SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only
[X] Definitive Proxy Statement (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c)
or Rule 14a-12
SHELBOURNE PROPERTIES I, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies: Common Stock, par value $0.01 per share
(2) Aggregate number of securities to which transaction
applies: 839,286
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined):
The filing fee has been calculated in accordance with
Rule 0-11 under the Exchange Act and is equal to 1/50 of
one percent of the product of 839,286 shares of Common
Stock and the estimated per share liquidation proceeds
of $70.47.
(4) Proposed maximum aggregate value of transaction:
$59,144,484.42
(5) Total fee paid: $11,828.90
[X] Fee paid previously with preliminary materials: $11,828.90
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
SHELBOURNE PROPERTIES I, INC.
c/o FIRST WINTHROP CORPORATION
7 BULFINCH PLACE, SUITE 500
BOSTON, MA 02114
SPECIAL MEETING
OCTOBER 29, 2002
September 27, 2002
Dear Fellow Stockholder:
You are cordially invited to attend a special meeting of stockholders
of Shelbourne Properties I, Inc. (the "Company") to be held at the 11th Floor
Conference Center in the offices of Katten Muchin Zavis Rosenman, 575 Madison
Avenue, New York, New York 10022, on October 29, 2002, at 11:00 a.m., local
time.
At the special meeting, we will ask you to approve a plan of
liquidation for the Company. The plan of liquidation was approved by the prior
members of the board of directors as part of the July 2002 settlement of a
lawsuit brought against the Company by HX Investors, L.P. and other
stockholders. Following such approval, the board of directors was reconstituted
with nominees of HX Investors and, pursuant to the settlement, the reconstituted
board is required to submit the plan of liquidation to stockholders for their
approval.
Under the plan of liquidation, the board of directors will file a
certificate of dissolution for the Company, wind-up the Company's affairs,
endeavor to convert all of the assets of the Company into cash or cash
equivalents, pay from Company funds all Company liabilities, including
establishing a reserve to fund contingent liabilities in an amount to be
determined as information concerning such contingencies becomes available, and
distribute the net proceeds of the liquidation to stockholders. In connection
with approving the plan of liquidation in August 2002, the prior members of the
board estimated that you would receive total liquidation proceeds of
approximately $70.47 per share of common stock, if you held your shares through
completion of the liquidation. However, no assurance can be given as to the
actual amount of liquidation proceeds that will be available for distribution.
Once a quorum is present or represented by proxy at the special
meeting, the affirmative vote of at least a majority of the outstanding shares
of our common stock is required to approve the plan of liquidation. As part of
the settlement, HX Investors, which owns approximately 42% of our outstanding
common stock, agreed to vote all of its shares in favor of the plan of
liquidation. Accordingly, the affirmative vote of approximately an additional 8%
of our outstanding common stock will be sufficient to approve the plan of
liquidation.
In connection with approving the plan of liquidation in August 2002,
the prior members of the board determined that the plan is in the best interests
of stockholders and recommended that you vote "FOR" approval of the plan. You
should carefully read the plan of liquidation, a copy of which is attached as
Appendix A to the accompanying proxy statement.
At the special meeting, you will also be asked to transact such other
business as may properly come before the meeting or any adjournment or
postponement thereof. It is not anticipated that any other matter will be
brought before the special meeting. If other matters are properly presented,
however, proxies will be voted in accordance with the discretion of the proxy
holders.
Your vote is important. Whether or not you plan to attend the special
meeting, you are requested to promptly sign, date and mail the enclosed proxy
card in the postage-paid envelope provided. Returning a signed proxy card will
not prevent you from voting your shares in person if you subsequently choose to
attend the special meeting, but your presence, without further action, at the
special meeting will not constitute revocation of a previously delivered proxy.
On behalf of your board of directors, thank you for your continued
support.
Sincerely,
MICHAEL L. ASHNER
President and Chief Executive Officer
SHELBOURNE PROPERTIES I, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 29, 2002
To the Stockholders of
Shelbourne Properties I, Inc.
This special meeting of stockholders of SHELBOURNE PROPERTIES I, INC.
will be held on Tuesday, October 29, 2002, in the 11th Floor Conference Center
in the offices of Katten Muchin Zavis Rosenman, 575 Madison Avenue, New York,
New York 10022, at 11:00 a.m., local time, and at any adjournment or
adjournments thereof, for the following purposes:
1. To consider and vote upon a plan of liquidation, and to ratify and
approve the transactions described in the accompanying proxy
statement which the Company and its board of directors have
undertaken in connection with the plan of liquidation; and
2. To transact such other business as may properly come before the
meeting.
The board of directors currently knows of no other business to be
presented by or on behalf of Shelbourne.
Only stockholders of record at the close of business on September 27,
2002 will be entitled to notice of, and to vote at, the special meeting or any
adjournment or postponement of the meeting. Shelbourne stockholders can vote
their shares by completing, signing, dating and returning the enclosed proxy
card as promptly as possible in the enclosed pre-addressed, postage-paid
envelope. Proxies received after the special meeting will not be counted.
By Order of the Board of Directors
MICHAEL L. ASHNER,
President and Chief Executive Officer
Boston, Massachusetts
September 27, 2002
EVEN IF YOU EXPECT TO ATTEND THE MEETING, PLEASE MARK, SIGN AND DATE
THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE TO ENSURE THE
PRESENCE OF A QUORUM. ANY PROXY MAY BE REVOKED IN THE MANNER DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE IT HAS BEEN VOTED AT THE
MEETING.
TABLE OF CONTENTS
PAGE
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SUMMARY...........................................................................................................1
GENERAL INFORMATION FOR THE SPECIAL MEETING.......................................................................4
DATE, TIME AND PLACE...........................................................................................4
PURPOSES.......................................................................................................4
RECORD DATE FOR VOTING; NUMBER OF VOTES........................................................................4
QUORUM.........................................................................................................4
VOTING METHODS AND PROXIES.....................................................................................4
REQUIRED VOTE..................................................................................................5
REVOCATION OF PROXIES..........................................................................................5
INFORMATION REGARDING TABULATION OF THE VOTE...................................................................5
SOLICITATION OF PROXIES AND EXPENSES...........................................................................6
BACKGROUND OF THE COMPANY'S DECISION TO LIQUIDATE.................................................................7
RECOMMENDATION OF THE PRIOR BOARD.................................................................................9
THE PROPOSAL -- PLAN OF LIQUIDATION..............................................................................12
What Are You Being Asked To Approve?.......................................................................12
What are the Key Provisions of the Plan of Liquidation?....................................................12
What is the Company's Estimate of the Amount and Timing of Distributions to be Paid
to the Stockholders as a Result of the Liquidation?....................................................15
Has the Board Received an Opinion with Respect to the Plan of Liquidation?.................................16
Who Has an Economic Interest in the Proposed Liquidation Other Than
Common Stockholders?...................................................................................21
Do the Class A Units in the Operating Partnership Impair the Ability of the Company
to Liquidate?.........................................................................................23
What Steps has the Company Taken to Implement the Plan of Liquidation?.....................................23
Does the Company's Existing Credit Facility Affect the Company's Ability to Liquidate?.....................23
If the Plan of Liquidation is Approved, Will My Shares Continue to Trade on the AMEX?......................24
Can the Plan of Liquidation Be Terminated?.................................................................25
Have Any Stockholders Already Agreed to Vote in Favor of the Plan?.........................................25
What Other Matters Does the Company Believe are Relevant to my Vote?.......................................25
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE
PLAN OF LIQUIDATION?.............................................................................................26
Federal Income Tax Consequences to the Company.............................................................26
Federal Income Tax Consequences to United States Stockholders..............................................27
Federal Income Tax Consequences to Non-United States Stockholders..........................................27
Backup Withholding.........................................................................................28
Liquidating Trust..........................................................................................29
State and Local Income Tax.................................................................................30
Transfer Taxes.............................................................................................30
SELECTED HISTORICAL FINANCIAL DATA...............................................................................31
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...................................................32
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS........................................................33
WHERE YOU CAN FIND MORE INFORMATION..............................................................................34
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE................................................................34
STOCKHOLDER PROPOSALS............................................................................................35
OTHER MATTERS....................................................................................................36
WHO CAN HELP ANSWER YOUR QUESTIONS...............................................................................36
APPENDICES.......................................................................................................37
Appendix A - Plan of Liquidation.............................................................................A-1
Appendix B - Summary of Appraisals...........................................................................B-1
Appendix C - Fairness Opinion................................................................................C-1
i
SUMMARY
This proxy statement contains information regarding the special meeting
of stockholders of Shelbourne Properties I, Inc., which we call the "Company."
The board of directors is soliciting your proxy to encourage your participation
in the voting at the special meeting and to obtain your support for the plan of
liquidation.
This summary does not contain all the information that is important to
you. To fully understand the plan of liquidation, you should carefully read the
entire proxy statement. The plan of liquidation is attached as Appendix A to
this proxy statement. We encourage you to read the plan.
What is the Company's business?
The Company is a real estate investment trust - commonly known as a REIT -
engaged in the business of owning and operating income-producing properties.
Currently, the Company operates and holds an interest in three office buildings
and two shopping centers. The Company's shares of common stock are traded on the
American Stock Exchange under the symbol "HXD".
The Company owns its property portfolio through Shelbourne Properties I, LP, a
Delaware limited partnership controlled by the Company and which we call the
operating partnership.
What is the purpose of the special meeting?
At the special meeting we will ask you to approve the plan of liquidation and
authorize the board of directors to carry it out.
Why is this proposal being made?
The plan of liquidation is being submitted to you in accordance with the terms
of the July 2002 settlement of a lawsuit against the Company by HX Investors and
other stockholders of the Company. The plan of liquidation was approved by the
prior members of the board of directors on August 5, 2002. Pursuant to the
settlement, on August 19, 2002, the board of directors was reconstituted to
consist of individuals nominated by HX Investors, and the reconstituted board is
now required to seek stockholder approval to liquidate the Company in accordance
with the plan of liquidation.
Has the board made a recommendation with respect to the proposed liquidation?
In connection with approving the plan of liquidation in August 2002, the prior
members of the board determined that the plan is in the best interests of
stockholders and recommended that you vote "FOR" its approval.
What will I receive in the liquidation?
In connection with approving the plan of liquidation in August 2002, the prior
members of the board estimated that you would receive total liquidation proceeds
of approximately $70.47 for each share of our common stock that you own, if you
held your shares through the completion of the liquidation. The amount of
proceeds received from the disposition of individual assets, however, is
dependent upon a number of conditions, many of which are beyond the power of the
Company to control, including market conditions at the time of each sale, and no
assurance can be given as to the actual amount of liquidation proceeds that will
be available for distribution.
1
Will I continue to receive regular quarterly dividends?
In accordance with the terms of the settlement, the Company intends to make
quarterly distributions of all operating cash flow in excess of budgeted capital
expenditures, anticipated corporate expenses and a reserve of 2% of the current
appraised value of the Company's properties.
Will we continue to maintain our status as a REIT?
Pursuant to the plan of liquidation, we are required to make distributions in
amounts sufficient to allow the Company to remain qualified as a REIT under the
Internal Revenue Code throughout the period of the liquidation of our assets.
However, given the changes in the nature of the Company's assets and in the
Company's sources of income that could result from dispositions of assets and
the need to retain assets to meet liabilities, we cannot assure you that the
Company will continue to meet all of the REIT qualification tests. If the
Company should fail to qualify as a REIT, it would be taxed as a corporation on
income from operations and on gains recognized on liquidating sales of its
assets.
What is the anticipated date of the liquidation?
We are working to complete the liquidation as soon as possible. In order to
permit the Company to deduct liquidating distributions to stockholders for
federal income tax purposes, the Company must dispose all of its assets within
24 months of stockholder adoption of the plan. Accordingly, we intend to place
all our remaining assets (if any) at such time in a liquidating trust through
which we would continue disposing of our assets. The liquidating trust would be
required to dispose of any remaining assets within the subsequent three year
period.
What tax consequences are there?
For federal income tax purposes, distributions to you under the plan of
liquidation, including your pro rata share of the fair market value of any
assets that are transferred to a liquidating trust, should not be taxable to you
until they exceed the tax basis of your shares of common stock, and then should
be taxable to you under federal law as capital gain assuming you hold your
shares as a capital asset. You should consult your own tax advisor for a full
understanding of the particular tax consequences of the liquidation to you.
Who is entitled to vote at the meeting?
Only stockholders of record at the close of business on the record date of
September 27, 2002 are entitled to receive notice of the special meeting and to
vote those shares of common stock that they held on the record date. Each
outstanding share of common stock is entitled to one vote on each matter to be
voted on at the meeting.
What vote is required to approve the plan of liquidation?
The affirmative vote of at least a majority of the outstanding shares of our
common stock is required to approve our plan of liquidation. Abstention, the
failure to vote or a broker non-vote has the same effect as a vote against the
plan of liquidation.
HX Investors owns approximately 42% of our outstanding common stock. Under the
terms of the settlement, HX Investors has agreed to vote all of its shares in
favor of the plan of liquidation. Accordingly, the affirmative vote of
approximately an additional 8% of our outstanding common stock will be
sufficient to approve the plan of liquidation.
2
If any other matter is properly submitted to the stockholders at the special
meeting, it will be adopted by the affirmative vote of the holders of a majority
of votes cast at the meeting.
Does HX Investors Have an Economic Interest in the Liquidation?
Yes. As the owner of 42% of the outstanding common stock, HX Investors will be
entitled to receive 42% of liquidation proceeds distributed to stockholders. In
addition, under the plan of liquidation, HX Investors will be entitled to an
incentive distribution after a targeted amount of proceeds has been received by
stockholders. See "WHO HAS AN ECONOMIC INTEREST IN THE PROPOSED LIQUIDATION
OTHER THAN COMMON STOCKHOLDERS?"
How do I vote my shares?
You may vote your shares at the special meeting in person or by proxy. To vote
in person, you must attend the special meeting, and obtain and submit a ballot.
A ballot will be provided at the meeting. To vote by proxy, you must complete
and return the enclosed proxy card. A properly completed and signed proxy card
will be voted as you direct on the card. If you complete all of the proxy card
except the voting instructions, then the designated proxies (Michael L. Ashner
and Peter Braverman) will vote your shares for the plan of liquidation.
Can I change my vote after I return my proxy?
You may change your vote at any time before your proxy is exercised by: (i)
notifying the Secretary of the Company in writing of your revocation, (ii)
submitting a later dated proxy or (iii) attending the special meeting and
indicating that you intend to vote your shares yourself. If you attend the
special meeting, Messrs. Ashner and Braverman still have authority to vote your
shares in accordance with your instructions on the proxy unless you indicate at
the special meeting that you intend to vote your shares yourself.
Do I have dissenters' rights?
Stockholders have no statutory right to dissent from the liquidation.
What will happen if the plan of liquidation is not approved by stockholders?
If the plan of liquidation is not approved by stockholders at the special
meeting, the Company will continue to operate as a publicly-owned entity and
will make investments and dispositions and conduct its operations in the
ordinary course of business. In addition, under such circumstances, in
accordance with the settlement, the board will use its reasonable efforts to
sell the Company's 568 Broadway property in New York City and to distribute the
proceeds from such sale to the stockholders.
Who can answer my questions?
If you have any questions regarding the liquidation or any other matters
discussed in this proxy statement, please contact:
[MacKenzie Partners, Inc. logo]
105 Madison Avenue
New York, NY 10016
(212) 929-5500 (Collect)
or
(800) 322-2885 (Toll-Free)
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GENERAL INFORMATION FOR THE SPECIAL MEETING
DATE, TIME AND PLACE
The special meeting will be held in the 11th Floor Conference Center in
the offices of Katten Muchin Zavis Rosenman, 575 Madison Avenue, New York, New
York 10022 on October 29, 2002 at 11:00 a.m. local time, and any adjournment or
postponement of the meeting. This proxy statement and the accompanying Notice of
Special Meeting of Stockholders and proxy card are first being mailed to
stockholders on or about September 30, 2002.
PURPOSES
At the special meeting, you will be asked to consider and vote upon the
plan of liquidation. The board of directors is not currently aware of any
business to be acted upon at the special meeting other than as described in this
proxy statement. If other matters are properly brought before the special
meeting, however, the persons appointed as proxies will have authority to vote
on those matters according to their discretion.
RECORD DATE FOR VOTING; NUMBER OF VOTES
Only stockholders of record at the close of business on September 27,
2002 are entitled to receive notice of and to vote at the special meeting. On
such date there were issued and outstanding 839,286 shares of common stock.
QUORUM
A majority of the votes eligible to be cast represented in person or by
proxy constitutes a quorum for the meeting. If a quorum is not present, the
special meeting may be adjourned without further notice to a date not more than
120 days after the original record date at which a quorum is present, and shares
represented by proxies may be voted for such adjournment.
A broker non-vote occurs on a matter when a broker holding stock in
street name returns an executed proxy but does not vote on the matter because
the broker lacks discretionary authority from the beneficial owner to vote on
that matter. The missing votes are deemed to be "broker non-votes." Shares
present but abstaining and broker non-votes will be included in the number of
shares present at the special meeting for purposes of establishing a quorum.
VOTING METHODS AND PROXIES
You can vote on the matters to come before the special meeting as
follows:
- by signing, dating and mailing the proxy card in the enclosed
postage-paid envelope; or
- by attending the special meeting and casting your vote at the
special meeting.
4
REQUIRED VOTE
Once a quorum is present or represented by proxy at the special
meeting, approval of the plan of liquidation requires the affirmative vote of at
least a majority of the outstanding shares of the common stock.
In addition, the consent of the general partner of the operating
partnership is required to approve the disposition of all of the operating
partnership's assets. The general partner is controlled by the Company and has
consented to the disposition of all of the operating partnership's assets.
At the close of business on September 27, 2002, the record date for
determining those stockholders eligible to vote at the special meeting, there
were 839,286 shares of common stock outstanding.
HX Investors holds 352,485 shares of common stock, or approximately
42.0% of the votes eligible to be cast at the special meeting. HX Investors has
agreed to vote all of their shares of common stock FOR the plan of liquidation.
Accordingly, the affirmative vote of approximately an additional 8% of the votes
eligible to be cast at the special meeting, or 67,159 shares, will be sufficient
to approve the plan of liquidation.
For purposes only of determining the presence or absence of a quorum
for the transaction of business, we intend to count abstentions and broker
non-votes as present at the special meeting. Abstentions and broker non-votes
will not, however, be counted as votes and, therefore, have the same effect as
votes against the proposal. Broker non-votes are proxies from brokers or other
nominees indicating that they have not received instructions from the beneficial
owner or other person entitled to vote the shares which are the subject of the
proxy on a particular matter for which the broker or other nominee does not have
discretionary voting power.
REVOCATION OF PROXIES
A stockholder may revoke a proxy given with respect to the special
meeting at any time before it is voted at the special meeting by:
- filing with the Secretary of the Company a written revocation; or
- granting a duly executed proxy bearing a later date.
A stockholder may revoke a previously delivered proxy by attending the
special meeting and voting in person, but the presence (without further action)
of a stockholder at the special meeting will not constitute revocation of a
previously delivered proxy.
Stockholders holding shares in street name at a broker or bank
custodian must follow the procedures of such broker or bank custodian if they
wish to revoke a previous voting instruction.
INFORMATION REGARDING TABULATION OF THE VOTE
All proxies, ballots and votes tabulated at a meeting of our
stockholders are confidential, and the votes will not be revealed to any of our
employees or anyone else, other than the inspectors, unless it is necessary to
meet applicable legal requirements. However, we intend to issue a press release
stating whether or not the plan of liquidation was approved at the special
meeting.
5
SOLICITATION OF PROXIES AND EXPENSES
The Company will bear the entire cost of solicitation of proxies from
our stockholders. The Company has retained MacKenzie Partners, Inc. to assist in
soliciting proxies and will pay approximately $10,000 plus reasonable
out-of-pocket expenses in connection with the solicitation. Copies of
solicitation materials will be furnished to brokerage houses, fiduciaries and
custodians holding in their names shares of our common stock beneficially owned
by others to forward to those beneficial owners. The Company will reimburse
persons representing beneficial owners of the shares of our common stock for
their expenses in forwarding solicitation materials to those beneficial owners.
Original solicitation of proxies by mail may be supplemented by telephone or
personal solicitation by the directors, officers or other employees of the
Company. No additional compensation will be paid to the Company's directors,
officers or other employees for these services.
6
BACKGROUND OF THE COMPANY'S DECISION TO LIQUIDATE
Formation of Company
The Company was originally formed in 1983 as a California limited
partnership. On April 17, 2001, the limited partnership was converted to a
Delaware corporation. At that time, Presidio Capital Investment Company, an
entity controlled by NorthStar Capital Investment Corp., owned approximately 33%
of the Company's common stock, approximately 27% of the common stock of
Shelbourne Properties II, Inc. and approximately 32% of the common stock of
Shelbourne Properties III, Inc. (collectively with Shelbourne Properties II,
Inc. and the Company, the "Shelbourne Companies"), and a wholly owned subsidiary
of Presidio Capital, Shelbourne Management, LLC, was party to an advisory
agreement with each Shelbourne Company, pursuant to which Shelbourne Management
managed the business of each of the Shelbourne Companies.
The initial directors of the Company consisted of Michael L. Ashner,
who is President of the general partner of HX Investors and currently the
President and Chief Executive Officer and a member of the board of the Company,
five individuals who were affiliated with Presidio Capital, and three
individuals who were not affiliated with Presidio Capital. Mr. Ashner was also
the President of each of the Shelbourne Companies at the time. Mr. Ashner
resigned as a director and as President of each of the Shelbourne Companies as
of August 15, 2001.
Sale by Presidio Capital Investment Company LLC
Beginning in October 2001, Presidio Capital entered into discussions
with Mr. Ashner and a third party in connection with (1) a proposed sale of
Presidio Capital's interest in the Shelbourne Companies and (2) a proposed
transfer of Presidio Capital's interest in the advisory agreements to an entity
controlled by Mr. Ashner and the third party, for an aggregate purchase price of
approximately $92.5 million. Throughout December 2001 and January 2002, a
special committee of the board of directors of the Company held numerous
meetings and discussions with its legal and financial advisors to evaluate and
consider the proposed transaction. In February 2002, representatives of the
special committee advised Mr. Ashner and the third party that the special
committee had concluded that it was not prepared to recommend the proposed
transaction to the Company's board. The special committee instead recommended to
each board of directors that it explore the feasibility and advisability of a
transaction in which each of the Shelbourne Companies would repurchase the
shares of its common stock held by Presidio Capital and acquire Presidio
Capital's interest in its respective advisory agreement. On February 13, 2002,
the special committee unanimously recommended that the board, and the board
unanimously did, approve such a transaction with Presidio Capital, and the
transaction was consummated on February 14, 2002. The details of such
transaction are contained in the Company's Current Report on Form 8-K filed by
the Company with the Securities and Exchange Commission on February 14, 2002. On
February 22, 2002, a derivative action, In re Shelbourne Properties Derivative
Litigation, Consolidated C.A. No, 19442-NC (Del. Ch.), was filed in the Court of
Chancery of the State of Delaware by certain putative stockholders of the
Company (the "Derivative Action") challenging the February 2002 transaction on
various grounds. At or about the same time, a separate action brought by another
stockholder of the Company, alleging both derivative and direct claims relating
to the February 2002 transaction, was filed in the Supreme Court of the State of
New York, County of New York. This action was subsequently settled and
voluntarily dismissed.
Appointment of Lazard Freres & Co. LLC
In April 2002, the Shelbourne Companies announced that they had hired
Lazard Freres & Co. LLC ("Lazard"), an independent investment banking firm, to
assist in the Shelbourne Companies' ongoing efforts to evaluate strategic and
financial alternatives that would enhance stockholder value.
7
Representatives of Lazard first met with representatives of HX Investors on
April 8, 2002. At that time, HX Investors discussed various possible
transactions, including one that would involve the Company issuing convertible
preferred securities to HX Investors and giving control of the Company to HX
Investors. The board of directors of the Company discussed this proposal, but
rejected it. The board of directors subsequently directed Lazard to initiate a
marketing process to solicit, on behalf of the board, proposals to acquire or
recapitalize the Shelbourne Companies. As part of the marketing process,
representatives of HX Investors and Lazard communicated from time to time
concerning HX Investors' continuing interest in a transaction with the Company.
The Statutory Actions
On May 22, 2002, a lawsuit, HX Investors, L.P., et al. v. Shelbourne
Properties I, Inc. et al., Del. Ch., C.A. No. 19644, was filed against the
Company in the Court of Chancery of the State of Delaware by a group of putative
stockholders, including HX Investors. At or about the same time, the lead
plaintiffs in the Derivative Action filed a similar lawsuit on behalf of a class
of stockholders of the Company in the same court (collectively, the "Statutory
Actions"). The Statutory Actions challenged certain actions taken at the time of
the February 2002 transaction in connection with the composition of the board.
From May 22, 2002 through July 1, 2002, the Statutory Actions proceeded through
the discovery phase and a trial date was set for July 2, 2002. During June 2002,
representatives of the Company met with representatives of HX Investors and lead
counsel for the plaintiffs in the Derivative Action on various occasions to
discuss the terms of a possible settlement to the Statutory Actions. On July 1,
2002, representatives of HX Investors and the Company finalized the terms of a
settlement whereby, pursuant to a settlement agreement and a stock purchase
agreement, HX Investors would offer to purchase from Company stockholders up to
30% of the outstanding shares of common stock for $53 per share in cash and
agree thereafter to implement a plan of liquidation for the Company. In
connection with its approval of the settlement on that day, the board obtained
the opinion of Lazard that, as of such date, and based upon and subject to the
various considerations and assumptions set forth in its opinion, the offer price
under the HX Investors offer, together with the proceeds from the liquidation of
the Company pursuant to the plan of liquidation, taken as a whole, to be
received by the stockholders of the Company (other than HX Investors) in the
offer and plan of liquidation, was fair to such stockholders from a financial
point of view. At a meeting held on July 1, 2002, the prior board declared the
advisability of the settlement agreement and the stock purchase agreement and
the dissolution of the Company contemplated thereby, and determined that the
transactions contemplated by the settlement agreement and the stock purchase
agreement, including the HX Investors offer and the plan of liquidation, are
fair to and in the best interests of the Company and the Company's stockholders.
At this meeting, the prior board approved the settlement agreement, the stock
purchase agreement and the plan of liquidation. In its July 9, 2002 filings with
the Securities and Exchange Commission, the prior board unanimously recommended
that stockholders desiring to maximize immediate liquidity of their shares
accept the HX Investors offer and tender their shares pursuant to the HX
Investors offer and stockholders not seeking immediate liquidity, but desiring
to receive their pro rata portion of the liquidation proceeds contemplated by
the plan of liquidation, should not accept the HX Investors offer, and should
vote to approve the adoption of the plan of liquidation at a meeting of the
stockholders to be held to consider such matter. Also on July 1, 2002, the
parties to the Derivative Action agreed in principle to the terms of a
settlement of the Derivative Action and prepared a memorandum of understanding
reflecting those terms. The settlement documents and the memorandum of
understanding were executed in the evening of July 1, 2002, and HX Investors
commenced its tender offer on July 5, 2002.
On July 29, 2002, investor Carl Icahn publicly announced that his
related companies, together with outside investors, were prepared to initiate a
competing tender offer for the same number of shares of common stock of the
Company as were tendered for under the HX Investors offer, at a price per share
of $58.30 in cash. According to Mr. Icahn's public statement, the Icahn Offer
would be on the same terms and conditions as the HX Investors offer, except that
rather than the charge of 25% of liquidation proceeds over a specified amount of
net proceeds included in the previously approved plan of liquidation, the Icahn
offer would contemplate a 15% charge. On July 30, 2002, the Company notified HX
Investors in writing that, pursuant to Section 6.05 of the stock purchase
agreement, the Company and its representatives were engaging in discussions with
Mr. Icahn and his representatives with respect to the Icahn offer. On the
morning of August 1, 2002, the Company received a letter from HX Investors
amending the terms of the HX Investors offer to, among other things, increase
the purchase price under the HX Investors offer from $53.00 to $59.00 per share
in cash, and reduce from 25% to 15% the incentive payment provided for in the
plan of liquidation. During the afternoon of August 1, 2002, the Company
received a letter from Mr. Icahn stating that he was prepared to complete a
competing tender offer at a price per share of $63.15 in cash. On August 2,
2002, the Company received two letters from HX Investors amending the terms of
the HX Investors offer to, among other things, increase the purchase price per
share under the HX Investors offer to $61.00. Also on August 2,
8
2002, the Company received a letter from Mr. Icahn in which he agreed to
incorporate into his competing offer certain corporate governance provisions
that HX Investors had indicated it would include in the HX Investors offer. On
August 4, 2002, HX Investors informed the Company that it was prepared to amend
the terms of the HX Investors offer to, among other things, increase the
purchase price per share under the offer to $63.15 in cash. Also on August 4,
2002, Mr. Icahn informed the Company that he was no longer prepared to go
forward with his competing offer. On August 5, 2002, the company and HX
Investors entered into an amendment to the stock purchase agreement reflecting
the terms of the August negotiations. One that day, Lazard delivered its written
opinion that, as of such date, and based upon and subject to the various
considerations and assumptions set forth in its opinion, the $63.15 increased
offer price under the HX Investors offer, together with the proceeds from the
liquidation of the Company pursuant to the plan of liquidation, taken as a
whole, to be received by the stockholders of the Company (other than HX
Investors) in the offer and plan of liquidation, was fair to such stockholders
from a financial point of view. At a meeting held on August 5, 2002, the prior
board approved the amendment to the stock purchase agreement and determined the
stock purchase agreement, as amended, is fair to and in the best interests of,
the Company and its stockholders. On August 16, 2002, the HX Investors offer
expired, and on August 19, 2002 HX Investors announced that it had purchased all
251,785 shares sought under its offer.
Implementation of the Settlement
Pursuant to the settlement, on August 19, 2002, upon the acceptance for
payment of the shares by HX Investors under its tender offer, the board was
reconstituted to consist of six individuals, two of whom are affiliated with HX
Investors and four of whom are independent directors approved by the prior
board. The terms of the two Class I Directors so appointed expired at the
Company's annual meeting held on September 9, 2002 at which time such
individuals were re-elected as Class I Directors. In addition, as part of the
settlement, the Company agreed to seek ratification of the Class II and Class
III Directors so appointed. The appointment of the Class II and Class III
Directors was ratified as well at the annual meeting. The Company also agreed
that following the aforementioned board reconstitution (i) any subsequent
nominations for vacancies in the board created by the removal or resignation of
an independent director will be made by the remaining independent directors of
the board, and (ii) HX Investors and the Company will take all action necessary
to cause the Company's by-laws to be amended to implement the provisions of
clause (i) and provide that any amendment to such provisions will require the
approval of a majority of the shares entitled to vote at a meeting of
stockholders of the Company, other than those shares held by HX Investors and
its affiliates. At a meeting of the board on September 9, 2002, the board
enacted the foregoing amendments to the Company's by-laws. At the September 9
meeting, the board also approved certain provisions to implement the incentive
arrangement under the plan and to address the terms of the Class A Units in the
operating partnership. See "WHO HAS AN ECONOMIC INTEREST IN THE PROPOSED
LIQUIDATION OTHER THAN COMMON STOCKHOLDERS?"
The settlement requires the reconstituted board to submit the plan of
liquidation to stockholders for their approval. Accordingly, we are sending you
this proxy statement pursuant to which we are seeking your approval of the plan
of liquidation.
RECOMMENDATION OF THE PRIOR BOARD
As discussed above, in accordance with the settlement, on August 19,
2002, the board was reconstituted to consist of nominees of HX Investors. As
discussed above the plan of liquidation was approved by the prior members of the
board on July 1, 2002 and, as amended, on August 5, 2002. In connection with
approving the plan, determining that it is fair to, and in the best interest of
stockholders, and recommending that stockholders approve the plan, the prior
board members consulted with the Company's financial and legal advisors and
considered the following factors:
- The prior members of the board estimated that you would receive
total liquidation proceeds of approximately $70.47 per share of
common stock, if you held your shares through the completion of
the liquidation. We cannot assure you that the Company will be
successful
9
in disposing of properties for values equaling or exceeding those
estimated by the prior members of the board. If values of the
Company's assets decline or if the costs and expenses related to
such asset sales exceed those which were estimated by the prior
members of the board, then the liquidation may not yield
distributions as great as those estimated. No assurances can be
made as to the actual amount and timing of distributions which may
be made over a substantial period of time;
- The presentations from Lazard, the Company's financial advisor,
and its written opinion dated August 5, 2002, that, as of such
date, based upon and subject to certain considerations and
assumptions set forth in its opinion, the $63.15 offer price under
the HX Investors offer, together with the proceeds from the
liquidation of the Company in accordance with the plan of
liquidation, taken as a whole, to be received by the stockholders
of the Company (other than HX Investors) in the offer and plan of
liquidation, was fair to such stockholders from a financial point
of view. The prior members of the board were aware that Lazard
would be entitled to certain fees upon consummation of the HX
Investors offer.
- The prior board's belief that, with the assistance of Lazard, the
Company had thoroughly explored the market's interest in various
strategic alternatives. Since beginning to undertake a review of
the Company's strategic alternatives, Lazard contacted
approximately 30 potential parties, 21 of whom entered into
confidentiality agreements and 10 of whom submitted proposals;
- The presentation of Lazard and the prior board's review with
respect to the strategic alternatives available to the Company,
including the Company remaining an independent public company, the
possibility of acquisitions or mergers with other companies and
other transactions, as well as the risks and uncertainties
associated with such alternatives; and
- The current and historic financial condition and results of
operations of the Company, as well as the prospects and strategic
objectives of the Company, including the risks involved in
achieving those prospects and objectives, and the current and
expected conditions in the part of the real estate market in which
the Company operates.
The prior members of the board of directors also considered potentially
negative factors in their deliberations concerning the liquidation, including
the following:
- There could be no assurance that the Company would be successful
in disposing of its assets for values equal to or exceeding those
estimated or that these dispositions would occur as early as
expected;
- Stockholders may, depending on their tax bases in their stock,
recognize taxable gains in connection with the completion of the
liquidation;
- If the plan is approved and the plan is implemented, stockholders
will no longer participate in any future earnings or growth of the
Company's assets or benefit from any increases in the value of the
Company's assets once such assets are sold;
- As opposed to a business combination with a relatively short time
frame during which a third party would acquire the Company, the
liquidation process would involve a longer pay-off process and
would require the Company to incur potentially larger
administrative and other costs; and
10
- Certain conflicts of interest could exist for the Company's
management in connection with the liquidation, including as a
result of the interests of affiliates of the Company's management
described under "THE PROPOSAL - WHO HAS AN ECONOMIC INTEREST IN
THE PROPOSED LIQUIDATION OTHER THAN COMMON STOCKHOLDERS?"
- It is likely that the price of the Company's shares will decrease
as we make distributions to stockholders.
11
THE PROPOSAL -- PLAN OF LIQUIDATION
WHAT ARE YOU BEING ASKED TO APPROVE?
You are being asked to approve the Company's proposed plan of
liquidation. By voting in favor of the plan of liquidation, you will also
approve and ratify the transactions described in this proxy statement which the
Company and its board of directors have undertaken in connection with the
proposed plan.
WHAT ARE THE KEY PROVISIONS OF THE PLAN OF LIQUIDATION?
Key Provisions
The following is a brief description of the key provisions of the plan
of liquidation as well as certain terms of the settlement that relate to the
proposed liquidation.
o As promptly as practicable after the stockholders approve the plan
of liquidation but no later than 5 days after, the Company will
file a certificate of dissolution with the Delaware Secretary of
State.
o Unless an extension is approved by the Delaware Court of Chancery
or by a majority of the stockholders, or as may otherwise be
required by the fiduciary duties of the board of directors, the
Company must complete the disposition of its assets within three
years after the date it files its certificate of dissolution. We
intend to satisfy this obligation (and permit the Company to
deduct liquidating distributions for federal income tax purposes)
by distributing the Company's unsold assets into a liquidating
trust within 24 months of the adoption by stockholders of the plan
of liquidation. The liquidating trust would be required to dispose
of any such remaining assets within the subsequent three year
period. See "Liquidating Trust" below.
o As soon as reasonably practicable after the effective time of the
certificate of dissolution, the board will cause the Company to
dispose of all its assets without further approval of
stockholders. However, any disposition of an asset with an
aggregate value in excess of $500,000 must be approved by a
majority of the directors of the Company.
o The HX Investors nominees to the board who are not independent
directors will, subject to their fiduciary duties and existing
obligations of the Company, recommend to the board and support the
implementation of the following distribution policy, in each case
subject to the terms of any indebtedness of the Company or its
subsidiaries:
- Quarterly distributions of all net operating cash flow in
excess of budgeted capital expenditures, anticipated corporate
expenses and a reserve of 2% of the current appraised value of
the Company's properties;
- 80% of the Company's current excess net cash will be used to
retire existing debt and/or to make a distribution to the
stockholders within 90 days of the appointment or election to
the board of HX Investor's nominees for director; and
- All excess refinancing and net property sale proceeds, if any,
will be distributed within the earlier of 30 days following
the fiscal quarter in which such refinancing or sale occurs or
90 days following the refinancing or sale.
o So long as a majority of the board of directors consists of
members nominated by HX Investors or by persons nominated by such
nominees, unless otherwise approved by stockholders not affiliated
12
with HX Investors, the failure by the Company (after applicable
cure periods) to observe the distribution policy set forth
immediately above with respect to excess financing and net
property sale proceeds shall result in each of the following:
- Permanent elimination of the distributions to HX Investors in
respect of their preferred interests in the operating
partnership. See "WHO HAS AN ECONOMIC INTEREST IN THE PROPOSED
LIQUIDATION OTHER THAN COMMON STOCKHOLDERS?" for a description
of the preferred interest in the operating partnership issued
to HX Investors;
- Elimination of any service fees payable to affiliates of HX
Investors by the Company during the period in which the
distribution was delayed; and
- Elimination of any fees payable to directors (other than those
of objecting directors) of the Company during the period in
which the distribution was delayed.
o If prior to the later of (x) the two year anniversary of the
approval by stockholders of the plan of liquidation or (y)
December 31, 2004, stockholders shall not have received aggregate
distributions equal to $48.00 on a per share basis, then HX
Investors will vote its shares at the next annual meeting of
stockholders in proportion to the stockholders not affiliated with
HX Investors, on all matters properly brought before the meeting
and the Company will endeavor to cause such meeting to be held not
later than May 30, 2005.
o If the plan of liquidation is approved and the assets of the
Company are not fully liquidated by October 31, 2007, HX Investors
will vote its shares on any stockholder proposal in accordance
with the majority of the shares voted by the stockholders not
affiliated with HX Investors.
o Cash reserves of the Company in excess of $500,000 will be
invested only in short-term U.S. Treasuries or other short-term
federally insured obligations.
o Without the approval of the holders of a majority of the
outstanding shares (excluding shares held by HX Investors and its
affiliates), the Company may not: amend its certificate of
incorporation or bylaws; issue, sell, grant, pledge or encumber
any shares of capital stock or convertible securities not
outstanding on the date of the agreement; make any distribution
outside the plan of liquidation except as necessary to maintain
qualification as a real estate investment trust; acquire any
business entity, real estate or other material amount of assets;
pay a non-independent director or officer any compensation; take
any action not required by generally accepted accounting
principles with respect to accounting policies; or announce any
intention to do any of the foregoing, except that the Company is
permitted to acquire one or more properties (and incur
indebtedness related thereto) in order to facilitate the
disposition of properties currently owned by the Company while
maintaining the debt and equity thresholds under the terms of the
Class A partnership units in the operating partnership. See "WHO
HAS AN ECONOMIC INTEREST IN THE PROPOSED LIQUIDATION OTHER THAN
COMMON STOCKHOLDERS?".
o Except as contemplated by the plan of liquidation, neither the
Company nor any of its subsidiaries will (i) enter into any new
transaction with HX Investors or its affiliates, (ii) amend any
agreements previously entered into by the Company with HX
Investors or its affiliates or (iii) enter into a new service
agreement, or change the terms of any existing service agreement,
between the Company and a third party that is an affiliate of HX
Investors, in each case without the unanimous approval of the
independent directors.
13
o The Company will use all reasonable efforts to maintain the
listing of the Common Stock on the AMEX and if the shares are
delisted, the Company will use all reasonable efforts to have the
shares listed on another national stock exchange or on a Nasdaq
stock market.
o Until the earlier of the date of final liquidation and six years
after the Company files its certificate of dissolution, the bylaws
of the Company will contain no less favorable provisions for the
liability and indemnification of directors, and will not be
amended in any manner that adversely effects the rights of persons
who are directors, officers, fiduciaries or agents at the
consummation of the tender offer. In addition, the Company will
maintain insurance to cover the same.
o The plan of liquidation provides that the board of directors, and
such officers of the Company as the board may direct, are
authorized to interpret the provisions of the plan of liquidation
and to take such further actions as they deem necessary or
desirable to wind up the affairs of the Company expeditiously and
complete the liquidation.
o If the plan of liquidation is not approved by the Company's
stockholders, the nominees of HX Investors will, subject to their
fiduciary duties, use commercially reasonable efforts to market
and sell the property located at 568 Broadway, New York, New York
and, subject to the terms of any indebtedness of the Company or
its subsidiaries, to distribute the proceeds therefrom within the
earlier of 30 days following the quarter in which such refinancing
occurs or 90 days following the sale.
Liquidating Trust
If the Company has not disposed of all of its assets within 24 months
of the adoption by stockholders of the plan of liquidation, we intend to
establish a liquidating trust to which the Company will distribute in kind its
unsold assets. This is necessary in order for the Company (assuming it remains
qualified as a REIT) to be eligible to deduct amounts distributed pursuant to
the plan of liquidation as dividends and thereby not be subject to federal
income tax on such amounts.
If we establish the liquidating trust, the Company will distribute to
the then holders of its common stock beneficial interests in the liquidating
trust in proportion to the number of shares of common stock owned by such
holders. THIS DISTRIBUTION GENERALLY WOULD BE A TAXABLE EVENT TO SUCH
STOCKHOLDERS, AND MAY SUBJECT SUCH STOCKHOLDERS, IF TAX-EXEMPT OR NON-U.S.
STOCKHOLDERS, TO UNITED STATES FEDERAL INCOME TAX WITH RESPECT TO THE ACTIVITIES
OF THE LIQUIDATING TRUST. The sole purpose of the liquidating trust will be to
liquidate any remaining assets and, after paying any remaining liabilities,
distribute the proceeds of the sale of assets formerly owned by the Company to
the holders of the interests in the liquidating trust. The liquidating trust
will be obligated to pay any of the Company's expenses and liabilities that
remain unsatisfied.
INTERESTS IN THE LIQUIDATING TRUST WILL NOT BE FREELY TRANSFERABLE.
THEREFORE, THE RECIPIENTS OF THE INTERESTS IN THE LIQUIDATING TRUST WILL NOT
REALIZE ANY VALUE FROM THESE INTERESTS UNLESS AND UNTIL THE TRUST DISTRIBUTES
CASH OR OTHER ASSETS TO THEM, WHICH WILL BE SOLELY IN THE DISCRETION OF THE
TRUSTEES. We do not anticipate that the liquidating trust will be required to
file annual, quarterly or other reports with the Securities and Exchange
Commission as is currently required of the Company under federal securities
laws.
The board has not determined the detailed terms or structure for a
liquidating trust. The characteristics of any liquidating trust will be
determined by the board at a future date depending on factors such as the number
and value of assets to be held by the liquidating trust and the number of
holders of interests in the liquidating trust. Notwithstanding the foregoing,
the terms of the liquidating
14
trust will require that all assets must be disposed of within three years from
the date such assets are deposited in the trust.
WHAT IS THE COMPANY'S ESTIMATE OF THE AMOUNT AND TIMING OF DISTRIBUTIONS TO BE
PAID TO THE STOCKHOLDERS AS A RESULT OF THE LIQUIDATION?
Timing and Amount
After the sale or other liquidation of the Company's assets, and after
providing for the payment of the Company's obligations and liabilities and
satisfying all preference payments to holders of preferred interests in the
operating partnership, we will distribute to shareholders the remaining cash
proceeds we receive from the sale or other liquidation of the Company's assets
in cancellation of all of the Company's outstanding capital shares. Subject to
the terms of any indebtedness of the Company or its subsidiaries, all net
property sale proceeds, if any, will be distributed within the earlier of 30
days following the fiscal quarter in which such sale occurs or 90 days following
the sale and all distributions will be paid to shareholders of record at the
close of business on the record dates to be determined by the board, pro rata
based on the number of shares owned by each.
In August 2002, the prior members of the board estimated that you would
receive total liquidation proceeds of approximately $70.47 per share, if you
held your shares through completion of the liquidation. It is not possible to
determine with certainty the total liquidation proceeds that may ultimately be
available for distribution to shareholders. See "Uncertainties Relating to
Estimated Distributions" below. The actual amount and timing of, and record
dates for, shareholder distributions will be determined by the board and will
depend upon the timing and proceeds of the sale of the Company's assets, and the
amounts deemed necessary by the board to pay or provide for the Company's
liabilities and obligations.
Calculation of Estimated Distributions
The prior board's estimate of the per share liquidation proceeds was
based on appraisals performed for the Company in March and April 2002 by Cushman
& Wakefield, Inc., a nationally recognized real estate appraisal firm. The
appraisals were obtained by the Company in connection with its entering into a
secured credit facility in May 2002. In arriving at its estimate of per share
liquidation proceeds, the prior board adjusted the appraised value of the
Company's properties to reflect the repayment of indebtedness and the incurrence
of liquidation costs and expenses. The prior board then reduced such net
appraised value by 10% to reflect the discount which the board believed would
result from the sale of the properties as part of a publicly announced
liquidation.
For a summary of the appraisals used in connection with estimating the
amount of liquidation proceeds, see Appendix B hereto.
Uncertainties Relating to Estimated Distributions
In preparing the estimates of liquidation proceeds, the prior board
made certain judgments and assumptions with respect to the liquidation process
that, although it considered reasonable at the time, may not be realized. We
cannot assure you that actual results will not vary materially from the
estimates.
Examples of uncertainties that could cause the aggregate amount of
distributions to be less than the prior board's estimates include the following:
15
- the value of the Company's assets and the time required to sell
such assets may change due to a number of factors beyond the
Company's control, including macro-economic as well as specific
regional and local market conditions;
- the prior board's estimate of liquidation proceeds includes
estimates of the costs and expenses of the liquidation. If actual
costs and expenses exceed such estimated amount, actual proceeds
could be less than estimated;
- if liabilities, unknown or contingent at the time of the mailing
of this proxy statement, later arise which must be satisfied or
reserved for as part of the plan of liquidation, the aggregate
proceeds could be less than estimated;
- delays in consummating the plan of liquidation could result in
additional expenses and result in actual proceeds that are less
than estimated;
- we hold one property in joint venture with Shelbourne Properties
II, Inc. and Shelbourne Properties III, Inc. and two properties in
joint venture with only Shelbourne Properties II, Inc. If the
stockholders of either Shelbourne Properties II, Inc. or
Shelbourne Properties III, Inc. do not approve their respective
plans of liquidation (proxies for which are currently being
solicited), we could be forced to sell our interests in such joint
ventures, rather than the underlying properties, at a discount to
the amounts currently estimated; and
- the estimates were not audited or reviewed by independent
auditors.
Cancellation of Shares
The final distribution will be in complete redemption and cancellation
of your shares. Upon such final distribution, you may be required to surrender
your share certificates.
HAS THE BOARD RECEIVED AN OPINION WITH RESPECT TO THE PLAN OF LIQUIDATION?
In April 2002, the board (prior to being reconstituted with HX
Investors appointees) retained Lazard to act as the Company's financial advisor
in connection with its review of strategic and financial planning matters.
In connection with the Company's entering into the original agreements
with HX Investors, Lazard delivered its written opinion to the prior board,
dated July 1, 2002, that, as of such date, based upon and subject to certain
considerations and assumptions set forth in its opinion, the original $53.00
offer price by HX Investors, together with the proceeds from the liquidation
pursuant to the original plan of liquidation, taken as a whole, to be received
by the stockholders of the Company (other than HX Investors), in the offer and
plan of liquidation was fair to such stockholders from a financial point of
view. Subsequent to issuing its opinion on July 1, 2002, in connection with the
Company's entering into the amended agreements with HX Investors, Lazard
delivered its written opinion to the prior board, dated August 5, 2002, that, as
of such date, based upon and subject to certain considerations and assumptions
set forth in its opinion, the increased $63.15 offer price by HX Investors under
its amended offer, together with the proceeds from the liquidation pursuant to
the amended plan of liquidation, taken as a whole, to be received by the
stockholders of the Company (other than HX Investors), in the amended offer and
the amended plan of liquidation was fair to such stockholders from a financial
point of view. This updated opinion is what we refer to herein as the Lazard
opinion.
The Lazard opinion was rendered to the prior board solely in connection
with the prior board's consideration of the Company's entering into the stock
purchase agreement with HX Investors, which
16
agreement provided for the offer by HX Investors and the subsequent liquidation
of the Company pursuant to the plan of liquidation. Such opinion had certain
assumptions specifically relating to the estimated proceeds to be received by
stockholders under the plan of liquidation (which assumptions were made at the
direction of the prior board), and Lazard in no way opined on or endorsed any
such assumptions. In addition, analyses relating to the value of businesses or
securities such as those performed by Lazard in connection with rendering its
opinion are not appraisals. Lazard was not asked to and did not assume any
responsibility for any independent valuation or appraisal of any of the
properties, assets or liabilities of the Company. Accordingly, the analyses
performed by Lazard and the valuation ranges resulting from its analyses do not
indicate the actual value of the assets of the Company or predict the actual
proceeds that a stockholder may receive in connection with the consummation of
the plan of liquidation.
THE LAZARD OPINION CONSTITUTES NEITHER A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE ON THE PROPOSALS SET FORTH IN
THIS PROXY STATEMENT NOR A GUARANTEE AS TO THE ACTUAL AMOUNT OF CONSIDERATION
THAT A STOCKHOLDER WILL RECEIVE IN CONNECTION WITH THE PLAN OF LIQUIDATION.
THE FULL TEXT OF THE LAZARD OPINION IS ATTACHED HERETO AS APPENDIX C
AND IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE LAZARD OPINION
SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THE LAZARD OPINION SET FORTH IN APPENDIX C. COMPANY STOCKHOLDERS ARE URGED TO
READ THE LAZARD OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES
FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY LAZARD IN CONNECTION THEREWITH. THE
FOLLOWING IS ONLY A SUMMARY OF THE LAZARD OPINION. STOCKHOLDERS ARE URGED TO
READ THE OPINION IN ITS ENTIRETY.
In rendering its opinion, Lazard:
- reviewed the financial terms and conditions of the stock purchase
agreement, as amended, and the schedules, exhibits and annexes
thereto;
- analyzed certain historical business and financial information
relating to the Company;
- reviewed various financial budgets, asset appraisals and other
data provided to Lazard by the Company relating to its business;
- held discussions with members of the board (prior to being
reconstituted with nominees of HX Investors) and senior management
of the Company's property management and asset management firms
with respect to the business and prospects of the Company and the
strategic objectives of the Company;
- reviewed public information with respect to certain other
companies in lines of businesses that Lazard believed to be
generally comparable to the businesses of the Company;
- reviewed the financial terms of certain business combinations
involving companies in lines of businesses that Lazard believed to
be generally comparable to those of the Company;
- reviewed the historical stock prices and trading volumes of the
common stock; and
17
- reviewed such other information and conducted such other financial
studies, analyses and investigations as Lazard deemed appropriate.
For purposes of Lazard's rendering its opinion, the prior board
instructed Lazard to assume that the liquidation proceeds to be received by
stockholders under the plan of liquidation will be equal to $70.47 per share of
common stock, which price was determined by the Company to be equal to ninety
percent (90%) of the per share estimated appraised liquidation value of the
properties and assets of the Company as adjusted to reflect the repayment of
indebtedness and the incurrence of liquidation costs and expenses. Lazard
assumed no responsibility for and expressed no view as to whether the Company's
assumption of the net per share liquidation proceeds is the correct
determination of the liquidation proceeds that will be received by the
stockholders, and Lazard did not independently verify the underlying asset
appraisal, assumptions and discounts on which such per share amount is based.
Furthermore, in connection with rendering its opinion Lazard did not assume any
responsibility for any independent valuation or appraisal of any of the
properties, assets or liabilities of the Company, or concerning the solvency or
fair value of the Company or its properties.
Lazard relied upon the accuracy and completeness of the information
described above that it reviewed in connection with rendering its opinion and
did not assume any responsibility for any independent verification of such
information. In preparing its opinion, Lazard did not receive any forecasts with
respect to the Company, and was informed that no such forecasts exist. Lazard's
opinion is necessarily based on economic, monetary, market and other conditions
as in effect on, and the information made available to it as of, the date of its
opinion.
In rendering its opinion, Lazard assumed that the HX Investors offer
and the plan of liquidation will be consummated in accordance with the terms
described in the stock purchase agreement, without any waiver of any material
terms or conditions by the Company or HX Investors, and that obtaining the
necessary regulatory approvals in connection with the offer and the plan of
liquidation will not have an adverse effect on the Company. Lazard also assumed
that each of the Company's plan of liquidation and the Shelbourne II and III
liquidations will be consummated concurrently in accordance with their terms
without any waiver or modifications, and that the Company's plan of liquidation
and the Shelbourne II and III liquidations will not result in any prepayment
penalty on the preferred interests of the operating partnership of each of the
Company, Shelbourne II and Shelbourne III.
The following is a brief summary of the material financial and
comparative analyses used by Lazard in connection with providing its opinion to
the prior board on July 1, 2002. This summary is qualified in its entirety by
reference to the full text of the Lazard opinion. The stockholders of the
Company are urged to read the full text of the Lazard opinion carefully and in
its entirety, a copy of which is attached as Appendix C to this proxy statement.
PUBLIC MARKET VALUATION ANALYSIS. Lazard performed a comparable public
companies valuation analysis in order to derive a range of implied per share
values for the Company common stock based on financial multiples of ten (10)
United States real estate investment trusts with equity market capitalizations
of less than $250,000,000, which companies Lazard deemed to be comparable to the
Company. In performing this analysis, Lazard reviewed certain financial
information for the Company and compared such information to corresponding
financial information for the comparable companies. The companies included in
this analysis were:
18
BNP Residential Properties, Inc.
One Liberty Properties, Inc.
Sizeler Property Investors, Inc.
Monmouth Real Estate Investment Corp.
AmeriVest Properties, Inc.
Maxus Realty Trust Inc.
Urstadt Biddle Properties Inc.
Acadia Realty Trust
Ramco-Gershenson Properties Trust
Agree Realty Corporation
Using publicly available information, Lazard calculated the price per
share of each of these companies as of June 27, 2002 as a multiple of their
respective calendar year 2001 actual funds from operations and as a multiple of
each of their respective calendar year 2002 estimated funds from operations.
Price/FFO
-----------------------------------
2001A 2002E
----- -----
Maximum 11.1x 10.8x
Median 8.7x 9.1x
Minimum 4.7x 6.4x
Using the multiples calculated in the public market valuation analysis,
Lazard derived a range of implied per share values of $39.16 to $65.82 for the
Company's common stock.
COMPARABLE TRANSACTIONS ANALYSIS. Lazard performed a comparable
transaction analysis in order to derive a range of implied per share values for
the Company common stock based on multiples in comparable mergers of real estate
investment trusts of the consideration paid in such transactions to funds from
operations of such company as of the announcement of such transaction. In
connection with this analysis, Lazard reviewed the following transactions:
Acquiror Target
--------------------------------- -------------------------------
Kimco Realty Corp. Price REIT Inc.
Reckson Associates Tower Realty Trust Inc.
US Retail Partners LLC First Washington Realty Trust
Commercial Net Lease Realty Captec Net Lease Realty Inc.
Pan Pacific Retail Properties Western Properties Trust
Bradley Real Estate Inc. Mid-America Realty Investments
Using publicly available data, Lazard calculated the following
multiples paid in the precedent transactions:
Transaction Multiple
--------------------
Maximum 12.3x
Median 8.9x
Minimum 8.1x
19
Using the multiples calculated in the comparable transactions analysis,
Lazard derived a range of implied per share values of $49.75 to $75.36 for the
Company's common stock.
PREMIUMS PAID ANALYSIS. Lazard performed a premiums paid analysis in
order to derive a range of implied per share values for the Company's common
stock based on the premiums paid in the following merger transactions involving
real estate investment trusts:
Acquiror Target
------------------------------------ --------------------------------
US Retail Partners LLC First Washington Realty Trust
EIN Acquisition Corp. Echelon International Corp.
Equity One Inc. United Investors Realty Trust
Kimco Realty Corp. Price REIT Inc.
Bradley Real Estate Inc. Mid-America Realty Investments
Gotham Partners LP First Union RE Equity Mortgage
Developers Diversified Realty American Industrial Properties
Pan Pacific Retail Properties Western Properties Trust
Reckson Associates Tower Realty Trust Inc.
Commercial Net Lease Realty Captec Net Lease Realty Inc.
Using publicly available data, Lazard calculated the following premium
percentages paid in the precedent transactions based on pre-announcement stock
prices of such companies:
Premium/(Discount) to
Prior Day Share Price
---------------------
Maximum 25.30%
Median 4.83%
Minimum -1.95%
Using the range of the foregoing precedent transactions, Lazard derived
a range of per share values of $42.26 to $54.00 for the Company's common stock.
STOCK PRICE ANALYSIS. Lazard reviewed the per share prices of the
Company common stock on June 27, 2002, the high and low trading prices for the
Company common stock for the 52-week period ending June 27, 2002, and the
average closing price for the 60-day period ending June 27, 2002. The following
table illustrates such stock prices during such periods:
52-Week 60 Day Average
------------- Closing Price as of June Closing Price on
Low High 27, 2002 June 27, 2002
------- ------ ------------------------ -----------------
$27.00 $43.70 $42.08 $43.10
Lazard prepared these analyses solely for the purpose of providing its
opinion to the prior board in connection with the prior board's consideration of
the Company's entering into the stock purchase agreement of the fairness from a
financial point of view to the stockholders of the Company (other than HX
Investors) of the offer price, together with the proceeds from the liquidation
pursuant to the plan of liquidation, taken as a whole, to be received by such
stockholders of the Company in the offer and plan of liquidation. Lazard's
opinion and financial analyses were not the only factors considered by the
Company's prior board in its evaluation of the offer and the plan of liquidation
contemplated by the stock purchase agreement and should not be viewed as
determinative of the views of the Company's prior board.
20
The analyses performed by Lazard and the valuation ranges resulting
from its analyses do not indicate the actual value of the assets of the Company
or predict the actual proceeds that a stockholder may receive in connection with
the consummation of the plan of liquidation. Further, the preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to a partial analysis or summary description. Accordingly,
notwithstanding the separate analyses summarized above, Lazard believes that its
analyses, must be considered as a whole and that selecting portions of the
analyses and factors considered by it, without considering all such factors and
analyses, or attempting to ascribe relative weights to some or all such analyses
and factors could create an incomplete view of the evaluation process underlying
the Lazard opinion. In addition, in connection with rendering its opinion Lazard
did not assign any specific weight to any of the analyses described above and
did not draw any specific conclusions from or with regard to any one method of
analysis. With respect to the analysis of comparable companies and the analysis
of selected precedent transactions described above, no public company utilized
in the comparison is identical to the Company and no transaction is comparable
to the offer or the plan of liquidation. Accordingly, an analysis of publicly
traded companies and comparable transactions is not a mathematical process;
rather, it involves complex considerations and judgments concerning the
differences in financial and operating characteristics and other factors
relating to the Company and the companies to which it is compared. In its
analyses, Lazard made numerous assumptions with respect to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of the Company.
Under the terms of Lazard's engagement, upon the consummation of the
original offer by HX Investors, Lazard became entitled to receive an aggregate
fee of $2,500,000 from the Shelbourne Companies and may receive up to an
additional aggregate fee of $500,000 from the Shelbourne Companies; provided,
that any monthly fees previously paid to Lazard were credited against such fees.
The Company has agreed to reimburse Lazard for travel and other out-of-pocket
expenses incurred in performing its services, including the fees and expenses of
its legal counsel. In addition, the Company agreed to indemnify Lazard or any of
its members, employees, agents, affiliates or controlling persons, if any,
against certain liabilities and expenses, including liabilities under the
federal securities laws relating to or arising out of Lazard's engagement.
Lazard is an internationally recognized investment banking and advisory
firm and is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements, leveraged buyouts, and valuations for corporate and other
purposes. In the ordinary course of its business, Lazard and its affiliates may
from time to time effect transactions and hold securities, including derivative
securities, of the Company for its own account and for the account of Lazard's
customers. Lazard was selected to act as investment banker to the Company
because of its expertise and its reputation in investment banking and mergers
and acquisitions.
WHO HAS AN ECONOMIC INTEREST IN THE PROPOSED LIQUIDATION OTHER THAN COMMON
STOCKHOLDERS?
Class A Partnership Units in the Operating Partnership
As part of the February 2002 transaction between the Company and
Presidio Capital Investment Company LLC, the operating partnership issued to
Shelbourne Management LLC preferred partnership interests (denominated as 5%
Class A Preferred Partnership Units) with a liquidation preference of $812,674,
and a note in the initial principal amount of approximately $17,600,000. In
21
May 2002, the operating partnership repaid the note in full from proceeds of a
secured revolving credit facility procured on May 1, 2002.
The Class A Units call for distributions at the rate of, generally, 5%
per annum of the liquidation preference. Prior to the distribution of any
liquidation proceeds to the Company, the operating partnership is required to
pay an amount equal to the liquidation preference plus all accrued but unpaid
distributions thereon to the holder of the Class A Units.
In addition, the holder of the Class A Units has the right to cause the
operating partnership to purchase the Class A Units at a substantial premium
(currently approximately $5,700,000) over their liquidation preference unless
the operating partnership maintains at least approximately $17,600,000 of
indebtedness guaranteed by Presidio Capital and secured by assets having a fair
market value of at least approximately $26,300,000. While the Company's current
property portfolio and credit facility satisfy such debt and equity thresholds,
we have commenced a search to acquire one or more net-leased properties (as
described under "WHAT STEPS HAS THE COMPANY TAKEN TO IMPLEMENT THE PLAN OF
LIQUIDATION?") in order to facilitate the sale of the Company's existing
properties while continuing to satisfy such thresholds. The plan of liquidation
permits the Company to acquire one or more properties (and to incur indebtedness
with respect thereto) in order to facilitate the disposition of properties
currently owned by the Company while maintaining such thresholds.
Under the terms of the settlement, at such time as Shelbourne
Management receives its liquidation preference in respect of its Class A Units
in the operating partnership, Shelbourne Management will be required to pay to
HX Investors an amount equal to approximately 42% of such liquidation
preference. Michael L. Ashner, the President and Chief Executive Officer of the
Company, is the sole stockholder of Exeter Capital Corporation, the general
partner of HX Investors and holder of a 40% interest in HX Investors. In
addition, Peter Braverman, an executive officer of the Company, holds a 10%
limited partner interest in HX Investors.
HX Investors Class B Partnership Units
In connection with the proposed plan of liquidation, the operating
partnership issued to HX Investors preferred partnership interests (denominated
Class B Preferred Partnership Units) which, if, and only if, the plan of
liquidation is approved by stockholders, will entitle HX Investors to receive,
at such time as distributions are made to the holders of outstanding Common
Stock, 15% of the excess, if any, of (a) "Net Proceeds" (as hereinafter defined)
over (b) for each outstanding share of Common Stock, the sum of $59 plus a
return thereon at a rate of 6% per annum, compounded quarterly, from August 20,
2002 until February 19, 2004 and then increasing by 0.5% for each subsequent
six-month period up to a maximum of 8%. "Net Proceeds" means the total amount of
the Company's cash from operations, refinancings and property sales, less the
sum of all direct costs incurred in connection with such sales.
HX Investors will be entitled to receive these distributions as the
holder of Class B partnership units in the operating partnership that were
issued to it on August 19, 2002. HX Investors will not be entitled to receive
these distributions in the event that the Company has failed (after applicable
cure periods) to distribute all net sale and excess refinancing proceeds by the
earlier of (x) 30 days following the end of the fiscal quarter in which such
sale or refinancing occurs and (y) 90 days following the date of such sale and
refinancing.
Kestrel Interim Management Services Fee
Since October 1, 2002, the transition management services previously
provided by Presidio Capital Investment Company have been provided by Kestrel
Management, LLC at a reduced fee of
22
$200,000 per year (Presidio Capital was paid approximately $333,000 per year for
providing such services). After the first three years, the trustee of the
liquidating trust will determine the fee to Kestrel, provided that the fee may
not exceed $200,000 per year. Kestrel currently provides property management
services for the Company. As each property is sold, the Company will terminate
each respective property management agreement with Kestrel. Kestrel will not be
entitled to its transition management services fee in the event that the Company
has failed to distribute all net sale and excess refinancing proceeds by the
earlier of (x) 30 days following the end of the fiscal quarter in which such
sale or refinancing occurs and (y) 90 days following the date of such sale or
refinancing. Michael L. Ashner, the President and Chief Executive Officer of the
Company, owns a 10% interest in Kestrel. Each of Peter Braverman, Lara Sweeney
and Carolyn Tiffany, executive officers of the Company, owns a 1.67% interest in
Kestrel.
DO THE CLASS A UNITS IN THE OPERATING PARTNERSHIP IMPAIR THE ABILITY OF THE
COMPANY TO LIQUIDATE?
Yes. The holder of the Class A Units has the right to cause the Company
to purchase the Units at a substantial premium (currently approximately
$5,700,000) over their $812,674 liquidation preference unless the Company
maintains at least approximately $17,600,000 of indebtedness guaranteed by
Presidio Capital and secured by assets having a fair market value of at least
$26,300,000. See "WHO HAS AN ECONOMIC INTEREST IN THE PROPOSED LIQUIDATION OTHER
THAN COMMON STOCKHOLDERS?" The Company's current property portfolio and debt
facility satisfy these debt and equity thresholds; however, the prepayment
provisions of the current credit facility significantly impair the Company's
ability to sell its properties while continuing to satisfy such thresholds.
Accordingly, we are pursuing one or more net-lease transactions (as described
under "WHAT STEPS HAS THE COMPANY TAKEN TO IMPLEMENT THE PLAN OF LIQUIDATION?")
in order to facilitate the sale of the Company's existing properties while
continuing to satisfy such thresholds. The plan of liquidation permits the
Company to acquire one or more properties (and to incur indebtedness with
respect thereto) in order to facilitate the disposition of properties currently
owned by the Company while maintaining the thresholds required by the Class A
Units.
WHAT STEPS HAS THE COMPANY TAKEN TO IMPLEMENT THE PLAN OF LIQUIDATION?
The Company has taken several steps to implement the plan of
liquidation including:
- preparation of sales brochures for each of the Company's
properties;
- initiating a review of the Company properties to determine which
should be brought to market; and
- commencing a search for one or more credit net-leased properties
in an effort to satisfy the debt and equity thresholds imposed by
the Class A Units in the operating partnership while the Company
proceeds with the plan of liquidation (see "DO THE CLASS A UNITS
IN THE OPERATING PARTNERSHIP IMPAIR THE ABILITY OF THE COMPANY TO
LIQUIDATE?"). Any such transaction will be subject to the prior
approval of the board.
DOES THE COMPANY'S EXISTING CREDIT FACILITY AFFECT THE COMPANY'S ABILITY TO
LIQUIDATE?
Yes. As discussed under "DO THE CLASS A UNITS IN THE OPERATING
PARTNERSHIP IMPAIR THE ABILITY OF THE COMPANY TO LIQUIDATE?", the holder of the
Class A Units has the right to cause the Company to purchase the Units at a
substantial premium (currently approximately $5,700,000) over their $812,674
liquidation preference unless the Company maintains at least
23
approximately $17,600,000 of indebtedness guaranteed by Presidio Capital and
secured by assets having a fair market value of at least $26,300,000. While the
Company's current debt facility and property portfolio satisfy these debt and
equity thresholds, the prepayment provisions of the current credit facility
significantly impair the Company's ability to sell its properties while
continuing to satisfy such thresholds.
The Company's current credit facility is with Bayerische Hypo-Und
Vereinsbank AG, New York Branch, as agent for itself and other lenders. Pursuant
to the credit facility, each of the Company's properties which is pledged or
mortgaged as security under the facility may only be sold if, among other
things, the purchase price provides net proceeds which are in an amount equal to
a minimum release price for such property, or, if such property is a "core
property," an amount equal to the greater of the minimum release amount for such
property and the net sales proceeds therefor. In addition, upon the sale of a
"core property," the aggregate amount that may be borrowed under the facility
will be permanently reduced by the amount of the loan under the facility that
has been prepaid with respect to such core property and no additional property
may be substituted as security for such core property. The Company's properties
in California, Florida, New York and Washington state constitute core properties
under the facility.
The Company obtained the $75 million secured revolving credit facility
on May 1, 2002, together with the operating partnerships of each of the Company,
Shelbourne Properties II, Inc. and Shelbourne Properties III, Inc., and certain
of such operating partnerships' directly or indirectly owned subsidiaries. The
facility has a term of three years and is prepayable in whole or in part at
anytime without penalty or premium. $73,330,075 was initially borrowed under the
facility and the above-mentioned borrowers are jointly and severally liable for
the repayment of any amounts borrowed and the performance of their collective
obligations under the facility.
The facility is secured by (i) a pledge by the operating partnerships
of their membership interests in wholly-owned subsidiaries which directly or
indirectly own substantially all of their real properties, and (ii) mortgages on
certain real properties owned directly and indirectly by the operating
partnerships. Accordingly, all of the directly and indirectly owned assets of
the Company's operating partnership are security for the facility, all of the
directly and indirectly owned assets of Shelbourne Properties II, Inc.'s
operating partnership are security for the facility, except for its two real
properties located in Illinois and all of the directly and indirectly owned
assets of Shelbourne Properties III, Inc.'s operating partnership are security
for the facility, except for its real property located in Illinois and its
interests in a joint venture which owns real property in Indiana.
IF THE PLAN OF LIQUIDATION IS APPROVED, WILL MY SHARES CONTINUE TO TRADE ON THE
AMEX?
Yes. We anticipate, however, that the market price of our common stock
will decline as we make liquidating distributions to stockholders. In this
regard, there is a possibility that we will not be able to maintain continued
compliance with the American Stock Exchange's listing requirements or that the
AMEX will take action to delist our securities.
Within 24 months of the adoption by stockholders of the plan of
liquidation, we intend to distribute our remaining assets to a liquidating
trust. However, if our common stock is delisted from the AMEX prior to such
time, we may elect to transfer our remaining assets to a liquidating trust
following any such delisting. Upon our establishment of a liquidating trust, we
will distribute to the then holders of our common stock beneficial interests in
the liquidating trust in proportion to the number of shares of common stock
owned by such holders. Interests in the liquidating trust will not be freely
transferable.
24
CAN THE PLAN OF LIQUIDATION BE TERMINATED?
The plan of liquidation may not be terminated, amended or repealed
without the approval of the holders (other than HX Investors and its affiliates)
of a majority of the outstanding shares of common stock (excluding shares held
by HX Investors and its affiliates).
HAVE ANY STOCKHOLDERS ALREADY AGREED TO VOTE IN FAVOR OF THE PLAN?
Yes. Under the terms of the settlement agreement and stock purchase
agreement, HX Investors, which owns 42% of the common stock, has agreed to vote
all of its shares in favor of the plan of liquidation.
WHAT OTHER MATTERS DOES THE COMPANY BELIEVE ARE RELEVANT TO MY VOTE?
No Assurances as to the Timing and Amount of Liquidating Distributions
We cannot assure you that the Company will be successful in disposing
of properties for values equaling or exceeding those estimated by the prior
board. Real estate market values are constantly changing and fluctuate with
changes in interest rates, the availability of suitable buyers, the perceived
quality and dependability of income flows from tenancies and a number of other
factors, both local and national. In addition, environmental contamination or
unknown liabilities, if any, at the Company's properties may adversely impact
the sales price of those assets. If the values of the Company's assets decline
or the costs and expenses related to such sales or the liquidation process
exceed those which are currently estimated by the Company, the liquidation may
not yield distributions as great as those currently estimated by the Company. No
assurances can be made as to the actual amount and timing of distributions,
which may be made over a substantial period of time.
Sales of Assets Not Subject To Further Stockholder Approval
If our stockholders approve the plan, the directors will have the
authority to sell any and all of the Company's assets on such terms as the board
of directors determines appropriate, subject to the provisions of the plan.
Notably, the stockholders will have no subsequent opportunity to vote on such
matters and will, therefore, have no right to approve or disapprove the terms of
such sales. However, if stockholders have failed to receive aggregate
distributions per share equal to $48.00 by December 31, 2004, then HX Investors
(i) will cause the next annual meeting of stockholders to be held no later than
May 30, 2005 and (ii) will vote all of its shares in proportion to the votes
cast by the other holders of common stock on all matters properly brought before
such meeting. In addition, under the terms of the plan, if the plan of
liquidation is approved and the assets of the Company are not fully liquidated
by October 31, 2007, HX Investors must vote all its shares on any stockholder
proposal in accordance with the votes cast by holders of a majority of the
shares of common stock not owned by HX Investors and its affiliates.
Qualification As A REIT
Under the terms of the plan of liquidation, we are required to make
distributions in amounts sufficient to allow us to remain qualified as a real
estate investment trust under the Internal Revenue Code throughout the period of
the liquidation of our assets. Accordingly, the prior board's estimated range of
the liquidating distributions per share set forth in this proxy statement
assumes that the Company will continue to qualify as a REIT under the Code
during the entire liquidation process and, therefore, no provision has been made
for federal income taxes. Although the Company expects to maintain its REIT
qualification, there can be no assurance in that regard. If we lose our REIT
status, we would be taxable as a corporation for federal income tax purposes and
would be liable for federal
25
income taxes at the corporate rate with respect to our entire taxable income
from operations and from liquidating sales and distributions of our assets for
the taxable year in which our qualification as a REIT terminates and in any
subsequent years.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN OF LIQUIDATION?
The following discussion summarizes certain material U.S. federal
income tax considerations that may be relevant to you as a result of the
liquidation. This summary has been prepared based upon advice from Katten Muchin
Zavis Rosenman, counsel to the Company. This discussion is based upon
interpretations of the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury regulations promulgated under the Code, judicial decisions, and
administrative rulings as of the date of this proxy statement, all of which are
subject to change or differing interpretations, including changes and
interpretations with retroactive effect. In addition, we have not requested and
do not plan to request any rulings from the Internal Revenue Service (the "IRS")
with respect to the tax consequences of the plan of liquidation. Accordingly, no
assurance can be given that the statements set forth in this discussion, which
do not bind the IRS or the courts, will not be challenged by the IRS or
sustained by the courts if challenged. The discussion below does not address all
U.S. federal income tax consequences or any state, local or foreign tax
consequences of the liquidation. Your tax treatment may vary depending upon your
particular situation. Also, stockholders subject to special treatment, including
dealers in securities or foreign currency, tax-exempt entities, non-U.S.
stockholders, banks, thrifts, insurance companies, persons that hold common
stock as part of a "straddle", a "hedge", a "constructive sale" transaction or a
"conversion transaction", persons that have a "functional currency" other than
the U.S. dollar, and investors in pass-through entities, may be subject to
special rules not discussed below. This discussion also does not address the
U.S. federal income tax consequences of the liquidation to holders of common
stock that do not hold that stock as a capital asset.
For purposes of the discussion below, a 'U.S. stockholder' is a U.S.
citizen or resident, a domestic corporation, a domestic partnership, an estate
the income of which is subject to U.S. federal income tax without regard to its
source, or a trust if a U.S. court is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons have the authority
to control all the substantial decisions of the trust. A non-U.S. stockholder is
any stockholder that is not a U.S. stockholder.
THIS U.S. FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY
AND MAY NOT ADDRESS ALL TAX CONSIDERATIONS THAT MAY BE SIGNIFICANT TO A
STOCKHOLDER. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES OF THE LIQUIDATION TO YOU, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS AND CHANGES IN APPLICABLE TAX LAWS.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY
As a REIT, the Company generally is not subject to federal corporate
income tax on the portion of its taxable income that it currently distributes to
its stockholders. If the plan of liquidation is approved by stockholders, we
expect, but cannot assure, that we will liquidate in a manner that will allow it
to continue to meet the requirements for qualification as a REIT until it has
distributed all of its assets to its stockholders (including by means of a
transfer of assets to a liquidating trust).
So long as the Company continues to qualify as a REIT, any net gain
from "prohibited transactions" will be subject to a 100% tax. "Prohibited
transactions" are sales of property held primarily for sale to customers in the
ordinary course of a trade or business. Whether a real estate asset
26
is property held primarily for sale to customers in the ordinary course of a
trade or business is a highly factual determination. We believe that all of the
Company's properties are held for investment and the production of rental
income, and that none of the sales of the Company's properties in accordance
with the plan of liquidation will constitute a prohibited transaction. However,
we cannot assure that the IRS will not successfully challenge the
characterization of the Company's properties for purposes of applying the 100%
tax.
We expect to completely liquidate the Company within 24 months after
the plan of liquidation is approved by stockholders. Provided we completely
liquidate the Company within such 24-month period, distributions made by the
Company pursuant to the plan of liquidation will be treated as dividends paid
for purposes of computing the Company's dividends paid deduction, to the extent
of the Company's earnings and profits (computed without regard to the Company's
capital losses) for the taxable year in which any such distributions are made.
As a result, and provided that the Company continues to qualify as a REIT, we
believe that the Company will not be subject to federal corporate income tax on
any gain recognized in connection with liquidating sales of the Company's
assets, nor will it be subject to federal corporate income tax on any gain
recognized upon a liquidating distribution of any of its appreciated assets
(whether to a liquidating trust or to stockholders). Should the Company lose its
status as a REIT, it would be taxable as a corporation for federal income tax
purposes and would be liable for federal income taxes at the corporate rate with
respect to its entire taxable income from operations and from liquidating sales
and distributions of its assets for the taxable year in which its qualification
as a REIT terminates and any subsequent years.
FEDERAL INCOME TAX CONSEQUENCES TO UNITED STATES STOCKHOLDERS
Distributions the Company makes within 24 months after the plan of
liquidation is approved will not be dividend income to you, notwithstanding the
Company's treatment of such distributions as dividends for purposes of the
dividends paid deduction. Distributions in liquidation, including your pro rata
share of the fair market value of any assets transferred to a liquidating trust,
should first reduce the tax basis of your shares of common stock and be
non-taxable to you to that extent, with any excess constituting a capital gain.
If the sum of all liquidating distributions made to you is less than your tax
basis in your shares, the difference will constitute a capital loss to you at
the time you receive your final liquidating distribution, which includes the
transfer of assets to a liquidating trust. Such capital gain or loss will be
long or short-term, depending on whether your shares have been held for more
than one year.
The maximum tax rate imposed on the long-term capital gains of
non-corporate taxpayers is 20%, although a 25% maximum tax rate is imposed on
the portion of such gains attributable to prior depreciation deductions claimed
in respect of depreciable real property held for more than one year and not
otherwise treated as ordinary "recapture" income. Regulations have been adopted
relating to the taxation of capital gains in the case of sales and exchanges of
interests in partnerships, S corporations and trusts, but not of interests in
REITs. Accordingly, you are urged to consult with your tax advisors with respect
to your capital gain tax liability resulting from our liquidation and your
receipt of liquidating distributions.
FEDERAL INCOME TAX CONSEQUENCES TO NON-UNITED STATES STOCKHOLDERS
Generally, a non-U.S. stockholder's gain or loss from the liquidation
will be determined in the same manner as that of a U.S. stockholder. Gain
recognized by a non-U.S. stockholder on distributions the Company makes within
24 months after the plan of liquidation is approved should not be subject to
U.S. federal income taxation unless (a) the gain is effectively connected with a
U.S. trade or business of the non-U.S. stockholder, (b) the stockholder is an
individual who has been present in the U.S. for 183 days or more during the
taxable year of disposition and certain other conditions are satisfied, or (c)
the
27
Company's common stock in the hands of the stockholder constitutes a "U.S. Real
Property Interest" within the meaning of the Foreign Investment in Real Property
Tax Act of 1980 ("FIRPTA").
If a non-U.S. stockholder's common stock constitutes a U.S. Real
Property Interest, or if the stockholder's gain from the liquidating
distributions is otherwise effectively connected with a U.S. trade or business,
the stockholder will be subject to U.S. federal income tax at regular tax rates
with respect to that gain. In addition, the non-U.S. stockholder may be subject
to applicable alternative minimum tax, a special alternative minimum tax in the
case of nonresident alien individuals and the possible application of the 30%
branch profits tax in the case of non-U.S. corporations. If the non-U.S.
stockholder is an individual who has been present in the U.S. for 183 days or
more during the taxable year of disposition and other conditions are satisfied,
the stockholder will be subject to a 30% tax on its capital gains. An applicable
income tax treaty may modify these consequences for a non-U.S. stockholder
eligible for treaty benefits, and non-U.S. stockholders should consult with
their tax advisors regarding the possible application of such a treaty. In
addition, liquidating distributions may be subject to U.S. federal income
taxation in the hands of certain expatriates and former long-term residents of
the U.S.
Common stock owned by a non-U.S. stockholder will not constitute a U.S.
real property interest if either (a) the Company is a "domestically-controlled
REIT" at all times during a specified testing period or (b) the Company's common
stock continues to be traded on an established securities market during the
liquidation period, as to which there can be no assurance, and the non-U.S.
stockholder held 5% or less of the total fair market value of the Company's
common stock at all times during the shorter of the time the stockholder held
the Company's common stock or during the five-year period ending on the date of
the final liquidating distribution. We will be a domestically controlled REIT if
non-U.S. stockholders held less than 50% of the value of the Company's stock at
all times during the 5-year period ending with the payment of the final
liquidating distribution. Based on the record ownership of the Company's capital
stock, we believe we are a domestically-controlled REIT, but no assurance can be
given that the actual ownership of the Company's common stock has been or will
be sufficient for the Company to qualify as a domestically-controlled REIT at
all times during the applicable testing period.
Even though we believe the Company is a domestically-controlled REIT,
liquidating distributions paid to non-U.S. stockholders generally are subject to
income tax withholding at the rate of 10%. ACCORDINGLY, WE INTEND TO WITHHOLD
10% OF EACH LIQUIDATING DISTRIBUTION TO A NON-U.S. STOCKHOLDER. A NON-U.S.
STOCKHOLDER MAY BE ENTITLED TO A REFUND OR CREDIT AGAINST THE STOCKHOLDER'S U.S.
TAX LIABILITY WITH RESPECT TO THE AMOUNT WITHHELD, PROVIDED THAT THE STOCKHOLDER
FILES A U.S. INCOME TAX RETURN WITH THE IRS ON A TIMELY BASIS. NON-U.S.
STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING WITHHOLDING TAX
CONSIDERATIONS.
BACKUP WITHHOLDING
Unless you comply with applicable reporting and/or certification
procedures or are an exempt recipient under applicable provisions of the Code
and Treasury regulations promulgated under the Code, you will be subject to a
30% backup withholding tax with respect to any cash payments received pursuant
to the liquidation. You should consult your own tax advisors to ensure
compliance with these procedures.
Backup withholding generally will not apply to payments made to exempt
recipients such as a corporation or financial institution or to a stockholder
who furnishes a correct taxpayer identification number or provides a certificate
of foreign status and provides certain other required information. If backup
withholding applies, the amount withheld is not an additional tax but is
credited against the stockholder's U.S. federal income tax liability.
28
LIQUIDATING TRUST
If the Company has not disposed of all its assets within 24 months of
the adoption by stockholders of the plan of liquidation, we intend to establish
a liquidating trust to which the Company will distribute in kind its unsold
assets. This is necessary in order for the Company (assuming it remains
qualified as a REIT) to be eligible to deduct amounts distributed pursuant to
the plan of liquidation as dividends and thereby not be subject to federal
income tax on such amounts. A trust will be treated as a liquidating trust if it
is organized for the primary purpose of liquidating and distributing the assets
transferred to it, and if its activities are all reasonably necessary to and
consistent with the accomplishment of that purpose. However, if the liquidation
is prolonged or if the liquidation purpose becomes so obscured by business
activities that the declared purpose of the liquidation can be said to be lost
or abandoned, it will no longer be considered a liquidating trust. Although
neither the Code nor the Treasury regulations thereunder provide any specific
guidance as to the length of time a liquidating trust may last, the IRS's ruling
guidelines call for a term not to exceed three years, which period may be
extended to cover the collection of installment obligations.
An entity classified as a liquidating trust may receive assets,
including cash, from the liquidating entity without incurring any tax, and, as a
grantor trust, is not subject to tax on any income or gain recognized by it.
Instead, if you are a stockholder when a liquidating trust is established, you
will be treated as the owner of your pro rata portion of each asset, including
cash, received by and held by the liquidating trust. Accordingly, you will be
treated as having received a liquidating distribution equal to your share of the
amount of cash and the fair market value of any asset transferred to the
liquidating trust, and will recognize gain at that time to the extent such value
is greater than your basis in your stock notwithstanding that you may not
currently receive a distribution of cash or any other assets with which to
satisfy the resulting tax liability. You will recognize taxable gain or loss
when all or part of your pro rata portion of an asset held by the liquidating
trust is disposed of for an amount greater or less than the fair market value of
such asset at the time it was transferred to the liquidating trust. In addition,
you will be required to take into account in computing your taxable income your
pro rata share of each item of income, gain and loss of the liquidating trust,
the character of which items will pass through to you.
The liquidating trustee will file tax returns for the liquidating
trust, and will send to each holder of an interest in the liquidating trust a
separate statement setting forth the holder's share of items of income, gain,
loss, deduction or credit. Each holder must report such items on its federal
income tax return regardless of whether the liquidating trust makes current cash
distributions. If a holder incurs a federal income tax liability on account of
taxable income of the liquidating trust that exceeds the trust distributions
made to a holder, such holder may be entitled to a subsequent or offsetting
capital loss.
An individual stockholder who itemizes deductions will be entitled to
deduct his pro rata share of fees and expenses of the liquidating trust for
regular federal income tax purposes only to the extent that such amount,
together with the stockholder's other miscellaneous itemized deductions, exceeds
2% of his adjusted gross income, and will not be entitled to deduct such
expenses at all for alternative minimum tax purposes.
Because stockholders would be treated as owning their respective shares
of the liquidating trust's assets, they would be treated as directly engaging in
the operations of the liquidating trust. As such, holders of interests in the
liquidating trust that are tax-exempt entities may realize unrelated business
taxable income with respect to the trust's activities, and non-U.S. holders may
be considered to derive income that is effectively connected with a U.S. trade
or business. In that event, non-U.S. holders would be subject to U.S. federal
income tax and, for non-U.S. corporate holders, branch profits tax. Accordingly,
the liquidating trust will withhold 35% of any capital gain distributions made
to non-U.S. holders. That amount will be creditable against the non-U.S.
holder's U.S. federal income tax
29
liability. Tax-exempt and non-U.S. stockholders should consult their own tax
advisors regarding the U.S. federal income tax consequences that would apply to
them if we were to transfer assets to a liquidating trust.
If the liquidating trust fails to qualify as such, the resulting tax
consequences to the trust and the holders of trust interests will depend upon,
among other things, the reasons for the trust's failure to so qualify. If the
board of directors avails itself of the use of a liquidating trust, it is
anticipated that every effort will be made to ensure that the liquidating trust
will be classified as such for federal income tax purposes.
We do not anticipate that the liquidating trust will be required to
file annual, quarterly or other reports with the Securities and Exchange
Commission as is currently required of the Company under federal securities
laws.
STATE AND LOCAL INCOME TAX
You may be subject to state or local taxes with respect to the
liquidating distributions received from us pursuant to the plan of liquidation.
The state or local tax treatment of liquidating distributions received from us
may differ from the federal income tax treatment described above. If we transfer
assets to a liquidating trust, stockholders may be required to file income tax
returns in states or localities in which the liquidating trust owns properties.
You should consult your tax advisors regarding such taxes.
TRANSFER TAXES
Transfer taxes may be imposed in certain state and local jurisdictions
in connection with sales of properties or in-kind distributions made to a
liquidating trust or the stockholders.
30
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for the last five
fiscal years has been derived from our audited consolidated financial statements
incorporated by reference into this proxy statement. The selected historical
financial data for the six-month periods ended June 30, 2002 and June 30, 2001
has been derived from our unaudited consolidated financial statements
incorporated by reference into this proxy statement. This information is only a
summary, and you should read it together with the historical financial
statements and related notes contained in the annual reports and other
information that we have filed with the SEC and incorporated by reference
herein. See "WHERE YOU CAN FIND MORE INFORMATION" on page 34.
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------------ --------------------------------------------------------------------
2002 2001 2001 2000 1999 1998 1997
---- ---- ---- ---- ---- ---- ----
Total Revenue $2,477,679 $5,492,411 $10,920,216 $10,952,443 $11,388,898 $9,798,441 $9,297,488
Net Income (Loss) (19,110,103)(1) 2,015,131 3,470,868 3,847,300 4,847,538 2,931,223(2) 2,134,659
Net Income (Loss) Per Share (20.23)(1) 1.60 2.75 3.05 3.84 2.32 1.69
Distribution Per Share (3)(4) -- -- 1.33(4) -- 0.63 1.25 1.19
Total Assets $43,862,480 $49,737,846 $49,268,560 $47,872,681 $44,178,753 $40,814,689 $39,600,417
------------
(1) Net loss for the six months ended June 30, 2002 consists primarily of fees
incurred in connection with the Company's February 2002 transaction with
Presidio Capital Investment Company LLC and the subsequent lawsuits and
the payment of consulting fees to a financial advisor. Such fees included,
among other things, a note payable in the amount of $17,639,459 and a
Class A 5% cumulative preferred partnership interest with a liquidation
preference of $812,674.
(2) Total revenues and net income for the year ended December 31, 1998 include
a $389,359 gain, or $0.31 per share, from the sale of a property,
Westbrook.
(3) All distributions are in excess of accumulated undistributed net income
and therefore represent a return of capital to investors on a generally
accepted accounting principles basis.
(4) Distributions made on December 21, 2001 are based on the total shares
issued and outstanding.
31
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of September 24,
2002 (except as otherwise indicated) regarding the ownership of the Company's
common stock by (i) each person who is known to the Company to be the beneficial
owner of more than 5% of the outstanding shares of common stock, (ii) each
director and nominee for director, (iii) each executive officer of the Company,
and (iv) all current executive officers and directors of the Company as a group.
Except as otherwise indicated, each such stockholder has sole voting and
investment power with respect to the shares beneficially owned by such
stockholder.
NAME AND ADDRESS OF BENEFICIAL OWNER POSITION WITH THE COMPANY AMOUNT AND NATURE OF PERCENT OF CLASS
BENEFICIAL OWNERSHIP
------------------------------------ ------------------------- --------------------- ----------------
HX Investors, L.P. Shareholder 352,485(1) 42.0%
100 Jericho Quadrangle
Suite 214
Jericho, NY 11753
Michael L. Ashner Director, President 352,485(2) 42.0%
100 Jericho Quadrangle and Chief Executive
Suite 214 Officer
Jericho, NY 11753
Arthur Blasberg, Jr. Director 0 0
Peter Braverman Director and Executive 0 0
Vice President
John Ferrari Director 0 0
Howard Goldberg Director 0 0
Lara Sweeney Vice President and 0 0
Secretary
Carolyn Tiffany Vice President and 0 0
Treasurer
Steven Zalkind Director 10 *
All directors and executive 352,495 42.0%
officers as a group
-------------------------------------
*Less than 1%.
(1) Based upon information contained in Amendment No. 9 (Final Amendment) to
Schedule TO-T as filed by HX Investors, L.P. ("HX") with the Securities
and Exchange Commission on August 19, 2002.
(2) Comprised of shares owned by HX. As the sole stockholder of Exeter Capital
Corporation, the sole general partner of HX, Mr. Ashner may be deemed to
beneficially own all shares owned by HX.
32
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
The following statements are or may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995:
- STATEMENTS, INCLUDING POSSIBLE OR ASSUMED FUTURE RESULTS OF THE
COMPANY'S OPERATIONS AND POSSIBLE OR ASSUMED FUTURE RESULTS OF THE
COMPANY'S DECISION TO ADOPT THE PLAN OF LIQUIDATION, INCLUDING ANY
FORECASTS, PROJECTIONS AND DESCRIPTIONS OF ANTICIPATED COST
SAVINGS OR OF ANTICIPATED PROCEEDS AVAILABLE FOR DISTRIBUTION, AND
STATEMENTS INCORPORATED BY REFERENCE FROM DOCUMENTS FILED BY THE
COMPANY WITH THE SEC AND ANY STATEMENTS MADE IN THIS PROXY
STATEMENT OR IN THE DOCUMENTS FILED WITH THE SEC REGARDING FUTURE
CASH FLOWS, FUTURE BUSINESS PROSPECTS, REVENUES, WORKING CAPITAL,
LIQUIDITY, CAPITAL NEEDS, INTEREST COSTS, INCOME OR THE EFFECTS OF
THE LIQUIDATION;
- ANY STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT INCLUDE THE WORDS
"BELIEVES," "EXPECTS," "ANTICIPATES," "INTENDS," "ESTIMATES,"
"PROJECTS" OR SIMILAR EXPRESSIONS; AND
- ANY OTHER STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE HEREIN
REGARDING MATTERS THAT ARE NOT HISTORICAL FACTS.
BECAUSE THESE STATEMENTS ARE SUBJECT TO NUMEROUS RISKS AND
UNCERTAINTIES, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR
IMPLIED BY OUR FORWARD-LOOKING STATEMENTS. WE CAUTION YOU NOT TO PLACE UNDUE
RELIANCE ON THESE STATEMENTS. IN ADDITION, THE STATEMENTS SPEAK ONLY AS OF THE
DATE OF THIS PROXY STATEMENT OR AS OF SUCH OTHER DATE SPECIFICALLY REFERENCED.
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE,
BUT ARE NOT LIMITED TO, THE FOLLOWING:
- WE MAY NOT BE ABLE TO COMPLETE THE LIQUIDATION IN A TIMELY MANNER
OR REALIZE PROCEEDS FROM THE SALES OF ASSETS IN AMOUNTS THAT WILL
ENABLE THE COMPANY TO PROVIDE LIQUIDATING DISTRIBUTIONS TO ITS
STOCKHOLDERS IN AMOUNTS CURRENTLY ANTICIPATED;
- OCCUPANCY RATES AND MARKET RENTS MAY BE ADVERSELY AFFECTED BY
ECONOMIC AND MARKET CONDITIONS WHICH ARE BEYOND OUR CONTROL,
INCLUDING THE FINANCIAL CONDITION OF OUR TENANTS;
- UNCERTAINTIES RELATING TO THE COMPANY'S PROPERTY PORTFOLIO;
- UNCERTAINTIES RELATING TO THE COMPANY'S OPERATIONS;
- UNCERTAINTIES RELATING TO THE IMPLEMENTATION OF THE COMPANY'S
LIQUIDATION STRATEGY;
33
- UNCERTAINTIES RELATING TO DOMESTIC AND INTERNATIONAL ECONOMIC AND
POLITICAL CONDITIONS;
- UNCERTAINTIES REGARDING THE IMPACT OF REGULATIONS, CHANGES IN
GOVERNMENT POLICY AND INDUSTRY COMPETITION; AND
- OTHER RISKS MENTIONED FROM TIME TO TIME IN THE COMPANY'S REPORTS
FILED WITH THE SEC, INCLUDING THE RISK FACTORS THAT WERE DISCLOSED
IN THE COMPANY'S FORM 10-K WHICH WAS FILED WITH THE SEC ON APRIL
1, 2002.
THE CAUTIONARY STATEMENTS CONTAINED OR REFERRED TO IN THIS PROXY
STATEMENT SHOULD BE CONSIDERED IN CONNECTION WITH ANY SUBSEQUENT WRITTEN OR ORAL
FORWARD-LOOKING STATEMENTS THAT MAY BE ISSUED BY US OR PERSONS ACTING ON OUR
BEHALF. EXCEPT FOR OUR ONGOING OBLIGATIONS TO DISCLOSE MATERIAL INFORMATION AS
REQUIRED BY THE FEDERAL SECURITIES LAWS, WE UNDERTAKE NO OBLIGATION TO RELEASE
PUBLICLY ANY REVISIONS TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF THIS PROXY STATEMENT OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the information filing requirements of the Exchange
Act and, in accordance with that act, are obligated to file with the Securities
and Exchange Commission periodic reports, proxy statements and other information
relating to our business, financial condition and other matters. These reports,
proxy statements and other information may be inspected at the SEC's office at
the public reference facilities of the SEC at 450 Fifth Street, NW, Washington,
D.C. 20549. Copies of these materials can be obtained, upon payment of the SEC's
customary charges, by writing to the SEC's principal office at 450 Fifth Street,
NW, Washington, D.C. 20549. The SEC also maintains a website at
http://www.sec.gov that contains reports, proxy statements and other
information. The information is also available at the offices of the American
Stock Exchange, 86 Trinity Place, New York, New York 10006.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The SEC allows us to "incorporate by reference" information into this
proxy statement. This means that we can disclose important information to you by
referring you to another document filed separately with the SEC. The information
incorporated by reference is considered to be part of this proxy statement, and
later information filed with the SEC will update and supersede the information
in this proxy statement.
We incorporate by reference into this proxy statement the following
documents that the Company has filed with the SEC (File No. 0-16345) under the
Exchange Act:
- The Company's Annual Report on Form 10-K for the year ended
December 31, 2001;
- The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 2002, June 30, 2002;
34
- The Company's Current Reports on Form 8-K, dated February 14,
2002; April 23, 2002; May 9, 2002; May 14, 2002; June 3, 2002;
July 2, 2002; July 8, 2002; August 5, 2002; and August 21, 2002;
and
- The Company's Solicitation/Recommendation Statements on Schedule
14D-9 and amendments filed with the SEC on July 3, 2002; July 10,
2002; July 12, 2002; July 30, 2002; August 1, 2002; and August 5,
2002.
All subsequent documents filed by us with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy
statement and prior to the date of the special meeting will be deemed to be
incorporated by reference into this proxy statement and to be a part of the
proxy statement from the date of the filing of those documents.
Documents incorporated by reference are available from us without
charge, excluding all exhibits (unless we have specifically incorporated by
reference an exhibit into this proxy statement). You may obtain documents
incorporated by reference by requesting them in writing or by telephone as
follows:
Shelbourne Properties I, Inc.
c/o First Winthrop Corporation
7 Bulfinch Place, Suite 500
Boston, MA 02114
Attention: Corporate Secretary
Telephone: (617) 570-4600
If you would like to request documents from us, please do so by
October 18, 2002 in order to ensure timely receipt before the special
meeting.
You should rely only on the information contained in this document to
vote your shares of common stock at the special meeting. We have not authorized
anyone to provide you with information that is different from what is contained
in this document. This document is dated September 27, 2002. You should not
assume that the information contained in this document is accurate as of any
date other than that date, and the mailing of this document to stockholders does
not create any implication to the contrary. This proxy statement does not
constitute a solicitation of a proxy in any jurisdiction where, or to or from
any person to whom, it is unlawful to make such proxy solicitation in that
jurisdiction.
STOCKHOLDER PROPOSALS
When we complete the liquidation, we will no longer have public
stockholders or any stockholder meetings. If we have not completed the
liquidation, or if the plan of liquidation is not approved by the stockholders,
we intend to hold the next annual stockholder meeting in June 2003. In that
case, you would continue to be entitled to attend and participate in the
stockholder meetings if you continue to own shares of common stock. Any
stockholder proposal that is submitted to the Company for inclusion in its proxy
statement for its annual meeting in 2003 pursuant to Rule 14a-8 under the
Exchange Act must comply with the rules of the SEC governing the form and
content of such proposals and must be received by the Secretary of Shelbourne
Properties I, Inc., 7 Bulfinch Place, Suite 500, Boston, MA 02114, a reasonable
time before we begin to print and mail proxy materials for the 2003 annual
meeting of stockholders.
35
If you intend to present a proposal at the Company's annual meeting in
2003 but do not intend to have your proposal included in the Company's proxy
statement, you must notify us on a timely basis of your intent to present such
proposal at the meeting. To be timely, your notice must be delivered to the
Secretary of Shelbourne Properties I, Inc., 7 Bulfinch Place, Suite 500, Boston,
MA 02114, not later than the close of business on the later of the 75th day
prior to such annual meeting or the fifteenth day following the day on which
public announcement of the date of such meeting is first made by the Company.
The proposal must also comply with the other requirements contained in the
Company's Bylaws. Proxies solicited by the Company's board of directors will
confer discretionary voting authority with respect to these proposals, subject
to SEC rules governing the exercise of this authority.
OTHER MATTERS
We are not aware of any business or matter other than those indicated
above which may properly be presented at the special meeting. If, however, any
other matter comes before the special meeting, the proxy holders will, in their
discretion, vote thereon in accordance with their best judgment.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you would like additional copies of this document, or if you have
questions about the liquidation or need assistance voting your shares, you
should contact:
[MacKenzie Partners, Inc. logo]
105 Madison Avenue
New York, NY 10016
(212) 929-5500 (Collect)
or
(800) 322-2885 (Toll-Free)
You may also contact your Company:
Shelbourne Properties I, Inc.
c/o First Winthrop Corporation
7 Bulfinch Place, Suite 500
Boston, MA 02114
Attention: Corporate Secretary
Telephone: (617) 570-4600
36
APPENDICES
Appendix A - Plan of Liquidation
Appendix B - Summary of Appraisals
Appendix C - Fairness Opinion
37
APPENDIX A
SHELBOURNE PROPERTIES I, INC.
PLAN OF LIQUIDATION
1. In accordance with the provisions of the Settlement Agreement and
Mutual Release, dated as of July 1, 2002 (the "Settlement Agreement"), between
plaintiff HX Investors, LP ("Purchaser") and the additional plaintiffs who are
listed in Exhibit A thereto, and Shelbourne Properties I, Inc. (the "Company"),
Shelbourne Properties II, Inc. and Shelbourne Properties III, Inc. and the
provisions of the Stock Purchase Agreement, dated as of July 1, 2002 (the "Stock
Purchase Agreement"; terms used but not otherwise defined herein shall have the
meanings assigned to such terms in the Stock Purchase Agreement), between
Purchaser, Exeter Capital Corporation and the Company, and in accordance with
Delaware Law, as promptly as practicable after the approval of this Plan of
Liquidation by the stockholders of the Company, but in any event not later than
five business days after such date, the Board shall cause the Company to be
dissolved (the "Dissolution"), by filing a certificate of dissolution with the
Secretary of State of the State of Delaware (the date and time of such filing
being the "Effective Time"), and thereafter liquidated pursuant to this Plan of
Liquidation.
2. This Plan of Liquidation has been approved by the Board as being
advisable and in the best interests of the Company and its stockholders. The
Board has directed that this Plan of Liquidation be submitted to the
stockholders of the Company for approval. This Plan of Liquidation shall become
effective upon approval of this Plan of Liquidation by the holders of at least a
majority of the outstanding shares of Common Stock.
3. At or after the Effective Time, as soon as reasonably practicable,
the Company shall be voluntarily liquidated in accordance with this Plan of
Liquidation. Pursuant to this Plan of Liquidation, the Board shall cause the
Company and its subsidiaries to sell, convey, transfer and deliver or otherwise
dispose of any and all of the assets and properties of the Company and its
subsidiaries in one or more transactions, without further approval of the
Company's stockholders; provided that all dispositions of assets with an
aggregate gross exchange value of over $500,000 shall require the approval of a
majority of the directors of the Company. If the Plan of Liquidation is approved
and the assets of the Company are not fully liquidated by October 31, 2007,
Purchaser will vote or cause to be voted all shares of Common Stock beneficially
owned by Purchaser on any shareholder proposal in accordance with the votes cast
by holders of a majority of the shares of Common Stock not held by Purchaser or
its affiliates.
4. From the date that new directors are appointed to the Board pursuant
to Section 3 of the Corporate Governance Provisions attached to the Stock
Purchase Agreement as Annex B until the Liquidation Date, the businesses of the
Company and its subsidiaries shall be conducted, and the Company and its
subsidiaries shall not, and Purchaser shall not cause the Company and its
subsidiaries to, take any action except in accordance with the Stock Purchase
Agreement, the Settlement Agreement and this Plan of Liquidation. Within the
requirements of the Stock Purchase Agreement, the Settlement Agreement and this
Plan of Liquidation, the Company shall continue to conduct its operations in the
ordinary course of business, including but not limited to entering into
contracts, deeds, assignments or other instruments, making normal and customary
improvements or renovations to managed properties, engaging real estate brokers
and compromising claims for or against the Company, incurring secured or
unsecured indebtedness for borrowed money for any corporate purpose or for
making distributions in accordance with this Plan of Liquidation and concurrent
therewith, the Company shall proceed with winding up its business and affairs,
discharging and paying all Company liabilities and distributing the Company's
assets and properties to its stockholders in accordance with this Plan of
Liquidation and the Company's Certificate of Incorporation. Notwithstanding the
foregoing, subject to Section 8 hereof, neither the Company nor any of its
subsidiaries shall, and Purchaser shall not act in any way to cause the
A-1
Company or any of its subsidiaries to, directly or indirectly, do, or propose to
do, any of the following without the prior consent of holders of a majority of
the outstanding shares of Common Stock other than those shares of Common Stock
held by Purchaser and its affiliates at such time:
(a) amend or otherwise change its Certificate of Incorporation or
By-laws or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of any shares of any
class of capital stock or other ownership interest of the Company or any of its
subsidiaries, or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the Company
or any of its subsidiaries;
(c) except in accordance with this Plan of Liquidation and to the
extent necessary for the Company to qualify as a REIT, declare, set aside, make
or pay any dividend or other distribution, payable in cash, stock, property or
otherwise, with respect to any of its capital stock;
(d) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets or any other business combination) any
corporation, partnership, other business organization or any division thereof,
real property or any material amount of assets;
(e) pay any compensation (other than reasonable out of pocket expenses)
to any director or officer of the Company other than the Independent Directors;
(f) take any action, other than actions required by GAAP or in the
ordinary course of business, with respect to accounting policies or procedures;
(g) sell, transfer or otherwise dispose of any property to Purchaser or
any of its affiliates or to NorthStar Capital Investment Company or any of its
affiliates; or
(h) announce an intention, enter into any agreement or otherwise make a
commitment, to do any of the foregoing.
The appropriate officers or directors of the Company shall take such actions as
may be necessary or appropriate to marshal the assets and properties of the
Company and its subsidiaries and convert the same, in whole or in parts, into
cash or such other form as may be used to pay the Company's debts and distribute
any excess proceeds to the Company's stockholders as provided in Sections 5 and
6 below.
5. Subject to the provisions of Section 8 hereof:
(a) The Company shall (i) pay or make reasonable provision to pay all
claims and obligations of the Company, including all contingent, conditional or
unmatured contractual claims known to the Company, (ii) make such provision as
will be reasonably likely to be sufficient to provide compensation for any claim
against the Company in connection with any pending action, suit or proceeding to
which the Company is a party and (iii) make such provision as will be reasonably
likely to be sufficient to provide compensation for claims that have not been
made known to the Company or that have not arisen but that, based on facts known
to the Company, are likely to arise or to become known to the Company within ten
years of the Effective Time. All such claims shall be paid in full and any such
provision for payment made shall be made in full. After providing for the
foregoing and complying with all debt covenants, the Company shall distribute
all available cash, other than minimum operating reserves and amounts required
to comply with financial or other contractual covenants, at least once per
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fiscal quarter to its stockholders. In any event, the Company shall make such
distributions to its stockholders as are necessary to maintain the Company's
qualification as a REIT. Unless otherwise approved by the Court of Chancery or
the holders of a majority of the outstanding shares of Common Stock other than
shares of Common Stock held by the Purchaser and its affiliates and unless
otherwise required by the fiduciary duties of the Board of Directors of the
Company after consultation with its counsel, the Company shall complete the
disposition of all assets and properties of the Company and its subsidiaries by,
and make a final distribution of all cash and other proceeds therefrom no later
than, the third anniversary of the Effective Time.
(b) The Company shall (i) distribute to its stockholders all
excess refinancing proceeds, if any, by the earlier of (x) 30 days following the
end of the fiscal quarter in which such refinancing occurs and (y) 90 days
following the date of such refinancing and (ii) distribute to its stockholders
all net property sale proceeds, if any, by the earlier of (x) 30 days following
the end of the fiscal quarter in which such sale occurs and (y) 90 days
following the date of such sale.
(c) Unless otherwise approved by the holders of a majority of the
outstanding shares of Common Stock other than shares of Common Stock held by
Purchaser and its affiliates, and for so long as Purchaser's nominees to the
Board (or persons approved of or nominated by such nominees) comprise a majority
of the Board, if the Company fails to make any distribution contemplated by
Section 5(b) of this Plan of Liquidation and fails to promptly cure such
failure, then (i) Purchaser shall no longer be entitled to receive the
distributions contemplated by Section 6 of the Plan of Liquidation (in which
case such amount shall be distributed to holders of shares of Common Stock
pursuant to Section 6 of this Plan of Liquidation) and (ii) until the Company
makes such distributions, (x) Purchaser and its affiliates shall not be entitled
to receive any service fees otherwise payable by the Company to Purchaser or any
of its affiliates and (y) directors of the Company (other than directors who
voted in favor of making such distributions or who formally objected to the
Company's not making such distributions) shall not be entitled to receive any
fees or other compensation otherwise payable to them by the Company.
(d) Cash reserves of the Company in excess of $500,000 will be
invested only in short-term U.S. Treasuries or other short-term federally
insured obligations.
6. Purchaser has been issued a class of units in Shelbourne Properties
I, L.P. (the "Operating Partnership") entitling Purchaser, subject to the
payments and provisions of Section 5 above, to receive distributions equal to
15% of the excess of (x) the Net Proceeds over (y) the Base Amount, which shall
only be payable from and after such time as the Company has made aggregate
distributions equal to the entire Base Amount (as defined below) and which shall
be payable simultaneously with all future distributions made by the Company from
and after the date on which the Company has made aggregate distributions equal
to the entire Base Amount. Subject to the foregoing, all distributions made
pursuant to this Plan of Liquidation shall be made to holders of shares of
Common Stock on a pro rata basis. No distributions shall be made to Purchaser
with respect to such Operating Partnership units unless this Plan of Liquidation
is approved.
The "Base Amount" means the product of (i) $59 (the "Equity
Amount") plus, a return calculated on the undistributed portion of the Equity
Amount, compounded quarterly, times (ii) the number of outstanding shares of
Common Stock. For the purpose of calculating such return, the return rate shall
(x) begin at an annual rate of 6% for the period commencing August 20, 2002 and
ending 18 months from such date and (y) increase by 0.5% for each subsequent
six-month period thereafter through the Liquidation Date, such return not to
exceed 8%.
"Net Proceeds" means (i) the aggregate fair value of all
consideration received upon disposal of a Company asset in accordance with this
Plan of Liquidation less the sum of all
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direct costs incurred in connection with such disposal, plus (ii) all cash and
other proceeds generated from operating the assets and properties of the Company
and its subsidiaries.
The distributions contemplated by this Section 6 shall be in complete
liquidation of the Company and in cancellation of all issued and outstanding
shares of Common Stock, and all certificates ("Certificates") representing such
shares of Common Stock shall be canceled upon the final distribution. The Board
shall make such provisions as it deems appropriate regarding cancellation of all
outstanding Certificates upon the final distribution.
7. As soon as reasonably practicable but no earlier than October 1,
2002, the Company shall (i) terminate the transition management services
provided by Presidio Capital Investment Company ("PCIC"), pursuant to the
Purchase and Contribution Agreement, dated as of February 14, 2002, made and
entered into by PCIC, the Company and the other parties thereto and (ii) retain
Kestrel Management, L.P. to provide interim management services from the
termination date on terms and conditions substantially identical to those
pursuant to which PCIC provides such services for an aggregate annual cost for
the initial period ending on the earlier of the third anniversary of the
Effective Time or the Liquidation Date, of not more than $200,000. Thereafter,
such fees shall be determined by a majority of the Independent Directors;
provided, however, that such fees shall not exceed $200,000 per annum in the
aggregate. The Company shall terminate, at no cost, each of the respective
property management agreements between the Company or any subsidiaries of the
Company and Kestrel Management, L.P. upon the disposal of each of the properties
subject to such agreements.
8. Notwithstanding any other provision of this Plan of Liquidation, the
Company may, alone or in joint venture with others, acquire an interest in one
or more properties, and incur indebtedness relating thereto, in order to
facilitate the sale of properties currently owned by the Company while
maintaining the indebtedness and equity thresholds necessary to prevent the
holder of the Class A Units in the Operating Partnership from causing the
Operating Partnership to purchase such units pursuant to a "Put Premium Event"
(as such term is defined in that certain Purchase and Contribution Agreement,
dated as of July 14, 2002, between, among others, the Company, the Operating
Partnership and Presidio Capital Investment Company, LLC), and in that regard,
all limitations and restrictions on, and all requirements of, the Company and
its subsidiaries set forth in this Plan of Liquidation, including, without
limitation, the provisions of Section 4 and 5 hereof, shall be expressly subject
to the foregoing.
9. The Board, and such officers and directors of the Company as the
Board may direct, are hereby authorized to interpret the provisions of this Plan
of Liquidation and are hereby authorized and directed to take such further
actions, to execute such agreements, as may in their judgment be necessary or
desirable in order to wind up expeditiously the affairs of the Company and
complete the liquidation thereof, including, without limitation (i) the
execution of any contracts, deeds, assignments or other instruments necessary or
appropriate to maintain the value of, sell or otherwise dispose of, any and all
property of the Company, whether real or personal, tangible or intangible,
(ii) the appointment of other persons to carry out any aspect of this Plan of
Liquidation and (iii) the temporary investment of funds in such medium as the
Board may deem appropriate. The death, resignation or other disability of any
director or officer of the Company shall not impair the authority of the
surviving or remaining directors or officers of the Company (or any persons
appointed as substitutes therefor) to exercise any of the powers provided for in
this Plan of Liquidation. Upon such death, resignation or other disability, the
surviving or remaining directors shall have the authority to fill the vacancy or
vacancies so created, but the failure to fill such vacancy or vacancies shall
not impair the authority of the surviving or remaining directors or officers to
exercise any of the powers provided for in this Plan of Liquidation.
10. This Plan of Liquidation shall not be terminated, amended or
repealed, and no action inconsistent with the terms hereof shall be taken by the
Company, in each case without the approval of the holders of a majority of the
outstanding shares of Common Stock excluding any shares of Common Stock held by
the Purchaser and its affiliates at such time.
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APPENDIX B
SUMMARY OF APPRAISALS
SHELBOURNE PROPERTIES I, INC.
GENERAL
The board's estimate of the per share liquidation proceeds was based on
appraisals performed by Cushman & Wakefield, Inc. or one of its subsidiaries in
March and April 2002. These appraisals updated appraisals which were performed
in 1996 and updated in March 1998 and June 2000. The appraised values reported
below reflect market conditions prevailing on or around April 2002.
Cushman & Wakefield was selected for the 1996 appraisals and the 1998
updates by the general partner of the Company's predecessor partnership. Cushman
& Wakefield was chosen because it is a nationally recognized real estate
appraisal firm with extensive appraisal experience. The 1996 appraisals and the
1998 updates were obtained in connection with proposed settlements of a lawsuit
involving the Company's predecessor-partnership. The appraisals were updated
again in June 2000 in connection with the conversion of the Company's
predecessor-partnership into the Company's current corporate form. The April
2002 appraisal updates were obtained by the Company in connection with its
entering into a secured credit facility.
Cushman & Wakefield and its affiliates have from time to time in the
past performed various property valuation and other services for the Company,
its predecessor partnership or their affiliates or real estate partnerships
controlled by such affiliates, including real estate brokerage services. All of
such other services were performed in the ordinary course, and no relationship
between the Company and Cushman & Wakefield and its affiliates otherwise exists.
We will provide free of charge a copy of the appraisal reports
completed by Cushman & Wakefield upon your written request or that of your
representative, who has been designated in writing, that is submitted to the
attention of the Corporate Secretary of Shelbourne Properties I, Inc., c/o First
Winthrop Corporation, 7 Bulfinch Place, Suite 500, Boston, MA 02114.
In preparing the appraisals, Cushman & Wakefield among other
considerations set forth in each appraisal, generally inspected the Company's
properties and the surrounding environs. Cushman & Wakefield also reviewed
economic and demographic trends in the neighborhoods and regions in which the
properties are located and considered the competitive markets in the local
areas. Cushman & Wakefield used certain assumptions in determining the appraised
values of the properties and the appraisals are subject to certain qualification
and limitations, some of which are discussed below.
In evaluating the properties, Cushman & Wakefield did not take
responsibility for the accuracy of the legal description provided or for any
matters which are legal in nature. Unless otherwise indicated, Cushman &
Wakefield assumed title to the properties is good and marketable and the
properties are free and clear of all liens. Cushman & Wakefield did not obtain
any surveys of properties in preparing the appraisals. For purposes of
forecasting gross income of properties and to arrive at its best estimates of
what the investment community, as of the dates of the appraisals, envisions for
the future in terms of rental rates, expenses, supply, and demand, Cushman &
Wakefield reviewed lease summaries provided by the Company. Cushman & Wakefield
conducted only visual inspections of the properties, and did not consider
potential hidden structural defects or damages that might exist at the
properties which could have a negative impact on the properties' appraised
values. Similarly, unless otherwise stated in the appraisals, the existence of
potentially hazardous or toxic materials which may have been used in the
construction or
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maintenance or operation of the improvements or may be located at or about the
properties was not considered in arriving at the opinions of value stated in the
appraisals. Each appraisal is only an estimate of value, as of the specific date
stated in the appraisal, and is subject to the assumptions and limiting
conditions stated in the report. As an opinion it is not a measure of realizable
value and may not reflect the amount which would be received if the property was
sold. Reference should be made to the entire appraisal report.
The following table sets forth the April 2002 appraised value of the
Company's properties as determined by Cushman & Wakefield.
APPRAISED
PROPERTY VALUE
---------------------------- -----------
568 Broadway (1) $25,301,250
Century Park I (2) $13,000,000
Loch Raven Plaza $11,000,000
Seattle Tower (3) $10,000,000
Southport Shopping Center $24,800,000
-----------
TOTAL $84,101,250
---------------------
(1) The Company has a 38.925% interest in this property and the amount listed
in the table represents 38.925% of the applicable values.
(2) The Company has a 50% interest in this property and the amount listed in
the table represents 50% of the applicable values.
(3) The Company has a 50% interest in this property and the amount listed in
the table represents 50% of the applicable values.
Appraisers typically use three approaches in valuing real property: the
cost approach, the income capitalization approach, and the sales comparison
approach. In most instances, the real property interest being appraised - i.e.
whether it is a fee simple, leased fee or leasehold property - affects the
suitability of a particular approach. In addition, the type and age of the
property and the quantity and quality of available data affect the applicability
of each approach in a specific appraisal situation. Due to the leases in place
at the Company's properties, Cushman & Wakefield generally considered the income
capitalization approach most relevant to its valuation of the properties with,
in most cases, support from the sales comparison approach. Cushman & Wakefield
believes that the income capitalization approach is the most appropriate
technique for estimating the value of income producing property. Cushman &
Wakefield believes that this approach generally represents the most direct and
accurate simulation of market behavior and that it is the method which is most
commonly used by buyers and sellers in deciding whether to buy or sell
properties. Cushman & Wakefield did not use the cost approach to value the
properties. The cost approach renders an estimate of value based upon the price
of obtaining a site and constructing improvements, both with equal desirability
and utility as the subject property. Cushman & Wakefield believes that
historically investors have not emphasized cost analysis in purchasing
investment grade properties such as those owned by the Company and that the
estimation of obsolescence for functional and economic conditions, as well as
depreciation on improvements, makes this approach difficult.
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INCOME CAPITALIZATION APPROACH
The income capitalization approach is a method of converting the
anticipated economic benefits of owning property into a value estimate through
capitalization. The principle of "anticipation" underlies this approach in that
investors recognize the relationship between an asset's income and its value. In
order to value the anticipated economic benefits of a particular property,
potential income and expenses must be estimated, and the most appropriate
capitalization method must be selected. The two most common methods of
converting net income into value are through direct capitalization and
discounted cash flow. In the direct capitalization approach, annual net
operating income is divided by an overall rate extracted from market sales to
indicate a value. Cushman & Wakefield used the direct capitalization method only
in the case of properties which had a stabilized and predictable cash flow.
Cushman & Wakefield believes that the direct capitalization method is less
reliable in valuing properties which have fluctuations in cash flow over an
anticipated holding period or where the first year's income is not a true
representation of future cash flow. In these situations Cushman & Wakefield
employed the discounted cash flow method. In the discounted cash flow method,
Cushman & Wakefield generally estimated the net operating income of the
properties over a ten year holding period. Cushman & Wakefield generally
determined this to be a period which would allow the investment to mature, an
investor to recognize a return that is commensurate with the risk taken and a
recapture of the original investment. At the end of the implied holding period
Cushman & Wakefield assumed that the property would be sold at a price
determined by capitalizing the estimated net operating income in the following
year. The capitalization rate was based upon Cushman & Wakefield's assessment of
current market rates to which Cushman & Wakefield made an adjustment to allow
for the risk of unforeseen events or trends, including a possible deterioration
in market conditions for the property, which might affect estimated net
operating income during the holding period. The resulting implied sale value, as
well as the estimated net operating income streams for the first ten years, were
then discounted to present value using an appropriate yield rate. In determining
the yield rate Cushman & Wakefield analyzed each specific property, including
the risks associated with the property, the local rental market, the property's
position relative to competing properties, the risk/return characteristics
associated with competitive investments and yield ratios for real estate
investments reflected in national investor surveys. Based on this analysis
Cushman & Wakefield selected the yield rate that it believed an investor would
require in purchasing the property.
The following table sets forth the values determined by Cushman &
Wakefield using the income approach and the yield rate applied under the
discounted cash flow method and the capitalization rate chosen under the direct
capitalization method:
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INCOME CAPITALIZATION APPROACH
------------------------------------------------------------------------
DISCOUNTED
PROPERTY CASH FLOW METHOD DIRECT CAPITALIZATION METHOD
-------- ---------------- ----------------------------
YIELD CAPITALIZATION
RATE USED RATE USED
--------- ---------
568 Broadway (1) $23,899,950 12% $26,274,375 9.5%
Century Park I (2) $13,000,000 12% $12,100,000 8.5%
Loch Raven Plaza $11,000,000 12.5% -- --
Seattle Tower (3) $10,000,000 11.5% -- --
Southport Shopping Center $24,800,000 11% -- --
---------------------
(1) The Company has a 38.925% interest in this property and the amount listed
in the table represents 38.925% of the applicable values.
(2) The Company has a 50% interest in this property and the amount listed in
the table represents 50% of the applicable values.
(3) The Company has a 50% interest in this property and the amount listed in
the table represents 50% of the applicable value.
SALES COMPARISON APPROACH
In the sales comparison approach, value is estimated by comparing the
property with similar, recently sold properties in the surrounding or competing
area. Inherent in this approach is the principle of substitution, which holds
that when a property is replaceable in the market, its value tends to be set at
the cost of acquiring an equally desirable substitute property, assuming that no
costly delay is encountered in making the substitution. The following table sets
forth the values determined by Cushman & Wakefield using the sales comparison
approach:
SALES COMPARISON
PROPERTY APPROACH
-------- --------
568 Broadway (1) $24,600,600
Century Park I (2) $13,000,000
Loch Raven Plaza $11,300,000
Seattle Tower (3) $10,250,000
Southport Shopping Center $25,600,000
---------------------
(1) The Company has a 38.925% interest in this property and the amount listed
in the table represents 38.925% of the applicable values.
(2) The Company has a 50% interest in this property and the amount listed in
the table represents 50% of the applicable values.
(3) The Company has a 50% interest in this property and the amount listed in
the table represents 50% of the applicable values.
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APPENDIX C
FAIRNESS OPINION
August 5, 2002
The Board of Directors
Shelbourne Properties I, Inc.
7 Bulfinch Place, Suite 500
Boston, MA 02114
Dear Members of the Board:
We understand that Shelbourne Properties I, Inc. (the "Company"),
Exeter Capital Corporation ("Exeter") and HX Investors, L.P. ("HX" and, together
with Exeter, the "Purchaser") have entered into a Stock Purchase Agreement dated
as of July 1, 2002 and amended as of August 5, 2002 (the "Agreement"), pursuant
to which, among other things, (i) Purchaser agreed to commence a tender offer
(the "Tender Offer") to purchase up to 30% of the outstanding common stock, par
value $.01 per share, of the Company (the "Common Stock") at a price per share
of $63.15 (the "Offer Price") and (ii) subsequent to the completion of the
Tender Offer, the Company will submit to the Company Stockholders (as defined
below) for approval and adoption, the Plan of Liquidation attached as Annex C to
the Agreement (the "Plan of Liquidation" and, together with the Tender Offer,
the "Transaction") pursuant to which Company Stockholders shall be entitled to
receive distributions of the proceeds from the liquidation of the Company in
accordance with the Plan of Liquidation (the "Liquidation Proceeds" and,
together with the Offer Price, the "Consideration"). In addition, we understand
that each of Shelbourne Properties II, Inc. ("Shelbourne II") and Shelbourne
Properties III, Inc. ("Shelbourne III") have entered into separate Stock
Purchase Agreements with Purchaser, each dated as of July 1, 2002 and amended as
of August 5, 2002, pursuant to which (a) Purchaser agreed to commence separate
tender offers to purchase up to 30% of the outstanding common stock of each of
Shelbourne II and Shelbourne III (the "Shelbourne II and III Tender Offers"), at
a price per share of $73.85 and $58.30, respectively (the "Shelbourne II and III
Offer Prices") and (b) subsequent to the completion of the respective tender
offers, each of Shelbourne II and Shelbourne III will submit to their respective
shareholders for approval and adoption, a plan of liquidation (the "Shelbourne
II and III Liquidations" and, together with the Shelbourne II and III Tender
Offers, the "Shelbourne II and III Transactions") pursuant to which such
shareholders shall be entitled to receive distributions of the net proceeds from
the relevant liquidation in accordance with such plan of liquidation (the
"Shelbourne II and III Liquidation Proceeds").
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the Common Stock (other than Purchaser and its
affiliates) (the "Company Stockholders") of the Consideration, taken as a whole,
to be received by such holders pursuant to the Transaction.
In connection with this opinion, we have:
(i) Reviewed the financial terms and conditions of the Agreement and
the schedules, exhibits and annexes thereto;
(ii) Analyzed certain historical business and financial information
relating to the Company;
C-1
(iii) Reviewed various financial budgets, asset appraisals and other
data provided to us by the Company relating to its business;
(iv) Held discussions with members of the Board of Directors of the
Company and senior management of the Company's property
management and asset management firms with respect to the
business and prospects of the Company and the strategic
objectives the Company;
(v) Reviewed public information with respect to certain other
companies in lines of businesses we believe to be generally
comparable to the businesses of the Company;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of businesses we believe to be
generally comparable to those of the Company;
(vii) Reviewed the historical stock prices and trading volumes of the
Common Stock; and
(viii) Reviewed such other information and conducted such other
financial studies, analyses and investigations as we deemed
appropriate;
We have not received any forecasts with respect to the Company, and have been
informed that no such forecasts exist.
In conducting our analysis and in arriving at our opinion as expressed
herein, we have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the properties, assets or liabilities of the Company, or concerning the
solvency or fair value of the Company or its properties. In addition, the Board
of Directors of the Company has instructed us to assume, for purposes of the
rendering of our opinion, that the Liquidation Proceeds are equal to $70.47 per
share of Common Stock (the "Net Liquidation Price Per Share"), which price as
determined by the Company is equal to the ninety percent (90%) of the per share
appraised liquidation value of the properties and assets of the Company as
adjusted to reflect the repayment of indebtedness and the incurrence of
liquidation costs and expenses. We have assumed no responsibility for and
express no view as to whether the Company's assumption of the Net Liquidation
Price Per Share is the correct determination of the Liquidation Proceeds that
will be received by the Common Stockholders, and we have not independently
verified the underlying asset appraisal, assumptions and discounts on which such
price is based.
Further, our opinion is necessarily based on economic, monetary, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
In rendering our opinion, we have assumed that the Transaction will be
consummated on the terms described in the Agreement, without any waiver of any
material terms or conditions by the Company and Purchaser and that obtaining the
necessary regulatory approvals for the Transaction will not have an adverse
effect on the Company. We have also assumed that each of the Plan of Liquidation
and the Shelbourne II and III Liquidations will be consummated concurrently in
accordance with their terms without any waiver or modifications, and that the
Plan of Liquidation and the Shelbourne II and III Liquidations will not result
in any prepayment penalty on the preferred interests of the operating
partnership of each of the Company, Shelbourne II and Shelbourne III.
Lazard Freres & Co. LLC is acting as investment banker to the Board of
Directors of the Company in connection with the Transaction and will receive a
fee for our services (a portion of which
C-2
was paid to us at the time of the commencement of the tender offer contemplated
by the original Stock Purchase Agreement). Lazard Freres & Co. LLC is also
acting as investment banker to the Board of Directors of each of Shelbourne II
and Shelbourne III in connection with the Shelbourne II and III Transactions.
However, no opinion is made with respect to the allocation by Purchaser of the
(a) Offer Price and the Shelbourne II and III Offer Prices and (b) Liquidation
Proceeds and the Shelbourne II and III Liquidation Proceeds. Lazard Freres & Co.
LLC provides a full range of investment banking and security services and, in
the course of our trading and market making activities, may from time to time
effect transactions and hold securities, including derivative securities, of the
Company for our own account and for the accounts of customers.
Our engagement and the opinion expressed herein are for the benefit of
the Company's Board of Directors and our opinion is rendered in connection with
its consideration of the Transaction. No opinion is made herein with respect to
the fairness of the Shelbourne II and III Transactions, the Shelbourne II and
III Liquidation Proceeds or the Shelbourne II and III Offer Prices. The opinion
is not intended and does not constitute a recommendation to any Company
Stockholder as to whether such holder should tender their Common Stock into the
Tender Offer or whether a Company Stockholder should vote to adopt and approve
the Plan of Liquidation. It is understood that this letter may not be disclosed
or otherwise referred to without our prior consent, except for the reproduction
of this letter in its entirety in filings the Company may be required to make
with the Securities and Exchange Commission and except as may otherwise be
required by law or by a court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that the
Consideration, taken as a whole, to be received by the Company Stockholders in
the Transaction is fair to the Company Stockholders from a financial point of
view.
Very truly yours,
LAZARD FRERES & CO. LLC
By /s/ Matthew J. Lustig
---------------------
Matthew J. Lustig
Managing Director
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(Front) Form of Proxy
PROXY
SHELBOURNE PROPERTIES I, INC.
C/O FIRST WINTHROP CORPORATION
7 BULFINCH PLACE, SUITE 500
BOSTON, MA 02114
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF
SHELBOURNE PROPERTIES I, INC.
FOR A SPECIAL MEETING OF THE STOCKHOLDERS TO BE HELD ON OCTOBER 29, 2002.
The undersigned hereby constitutes and appoints Michael L. Ashner and
Peter Braverman, and each of them, as proxies (the "Proxies") for the
undersigned, with full power of substitution in each, and authorizes each of
them to represent and to vote all shares of common stock, par value $0.01 per
share, of Shelbourne Properties I, Inc. (the "Company"), held of record by the
undersigned as of the close of business on September 27, 2002, at the Special
Meeting of Stockholders (the "Special Meeting") of the Company to be held on
October 29, 2002, in the 11th Floor Conference Center in the offices of Katten
Muchin Zavis Rosenman, 575 Madison Avenue, New York, New York 10022, at
11:00 a.m., local time, and at any adjournments or postponements thereof.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. TO
ENSURE THAT YOUR SHARES ARE VOTED AT THE SPECIAL MEETING, YOU ARE URGED TO SIGN,
DATE AND MAIL THIS PROXY CARD AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE SPECIAL
MEETING, YOU MAY VOTE IN PERSON EVEN IF YOU HAVE ALREADY RETURNED A PROXY.
PLEASE SIGN AND DATE THIS PROXY ON THE REVERSE SIDE
AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
The undersigned hereby acknowledge(s) receipt of a copy of the
accompanying Notice of Special Meeting of Stockholders and the proxy statement
with respect thereto and hereby revoke(s) any proxy or proxies heretofore given.
(Back)
/X/ PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE.
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED FOR PROPOSAL 1 SET FORTH BELOW. THE PROXIES ARE EACH AUTHORIZED TO
VOTE IN THEIR DISCRETION UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE SPECIAL MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF OR MATTERS
INCIDENTAL THERETO. STOCKHOLDERS WHO PLAN TO ATTEND THE SPECIAL MEETING MAY
REVOKE THEIR PROXY BY CASTING THEIR VOTE AT THE SPECIAL MEETING IN PERSON.
PLEASE SIGN, DATE AND PROMPTLY MAIL YOUR PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
1. To approve the Plan of Liquidation of the Company. A vote in favor of the
Plan of Liquidation will also approve and ratify the transactions described
in the proxy statement which the Company and its Board of Directors have
undertaken in connection with the Plan of Liquidation.
FOR / / AGAINST / / ABSTAIN / /
2. In their discretion, upon such other matter or matters which may properly
come before the meeting or at any postponements or adjournments thereof.
Stockholder: Stockholder:
------------------ -------------------
Signature: Signature:
------------------ -------------------
Date: Date:
------------------ -------------------
Please sign exactly as the name appears hereon. Joint owners should
each sign. When signing as an attorney, administrator, executor, guardian or
trustee, please add your title as such. If executed by a company or a
partnership, the proxy should be executed in the full corporate or partnership
name and signed by a duly authorized person, stating his or her title or
authority.