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Exhibit A GOTHAM PARTNERS, L.P. 110 East 42nd Street, 18th Fl. New York, NY 10017 (212) 286-0300 May 8, 1998 Dear Shareholder: Ever since Gotham presented its shareholder proposals to First Union, the Board of Trustees and the Company's management have stopped at nothing to prevent shareholders from considering our proposals at the upcoming special meeting. . Management and the Board of Trustees have attempted unsuccessfully to deny you the right to vote for an alternative board slate by bringing State and Federal litigation against Gotham. . Management and the Board of Trustees have presided over the destruction of shareholder value and have missed enormous opportunities because of their stubborn unwillingness to consider a sale or merger of the Company until the value of the Company's paired-share structure was rendered worthless. . Management and the Board of Trustees' actions have led to a dramatic decline in the Company's fundamental economic performance. . Management and the Board of Trustees, realizing that their time at the helm was likely to come to an end, put in force golden parachutes which will award millions of dollars to senior management in the event Gotham is successful and the Board does not approve Gotham's nominees. IS THIS THE MANAGEMENT TEAM AND BOARD OF TRUSTEES THAT YOU WANT TO REPRESENT YOUR INTERESTS? We believe First Union shareholders deserve better. By signing and returning the enclosed White and Blue proxy card, you can help Gotham and its nominees bring dynamic leadership and a brighter future to First Union. MANAGEMENT'S RECORD TO DATE 1. Five Years of Woeful Performance First and foremost is the woeful performance of the Company's existing management, led by the current Chairman, President and CEO, James Mastandrea. First Union's stock price is actually lower today ($10 3/8 at the close on 5/7/98) than it was on the day Mr. Mastandrea signed his extremely lucrative employment contract ($10 1/2 at the close on 7/19/93). By comparison, the S&P 500 Index has more than doubled (up 145%) during this period. Even more glaring is the outperformance of the other paired-share REITs during this period. The stock price of Starwood Hotels & Resorts has risen 544%. The stock price of Patriot American Hospitality has risen 362%. Don't think Mr. Mastandrea has made up for this lack of stock price performance through dividend growth - the Company's dividend has actually declined 39% during Mr. Mastandrea's tenure. <PAGE> 2. Current Management Never Took Advantage of the Company's Paired-Share Structure. The Cost to Shareholders is Potentially Hundreds of Millions of Dollars. The Board of Directors of every other paired-share REIT, when they became aware of the potential value of the paired-share structure, did the right thing. They hired a well-regarded investment bank and sought proposals from potential merger partners, creating tremendous value for shareholders. To give you one example, Santa Anita Realty Company shareholders received a more than $200 million premium to the value of the company's net assets for their paired-share structure. Before First Union's three dilutive equity offerings, that $200 million would have meant an $11.00 premium to shareholders on top of the Company's net asset value, which at the time we estimated to be approximately $10 per share. Today legislation was approved in the Senate that if enacted would substantially limit the utility of the paired-share structure. As a result, it is probably too late to realize significant value from the structure. Gotham is incredulous that this opportunity has slipped through the fingers of the Company's leadership, and believes that the current board and management must be held accountable. 3. Recently Announced 1st Qtr. Results Show a Continuation of Poor Performance The Company's First Quarter 1998 Funds From Operations (FFO) declined 50% when compared with the same period last year. Management blamed the decline on the proxy fight with Gotham. Even excluding the proxy costs, however, FFO declined 35% when comparing the quarterly results. We believe it is unlikely for this trend to improve with Mr. Mastandrea in charge. One notable issue made public in First Union's results was that the manufacturing division of the Company's parking subsidiary lost nearly $1,000,000 in the first quarter. For a business that had revenues of approximately $5,000,000 last year, this is an extraordinarily large number. When questioned about this loss on a recent Company conference call, management acknowledged that they know little about managing an equipment business. The Company later was forced to disclose that the CEO of the manufacturing subsidiary was Russell Gifford, a Trustee of the Company and head of the Company's "independent special committee." Mr. Gifford was forced to step down from this role when his involvement was publicly disclosed. 4. More of the Same Tired Plans for the Future What is current management's plan? It seems from the Company's public statements that current management believes it can keep on purchasing and managing parking lots despite the tax law change. Management has indicated that it expects it can get a "carve out" from Congress, allowing First Union to continue to make parking asset and management acquisitions. We believe it is unlikely that First Union will get any such special exemption. While we believe that the selected purchase of parking lots and parking companies can be good acquisitions for a properly structured REIT and management company working together, First Union management's history of overpayment and poor execution is likely only to lead to further shareholder value destruction. <PAGE> 5. Management Will Stop at Nothing to Preserve Their Lucrative Employment Management has made clear that it will do everything possible to maintain their employment regardless of the cost to shareholders. In a lawsuit brought against Gotham in Ohio state court, the Company attempted to take away Gotham's right to make a shareholder proposal, its right to receive dividends, and its right to vote its shares. If First Union had been successful in their litigation, you would have no alternative to management's slate and proposals. Even the Ohio court, which denied the Company's attempt to enjoin Gotham from presenting its proposal and nominations to the shareholders, recognized that senior management's efforts against Gotham were primarily motivated by a desire to keep their jobs. In the ruling against the Company, the court made the following statement: . . . the efforts of First Union's management following Gotham's July 14, 1997 letter were primarily motivated by a desire to derail Gotham's efforts to change the Company's course and replace top management. First Union's management's efforts to disenfranchise Gotham do not appear to be designed to protect First Union's REIT status but rather management. And, just in case the litigation did not work, senior management has obtained lucrative compensation agreements or modifications to existing agreements. For instance, changes to Mr. Mastandrea's compensation package enacted approximately one week before the trial court issued its ruling against First Union could potentially cost the Company, in the event it is sold, an additional $8 Million. GOTHAM HAS PROPOSED A BUSINESS PLAN CAREFULLY DESIGNED TO REVITALIZE THE COMPANY We have presented in our proxy statement a detailed business plan for the Company that we believe will maximize value for all shareholders. Some of the highlights of our plan are as follows: . Replace current senior management with capable, intelligent, and entrepreneurial managers with substantial real estate investment and operating experience as well as an extensive background in the capital markets, including public and private equity investing. . Create a compensation system that aligns management with shareholders. Senior-level management will be compensated based on their contribution to improvements in the Company's per-share economic performance in contrast to the current system which gives management incentives to increase the total number of shares outstanding and total FFO without regard to the dilution caused to shareholders. . Change the Company's corporate structure to permit shareholders to participate in the purchase of real estate and operating businesses even if the proposed paired-share legislation becomes law. <PAGE> . Acquire private family real estate businesses at sensible prices through carefully structured acquisitions which offer sellers tax-free execution, employment for members of their existing management team, and the benefits associated with share ownership in a Company run for the benefit of its owners. . Partner with entrepreneurs who control real estate and real-estate-intensive operating businesses. Acquire their assets for UPREIT or stock consideration and form exclusive joint venture arrangements to pursue future business opportunities taking advantage of these entrepreneurs' skills and local market knowledge. Our plan, which is more fully presented in our Proxy Statement, contains other details on pages four to eight. We encourage you to read our proxy statement for a more complete description of our proposal. VOTE TODAY FOR GOTHAM AND AGAINST THE CURRENT BOARD BY COMPLETING, SIGNING AND DATING THE ENCLOSED WHITE AND BLUE PROXY CARD. VOTE IN FAVOR OF GOTHAM'S PROPOSAL AND NOMINEES AND VOTE AGAINST THE COMPANY'S PROPOSAL. Above, we have expressed our views regarding Management and the Board's performance and our plans for the future. If you have any questions, please feel free to call us at (212) 286-0300. Ask for Bill Ackman or David Berkowitz. If you have any questions regarding the voting of your proxies, please call our proxy solicitor, Beacon Hill Partners, at (800) 755-5001. Sincerely, GOTHAM PARTNERS, L.P.
Exhibit B Case No.: 347063 FIRST UNION REAL ESTATE ) IN THE COURT OF COMMON PLEAS EQUITY AND MORTGAGE ) INVESTMENTS, ) Plaintiffs, ) STATE OF OHIO ) vs. ) ) GOTHAM PARTNERS, L.P., et al., ) ) Defendants ) JUDGMENT ENTRY REGARDING PLAINTIFF'S MOTION FOR PRELIMINARY INJUNCTION TIMOTHY J. MCGINTY, J: ---------------------- On JANUARY 16, 1998, the plaintiff herein, First Union Real Estate Equity and Mortgage Investments ("FIRST UNION"), a publicly traded real estate investment trust ("REIT") organized pursuant to Ohio law, filed its complaint for preliminary injunction, permanent injunction and declaratory relief. The defendants, Gotham Partners, L.P. and Gotham Partners II, L.P., limited partnerships organized pursuant to New York law and shareholders of First Union ("GOTHAM"), filed an answer and counterclaim. The issues addressed herein pertain exclusively to plaintiff's request for preliminary injunction. The parties have ably presented their positions in a full evidentiary hearing and have thoroughly briefed the issues. Both sides have been effectively represented in two weeks of hearings by highly qualified and experienced counsel from prestigious law firms. Pursuant to Ohio Civil Rule 65 and case law expounding its application, the court's considerations are appropriately focused on the following issues: 1) The likelihood of the movant's success on the merits; 2) Whether there is an adequate remedy at law; 3) Will there be irreparable harm if the injunction is not granted; 4) What injury to the parties and others will be caused by the granting of the injunction; 5) The public interest that will be served by the granting of the injunctive relief; and 6) Whether the injunctive relief sought is for the purpose of maintaining the status quo pending trial on the merits. Diamond Co. v. Gentry Acquisition Corp. (1988), 48 Ohio Misc. 2d 1, 2 (Cuy. Co. Ct. C. P. 1988). By making application for injunctive relief -- an extraordinary remedy, Lykins v. Dayton Motorcycle Club (1972), 33 Ohio App. 2d 269, 269 -- plaintiff has assumed the burden of establishing by clear and convincing evidence that it is entitled to such relief. Diamond at 2, citing Southern Ohio Bank v. Southern Ohio Savings Assn. (1976), 51 Ohio App. 2d 67, 69. As such, plaintiff's burden of proof to establish the above enumerated issues is "A DEGREE OF EVIDENCE . . . THAT IS LESS THAN THE DEGREE REQUIRED IN A CRIMINAL CASE BUT MORE THAN THAT REQUIRED IN AN ORDINARY CIVIL ACTION." Id., citing Household Finance Corp. v. Altenberg (1966), 5 Ohio St. 2d 190. <PAGE> In its motion for preliminary injunction, plaintiff correctly states that defendants agreed to be bound by the terms of First Union's Declaration of Trust and By-Laws when they purchased First Union shares. Plaintiff claims that defendants have breached the contractual obligations that it owes to First Union and its other shareholders. Gotham's alleged breaches have occurred as a result of: a) Gotham's proposal to increase the size of First Union's Board of Trustees and the nomination of a slate of candidates for consideration; b) Gotham's failure to disclose information requested by First Union; and c) Gotham's nomination of persons for election to First Union's Board. Before engaging in a substantive analysis pursuant to Judge James J. McMonagle's noted Diamond opinion, and to provide the necessary chronology of events, the parties' history must be reviewed. Currently controlling an approximate $30 million investment in First Union stock, Gotham made its first acquisition of First Union shares in November 1996. In early to mid June 1997, Gotham, as required by The Securities Exchange Act of 1934, filed a Schedule 13D with the Securities and Exchange Commission (the "SEC") disclosing its beneficial ownership of greater than 5% of the outstanding shares of First Union. 15 U.S.C. ss. 78m(d). The 13D disclosed other information including that William A. Ackman and David P. Berkowitz manage Gotham's affairs and the affairs of Gotham's general partner, Section H Partners, L.P. through two corporations -- Karenina Corp. and DPB Corp. -- which are the sole general partners of Section H Partners, L.P. The 13D further supplied that none of the aforementioned entities that constitute "GOTHAM" is a party "TO ANY CONTRACT, ARRANGEMENT, UNDERSTANDING OR RELATIONSHIP WITH RESPECT TO ANY SECURITIES OF [FIRST UNION]" with any other person or entity. No formal request for further information regarding ownership was made by First Union at that time. Dissatisfied with recent decisions of First Union's management, and uncertain of its ability to maximize its REIT status, Gotham sent a letter to First Union's Board of Trustees and the Board of Directors of First Union Management, Inc., First Union's affiliated management company. The letter, dated JULY 14, 1997, while openly critical of First Union's management, provided information regarding accepted alternative management techniques and issued an invitation for discussion with Gotham. The letter, written by Gotham managing partner, William A. Ackman, and sent to First Union CEO James C. Mastandrea and First Union's Trustees was very frank and specifically outlined Gotham's plans and why they had invested in First Union: We believe the company has significant unrealized equity appreciation potential which is unlikely to be realized under the Company's current leadership . . . We believe it is similarly appropriate for the Board to assess whether existing management possesses the skills required to implement the Company's intended strategic plan. Gotham's letter outlined in detail their four primary reasons for concern regarding their investment in First Union: I. "MANAGEMENT APPEARS TO HAVE BEEN UNAWARE OF THE COMPANY'S CORPORATE STRUCTURE"; II. "OVERPAYMENT FOR IMPERIAL PARKING ACQUISITION"; III. Management has diluted shareholders with poorly executed equity offerings"; and IV. "MANAGEMENT LACKS THE REQUISITE BACKGROUND AND EXPERIENCE." Mr. Ackman then urged the First Union Board of Trustees to consider value maximizing strategies that other pair-share REITs had used with success. He then accused First's CEO of being, "UNWILLING TO CONSIDER ANY PROPOSAL TO THE COMPANY WHICH DOES NOT ALLOW HIM TO REMAIN IN CONTROL OF FUR [FIRST UNION REAL ESTATE]." Mr. Ackman then concluded his nine-page letter by urging the Board to unlock the tremendous potential value of the Company, "BY REPLACING MANAGEMENT WITH NEW LEADERSHIP THAT IS COMMITTED TO UTILIZING THE STAPLE-STOCK STRUCTURE IN AN EFFECTIVE AND VALUE ENHANCING MANNER, HAS RELEVANT, CREDIBLE EXPERIENCE AND VIEWS SHAREHOLDERS AS AN IMPORTANT CONSTITUENCY, NOT AS AN ADVERSARY." First Union management was unwilling to accept Gotham's invitations to meet for a discussion to address its concerns. JULY 23, 1997 letter from Gotham to Mr. Mastandrea, CEO; and JULY 15, 1997 First Union press release stating that Gotham's proposal "SERVES [GOTHAM'S] OWN SHORT TERM PURPOSES" and further suggesting the Gotham partnerships to be "SHORT-TERM PLAYERS . . . IN IT FOR A QUICK PROFIT"). The record reflects that Gotham's letters did however prompt action within First Union management. First Union's Board of Trustees met on AUGUST 12, 1997. Gotham's July 14 letter was a topic of discussion at the meeting and First Union decided to demand certain ownership information of Gotham. First Union states the requests for information were motivated by a desire to protect its REIT status. Gotham attributes First Union's actions to management's protective tactics which result from Gotham's call for replacement of management in Gotham's JULY 14, 1997 letter to the Board. First Union's position is unsupported by the minutes of the meeting, while First Union Trustee Mr. Conway testified upon deposition that Gotham's July 14 letter was the catalyst for the request. (Conway Dep. at 17:23-18:15.) Following the Board's decision to inquire as to Gotham's ownership, on AUGUST 20, 1997, CEO James Mastandrea requested as follows: [K]indly describe in writing the nature of all such actual, "CONSTRUCTIVE" (as defined under the Internal Revenue Code) and "BENEFICIAL" (as defined under Section 13(d) of the Securities Act of 1934) ownership of First Union securities by [Mr. Berkowicz] . . . , Mr. Ackman, and by any and all Gotham entities, affiliates and group members. In addition, we are requesting that you provide detailed information about the legal status, structure and ownership of each entity, affiliate and group member. The request for actual and constructive ownership information is consistent with Section 11.7(FN1) of the Declaration of Trust but redundant as regards beneficial ownership information which had been provided pursuant to Gotham's 13D filings. The letter also referenced Article 6, Section 6(c) of the By-Laws(FN2). <PAGE> [FN] 1 Section 11.7. Information on Share Ownership Every Beneficiary shall be obligated to furnish to the Trustees upon demand a written statement disclosing the actual and constructive (as the terms "ACTUAL" and "CONSTRUCTIVE" are defined for purposes of the "REAL ESTATE INVESTMENT TRUST" provisions in the Internal Revenue Code and the regulations proposed or in effect thereunder) ownership of the shares registered in the name of such Beneficiary. A list of the Beneficiaries failing or refusing to comply in whole or in part with a demand of the Trustees for such written statement shall be maintained by the Trustees as part of the records of the Trust. The Trustees may establish such requirements as to furnishing of information as to actual or constructive ownership of shares as they may from time to time deem advisable and may, under provision in the By-Laws, condition the issuance of certificates and registration of ownership of shares in the name of any person upon the furnishing of such information and on such information showing that issuance of the certificate and registration of such person as a Beneficiary will not, in the opinion of counsel for the Trust, result in the Trust becoming disqualified for taxation as a real estate investment trust under the Internal Revenue Code. 2 Section 6. Restrictions on Issuance and Transfer of Securities. c) Ownership of Securities is conditional upon the owner or prospective owner having provided to the Trust definitive written information respecting his ownership of Securities. Failure to provide such information, upon reasonable request shall result in the Securities so owned being treated as Excess Securities pursuant to Paragraph b) for so long as such failure continues. On SEPTEMBER 8, 1997, Gotham replied to the Board's August 20 request by parsing out, as requested, Gotham's and Gotham II's actual and constructive ownership of First Union shares and specifically denied that Gotham's management individually, or through any entity controlled by them, actually, constructively or beneficially owned any other equity interests in First Union. (PX7). Information to the same effect as above stated was also filed with the SEC as an amendment to Gotham's 13(D). (DX13B) Three days after making this response to First Union the Trust declared a third quarter dividend, payment of which was received by Gotham on OCTOBER 30, 1997. Seeking yet greater ownership information, CEO Mastandrea wrote to Gotham on OCTOBER 7, 1997: "In particular, you are obligated to provide the names of each and every member of Gotham I and Gotham II, as well as each and every member of other entities who own First Union stock . . . " Heretofore unable to satisfy First Union's demands for Gotham's ownership information through his responses, William A. Ackman, a Gotham managing partner, called CEO Mastandrea offering cooperation if the CEO would explain the nature of the information needed and, for the third time, requested to meet with First Union representatives. According to Mr. Ackman's testimony, it was agreed that the unsatisfied technical details regarding ownership could be resolved through both entities counsel. Further, counsel for First Union and Gotham conferred and agreed that Mr. Mastandrea and Mr. Ackman would meet on DECEMBER 29, 1997 -- Mr. Mastandrea's first available date -- five and one half months after Gotham's initial request for such a meeting. <PAGE> From late November to JANUARY 1, 1998, little transpired between the parties as to ownership interest. However, events of significance occurred in the form of a fourth quarter dividend declaration and Mr. Mastandrea's late-December cancellation of Gotham's long sought meeting with First Union. No alternative date for meeting was proposed by Mr. Mastandrea. Gotham's Ackman testified that he had grown suspicious of Mr. Mastandrea's actual intentions and had used the month to prepare, with his attorneys, contingency plans in the event that First Union's CEO was stalling for time and attempting to get past the last possible date to submit a proposal for presentation at the next annual meeting. First Union's annual meeting was set for APRIL 14, 1998, with the final date for shareholder proposals for vote set for January 8. On January 8, Gotham hand-delivered the notice which lies at the heart of this dispute. The Notice, in brief, proposes to: 1) nominate three candidates for election to Board seats whose terms are expiring in 1998; 2) expand the Board by creating six new seats; and 3) nominate candidates to fill the proposed new positions. The Notice provided further information as required by First Union's advanced notice provision. (See, By-Laws Article 1, ss. 7.) The Notice included a request that "ANY QUESTIONS CONCERNING [THE] NOTICE OR ANY RELATED LEGAL MATTERS BE ADDRESSED TO GOTHAM'S COUNSEL." Gotham's JANUARY 8, 1998 proposal not only threatened First Union's existing management structure, but if passed, would likely result in its ouster. To contest the validity of Gotham's Notice, First Union mounted a double-pronged attack on JANUARY 16, 1998. First, it sent Gotham a letter stating that its Notice was deficient for reasons identified and unidentified, curable and noncurable. A volley of letters ensued between the parties' attorneys with Gotham asserting its compliance, attempting to satisfy First Union by providing greater and greater levels of information and requesting "IMMEDIATE NOTICE" if the First Union continued to deem the Notice unsatisfactory. On JANUARY 20, 1998, First Union's Secretary Paul Levin wrote that Gotham's Notice "CONTINUES TO BE DEFICIENT IN NOT IDENTIFYING LIMITED PARTNERS AND OTHER BENEFICIARIES AND BENEFICIAL OWNERS WHO SUPPORT GOTHAM'S PROPOSAL AND NOMINATIONS." (See, PX12.) Gotham reiterated its position that its Notice was satisfactory, that First Union's notice of deficiencies was flawed, stated that, "AS OF THE DATE OF THE NOTICE AND AS OF [JANUARY 21], GOTHAM HAS NO KNOWLEDGE OF ANY BENEFICIARY OR BENEFICIAL OWNER OF ANY SHARES, OTHER THAN THE SHARES BENEFICIALLY OWNED BY GOTHAM AND GOTHAM II . . . THAT IS KNOWN TO BE SUPPORTING ITS NOMINATIONS OR PROPOSAL" and requested immediate notification of deficiency and additional time to cure. (See, PX13.) In the second prong of its attack and by decision of the Board, First Union filed the within action seeking: a) a determination that Gotham's approximate 2,500,000 shares are excess and not entitled to vote; and b) a determination that Gotham's Notice and proposal was a nullity. <PAGE> The relationship between First Union and Gotham is governed by First Union's Declaration of Trust and By-Laws. First Union claims that Gotham has breached its obligations to the Trust and seeks a determination by this court that would totally disenfranchise Gotham of its two and one half million shares thereby rendering its investment powerless in the upcoming annual meeting. Hence, the issues presented by First Union in its complaint center on the interpretation of the Declaration of Trust as a contract. Berry v. McCourt (1965), 1 Ohio App.2d 172, 172 (Franklin Cty. App.). First Union maintains that Article VI, ss. 6(c) of its By-Laws "AUTOMATICALLY" renders Gotham's shares as "EXCESS SECURITIES" thereby stripping Gotham of its proposal and voting rights for the upcoming annual meeting. Article VI, ss. 6(c) provides: Ownership of Securities is conditional upon the owner or prospective owner having provided to the Trust definitive written information respecting his ownership of Securities. Failure to provide such information, upon reasonable request shall result in the Securities so owned being treated as Excess Securities pursuant to Paragraph b) for so long as such failure continues. Plaintiff claims that it was Gotham's failure to provide ownership information that automatically triggered this provision. Plaintiff's proof centers on: 1) a need to abide by ownership limitations imposed by the Internal Revenue Code in order to maintain its REIT status; 2) First Union's interpretation of Article VI, ss. 6(c); and 3) a series of letters specific as to the nature of the information sought but vague as to its actual object. With regard to First Union's need to abide by ownership limitations, plaintiff has failed to establish that Gotham has ever owned 9.8% -- the amount necessary to trigger Article VI, ss. 6 -- of First Union shares. And, if it did own more than 9.8%, only that percentage that exceeded 9.8% would be excess shares. Plaintiff's second and third theories of the applicability of the Excess Securities provision are inconsistent and disingenuous. First Union initially argues that because Gotham failed to provide "CERTAIN" ownership information, the Excess Securities provision applies automatically. Not only is such an interpretation completely contrary to First Union's treatment of the provision (see, PX15, FEBRUARY 2, 1998 letter from Secretary Levin to Gotham, "[T]HE BOARD OF TRUSTEES . . . HAS DETERMINED THAT SECURITIES OF FIRST UNION CLAIMED TO BE OWNED BY YOU CONSTITUTE 'EXCESS SECURITIES'" (emphasis added)), it also flies in the face of First Union's treatment of other shareholders who are perhaps less aggressive and threatening to management. (PX35, JANUARY 16, 1998 letters from Secretary Levin to certain shareholders, in which Levin maintains that the Board has "BROAD AUTHORITY ... TO TAKE REMEDIAL ACTION" if a shareholder fails to provide ownership information, including determining that the shares are "EXCESS SECURITIES.")(emphasis added.) Neither Apollo L.P. or Franklin L.P., both owners of greater than 5% of First Union, were sent the demands for more specific ownership information pertaining to their limited partners as was sent to Gotham. But then, neither Apollo nor Franklin had sent the First Union Board a letter calling for the replacement of existing management. <PAGE> Further, the language of Article VI, ss. 6(c) fails to support a finding that application of the provision is automatic: "Failure to provide such information, upon reasonable request shall result in the Securities so owned being treated as Excess Securities . . . " Where language employed in a contract is clear and unambiguous on its face, a court may not resort to rules of construction to ascertain the meaning of the words used. Kelly v. Medical Life Ins. Co. (1987), 31 Ohio St.3d 130, 132. It is a maxim of contract interpretation that words be given their plain meaning. It is NOT reasonable to interpret as automatic language that on its face requires the Trust to initiate a request. The request of the information is a precursor to its application as it is the ultimate sanction (i.e., classification as "EXCESS" and disenfranchisement). First Union's third and fourth rationale -- that because Gotham failed to supply information regarding its limited partners the "EXCESS SECURITIES" provision applies -- is equally unpersuasive. First, Article VI, ss. 6(c) requires submission of "DEFINITIVE WRITTEN INFORMATION" upon reasonable request. The Declaration and By-Laws do not indicate the nature and quality of the information necessary to satisfy the provision. However, the exhibits discussed in the chronology, supra, support Gotham's provision of actual, constructive and beneficial ownership information. They further establish that First Union's first request for Gotham to identify its Limited Partners came on JANUARY 20, 1998, four days after the filing of the Complaint herein. Prior to that request, First Union consistently asserted that it was seeking ownership information but did not specifically indicate that Gotham's response was insufficient for lack of a list of its limited partners. First Union's complaint included a second assertion that Gotham's Notice and proposal violated the following provisions of the Declaration of Trust and By-Laws: 1) Decl ss. 8.1 provisions for a staggered board; 2) Article 1, ss. 7 provisions for advanced notice information; and 3) Article V1, ss. 6(c), "EXCESS Securities." First Union's Board of Trustees is currently comprised of nine individuals representing three classes (Class 1, Class II and Class III) of three trustees each. Gotham seeks to take advantage of Decl. ss. 8.1 by increasing the Board to the maximum capacity of trustees -- 15 -- allowed thereunder. First Union argues that Gotham is attempting to "PACK" the Board to secure control for itself. Regardless of their motive, the Declaration expressly authorizes that, "[T]HE NUMBER OF TRUSTEES SHALL BE NOT LESS THAN THREE NOR MORE THAN FIFTEEN." First Union offers a 1984 proxy statement in support of its claim that First Union and its shareholders had "OVERWHELMINGLY APPROVED THE STAGGERED BOARD" with the intention of preventing "AN OWNER OF A MINORITY INTEREST GAIN[ING] CONTROL OF THE TRUST THROUGH A PROXY FIGHT WITH A BARE MAJORITY OF SHAREHOLDER votes." (See, First Union's Memorandum in Support of . . . Motion for Preliminary Injunction, Tab C.) First Union has failed to address why the shareholders allowed the Declaration to continue to contain an express provision allowing the Board to be expanded at a single annual meeting; See, Decl. ss. 8.1; see also, DiEleuterio v. Cavaliers of Del., Inc. (Del.Ch.Feb. 9, 1987), 1987 WL 6338; and Larkin v. Baltimore Bancorp (D. Md. 1991), 769 F. Supp. 919, 934. Nor has First Union dispelled Gotham's contention that by creating two new seats in each of the three classes, there is no violation of the provision for a staggered board. <PAGE> Plaintiff's second argument, that Gotham failed to comply with the advanced notice procedures required under Article 1, ss. 7, would require plaintiff to establish that 1) they gave Gotham notice of the deficiencies of their Notice and 2) that they allowed Gotham an opportunity to cure. First Union's letter of JANUARY 16, 1998 fails to establish that First Union gave Gotham notice of the alleged deficiencies since it vaguely references "NONCURABLE" problems. Further, plaintiff chose to file this action as opposed to allowing Gotham the opportunity to cure. With regard to First Union's third argument that the "EXCESS SECURITIES" provision nullifies the proposal, the court declines further discussion of it as the issue was thoroughly discussed above. For the foregoing reasons the court finds that the plaintiff probably cannot demonstrate by clear and convincing evidence that Gotham violated the Declaration of Trust and By-Laws for failing to provide ownership information or for filing a deficient Notice of proposal. The six requirements of Diamond, supra, are conjunctive. As First Union has failed to establish its likelihood of success on the merits, it is unnecessary to consider the remaining five issues. First Union's attempts to preclude the inevitable proxy contest and possible take over of its current Board and fear of change in management are understandable; however, actions that would deprive a shareholder of exercising rights to a $30 million investment while also depriving other shareholders of the ability to consider valid options are unlikely to satisfy Diamond's fifth requirement that the public interest also be served. Gotham appears to have made reasonable attempts to comply with all of First Union's demands for information. There is no credible evidence that Gotham then or now endangered First Union's REIT status. It also appears that this issue, like the others raised by First Union, are simply pretextual. The evidence shows that First Union's demand for information exceeded the requirements of the Internal Revenue Code, its Declaration of Trust and By-Laws. The evidence adduced at this hearing demonstrated that the efforts of First Union's management following Gotham's JULY 14, 1997 letter were primarily motivated by a desire to derail Gotham's efforts to change the Company's course and replace top management. First Union's management's efforts to disenfranchise Gotham do not appear to be designed to protect First Union's REIT status but rather management. All the shareholders should have a fair opportunity to decide the direction of their corporation at the APRIL 14, 1998 annual meeting. First Union's Motion for Preliminary Injunction is DENIED. IT IS SO ORDERED. /s/ TIMOTHY J. MCGINTY ---------------------------- TIMOTHY J. MCGINTY, JUDGE DATE: MARCH 27, 1998
Signed:
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/s/ Daryl J. Carter
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Organization and Compensation Committee | |||
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Signed:
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/s/ James C. Mastandrea | |||
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By James C. Mastandrea |
By:
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/s/ James C. Mastandrea
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The Board of Trustees |
Name:
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Title:
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Trustee |
1) | PARTICIPATION BY TRUSTEES IN THE AGREEMENT. The Trustees will participate in the Sponsor’s Equity and the Common Shares will be allocated to the individual Trustee who procures a Real Estate Transaction for the Trust. |
2) | MASTANDREA AND DEE. Mastandrea and Dee will continue to participate in the Sponsor’s Equity and the Common Shares will be allocated to Paragon Development only if Mastandrea and Dee, either as officers of the Trust or as Trustees of the Trust, procure a Real Estate Transaction for the Trust. Mastandrea and Dee will not receive any Sponsor’s Equity or Common Shares for a Real Estate Transaction procured by another Trustee. | ||
3) | ALLOCATION AND FORMULA FOR EARNING COMMON SHARES. The following phrase will be added to the Agreement, at the end of the first paragraph of the first numbered section for clarification: |
By:
Title: |
/s/ James C. Mastandrea
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Chairman of the Board of Trustees | |||
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/s/ Daryl J. Carter | |||
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DARYL J. CARTER, Trustee | |||
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/s/ John J. Dee | |||
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JOHN J. DEE, Individually, and as a Trustee, and for | |||
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PARAGON REAL ESTATE DEVELOPMENT, LLC | |||
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/s/ Daniel G. DeVos | |||
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DANIEL G. DEVOS, Trustee | |||
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/s/ Paul T. Lambert | |||
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PAUL T. LAMBERT, Trustee | |||
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/s/ James C. Mastandrea | |||
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JAMES C. MASTANDREA, Individually, as a Trustee, and for | |||
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PARAGON REAL ESTATE DEVELOPMENT, LLC | |||
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/s/ Michael T. Oliver | |||
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MICHAEL T. OLIVER, Trustee |