we purporting to render, any appraisal, opinion or definitive report as to the value (under an orderly liquidation scenario or otherwise) of the Company's assets or liabilities. We are not professional appraisers and the enclosed estimates are not intended to constitute an appraisal of any individual asset or liability, or group of assets or liabilities, of the Company. In addition, we have not conducted any independent investigation of the Company's assets or liabilities. Rather, the enclosed estimates have been prepared based upon the information we and our counsel have obtained from the Company and the Company's agents, which information we have assumed is reliable. In certain cases, this information is incomplete. As you know, the nature of the process to date means that the remaining information may also be incomplete. In addition, with respect to the estimated value of Park Plaza Mall, as you know, we intend to rely on an appraisal being conducted by the Company's appraiser Cushman & Wakefield. However, as of the close of business today, we have not received such appraisal, and accordingly the enclosed estimates include no value estimated for Park Plaza Mall. Of course, we will provide you with an update once we have received the appraisal. We would remind you that conditions affecting the value of the assets we have reviewed, including the market for such assets, may change significantly during the time we act as the Committee's advisors. Certain of the estimates utilize information prepared as of March 31, 2001, the last date of the Company's most recent fiscal quarter and the date of the latest internal financial information provided to us. In addition, we would remind you that you have asked us for our estimate of the value of the Company's assets and liabilities in an orderly liquidation. As a result, for purposes of the enclosed estimates, we have not considered other valuation methods, First Union Real Estate Equity and Mortgage Investments June 8, 2001 Page 2 or any benefits that might accrue as a result of a transaction with a third party, any of which might also be relevant in your decisions regarding potential transactions involving the Company. Although, as you are aware, we have recently contacted certain parties soliciting indications of interest in a transaction with the Company, we have not yet received any definitive proposal from any party other than Gotham Partners, nor have we solicited indications of interest in a purchase of any specific Company asset, and any response could produce offers indicating a greater or lesser value than the enclosed estimates might otherwise suggest. Finally, as you know, the nature of certain of the Company's assets makes them difficult to value with specificity. The enclosed preliminary estimates are based on numerous assumptions, including (i) estimates of transaction costs involved in liquidating the Company's assets and paying liabilities on an orderly basis, (ii) the validity of appraisals and estimates of other professionals, (iii) the ability to conduct an orderly disposition of assets, (iv) that the orderly liquidation constitutes a change of control for purposes of the Company's 8 7/8% Senior Notes due 2003, and that all of such Notes are required by the holders thereof to be repurchased by the Company as of June 30, 2001, and (v) other assumptions that we will discuss with you at our meeting. In addition, we have assumed that the Company's operations produce or consume cash during the orderly liquidation process as indicated on the attached estimates. We anticipate that you may have input into these assumptions that we would like to discuss at our meeting or when it is otherwise convenient. We look forward to discussing our preliminary estimates during our meeting. Very truly yours, Steven F. Mayer Managing Director **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS) SUMMARY OF ORDERLY LIQUIDATION ESTIMATES
RANGE OF VALUES (NET OF ESTIMATED LIQUIDATION COSTS) ASSETS LOW HIGH ------------ ------------ Cash $ 3,591 $ 3,591 Investments Treasuries 106,548 106,548 HQ Global Holdings Preferred Stock 10,184 12,030 Accounts Receivable (excluding Ventek) 3,240 3,240 Note Receivable 6,930 6,930 Circle Tower 2,289 3,292 Park Plaza (a) (a) VenTek - 524 Net Operating Loss 4,618 6,031 Litigation (2,000) 54,141 ------------ ------------ Total $ 135,400 $ 196,327 LIABILITIES Accounts Payable (excluding Ventek) $ 7,574 $ 7,574 8-7/8% Senior Notes (at 101%) 12,942 12,942 Ventek Associated Liability 5,300 - ------------ ------------ TOTAL $ 25,815 $ 20,515 PREFERRED EQUITY Preferred Shares of Beneficial Interest 25,651 25,651 ------------ ------------ TOTAL LIABILITIES AND PREFERRED EQUITY $ 51,467 $ 46,167 LIQUIDATION PERIOD CASH FLOW ($2,300) $ 850 ------------ ------------ NET LIQUIDATION VALUE $ 81,633 $ 151,010 ============ ============ Number of Common Shares Outstanding (000's) 34,806 34,806 ------------ ------------ LIQUIDATION VALUE PER SHARE $ 2.345 $ 4.339 ============ ============
(a) Omitted pending receipt of Park Plaza appraisal. Page 1 **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS) CASH AS OF MARCH 31, 2001 ACCOUNT AMOUNT ------------------------------------ --------------- Operating Account $ 416 Cash Invest Mgmt 3,416 Disbursement - Petty Cash 1 FUMI 66 --------------- 3,899 Less: Outstanding Checks (308) --------------- Total $ 3,591 =============== RANGE OF VALUES Low High --------------- -------------- Gross Value $ 3,591 $ 3,591 Estimated Liquidation Cost - - --------------- -------------- NET VALUE $ 3,591 $ 3,591 =============== ============== Page 2 **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS) TREASURIES AS OF MARCH 31, 2001 TREASURY TYPE AMOUNT ------------------------------------ ---------------------- ---------- HSBC - FUR - T-Bill 65,102 HSBC - Park Plaza LLC - T-Bill 1,982 Paine Webber - FUR - T-Bill 50,871 Adjustment for Share Repurchase (11,397) (a) ---------- TOTAL $ 106,558 ========== (a) Adjustment to reflect the recent buyback of 4,798,592 shares at $2.375/ share during April 2001. RANGE OF VALUES Low High --------- ---------- Gross Value $ 106,558 $ 106,558 Estimated Liquidation Cost (10) (10) --------- ---------- NET VALUE $ 106,548 $ 106,548 ========= ========== Page 3 **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) INVESTMENT IN HQ GLOBAL PREFERRED STOCK AND WARRANTS TO PURCHASE COMMON STOCK Preferred Stock 245,266 shares of Series A Convertible Cumulative Preferred Stock of HQ Global Holdings, Inc. ("HQ") Warrants Warrants to purchase 74,121 common shares of HQ for $.01/share (Class A warrants) Warrants to purchase 35,793 common shares of HQ for $.01/share exercisable on or after March 1, 2002 only in the event that a qualified merger or IPO has not occurred prior to that date (Class B warrants) RANGE OF VALUES Low High ---------- ---------- Gross Value $ 10,287 $ 12,151 Estimated Liquidation Cost (103) (122) 1.0% ---------- ---------- NET VALUE $ 10,184 $ 12,030 ========== ========== **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS) ACCOUNTS RECEIVABLE (a)
AS OF MARCH 31, 2001 SOLD ACCOUNT PROPERTIES CORPORATE PROPERTIES TOTAL -------------------------------------- ------------ ------------ ------------ ---------- Miscellaneous Receivable $ - $ 323 $ 993 $ 1,316 Percentage Rent / Overages 0 - 804 804 Tax Participation Income 37 - 675 712 Accounts Receivable 200 - 508 708 Common Area Income 256 - 12 268 Prepaid Insurance 10 167 - 177 Agency Receivables - - 121 121 Other 10 129 73 212 Accrued Insurance Income (67) - (182) (249) Reserve for Bad Debt (275) - (555) (830) --------- ---------- ---------- ---------- $ 171 $ 619 $ 2,449 $ 3,240 ========= ========== ========== ========== (a) Excludes Ventek receivables of $2,259 RANGE OF VALUES Low High ------------- ------------- Gross Value $ 3,240 $ 3,240 Estimated Liquidation Cost - - ------------- ------------- NET VALUE $ 3,240 $ 3,240 ============= =============
Page 5 **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS) NOTE RECEIVABLE TOTAL PRINCIPAL AMOUNT $7,000 BORROWER Radiant Realty LLC INITIAL INTEREST RATE 11.00% per annum EXTENSION INTEREST RATE 15.00% per annum INTEREST PAYABLE MONTHLY STARTING April 1, 2001 MATURITY DATE July 6, 2001 EXTENDED MATURITY DATE September 6, 2001 SECURITY Marshall Property in Richmond, VA and West Third Street Property in Cleveland, OH The Note is secured by the Marshall and West Third Street properties. Per management, the fair value of the combined properties is approximately $9 million. In FY 2000, the properties' combined net operating income was approximately $973,000 per Imowitz, Koenig & Co. The initial interest payment due 4/1/01 has been received. The note appears to have a fair value of 100% of its principal amount given its short maturity, its substantial interest rate, that the borrower has performed to date and has the ability to continue to meet the payment obligations as they come due, and that the note is adequately collateralized, offset by the note's illiquidity. Range of Values Low High ----------- ----------- Gross Value 7,000 7,000 Estimated Liquidation Cost (70) (70) 1.0% ----------- ----------- NET VALUE 6,930 6,930 =========== =========== Page 6 **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS) CIRCLE TOWER DISCOUNTED CASH FLOW APPROACH ----------------------------------------------------------------- /--------10% CAP RATE-------\ Discount Rate 12.00% 13.00% 14.00% -------- -------- -------- P.V. of NOI - CapEx $1,261 $1,229 $1,199 P.V. of Sales Proceeds 2,263 2,165 2,072 -------- -------- -------- ESTIMATED GROSS PRESENT VALUE $3,525 $3,394 $3,270 ======== ======== ======== MIDPOINT $3,394 ======== DIRECT CAPITALIZATION APPROACH ----------------------------------------------------------------- FY 2000 NOI 616 Estimated Capital Expenditures (200) Less: Lease Step-Up on Sale (180) ------- Adjusted FY 2000 NOI 236 Capitalization Rate 9.0% 10.0% 11.0% -------- ------- ------- GROSS DIRECT CAPITALIZATION VALUE $2,623 $2,360 $2,146 ======== ======= ======= $2,360 ======= RANGE OF VALUES Low High ----------- ----------- Gross Value $ 2,360 $ 3,394 Estimated Liquidation Cost (71) (102) 3.0% ----------- ----------- NET VALUE $ 2,289 $ 3,292 =========== =========== **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS) VENTEK INTERNATIONAL, INC. ASSET: 100% of the outstanding capital stock of Ventek International, Inc. OVERVIEW: Ventek was founded in 1958 as a manufacturer of self-park systems. Beginning with simple machines that would take quarters and dispense parking permits, the product line evolved through currency transactions, credit cards, debit cards and smart cards, backed up with sophisticated computer software. In addition to parking systems Ventek's machines are also used to dispense ticket to mass transit riders.
NET EQUITY VALUE PERFORMANCE GUARANTEE RANGE OF VALUES RANGE OF VALUES Low High Low High -------- --------- ---------- --------- Gross Value - 551 (5,300) - Estimated Liquidation Cost - (28) 5.0% - - -------- --------- ---------- --------- NET VALUE - 524 (5,300) - ======== ========= ========== =========
**** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS) NET OPERATING LOSS ----------------------------------------------------------- GENERAL ASSUMPTIONS NOL per management 20,000 Change in control 30-Sep-01 Tax rate 35.00% Equity value of FUR for tax purposes $ 137,384 (a) ----------------------------------------------------------- (a) Uses the average of the high and low estimated orderly liquidation value of the Company's assets minus liabilities. SCENARIO 1 ASSUMPTIONS FUR is converted to a C-corp. and has enough taxable income to recognize the full amount of the allowable NOL deduction in 2001 (which is the percentage of year remaining after the change in control) FUR has enough taxable income to recognize the full amount of the allowable NOL deduction in 2002 through 2004 (which is 4.92% of the equity value of FUR)
2001 2002 2003 2004 2005 --------- -------- --------- --------- --------- Utilization Rate (2002-2004 is stated a percentage of equity) 75% 4.92% 4.92% 4.92% 4.92% Utilization 5,236 1,764 - - - NET PRESENT VALUE OF NOL Discount Rate 10% 12% 14% --------- -------- --------- NPV $6,218 $6,081 $5,950 ========= ======== =========
SCENARIO 2 ASSUMPTIONS FUR is converted to a C-corp. but does not have enough taxable income to recognize any of the allowable NOL deduction in 2001 (which is the percentage of year remaining after the change in control) FUR has enough taxable income to recognize the full amount of the allowable NOL deduction in 2002 through 2004 (which is 4.92% of the equity value of FUR)
2001 2002 2003 2004 2005 --------- -------- --------- --------- -------- Utilization Rate (2002-2004 is stated a percentage of equity) 0% 4.92% 4.92% 4.92% 4.92% Utilization - 2,366 2,366 2,269 - NET PRESENT VALUE OF NOL Discount Rate 10% 12% 14% --------- -------- --------- NPV $5,282 $5,012 $4,760 ========= ======== =========
Range of Values Low High --------- -------- Gross Value $ 4,760 $ 6,218 Estimated Liquidation Cost (143) (187) 3.0% ------- -------- NET VALUE $ 4,618 $ 6,031 ======= ========
**** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS) LITIGATION Oracle Litigation Imperial Parking signed an agreement whereby Oracle would provide software and technical support to Imperial Parking in exchange for approximately $800,000. Imperial Parking allegedly informed Oracle that the agreement was subject to approval by First Union's Board of Directors, which approval Imperial Parking never obtained. Imperial Parking never used the software. Oracle demanded full payment and thereafter assigned its rights under the agreement to Newcourt in exchange for $439,000. Imperial Parking's counsel indicates that a likely outcome of this litigation is the payment of $475,000 by Imperial Parking. First Union agreed to pay any amounts related to this litigation and maintained an accrual of $475,000 as of March 31, 2001. This accrual is included in First Union's accounts payable. Peach Tree Mall First Union, as one plaintiff in a class action composed of numerous businesses and individuals, has pursued legal action against the State of California and Reclamation District 784 arising from the flooding in 1986 of the Sutter Buttes Center (formerly Peach Tree Center) as a result of the failure of a levee maintained by the defendants. In 1991, First Union obtained a judgment in the amount of $100 million; however, in 1999 this judgment was vacated on appeal. The case has been remanded for further proceedings. First Union's potential damages are in the range of $24 to $33 million (plus attorneys' fees and interest). Thus, this litigation could ultimately result in a significant payment to First Union. However, liability will first have to be established at trial, upheld on appeal, and damages proven. After trial, it may take several years to reach a final resolution of this matter in the appellate process. For purposes of our range of values we have included $0 as the low range and $83 million ($33 million in damages plus an estimated $50 million in interest and attorneys' fees) discounted at 10% over five years as the high range of value. Shareholder Litigation On June 22, 2000, a complaint was filed in New York State Court against First Union, its trustees and certain former trustees, Radiant Investors, LLC ("Radiant") and its principals by a purported First Union shareholder in connection with an asset sale to Radiant. On July 12, 2000, a complaint making similar allegations against the same defendants was filed by another purported First Union shareholder in Ohio State Court. The Ohio action has been stayed pending the outcome of the New York action. First Union's counsel estimates that the most the plaintiffs' lawyers could reasonably request is 1% of the value of the transaction or $2 million. First Union's counsel reported that there is $10 million in primary insurance coverage, and that the insurer has not disputed coverage. The insurance coverage contains a $1 million deductible. For purposes of our range of exposure we have include $0 as the low range and $1 million (the deductible amount) as the high range of exposure. RANGE OF VALUES Low High --------- ---------- Gross Value: Oracle $ - $ - Peach Tree Mall - 54,641 Shareholder Lawsuit (1,000) - Estimated Attorneys' Fees and Expenses (1,000) (500) --------- ---------- NET VALUE $(2,000) $ 54,141 ========= ========== Page 10 **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS) ACCOUNTS PAYABLE (a) As of March 31, 2001
SOLD ACCOUNT PROPERTIES CORPORATE PROPERTIES TOTAL --------------------------------------- -------------- ------------- ------------- ----------- Trade 47 2,482 1,835 4,364 Real Estate Taxes Payable 941 - (5) 936 Prop General Liability Insurance 206 521 - 728 Corporate Income Tax Payable - 530 - 530 Pfd Dividend Payable - 345 - 345 Due from/to Radiant - (319) 612 293 Other 266 58 55 379 -------------- ------------- ------------- ----------- $1,460 $3,617 $2,498 $7,574 ============== ============= ============= ===========
(a) Excludes Ventek payables of $3,137. RANGE OF VALUES Low High ---------- ---------- Gross Value $ 7,574 $ 7,574 Estimated Liquidation Cost - - 0.0% ---------- ---------- NET VALUE $ 7,574 $ 7,574 ========== ========== Page 11 **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS 8-7/8% SENIOR NOTES DUE 2003 INITIAL AMOUNT ISSUED $100,000,000 PRICE AT ISSUE $ 99.187 CURRENT AMOUNT OUTSTANDING $ 12,538,000 INTEREST 8 7/8% per annum, payable semiannually on April 1 and October 1 of each year. REDEMPTION: The notes may not be redeemed by the Company prior to maturity. CHANGE OF CONTROL If a change in control, as defined, occurs Noteholders shall have the right to put the notes to the Company at a price of 101%. MATURITY DATE October 1, 2003 OVERVIEW: The notes are senior, unsecured obligations of the Company ranking pari passu with all other senior unsecured obligations. The Company initially issued $100 million of the notes, but has since repurchased $87.3 million of the notes. Substantially all of the covenants of the notes were eliminated in conjunction with this repurchase. RANGE OF VALUES (THOUSANDS) Low High --------- ------------ Principal Amount $ 12,538 $ 12,538 Redemption Premium 125 125 1.0% Accrued Interest (April 1 - June 30) 278 278 --------- ------------ NET VALUE $ 12,942 $ 12,942 ========= ============ Page 12 **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS SERIES A CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED SHARES OF BENEFICIAL INTEREST PREFERRED EQUITY: Series A Cumulative Convertible Redeemable Preferred Shares of Beneficial Interest ("Preferred Shares") LIQUIDATION PREFERENCE: $25 per share SHARES AUTHORIZED: 2,300,000 shares SHARES OUTSTANDING: 984,800 shares DIVIDENDS: When and if declared by the Board of Trustees, the holder is entitled to cumulative preferential dividends payable in cash in an amount equal to the greater of (i) $0.525 per share per quarter (equal to 8.4% of the liquidation preference per annum) or (ii) the cash dividends on the common shares, or portion thereof, into which a Preferred Share is convertible. CONVERSION PRICE: The Preferred Shares are convertible into common shares of the Company at a conversion price of $5.0824 per share (equivalent to a conversion rate of 4.92 common shares for each Preferred Share). As of May 30, 2001, the closing price of the Company's common shares on the New York Stock Exchange was $2.40 per share. The conversion price is subject to adjustment under certain circumstances. REDEMPTION The Preferred Shares are not redeemable prior to October 29, 2001, and at no time will they be redeemable for cash. On or after October 29, 2001, the Preferred Shares are redeemable at the option of the Company at the conversion rate of one Preferred Share for 4.92 Common Shares. The Company may exercise its option only if for 20 trading days within any 30 consecutive trading days, the closing price of the common shares equals or exceeds the conversion price of $5.0824 per share. ------------------------------------------------------- SHARES OUTSTANDING 984,800 LIQUIDATION PREFERENCE PER SHARE $ 25.00 ------------ TOTAL LIQUIDATION AMOUNT $24,620,000 ============ ------------------------------------------------------- RANGE OF VALUES (THOUSANDS) Low High ------------- ------------- GROSS VALUE $24,620 $24,620 ACCRUED AND UNPAID DIVIDENDS (12/00 - 6/01) 1,031 1,031 ------------- ------------- NET VALUE $25,651 $25,651 ============= ============= Page 13 **** CONFIDENTIAL **** FIRST UNION REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS (DOLLARS IN THOUSANDS) LIQUIDATION PERIOD CASH FLOW OPERATING CASH FLOW Low High ------------- ------------- Assumptions: Liquidation Period (Months) 6 12 FUR Monthly Operating Cash Flow 200 300 Phoenix Management Monthly Cost (100) (50) Monthly Legal Expenses (100) (75) ------------- ------------- Net Monthly Cash Flow $ - $ 175 ============= ============= CORPORATE LIQUIDATION COSTS Low High ------------- ------------ Legal $ (400) $ (600) Financial Advisory (850) (1,700) ------------- ------------ $ (1,250) $ (2,300) ============= ============ RANGE OF VALUES Low High ------------- ------------ GROSS VALUE - MONTHLY CASH FLOW $ - $ 2,100 ESTIMATED LIQUIDATION COST (2,300) (1,250) ------------- ------------ NET VALUE $(2,300) $ 850 ============= ============ Page 14