UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(Rule 14a-101)

 

SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF

THE SECURITIES EXCHANGE ACT OF 1934

(Amendment No.     )

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o  Preliminary Proxy Statement

o  Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

Trizec Properties, 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):

 

o  No fee required.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10 South Riverside Plaza, Suite 1100

Chicago, Illinois 60606

 

August 7, 2006

 

Dear Stockholder,

 

You are cordially invited to attend a special meeting of stockholders of Trizec Properties, Inc. to be held on Tuesday, September 12, 2006 at 10:00 a.m., local time. The special meeting will take place at The Ritz Carlton, 160 East Pearson Street, The Versailles Suite, Chicago, Illinois 60611. At the special meeting, we will ask you to adopt the Agreement and Plan of Merger and Arrangement Agreement, dated as of June 5, 2006, among Trizec Properties, Inc., Trizec Holdings Operating LLC, Trizec Canada Inc. and affiliates of Brookfield Properties Corporation, pursuant to which Trizec Properties, Inc. would merge with a subsidiary of Grace Holdings LLC, an entity to be jointly owned by affiliates of Brookfield Properties Corporation and The Blackstone Group.

 

If the merger is completed, all holders of shares of our common stock (other than Trizec Canada Inc., its subsidiaries, the acquiror and the affiliates of the acquiror) will be entitled to receive $29.01 per share in cash plus an additional cash amount that represents a pro rata portion of the regular quarterly dividend payable on our common stock and allocable to the quarter in which the merger closes, in each case without interest and less applicable withholding taxes, as more fully described in the enclosed proxy statement. This will be achieved indirectly through the issuance to you in the merger of one share of newly created and fully paid and non-asssesable redeemable preferred stock of Trizec Properties, Inc. in exchange for each share of common stock that you own, with the redeemable preferred stock being redeemed immediately after the merger for the cash consideration referred to above, without any further action on your part.

 

In connection with the merger, pursuant to a plan of arrangement to be conducted under Canadian law, Trizec Canada Inc. and an affiliate of Brookfield Properties Corporation will acquire all of the outstanding multiple voting shares and subordinate voting shares of Trizec Canada Inc., which, together with its subsidiaries, owns approximately 38.1% of our common stock and all of our Class F convertible stock and special voting stock.

 

Upon the recommendation of a special committee of our board of directors formed for the purpose of considering the merger, our board of directors, after careful consideration, has approved the merger, the merger agreement and the other transactions contemplated by the merger agreement, and has declared the merger, the merger agreement and the other transactions contemplated by the merger agreement advisable, fair to and in the best interests of Trizec Properties, Inc. and our stockholders. Accordingly, our board of directors recommends that you vote “FOR” the adoption of the merger agreement.

 

The adoption of the merger agreement requires the approval of the holders of at least a majority of the outstanding shares of our common stock entitled to vote on such matter. Trizec Canada Inc. has agreed, subject to certain exceptions, to vote or cause to be voted all of the shares of our common stock that it and its subsidiaries own or may acquire for the adoption of the merger agreement. As of the record date, Trizec Canada Inc. and its subsidiaries owned shares of our common stock that represented approximately 38.1% of the voting power of our common stock entitled to vote at the special meeting. The proxy statement accompanying this letter provides you with more specific information concerning the special meeting, the merger, the merger agreement and the other transactions contemplated by the merger agreement. We encourage you to read carefully the enclosed proxy statement, including the annexes. You may also obtain more information about Trizec Properties, Inc. from us or from documents we have filed with the Securities and Exchange Commission.

 

Your vote is very important regardless of the number of shares of our common stock that you own. Whether or not you plan to attend the special meeting, we request that you cast your vote by either

completing and returning the enclosed proxy card in the postage-paid envelope as promptly as possible or submitting your proxy or voting instructions by telephone or Internet. The enclosed proxy card contains instructions regarding voting. If you attend the special meeting, your shares may continue to be voted as instructed in the proxy, or you may withdraw your proxy at the special meeting and vote your shares in person. If you fail to vote by proxy or in person, fail to instruct your broker, bank or other nominee how to vote or abstain from voting, it will have the same effect as a vote against the adoption of the merger agreement.

 

Thank you for your cooperation and continued support.

 

Very truly yours,

 

Peter Munk

Chairman of the Board of Directors

 

This proxy statement is dated August 7, 2006 and is first being mailed, along with the attached proxy card, to our stockholders on or about August 10, 2006.

10 South Riverside Plaza, Suite 1100
Chicago, Illinois 60606

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 12, 2006

 

Dear Stockholder:

 

You are cordially invited to attend a special meeting of the stockholders of Trizec Properties, Inc. on Tuesday, September 12, 2006, beginning at 10:00 a.m., local time, at The Ritz Carlton, 160 East Pearson Street, The Versailles Suite, Chicago, Illinois 60611. The special meeting is being held for the purpose of acting on the following matters:

 

1. to consider and vote on a proposal to adopt the Agreement and Plan of Merger and Arrangement Agreement, dated as of June 5, 2006, as amended, which we refer to as the “merger agreement,” by and among Trizec Properties, Inc., Trizec Holdings Operating LLC, Trizec Canada Inc., Grace Holdings LLC, Grace Acquisition Corporation, Grace OP LLC and 4162862 Canada Limited, pursuant to which Grace Acquisition Corporation would merge with and into Trizec Properties, Inc., all as more fully described in the enclosed proxy statement;

 

2. to consider and vote on a proposal to approve any adjournments of the special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to adopt the merger agreement; and

 

3. to consider any other business that properly comes before the special meeting and any postponements or any adjournments of the special meeting.

 

Upon the recommendation of a special committee of our board of directors formed for the purpose of considering the merger, our board of directors, after careful consideration, has approved the merger, the merger agreement and the other transactions contemplated by the merger agreement, and has declared the merger, the merger agreement and the other transactions contemplated by the merger agreement advisable, fair to and in the best interests of Trizec Properties, Inc. and our stockholders. Our board of directors recommends that you vote “FOR” the adoption of the merger agreement and “FOR” the approval of any adjournments of the special meeting for the purpose of soliciting additional proxies.

 

Only holders of record of our common stock and special voting stock as of the close of business on the record date, which was August 3, 2006, are entitled to receive notice of and attend the special meeting or any postponements or any adjournments of the special meeting. However, only holders of record of our common stock as of the close of business on the record date are entitled to vote at the special meeting or any postponements or adjournments of the special meeting. Holders of our special voting stock are not entitled to vote on the proposal to adopt the merger agreement or adjournments of the special meeting for the purpose of soliciting additional proxies, and their votes are not being solicited. In addition, holders of our Class F convertible stock are not entitled to receive notice of or to attend the special meeting or to vote on any matter that may come before the special meeting. A list of stockholders will be available for inspection by stockholders of record during normal business hours at Trizec Properties, Inc., 10 South Riverside Plaza, Suite 1100, Chicago, Illinois 60606, for ten days prior to the date of the special meeting and will also be available at the special meeting.

 

The adoption of the merger agreement requires the approval of the holders of at least a majority of the outstanding shares of our common stock entitled to vote on such proposal. Accordingly, regardless of the number of shares that you own, your vote is important. Even if you plan to attend the special meeting in person, we request that you cast your vote by either marking, signing, dating and promptly returning the

enclosed proxy card in the postage-paid envelope or submitting your proxy or voting instructions by telephone or Internet. If you fail to return your proxy card or fail to submit your proxy by telephone or Internet and do not attend the special meeting in person, your shares will not be counted for purposes of determining whether a quorum is present at the special meeting, and, if a quorum is present, such failure will have the same effect as a vote against adoption of the merger agreement. In addition, any adjournments of the special meeting for the purpose of soliciting additional proxies must be approved by the affirmative vote of the holders of at least a majority of the outstanding shares of our common stock who are present in person or represented by proxy and entitled to vote on such proposal. If you fail to return your proxy card, you will not be considered present in person or represented by proxy for the purpose of this proposal and such failure will have no effect on the proposal to approve any adjournments of the special meeting for the purpose of soliciting additional proxies. Trizec Canada Inc. has agreed, subject to certain exceptions, to vote or cause to be voted all of the shares of our common stock that it and its subsidiaries own or may acquire for the adoption of the merger agreement. As of the record date, Trizec Canada Inc. and its subsidiaries owned shares of our common stock that represented approximately 38.1% of the voting power of our common stock entitled to vote at the special meeting.

 

You may revoke your proxy at any time prior to its exercise by delivering a properly executed, later-dated proxy card, by submitting your proxy or voting instructions by telephone or Internet at a later date than your previously submitted proxy, by filing a written revocation of your proxy with our Corporate Secretary at our address set forth above or by voting in person at the special meeting.

 

Stockholders of Trizec Properties, Inc. who do not vote for the adoption of the merger agreement have the right to seek appraisal of the fair value of their shares if the merger is completed, but only if they submit a written demand for appraisal to Trizec Properties, Inc. before the vote is taken on the merger agreement and they comply with all requirements of Delaware law, which are summarized in the enclosed proxy statement.

 

We encourage you to read the enclosed proxy statement and the annexes carefully. If you have any questions or need assistance voting your shares, please call our proxy solicitor, Georgeson Inc., toll-free at (866) 821-2621. In addition, you may obtain information about us from certain documents that we have filed with the Securities and Exchange Commission and from our website at www.trz.com. Information contained on our website is not part of, or incorporated in, the enclosed proxy statement.

 

By Order of the Board of Directors,

 

 

Ted R. Jadwin

Senior Vice President, General Counsel and

Corporate Secretary

 

August 7, 2006

 

TABLE OF CONTENTS

 

 

This summary highlights only selected information from this proxy statement relating to (1) the merger of Grace Acquisition Corporation with and into Trizec Properties, Inc., which we refer to as the “merger,” and (2) the merger of Grace OP LLC with and into Trizec Holdings Operating LLC, which we refer to as the “operating company merger.” References to the “mergers” refer to both the merger and the operating company merger. This summary also highlights, to a limited extent, the proposed acquisition by Trizec Canada Inc. and an affiliate of Brookfield Properties Corporation of all of the outstanding multiple voting shares and subordinate voting shares of Trizec Canada Inc. in a separate transaction, which we refer to as the “arrangement,” that is expected to close at or about the same time as the mergers. However, this proxy statement does not constitute any solicitation of votes of the shareholders of Trizec Canada Inc. with respect to the arrangement. This summary does not contain all of the information about the mergers and related transactions contemplated by the merger agreement that is important to you. As a result, to understand the mergers and the related transactions fully and for a more complete description of the legal terms of the mergers and related transactions, you should read carefully this proxy statement in its entirety, including the annexes and the other documents to which we have referred you, including the merger agreement (as amended to include amendments 1, 2 and 3 thereto), attached as Annex A. Each item in this summary includes a page reference directing you to a more complete description of that item in this proxy statement.

 

Trizec Properties, Inc.

10 South Riverside Plaza, Suite 1100

Chicago, Illinois 60606

(312) 798-6000

 

Trizec Properties, Inc., which we refer to as “we,” “us,” “our,” “the company,” “our company” or “Trizec,” is a Delaware corporation and one of the largest fully integrated, self-managed, publicly traded real estate investment trusts, or “REITs,” in the United States. We are engaged in the business of owning and managing office properties in the United States. Our office properties are concentrated in the metropolitan areas of seven major U.S. markets: Atlanta, Chicago, Dallas, Houston, Los Angeles-San Diego, New York, and Washington, D.C. As of June 30, 2006, we had ownership interests in 53 consolidated office properties comprising approximately 32.2 million square feet. In addition, as of June 30, 2006, we also had ownership interests in eight unconsolidated real estate joint venture office properties comprising approximately 7.4 million square feet of total area and one unconsolidated real estate development joint venture. Our common stock is listed on the New York Stock Exchange under the symbol “TRZ.”

 

Trizec Holdings Operating LLC

10 South Riverside Plaza, Suite 1100

Chicago, Illinois 60606

(312) 798-6000

 

Trizec Holdings Operating LLC, which we refer to as our “operating company,” is a Delaware limited liability company through which we conduct substantially all of our business and own substantially all of our assets. We serve as the sole managing member of our operating company and, as of June 30, 2006, owned approximately 98.4% of the outstanding common units of limited liability company interest in our operating company. In addition, we owned all of the outstanding Class SV units and Class F units of limited liability company interest in our operating company.

Trizec Canada Inc.

BCE Place

181 Bay Street

Suite 3820

Toronto, ON, Canada M5J2T3

(416) 682-8600

 

Trizec Canada Inc., which we refer to as “Trizec Canada,” is a Canadian corporation and, together with its subsidiaries, owns approximately 38.1% of our outstanding common stock and all of our outstanding special voting stock and Class F convertible stock. Mr. Peter Munk, chairman of our board of directors, is also chairman of the board of directors and chief executive officer of Trizec Canada, and on August 3, 2006, Mr. Munk owned, through a wholly owned corporation, 7,522,283 multiple voting shares and 1,972,435 subordinate voting shares of Trizec Canada which as of such date represented approximately 51.9% of the aggregate voting power of the multiple voting shares and subordinate voting shares that are eligible to be voted at the special meeting of the shareholders of Trizec Canada to consider the arrangement. Trizec Canada is listed on the Toronto Stock Exchange under the symbol “TZC.”

 

Grace Holdings LLC

c/o Brookfield Properties Corporation

Three World Financial Center, 11^th Floor

New York, New York 10281

(212) 417-7000

 

Grace Holdings LLC, which we refer to as “Parent,” is a Delaware limited liability company newly formed by Brookfield Properties Corporation, or “Brookfield Properties,” in connection with the mergers. We have been advised by Brookfield Properties that Parent will be jointly owned by affiliates of Brookfield Properties and Blackstone Real Estate Partners V L.P.

 

Brookfield Properties is a Canadian corporation and one of North America’s largest commercial real estate companies. Brookfield Properties owns, develops and manages a portfolio of premier office properties that comprises 58 commercial properties totaling approximately 47 million square feet and ten development properties totaling approximately eight million square feet in the downtown cores of New York, Boston, Washington, D.C., Toronto, Calgary and Ottawa. Landmark properties include the World Financial Center in New York City and BCE Place in Toronto. Brookfield Properties is listed on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “BPO.”

 

The principal business of Blackstone Real Estate Partners V L.P. consists of making various real estate related investments. Blackstone Real Estate Partners V L.P. is an affiliate of The Blackstone Group, a global private investment firm founded in 1985 with offices in New York, Atlanta, Boston, Los Angeles, London, Hamburg, Mumbai and Paris. The Blackstone Group’s real estate group has raised approximately $13 billion for real estate investing and has a long track record of investing in office buildings, hotels and other commercial properties. In addition to real estate, The Blackstone Group’s core businesses include private equity, corporate debt investing, marketable alternative asset management, mergers and acquisitions advisory, and restructuring and reorganization advisory. We refer to Blackstone Real Estate Partners V L.P. and The Blackstone Group collectively as “Blackstone.”

 

Grace Acquisition Corporation

c/o Brookfield Properties Corporation

Three World Financial Center, 11^th Floor

New York, New York 10281

(212) 417-7000

 

Grace Acquisition Corporation, which we refer to as “MergerCo,” is a newly formed Delaware corporation and a wholly owned subsidiary of Parent. MergerCo was formed by Parent in connection with the mergers.

 

Grace OP LLC

c/o Brookfield Properties Corporation

Three World Financial Center, 11^th Floor

New York, New York 10281

(212) 417-7000

 

Grace OP LLC, which we refer to as “Merger Operating Company,” is a newly formed Delaware limited liability company and a wholly owned subsidiary of MergerCo. Merger Operating Company was formed by Brookfield Properties in connection with the mergers.

 

4162862 Canada Limited

c/o Brookfield Properties Corporation

Three World Financial Center, 11^th Floor

New York, New York 10281

(212) 417-7000

 

4162862 Canada Limited, which we refer to as “AcquisitionCo,” is a newly formed Canadian corporation and an affiliate of Brookfield Properties. AcquisitionCo was formed by Brookfield Properties in connection with the arrangement. We refer to Parent, MergerCo, Merger Operating Company and AcquisitionCo in this proxy statement collectively as the “Buyer Parties.”

 

 

The Proposals

 

The special meeting of our stockholders will be held at 10:00 a.m., local time, on Tuesday, September 12, 2006 at The Ritz Carlton, 160 East Pearson Street, The Versailles Suite, Chicago, Illinois 60611. At the special meeting, you will be asked, by proxy or in person, to adopt the merger agreement and to approve any adjournments of the special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to adopt the merger agreement.

 

The persons named in the enclosed proxy card will also have discretionary authority to vote upon other business, if any, that properly comes before the special meeting and any postponements or any adjournments of the special meeting.

 

Record Date, Notice and Quorum

 

Only holders of record of our common stock and our special voting stock as of the close of business on the record date, which was August 3, 2006, are entitled to receive notice of and to attend the special meeting or any postponements or adjournments of the special meeting. However, only holders of record of our common stock as of the close of business on the record date are entitled to vote at the special meeting or any postponements or adjournments of the special meeting. On the record date, 157,387,363 shares of our common stock were outstanding and entitled to vote at the special meeting or any postponements or adjournments of the special meeting. In addition, holders of our Class F convertible stock are not entitled to receive notice of or to attend the special meeting or vote on any matter that may come before the special meeting.

 

You will have one vote for each share of our common stock that you owned as of the record date.

 

The holders of a majority of the shares of our common stock that were outstanding and entitled to vote on the record date, present in person or represented by proxy, will constitute a quorum for purposes of the special meeting.

 

Required Vote for the Proposals

 

The adoption of the merger agreement requires the approval of the holders of at least a majority of the outstanding shares of our common stock entitled to vote on such proposal. Because the required vote to adopt the merger agreement is based on the number of shares of our common stock outstanding rather than on the number of shares of our common stock present in person or represented by proxy at the special meeting and entitled to vote, failure to vote your shares of our common stock (including as a result of broker non-votes) and abstentions will have the same effect as voting against adoption of the merger agreement.

In addition, the proposal to approve any adjournments of the special meeting for the purpose of soliciting additional proxies requires the approval of the holders of at least a majority of the outstanding shares of our common stock present in person or represented by proxy and entitled to vote on such proposal. For the purpose of this proposal, if you are a record holder and fail to return your proxy card or do not attend the special meeting in person, you will not be considered present in person or represented by proxy. As a result, such failure will not have any effect on the outcome of this proposal. Similarly, broker non-votes will not be considered present in person or represented by proxy and entitled to vote and will not have any effect on the outcome of this proposal. However, abstentions are considered present in person or represented by proxy and entitled to vote and will have the same effect as voting against the proposal to approve any adjournments of the special meeting for the purpose of soliciting additional proxies.

 

Voting by Our Directors and Executive Officers; Voting Agreements

 

As of the record date, excluding the shares of our common stock that are owned by Trizec Canada and its subsidiaries and deemed to be beneficially owned by Mr. Munk due to his control over Trizec Canada, our directors and executive officers beneficially owned an aggregate of approximately 204,191 shares of our common stock, entitling them to exercise, in the aggregate, less than 1% of the voting power of our common stock entitled to vote at the special meeting. Our executive officers and directors, other than Mr. Munk, have informed us that they intend to vote the shares of our common stock that they beneficially own for the adoption of the merger agreement and for the approval of any adjournments of the special meeting for the purpose of soliciting additional proxies.

 

Concurrently with the execution of the merger agreement, Trizec Canada entered into a support agreement with Parent and MergerCo, which we refer to as the “Trizec voting agreement,” pursuant to which Trizec Canada has agreed to vote all shares of our common stock that Trizec Canada and its subsidiaries own (including any shares of our common stock that may be acquired by them after the date of the merger agreement) for the adoption of the merger agreement, subject to the terms and conditions contained in the Trizec voting agreement. As of the record date, Trizec Canada and its subsidiaries owned 59,922,379 shares of our common stock, representing approximately 38.1% of the voting power of our common stock entitled to vote at the special meeting.

 

In addition, P.M. Capital Inc., or “PMCI,” a corporation that is wholly owned by Mr. Munk and through which Mr. Munk owns multiple voting shares and subordinate voting shares of Trizec Canada, has entered into a support agreement with Parent and AcquisitionCo, which we refer to as “Trizec Canada voting agreement,” pursuant to which PMCI has agreed to vote all shares that it owns (including any shares that may be acquired by PMCI after the date of the merger agreement) for the arrangement, subject to the terms and conditions in the Trizec Canada voting agreement. We have been advised by Trizec Canada that on August 3, 2006, PMCI owned 7,522,283 multiple voting shares and 1,972,435 subordinate voting shares of Trizec Canada, which as of such date represented approximately 51.9% of the aggregate voting power of the multiple voting shares and subordinate voting shares that are eligible to be voted at the special meeting of the shareholders of Trizec Canada to consider the arrangement. Under the Trizec Canada voting agreement, PMCI will covenant on closing of the arrangement not to acquire, directly or indirectly, shares of Trizec Canada, AcquisitionCo, Brookfield Properties or Brookfield Asset Management Inc. other than pursuant to or as contemplated by the arrangement or as otherwise contemplated by the transaction under such voting agreement for a period of 12 months following the closing of the arrangement. The covenants in the Trizec Canada voting agreement are subject to the ability of PMCI to convert into subordinate voting shares and transfer up to 3.0 million multiple voting shares of Trizec Canada held by PMCI. In addition, PMCI, Mr. Munk, Trizec Canada and CIBC Mellon Trust Company, as trustee, are parties to a voting trust agreement, dated April 23, 2002, which we refer to as the “voting trust agreement” in this proxy statement, pursuant to which PMCI agreed not to vote more than the number of multiple voting shares which in the aggregate represent a simple majority of all votes entitled to be cast on a matter by all holders of voting securities of Trizec Canada.

 

Proxies and Revocation

 

Any of our common stockholders of record entitled to vote at the special meeting may vote by returning the enclosed proxy card, submitting the proxy or voting instructions by telephone or Internet, or by appearing and voting at the special meeting in person. If the shares of our common stock that you own are held in “street name” by your broker, bank or other nominee, you should instruct your broker, bank or other nominee on how to vote your shares using the instructions provided by your broker.

 

You may revoke your proxy at any time prior to its exercise by delivering a properly executed, later-dated proxy card by mail, by submitting your proxy or voting instructions by telephone or Internet or instructing your broker, bank or other nominee at a later date than your previously submitted proxy, by filing a written revocation of your proxy with our Corporate Secretary or by voting in person at the special meeting.

 

Attendance at the special meeting will not by itself revoke a previously granted proxy. Also, if you elect to vote in person at the special meeting and your shares are held by a broker, bank or other nominee, you must bring to the special meeting a legal proxy from the broker, bank or other nominee authorizing you to vote your shares of our common stock.

 

 

Pursuant to the merger agreement, on the closing date of the merger, the following transactions will occur:

 

 

 

 

After the consummation of the merger and the arrangement, Parent will own approximately 61.9% of the outstanding shares of our common stock and an affiliate of Brookfield Properties will own, indirectly through its 100% ownership of the outstanding shares of Trizec Canada, the remaining outstanding shares of our common stock.

 

The arrangement will become effective upon the issuance of a certificate of arrangement and at the time designated as the effective time in the plan of arrangement relating to the arrangement. We refer to this time as the “arrangement effective time” in this proxy statement. The effective time of the merger will occur at the time the certificate of merger is executed and filed with the Secretary of State of the State of Delaware or such later time agreed to by the parties. We refer to this time as the “merger effective time” in this proxy statement. The effective time of the operating company merger will occur at the time the certificate of merger (relating to the operating company merger) is executed and filed with the Secretary of State of the State of Delaware or such later time agreed to by the parties. We refer to this time as the “operating company merger effective time” in this proxy statement.

 

The Arrangement

 

Pursuant to the arrangement, at the arrangement effective time, (a) Trizec Canada will acquire for cancellation Trizec Canada shares held by eligible Trizec Canada shareholders who elect to have such shares acquired by Trizec Canada, whom we refer to as the “certifying Trizec Canada shareholders” in this proxy statement, and (b) an affiliate of Brookfield Properties will acquire all of the Trizec Canada shares (including additional subordinate voting shares to be issued pursuant to a share dividend by Trizec Canada under the arrangement) held by Trizec Canada’s remaining shareholders, whom we refer to as the “non-certifying Trizec Canada shareholders” in this proxy statement, in each case for an aggregate consideration of $30.97 per share

in cash plus an additional cash amount that represents a pro rata portion of the regular quarterly dividend payable on the shares of Trizec Canada and allocable to the quarter in which the arrangement closes. We refer to such aggregate consideration as the “Trizec Canada arrangement consideration” in this proxy statement. The $30.97 component of the Trizec Canada arrangement consideration represents $29.01 per share attributable to the shares of our common stock that Trizec Canada and its subsidiaries own, plus an additional $1.96 per share representing the agreed value of Trizec Canada’s assets and liabilities other than its interest in us, which are primarily cash and marketable securities and which we refer to as “net other assets” in this proxy statement.

 

The Merger

 

Promptly after the arrangement effective time, at the merger effective time, MergerCo will merge with and into Trizec, with Trizec continuing as the surviving corporation. In the merger, each share of our common stock issued and outstanding immediately prior to the merger effective time (other than shares held in the treasury and shares owned by Trizec Canada, its subsidiaries, Parent and affiliates of Parent, and shares held by stockholders who properly exercise appraisal rights under Delaware law) will be converted into, and canceled in exchange for, one share of newly created and fully paid and non-assessable redeemable preferred stock of the surviving corporation, the terms of which are contained in the certificate of incorporation of the surviving corporation to take effect at the merger effective time. The form of such certificate of incorporation is set forth on Exhibit F to the merger agreement attached as Annex A to this proxy statement. Immediately after the completion of the merger, each share of redeemable preferred stock will be redeemed without further action on the part of the holder for the right to receive $29.01 in cash plus an additional cash amount that represents a pro rata portion of the regular quarterly dividend payable on our common stock and allocable to the quarter in which the merger closes, in each case without interest and less applicable withholding taxes. In this proxy statement, we refer to the cash consideration that our common stockholders (other than Trizec Canada and its subsidiaries) will ultimately receive with respect to each share of our common stock as a result of the merger as the “common stock merger consideration.”

 

The Operating Company Merger

 

Immediately after the merger effective time, Merger Operating Company will merge with and into our operating company, with our operating company continuing as the surviving operating company. Trizec, as the surviving corporation, will be the sole managing member of the surviving operating company. In the operating company merger, each common unit of limited liability company interest (other than units held by us or any of our subsidiaries, which units will remain outstanding as units of limited liability company interest in the surviving operating company) issued and outstanding immediately prior to the operating company merger effective time will be converted into, and canceled in exchange for, one newly created and fully paid redeemable preferred unit. In lieu of retaining this redeemable preferred unit, holders of redeemable preferred units may elect to (a) redeem each such redeemable preferred unit at any time (including immediately after the operating company merger effective time) in exchange for an amount per unit equal to the amount of the common stock merger consideration plus all accrued and unpaid distributions on such redeemable preferred units, or (b) convert each such redeemable preferred unit on a one-for-one basis within 15 days following the merger effective time into a continuing common unit in the surviving operating company, subject to the terms and conditions of the amended and restated operating agreement of the surviving operating company that will be adopted in connection with the operating company merger. This proxy statement does not constitute any solicitation of consents in respect of the operating company merger and does not constitute an offer to convert the operating company units that you may own for or into newly issued preferred units or continuing common units in the surviving operating company.

The following charts show our organizational structure immediately prior to, and after, the proposed mergers:

 

 

Upon the recommendation of a special committee of our board of directors formed for the purpose of considering the merger, which we refer to as the “special committee,” our board of directors, after careful consideration:

 

 

In deciding to approve the merger, the merger agreement and the other transactions contemplated by the merger agreement, our board of directors and the special committee considered the oral opinion, delivered on June 4, 2006 and subsequently confirmed in writing, of our financial advisor, J.P. Morgan Securities Inc., or “JPMorgan,” that, as of that date, and based upon and subject to the various considerations and assumptions described in the opinion, the merger consideration to be received by (a) the holders of our common stock in connection with the proposed merger involving us was fair, from a financial point of view, to such holders (other than Trizec Canada and its controlling shareholders), and (b) the holders of Class B common units of our operating company in the proposed operating company merger was fair, from a financial point of view, to such holders (assuming all such holders elected to redeem their preferred units and receive the cash consideration), other than us and our subsidiaries. JPMorgan’s opinion, which sets forth the assumptions made, procedures followed, matters considered and limits on the opinion and the review undertaken by JPMorgan in connection with rendering its opinion, is attached as Annex B to this proxy statement. We encourage you to read this opinion carefully. The opinion of JPMorgan is not a recommendation as to how you should vote with respect to the merger agreement. Pursuant to our engagement letter with JPMorgan, we have agreed to pay JPMorgan a transaction fee of $10.0 million, all of which is payable upon consummation of the merger.

 

Financing Commitment and Guarantee (pages 49 and 50)

 

In connection with the mergers, Parent will cause approximately $3.0 billion in the aggregate to be paid to our stockholders (other than Trizec Canada, its subsidiaries, Parent and affiliates of Parent), the members of our operating company (assuming none of the members of our operating company retain preferred units or elect to receive continuing common units in the surviving operating company, in each case, in lieu of redeeming their redeemable preferred units for cash consideration) and the holders of our outstanding stock options, restricted stock, restricted stock units and rights, deferred restricted stock units and rights and warrants. These payments are expected to be funded by a combination of equity contributions to Parent and debt financing.

 

In connection with the execution and delivery of the merger agreement, Parent obtained a debt commitment letter from Merrill Lynch Mortgage Lending, Inc., or “Merrill Lynch,” providing for a commitment of debt financing in an aggregate principal amount of up to $3.6 billion, provided that if additional Trizec properties are financed under the debt commitment letter, the amount will be increased by 75% of the allocated value of such properties. Merrill Lynch has been joined in its commitment by Bear Stearns Commercial Mortgage, Inc., Morgan Stanley Mortgage Capital Inc., Deutsche Bank Securities, Inc.’s affiliate German American Capital Corporation and Royal Bank of Canada. The debt commitment letter terminates on December 31, 2006, unless extended in accordance with the debt commitment letter and is conditioned on the completion of the mergers and other customary conditions. The lenders have the right to terminate the debt commitment letter under certain circumstances, including if Parent is entitled to terminate the merger agreement due to a breach of certain representations and warranties by us or Trizec Canada or a material adverse effect with respect to us or Trizec Canada.

 

The merger agreement does not contain a financing condition. Under the terms of the merger agreement, Parent agreed to use its reasonable best efforts to arrange its debt financing on the terms and conditions described in the debt commitment letter.

 

If all other closing conditions have been satisfied or waived but Parent fails to obtain adequate financing to complete the mergers, such failure will constitute a breach of Parent’s covenants under the merger agreement. In that event, so long as we, our operating company and Trizec Canada are not in material breach of each of our respective obligations under the merger agreement, we and Trizec Canada would be entitled to terminate the merger agreement and receive from Parent an amount equal to all reasonable expenses incurred by us and Trizec Canada in connection with the proposed transactions, up to $15.5 million for us and up to $9.5 million for Trizec Canada. In addition, we may take legal action against Brookfield Properties to seek damages of up to a maximum of $1.1 billion less the amount of any actual expense reimbursements that we have received under a guarantee provided by Brookfield Properties of such amount.

 

Immediately after the merger, each share of our special voting stock and Class F convertible stock will remain outstanding as a share of special voting stock and Class F convertible stock, respectively, of the surviving corporation.

 

The merger agreement provides that, immediately prior to the merger effective time, all of our outstanding stock options, restricted stock, restricted stock units and rights, and deferred restricted stock units and rights will become fully vested, payable or exercisable, as the case may be, and all outstanding restricted stock, restricted stock units and rights, and deferred restricted stock units and rights will be considered outstanding shares of our common stock for the purposes of the merger agreement, including the right to receive the common stock merger consideration.

 

In connection with the merger:

 

 

 

 

 

In addition, shares of our restricted common stock will be awarded to participants under the Trizec Properties, Inc. 2004 Outperformance Compensation Program adopted under the Trizec Properties, Inc. 2002 Long-Term Incentive Plan, as amended, or “OPP,” in accordance with the terms of the OPP, based on the requisite performance criteria for a performance period from October 20, 2004 and ending on the date of the merger agreement having been attained, which shares will become fully vested and free of any forfeiture or holding restrictions immediately prior to the merger effective time and will be considered outstanding shares of common stock for purposes of the merger agreement, including the right to receive the common stock merger consideration, without interest and less applicable withholding taxes. We refer to such shares of our restricted common stock that will be awarded under the OPP as the “OPP awards” in this proxy statement.

 

Our directors and executive officers may have interests in the merger that are different from, or in addition to, yours, including the following:

 

 

 

 

 

 

 

In addition, in connection with the arrangement, Mr. Munk will receive with respect to each multiple voting share and each subordinate voting share of Trizec Canada that he owns through PMCI, a corporation wholly owned by him, the Trizec Canada arrangement consideration. We have been advised by Trizec Canada that as of August 3, Mr. Munk owned, through PMCI, 7,522,283 multiple voting shares and 1,972,435 subordinate voting shares of Trizec Canada and owned options to purchase 550,000 subordinate voting shares. In addition, certain of our other directors and two of our executive officers also owned subordinate voting shares of Trizec Canada and options to purchase subordinate voting shares as of the record date.

 

Our board of directors was fully aware of the foregoing interests of our directors and executive officers in the merger and the arrangement, and considered them carefully prior to approving the merger, the merger agreement, and the other transactions contemplated by the merger agreement.

 

The merger agreement contains restrictions on our ability to solicit or engage in discussions or negotiations with a third party regarding specified transactions involving us, our subsidiaries, Trizec Canada or its subsidiaries. Notwithstanding these restrictions, under certain circumstances and subject to certain conditions, our board of directors and the board of directors of Trizec Canada may respond to an unsolicited written acquisition proposal or terminate the merger agreement and enter into an acquisition agreement with respect to a superior proposal. Upon entering into an agreement for a transaction that constitutes a superior proposal, we will be obligated to pay a breakup fee to Parent as described below under “Termination Fees and Expenses.”

 

Completion of the mergers and the arrangement depends upon the satisfaction or waiver of a number of conditions, including, among others:

 

 

 

 

 

The merger agreement may be terminated and the mergers and the arrangement may be abandoned at any time prior to the merger effective time or the arrangement effective time even after Trizec’s stockholders have adopted the merger agreement and Trizec Canada’s shareholders have approved the arrangement:

 

 

 

 

 

 

 

 

 

 

We and Trizec Canada have agreed to pay to Parent a termination fee and to reimburse Parent’s transaction expenses up to a maximum of $25.0 million if the merger agreement is terminated under certain circumstances. There are three alternative termination fees under the merger agreement: (a) the “Trizec termination fee,” which is equal to $71.3 million; (b) the “Trizec Canada termination fee,” which is equal to $43.7 million; and (c) the “full termination fee,” which is the sum of the Trizec termination fee and the Trizec Canada termination fee, or $115.0 million.

 

Trizec

 

We will pay to Parent the full termination fee and the full amount of its expenses (subject to the $25.0 million limit) in the event that:

 

 

 

We or our operating company will also pay to Parent an amount equal to 62% of Parent’s expenses, subject to certain limitations, if Parent has terminated the merger agreement because (a) our or our operating company’s respective representations and warranties are or become untrue or incorrect or (b) we or our operating company breach any of our or our operating company’s respective covenants or agreements, in each case that would be incapable of being satisfied by December 31, 2006.

 

In addition, if the merger agreement is terminated under the circumstances described with respect to Trizec Canada in the first two bullets below and, within 12 months of the termination date, we enter into a contract with respect to or consummate a different acquisition proposal, if and when we consummate such acquisition proposal, we will be required to pay to Parent an amount equal to the Trizec termination fee plus the remaining 62% of Parent’s expenses that are not paid by Trizec Canada under such circumstances, subject to certain limitations.

 

Trizec Canada

 

Trizec Canada will pay to Parent the Trizec Canada termination fee and 38% of Parent’s expenses (subject to the $25.0 million limit) in the event that:

 

 

 

Trizec Canada will pay to Parent an amount equal to 38% of Parent’s expenses, subject to certain limitations, if Parent has terminated the merger agreement because (a) Trizec Canada’s representations and warranties are or become untrue or incorrect or (b) Trizec Canada breaches any of its covenants or agreements that would be incapable of being satisfied by December 31, 2006.

 

Parent

 

If we, our operating company and Trizec Canada are not in material breach of each of our or its obligations under the merger agreement, Parent will pay us and Trizec Canada all reasonable out-of-pocket costs and expenses up to an aggregate maximum of $15.5 million and $9.5 million, respectively, if the merger agreement is terminated by us or Trizec Canada because either (a) any of the representations and warranties of Parent, MergerCo or AcquisitionCo is or becomes untrue or incorrect or (b) Parent, MergerCo or AcquisitionCo breaches any of their respective covenants or agreements that would be incapable of being satisfied by December 31, 2006.

 

Concurrently with the execution of the merger agreement, Trizec Canada entered into the Trizec voting agreement with Parent and MergerCo pursuant to which Trizec Canada has agreed to vote or cause to be voted all of the shares of our common stock that Trizec Canada and its subsidiaries own (including any shares of our common stock that may be acquired after the execution of the merger agreement) for the adoption of the merger agreement, subject to the terms and conditions contained in the Trizec voting agreement. As of the record date, Trizec Canada and its subsidiaries owned approximately 59,922,379 shares of our common stock, entitling them to exercise approximately 38.1% of the voting power of our common stock entitled to vote at the special meeting.

 

In addition, PMCI, a corporation that is wholly owned by Mr. Munk and through which Mr. Munk owns multiple voting shares and subordinate voting shares of Trizec Canada, has entered into the Trizec Canada voting agreement with Parent and AcquisitionCo pursuant to which PMCI has agreed to vote all multiple voting shares and subordinate voting shares that it owns (including any shares that may be acquired by PMCI after the date of the merger agreement) for the arrangement, subject to the terms and conditions contained in such voting agreement. We have been advised by Trizec Canada that on August 3, 2006, PMCI owned 7,522,283 multiple voting shares and 1,972,435 subordinate voting shares of Trizec Canada, which as of such date represented approximately 51.9% of the aggregate voting power of the multiple voting shares and subordinate voting shares that are eligible to be voted at the special meeting of the shareholders of Trizec Canada to consider the arrangement. Under the Trizec Canada voting agreement, PMCI will covenant on closing of the arrangement not to acquire, directly or indirectly, shares of Trizec Canada, AcquisitionCo, Brookfield Properties or Brookfield Asset Management Inc. other than pursuant to or as contemplated by the arrangement or as otherwise contemplated by the transaction under such voting agreement for a period of 12 months following the closing of the arrangement. The covenants in the Trizec Canada voting agreement are subject to the ability of PMCI to convert into subordinate voting shares and transfer up to 3.0 million multiple voting shares of Trizec Canada held by PMCI. In addition, pursuant to the voting trust agreement, PMCI agreed not to vote more than the number of multiple voting shares which in the aggregate represent a simple majority of all votes entitled to be cast on a matter by all holders of voting securities of Trizec Canada.

 

The HSR Act provides that transactions such as the merger may not be completed until certain information has been submitted to the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice, or the “Antitrust Division,” and certain waiting period requirements have been satisfied. On July 21, 2006, entities and individuals who are deemed to control Trizec and Brookfield Properties under the HSR Act and related regulations each filed a Notification and Report Form with the Antitrust Division and the Federal Trade Commission and requested an early termination of the waiting period. Early termination was granted by the relevant authorities on July 28, 2006.

 

The Competition Act provides that transactions that exceed certain financial thresholds, such as the arrangement, will require prior notice to the Commissioner of Competition unless the Commissioner of Competition issues an advance ruling certificate or the applicable statutory waiting period expires. Brookfield Properties filed a request for an advance ruling certificate with the Commissioner of Competition on July 27, 2006 and received such certificate on August 2, 2006.

 

Other than the HSR Act and Competition Act filings, we are unaware of any other material federal, state or foreign regulatory requirements or approvals that are required for the execution of the merger agreement or the completion of the mergers, other than the filing of a certificate of merger by each of us and our operating company with the Secretary of State of the State of Delaware. However, the completion of the mergers is conditioned upon, among other things, the filing of the plan of arrangement by Trizec Canada relating to the arrangement with the Ontario Superior Court of Justice, approval and issuance of a final order by such court approving the arrangement and the transactions contemplated by the plan of arrangement, and sending to the director appointed under the Canada Business Corporations Act, for endorsement and filing by such director, the articles of arrangement and such other documents as may be required under the Canada Business Corporations Act to give effect to the arrangement.

 

Under the Delaware General Corporation Law, or the “DGCL,” holders of our common stock who do not vote for the adoption of the merger agreement have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if such holders of our common stock comply with all requirements of Delaware law, which are summarized in this proxy statement. This appraisal amount could be more than, the same as, or less than the amount a common stockholder would be entitled to receive under the terms of the merger agreement. Any holder of our common stock intending to exercise its appraisal rights, among other things, must submit a written demand for appraisal to us prior to the vote on the adoption of the merger agreement and must not vote or otherwise submit a proxy for the adoption of the merger agreement. Your failure to follow exactly the procedures specified under Delaware law will result in the loss of your appraisal rights.

 

On June 6, 2006, two substantially identical purported stockholder class action lawsuits related to the merger agreement were filed by the same counsel in the Circuit Court of Cook County, Illinois, Doris Staehr v. Trizec Properties, et al. (Case No. 06CH11226) and Hubert Van Gent v. Trizec Properties, et al. (Case No. 06CH11571), naming us and each of our directors as defendants. The lawsuits allege, among other things, that our directors were conflicted, unjustly enriched and engaged in self-dealing, and violated their fiduciary duties to our stockholders in approving the merger, the merger agreement and the other transactions contemplated by the merger agreement.

 

The lawsuits seek to enjoin the completion of the merger and the related transactions. Additionally, among other things, the lawsuits seek class action status, rescission of, to the extent already implemented, the merger, voting agreements, and the termination fees, and costs and disbursements incurred in connection with the lawsuits, including attorneys’ and experts’ fees. We intend to vigorously defend the actions. However, even if these lawsuits are determined to be without merit, they may potentially delay or, if the delay is substantial enough to prevent the consummation of the merger by December 31, 2006, potentially prevent the closing of the merger.

 

The receipt of the common stock merger consideration for each share of our common stock pursuant to the merger agreement will be a taxable transaction for United States federal income tax purposes. Generally, for United States federal income tax purposes, you will recognize gain or loss as a result of the merger measured by the difference, if any, between the common stock merger consideration per share and your adjusted tax basis in that share. In addition, under certain circumstances, we may be required to withhold a portion of your common stock merger consideration payable to you under applicable tax laws. Tax matters can be complicated, and the tax consequences of the merger to you will depend on your particular tax situation. We encourage you to consult your tax advisor regarding the tax consequences of the merger to you.

 

If the merger is completed, shares of our common stock will no longer be listed on the New York Stock Exchange and will be deregistered under the Securities Exchange Act of 1934, as amended, or the “Exchange Act.” Our special voting stock and Class F convertible stock are not listed on the New York Stock Exchange and are not registered under the Exchange Act.

 

Our common stock, par value $0.01 per share, is listed on the New York Stock Exchange under the symbol “TRZ.” On June 2, 2006, the last trading day prior to the date of the public announcement of the merger agreement, the closing price of our common stock on the New York Stock Exchange was $24.60 per share. On August 4, 2006, the last trading day before the date of this proxy statement, the closing price of our common stock on the New York Stock Exchange was $28.63 per share. You are encouraged to obtain current market quotations for our common stock.

 

The following questions and answers address briefly some questions you may have regarding the special meeting and the proposed mergers and, in certain cases, the arrangement. These questions and answers may not address all questions that may be important to you as a stockholder. Please refer to the more detailed information contained elsewhere in this proxy statement, as well as the additional documents referred to or incorporated by reference in this proxy statement, including the merger agreement, a copy of which is attached as Annex A.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

If you hold our shares of common stock through a broker, bank or other nominee, you should also call your broker, bank or other nominee for additional information.

 

Information both included and incorporated by reference in this proxy statement may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are based on various assumptions and describe our future plans, strategies and expectations, are generally identified by our use of words such as “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity” and similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve these plans, intentions or expectations, including completing the mergers on the terms summarized in this proxy statement. All statements regarding our expected financial position, business and financing plans are forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects or the completion of the mergers include, but are not limited to:

 

 

These risks and uncertainties, along with the risk factors discussed under “Item 1A. — Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006 and June 30, 2006, should be considered in evaluating any forward-looking statements contained in this proxy statement. All forward-looking statements speak only as of the date of this proxy statement. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are qualified by the cautionary statements in this section.

10 South Riverside Plaza, Suite 1100

Chicago, Illinois 60606

(312) 798-6000

 

We are a Delaware corporation and one of the largest fully integrated, self-managed, publicly traded REITs in the United States. We are engaged in the business of owning and managing office properties in the United States. Our office properties are concentrated in the metropolitan areas of seven major U.S. markets: Atlanta, Chicago, Dallas, Houston, Los Angeles-San Diego, New York, and Washington, D.C. As of June 30, 2006, we had ownership interests in 53 consolidated office properties comprising approximately 32.2 million square feet. In addition, as of June 30, 2006, we also had ownership interests in eight unconsolidated real estate joint venture office properties comprising approximately 7.4 million square feet of total area and one unconsolidated real estate development joint venture. Additional information about us is available on our website at http://www.trz.com. The information contained on our website is not incorporated in, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. Our common stock is listed on the New York Stock Exchange under the symbol “TRZ.” For additional information about us and our business, please refer to “Where You Can Find More Information” on page 88.

10 South Riverside Plaza, Suite 1100

Chicago, Illinois 60606

(312) 798-6000

 

Our operating company is a Delaware limited liability company through which we conduct substantially all of our business and own substantially all of our assets. We serve as the sole managing member of our operating company and, as of June 30, 2006, owned approximately 98.4% of the outstanding common units of limited liability company interest in our operating company. In addition, we owned all of the outstanding Class SV units and Class F units of limited liability company interest in our operating company.

BCE Place

181 Bay Street

Suite 3820

Toronto, ON, Canada M5J2T3

(416) 682-8600

 

Trizec Canada is a Canadian corporation and, together with its subsidiaries, owns approximately 38.1% of our outstanding common stock and all of our outstanding special voting stock and Class F convertible stock. Mr. Peter Munk, chairman of our board of directors, is also chairman of the board of directors and chief executive officer of Trizec Canada, and on August 3, 2006, Mr. Munk owned, through a wholly owned corporation, 7,522,283 multiple voting shares and 1,972,435 subordinate voting shares of Trizec Canada, which as of such date represented 51.9% of the aggregate voting power of the multiple voting shares and subordinate voting shares that are eligible to be voted at the special meeting of the shareholders of Trizec Canada to consider the arrangement. Trizec Canada is listed on the Toronto Stock Exchange under the symbol “TZC.”

c/o Brookfield Properties Corporation

Three World Financial Center, 11^th Floor

New York, New York 10281

(212) 417-7000

 

Parent is a Delaware limited liability company newly formed by Brookfield Properties in connection with the mergers. We have been advised by Brookfield Properties that Parent will be jointly owned by affiliates of Brookfield Properties and Blackstone Real Estate Partners V L.P.

 

Brookfield Properties is a Canadian corporation and one of North America’s largest commercial real estate companies. Brookfield Properties owns, develops and manages a portfolio of premier office properties that comprises 58 commercial properties totaling approximately 47 million square feet and ten development properties totaling approximately eight million square feet in the downtown cores of New York, Boston, Washington, D.C., Toronto, Calgary and Ottawa. Landmark properties include the World Financial Center in New York City and BCE Place in Toronto. Brookfield Properties is listed on the New York Stock Exchange and Toronto Stock Exchange under the symbol “BPO.”

 

The principal business of Blackstone Real Estate Partners V L.P. consists of making various real estate related investments. Blackstone Real Estate Partners V L.P. is an affiliate of The Blackstone Group, a global private investment firm founded in 1985 with offices in New York, Atlanta, Boston, Los Angeles, London, Hamburg, Mumbai and Paris. The Blackstone Group’s real estate group has raised approximately $13 billion for real estate investing and has a long track record of investing in office buildings, hotels and other commercial properties. In addition to real estate, The Blackstone Group’s core businesses include private equity, corporate debt investing, marketable alternative asset management, mergers and acquisitions advisory, and restructuring and reorganization advisory.

c/o Brookfield Properties Corporation

Three World Financial Center, 11^th Floor

New York, New York 10281

(212) 417-7000

 

MergerCo is a newly formed Delaware corporation and a wholly owned subsidiary of Parent. MergerCo was formed by Parent in connection with the mergers.

c/o Brookfield Properties Corporation

Three World Financial Center, 11^th Floor

New York, New York 10281

(212) 417-7000

 

Merger Operating Company is a newly formed Delaware limited liability company and a wholly owned subsidiary of MergerCo. Merger Operating Company was formed by Brookfield Properties in connection with the mergers.

c/o Brookfield Properties Corporation

Three World Financial Center, 11^th Floor

New York, New York 10281

(212) 417-7000

 

AcquisitionCo is a newly formed Canadian corporation and an affiliate of Brookfield Properties. AcquisitionCo was formed by Brookfield Properties in connection with the arrangement.

 

This proxy statement is being furnished to our stockholders in connection with the solicitation of proxies from our common stockholders by our board of directors for use at the special meeting to be held on Tuesday, September 12, 2006, at 10:00 a.m., local time. The special meeting will take place at The Ritz Carlton, 160 East Pearson Street, The Versailles Suite, Chicago, Illinois 60611. The purpose of the special meeting is for you to:

 

 

Our common stockholders must adopt the merger agreement for the merger to occur. A copy of the merger agreement is attached as Annex A to this proxy statement, which we encourage you to read carefully in its entirety.

 

Only holders of record of our common stock and our special voting stock as of the close of business on the record date, which was August 3, 2006, are entitled to receive notice of and to attend the special meeting or any postponements or adjournments of the special meeting. However, only holders of our common stock at the close of business on the record date are entitled to vote at the special meeting or any postponements or adjournments of the special meeting. On the record date, 157,387,363 shares of our common stock were outstanding and entitled to vote at the special meeting or any postponements or adjournments of the special meeting. In addition, holders of our Class F convertible stock are not entitled to receive notice of or attend the special meeting or vote on any matter that may come before the special meeting.

 

The holders of a majority of the shares of our common stock that were outstanding as of the close of business on the record date, present in person or represented by proxy, will constitute a quorum for purposes of the special meeting. A quorum is necessary to hold the special meeting. Abstentions and broker non-votes will be counted as shares present in person or represented by proxy for the purposes of determining the presence of a quorum. Broker non-votes result when the beneficial owners of shares of our common stock do not provide specific voting instructions to their brokers, bank or other nominee. Under the rules of the New York Stock Exchange, brokers are precluded from exercising their voting discretion with respect to the approval of non-routine matters, such as the adoption of the merger agreement.

 

 

Adoption of the merger agreement.  The adoption of the merger agreement requires the affirmative approval of the holders of a majority of the outstanding shares of our common stock entitled to vote on such proposal. Each share of our common stock that was outstanding on the record date entitles the holder to one vote at the special meeting. Because the required vote to adopt the merger agreement is based on the number of shares of our common stock outstanding rather than on the number of votes present in person or represented by proxy at the special meeting and entitled to vote, failure to vote shares of our common stock that you own (including as a result of broker non-votes and abstentions) will have the same effect as voting against the adoption of the merger agreement.

 

Approval of any adjournments of the special meeting for the purpose of soliciting additional proxies.  The proposal to approve any adjournments of the special meeting for the purpose of soliciting additional proxies requires the approval of the holders of at least a majority of outstanding shares of our common stock present in person or represented by proxy and entitled to vote on such proposal. For the purpose of this proposal, if you are a record holder of our common stock and fail to return your proxy card or do not attend the special meeting in person, you will not be considered present in person or represented by proxy. As a result, such failure will not have any effect on the outcome of this proposal. Similarly, broker non-votes will not be considered present in person or represented by proxy and entitled to vote on the adjournment proposal and will not have any effect on the outcome of this proposal. However, abstentions are considered present in person or represented by proxy and

entitled to vote and therefore will have the same effect as voting against the proposal to approve any adjournments of the special meeting for the purpose of soliciting additional proxies.

 

Holders of our special voting stock and Class F convertible stock are not entitled to vote on either of the two proposals or any other matter that may come before the special meeting.

 

If you hold your shares of our common stock in your own name as of the record date and want your shares of our common stock to be included in the vote, you must either vote your shares of our common stock by returning the enclosed proxy card or by submitting your proxy or voting instructions by telephone or Internet or voting in person at the special meeting.

 

Record holders may cause their shares of common stock to be voted using one of the following methods:

 

 

Regardless of whether you plan to attend the special meeting, we request that you complete and return a proxy for your shares of our common stock as described above as promptly as possible. If you own shares of our common stock through a broker, bank or other nominee in “street name,” you must provide voting instructions in accordance with the instructions on the voting instruction card that your broker, bank or other nominee provides to you. You should instruct your broker, bank or other nominee as to how to vote your shares of our common stock, following the directions contained in such voting instruction card. If you have not received such voting instructions or require further information regarding such voting instructions, contact your broker, bank or other nominee, who can give you directions on how to vote your shares of our common stock.

 

As of the record date, excluding the shares of our common stock that are owned by Trizec Canada and its subsidiaries and deemed to be beneficially owned by Mr. Munk, our directors and executive officers owned an aggregate of approximately 204,191 shares of our common stock, entitling them to exercise, in the aggregate, less than 1% of the voting power of our common stock entitled to vote at the special meeting. Our executive officers and directors, other than Mr. Munk, have informed us that they intend to vote their shares of our common stock for adoption of the merger agreement and in favor of approval of any adjournments of the special meeting for the purpose of soliciting additional proxies.

 

Concurrently with the execution of the merger agreement, Trizec Canada entered into the Trizec voting agreement with Parent and MergerCo pursuant to which Trizec Canada has agreed to vote or cause to be voted all shares of our common stock that Trizec Canada and its subsidiaries own (including any shares of our common stock that may be acquired by them after the date of the merger agreement) in favor of the adoption of the merger agreement, subject to the terms and conditions contained in the Trizec voting agreement. As of the record date, Trizec Canada and its subsidiaries owned 59,922,379 shares of our common stock, representing approximately 38.1% of the aggregate voting power of our common stock entitled to vote at the special meeting.

 

If you submit a proxy, your shares of our common stock will be voted at the special meeting as you indicate on your proxy. If no instructions are indicated on your signed proxy card, your shares of our common stock will be voted “FOR” the adoption of the merger agreement and “FOR” the approval of any adjournments of the special meeting for the purpose of soliciting additional proxies.

 

You may revoke your proxy at any time, but only before the proxy is voted at the special meeting, in any of three ways:

 

 

 

Attendance at the special meeting will not, in itself, constitute revocation of a previously granted proxy.  If you own shares of our common stock in “street name,” you may revoke or change a previously granted proxy by following the instructions provided by your broker, bank or other nominee that is the registered owner of your shares of our common stock.

 

We do not expect that any matter other than the adoption of the merger agreement and the approval of any adjournments of the special meeting for the purpose of soliciting additional proxies will be brought before or at the special meeting. If, however, such a matter is properly presented before or at the special meeting or any postponements or any adjournments of the special meeting, the persons appointed as proxies will have discretionary authority to vote the shares represented by duly executed proxies in accordance with their discretion and judgment.

 

We will pay the costs of soliciting proxies for the special meeting. Our officers, directors and employees may solicit proxies by telephone and facsimile, by mail, by Internet or in person. They will not be paid any additional amounts for soliciting proxies. We will also request that individuals and entities holding shares of our common stock in their names, or in the names of their nominees that are beneficially owned by others, send proxy materials to and obtain proxies from those beneficial owners, and will reimburse those holders for their reasonable expenses in performing those services upon request. We have retained Georgeson Inc. to assist us in the solicitation of proxies, and will pay fees of approximately $9,000, plus reimbursement of out-of-pocket expenses, to Georgeson Inc. for their services. In addition, our arrangement with Georgeson Inc. includes provisions obligating us to indemnify it for certain liabilities that could arise in connection with its solicitation of proxies on our behalf.

 

Although it is not currently expected, the special meeting may be adjourned for the purpose of soliciting additional proxies if we have not received sufficient votes to adopt the merger agreement at the special meeting.

 

Under our bylaws, the presiding officer of the special meeting may adjourn the special meeting without the approval of our stockholders under certain circumstances, including if there is no quorum present for the adoption of the merger agreement, our board of directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information that the board of directors determines has not been made sufficiently or timely available to our stockholders, or our board of directors determines that adjournment is otherwise in our best interests. Notwithstanding this provision in our bylaws that provides the presiding officer of the special meeting the discretion to adjourn the meeting in such circumstances, we will not adjourn the special meeting for the purpose of soliciting additional proxies without having obtained the requisite approval by our stockholders for the proposal to approve any adjournments of the special meeting for the purpose of soliciting additional proxies.

 

If such proposal is approved and we decide to adjourn the special meeting for the purpose of soliciting additional proxies if we have not received sufficient votes to adopt the merger agreement, we will make an announcement at the special meeting. Any adjournment of the special meeting for the purpose of soliciting additional proxies will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use. See “— Proxies and Revocation” on page 27 for additional information about revocation.

 

At any time prior to convening the special meeting, as permitted by our bylaws, our board of directors may postpone the special meeting for any reason without the approval of our stockholders. Although it is not currently expected, our board of directors may postpone the special meeting for the purpose of soliciting additional proxies if we have not received sufficient proxies to constitute a quorum or sufficient votes for the adoption of the merger agreement. Similar to adjournments, any postponement of the special meeting for the purpose of soliciting additional proxies will allow stockholders who have already sent in their proxies to revoke them at any time prior to their use.

 

Under the terms of the merger agreement, affiliates of Parent will acquire Trizec and our operating company. To accomplish this, pursuant to the merger agreement, on the closing date of the merger the following transactions will occur:

 

 

 

 

After the consummation of the merger and the arrangement, Parent will own approximately 61.9% of the outstanding shares of our common stock and an affiliate of Brookfield Properties will own, indirectly through its 100% ownership of the outstanding shares of Trizec Canada, the remaining outstanding shares of our common stock.

 

We, on our own behalf and as the sole managing member of our operating company, have already taken all actions necessary to approve the operating company merger and no further approvals of any of the members of our operating company are required to complete the operating company merger. This proxy statement does not constitute any solicitation of consents in respect of the operating company merger and does not constitute an offer to exchange or convert operating company units that you may own for or into newly issued preferred units or continuing common units in the surviving operating company, as the case may be.

 

Prior to May 8, 2002, Trizec was a subsidiary of Trizec Hahn Corporation, a Canadian corporation. On May 8, 2002, Trizec Hahn Corporation implemented a corporate reorganization, or the “2002 Restructuring,” pursuant to which Trizec became a separate, U.S.-based publicly traded real estate investment trust, or “REIT,” owning primarily the U.S. real estate assets previously owned by Trizec Hahn Corporation and its subsidiaries. As part of the 2002 Restructuring, Trizec Canada was formed to acquire the shares of Trizec Hahn Corporation which retained a significant interest in Trizec. As of August 3, 2006, Trizec Canada and its subsidiaries collectively owned approximately 38.1% of Trizec’s common stock.

 

In addition to owning a significant number of shares of Trizec’s common stock, Trizec Canada and its subsidiaries own all of the outstanding shares of Trizec’s Class F convertible stock and special voting stock. The Class F convertible stock is convertible into Trizec common stock in certain circumstances so that Trizec Canada and its subsidiaries, on the one hand, and Trizec’s other stockholders, on the other hand, may share ratably certain future taxes that Trizec Canada or its subsidiaries may incur in those specified circumstances. The special voting stock entitles Trizec Canada to receive dividends from Trizec that, when aggregated with dividends received by Trizec Canada on Trizec’s common stock and after deducting related non-Canadian taxes, including certain withholding taxes, will equal the dividends received by Trizec’s U.S. stockholders on Trizec’s common stock on a per share basis. The special voting stock also entitles Trizec Canada and its subsidiaries to votes that when aggregated with votes of shares of common stock held by Trizec Canada and its subsidiaries, represent a majority of the votes in elections of Trizec’s board of directors. Trizec Canada also currently has additional assets and liabilities other than its interest in Trizec, primarily cash and marketable securities, which we refer to sometimes as Trizec Canada’s “net other assets.”

 

Trizec’s certificate of incorporation contains an ownership limitation that is designed to enable it to qualify in the future as a “domestically-controlled” REIT within the meaning of Section 897(h)(4)(B) of the Internal Revenue Code of 1986, as amended. This limitation restricts any person that is not a qualifying “U.S. person” (as defined in Trizec’s certificate of incorporation) from beneficially owning Trizec’s capital stock if that person’s holdings, when aggregated with shares of Trizec capital stock beneficially owned by all

other persons that are not qualifying “U.S. persons,” would exceed 45% by value of Trizec’s issued and outstanding capital stock.

 

From time to time since the 2002 Restructuring, Trizec’s board of directors and senior management team have discussed current valuations of office property portfolios generally, as well as the projected value of Trizec’s assets and business on a net asset and equity market value basis over the near- and mid-term, taking into account Trizec’s strategic growth, asset allocation and portfolio repositioning initiatives. In that regard, Trizec’s board of directors and senior management also have discussed the possibility that market conditions might present an opportunity to enhance stockholder value through a strategic transaction. In these discussions, Trizec’s board of directors and senior management acknowledged that Trizec faced various challenges that other office property owners and operators like Trizec face, including interest rate volatility, high capital costs associated with attracting and retaining tenants, difficulty of making accretive acquisitions in an extremely competitive investment environment and limitations on the use of leverage when operating as a public company. Trizec’s board of directors and senior management also recognized certain challenges faced by Trizec that were unique to Trizec, including certain limitations imposed upon Trizec arising out of the 2002 Restructuring.

 

Trizec Canada’s board of directors and senior management have engaged in similar discussions from time to time since the 2002 Restructuring, taking into consideration the fact that the principal asset of Trizec Canada is its interest in Trizec.

 

Beginning in the summer of 2004, members of Trizec’s senior management team began to explore the possibility of pursuing a variety of transactions, including joint ventures, fund formations and debt and equity issuances, as well as a merger, asset sale or other business combination or strategic transaction. They had informal discussions with representatives of JPMorgan about Trizec and its business. During these discussions, members of Trizec’s senior management team and representatives of JPMorgan also discussed that, given Trizec Canada’s ownership of a significant percentage of shares of Trizec’s common stock and the potential tax impact on Trizec if Trizec Canada were to sell those shares prior to the latter part of 2007, any business combination or strategic transaction involving Trizec would have to consider tax and other implications for both Trizec and Trizec Canada.

 

In September 2004, a private investment company, a diversified public company and a real estate fund manager separately contacted representatives of JPMorgan and expressed interest in pursuing a potential transaction with Trizec and Trizec Canada, and Trizec and Trizec Canada entered into confidentiality agreements with each of them. In the case of the private investment company and the diversified public company, the discussions were very preliminary in nature and did not result in the submission of an indicative price for, or an offer to purchase, Trizec and/or Trizec Canada.

 

Beginning in late 2004 and continuing into early 2005, members of Trizec’s senior management team, together with Trizec Canada’s senior management team, engaged in preliminary discussions with the real estate fund manager from time to time. In February 2005, at a meeting with Trizec’s board of directors, Trizec’s senior management team informed Trizec’s board of directors of the status of these discussions. At this meeting, Trizec’s board of directors also was informed by representatives of Hogan & Hartson of its fiduciary duties in connection with potential strategic transactions. Due to the unique structure of the potential strategic transaction, Trizec’s board of directors subsequently decided to form a special committee to further analyze the possibility of a strategic transaction involving this company, which we refer to as the “2004 Trizec special committee,” and the 2004 Trizec special committee authorized senior management to continue discussions with this company regarding this potential transaction. At subsequent meetings, Trizec’s senior management and the 2004 Trizec special committee’s advisors provided the 2004 Trizec special committee with in-depth analyses regarding Trizec and its operations and business prospects.

 

Trizec Canada’s senior management team similarly informed Trizec Canada’s board of directors of the status of these discussions in February 2005. Due to the unique structure of the potential strategic transaction, Trizec Canada’s board of directors subsequently decided to form a special committee to further analyze the possibility of a strategic transaction involving this company, which we refer to as the “Trizec Canada special committee,” and the Trizec Canada special committee authorized senior management and the Trizec Canada special committee’s advisors to continue discussions regarding this potential transaction. At subsequent meetings, Trizec Canada’s senior management team and the Trizec Canada special committee’s advisors

provided the Trizec Canada special committee with in-depth analyses regarding Trizec Canada and its operations and business prospects.

 

Between February and July 2005, this real estate fund manager and its financial and legal advisors conducted substantial due diligence regarding Trizec and Trizec Canada, and members of Trizec’s senior management team and Trizec’s financial and legal advisors (including JPMorgan and Morgan Stanley & Co. Incorporated, or “Morgan Stanley”), as well as members of Trizec Canada’s senior management team and its financial and legal advisors (including RBC Capital Markets, or “RBC”), had substantial discussions regarding a potential business combination or strategic transaction involving Trizec, Trizec Canada and this company. These discussions involved, among other things, the consideration to be paid by this company in any such transaction, the source of its financing, the structure of the proposed transaction and continuing due diligence efforts. During this period, the 2004 Trizec special committee and the Trizec Canada special committee each met several times, during which the potential transaction, long-term growth prospects and other matters were discussed at length.

 

At various points in time, in non-binding conversations or term sheets, this company proposed cash consideration ranging from $18.50 to $22.50 per share for shares of Trizec’s common stock and the shares of Trizec Canada. No specific proposal was made with respect to Trizec Canada’s net other assets. However, in July 2005, Trizec and Trizec Canada terminated discussions with this company because, among other things, the respective special committees believed that the proposed price ultimately was not sufficient and there were concerns, based on discussions with this company, that it did not have committed equity capital to finance any proposed transaction. Neither Trizec nor Trizec Canada had any substantive conversations with this company regarding a proposed transaction after July 2005.

 

During the latter part of 2005 and the early part of 2006, neither Trizec’s management nor representatives of JPMorgan or Morgan Stanley had any substantive discussions with any third parties regarding a potential business combination or strategic transaction. During this period, Trizec operated in an office property market that continued to recover at a slow pace and provided Trizec’s management with challenges as Trizec attempted to carry out Trizec’s strategic plan. In September 2005, Trizec became aware that Arden Realty, Inc., or “Arden,” an office REIT that had a significant presence in the Southern California market, was potentially for sale and that there existed a possible opportunity for Trizec to acquire Arden in its entirety or a significant Southern California portfolio of office properties as part of the potential sale of Arden. In December 2005, Trizec entered into an agreement with General Electric Capital Corporation, which ultimately acquired Arden by merger, to acquire 13 of Arden’s Southern California office properties for approximately $1.6 billion. Trizec’s senior management believed that this significant increase in Trizec’s presence in Southern California would be beneficial to Trizec’s long-term business prospects, because this market was a stable and attractive office rental market, and that the acquired properties would complement and enhance Trizec’s existing portfolio.

 

During this period, Trizec’s senior management provided Trizec’s board of directors with periodic updates at regular board meetings regarding the state of the capital markets in general, the state of the office property market in particular and other factors affecting Trizec’s short-term and long-term business prospects. At these meetings, Trizec’s board of directors discussed the various factors that would materially affect Trizec’s long-term strategic plan. During this period, Trizec Canada’s senior management provided Trizec Canada’s board of directors with similar periodic updates.

 

Also during this period, acquisition activity in the REIT industry, including the office REIT sector, continued to increase. Trizec’s senior management team viewed the increase in activity as potentially indicative of market conditions that could support attractive valuations for REITs focused on office properties. In Trizec’s senior management team’s view, market dynamics at that time were such that buyers might value Trizec at pricing levels sufficiently attractive to warrant further exploration of strategic alternatives. Exploring such alternatives, Trizec’s senior management team believed, would be consistent with the view of Trizec’s board of directors that Trizec should consider favorable market conditions that might present an opportunity to enhance stockholder value through a strategic transaction. These beliefs were shared with Trizec Canada’s senior management.

 

In February 2006, representatives of a private real estate company, which is referred to as Company A, approached Mr. Peter Munk, the chairman of Trizec and the chairman and chief executive officer of Trizec Canada, and expressed an interest in pursuing a transaction with Trizec Canada and, potentially, Trizec. Following very preliminary discussions, on February 13, 2006, Company A entered into a confidentiality agreement with Trizec Canada, and on February 23, 2006, representatives of Company A and its legal advisors met with senior management of Trizec Canada and representatives of Trizec Canada’s outside legal advisor, Davies Ward Phillips & Vineberg LLP, or “Davies Ward,” to explore certain structural issues relating to a possible transaction involving Trizec Canada, Trizec and Company A. Beginning March 1, 2006, Company A was given access to due diligence materials on Trizec Canada. Conceptual discussions continued through late March but did not result in an offer from Company A, and Trizec Canada terminated Company A’s access to due diligence information on March 21, 2006.

 

In March 2006, representatives of several investment banking firms, including Morgan Stanley and JPMorgan, approached Trizec and held discussions with Mr. Timothy Callahan, Trizec’s president and chief executive officer, and Mr. Michael Colleran, Trizec’s executive vice president and chief financial officer, regarding the current office REIT market, the current capital markets, REIT valuation trends and the general merger market outlook. Additionally, the possibility of Trizec pursuing potential mergers, asset sales or other business combination or strategic transactions was discussed, including a discussion of other recent transactions involving publicly traded REITs and the likely interest of third parties in pursuing a transaction with Trizec.

 

On March 23, 2006, representatives of Morgan Stanley met with Mr. Munk, and generally discussed the same topics that were discussed with Messrs. Callahan and Colleran. Mr. Munk informally briefed members of Trizec Canada’s board on the matters discussed at this meeting.

 

During March and April 2006, Mr. Munk was contacted by three companies regarding the possibility of pursuing potential mergers, asset sales or other business combination or strategic transactions with Trizec and Trizec Canada. The three companies included Company A, a private real estate investment fund, which is referred to as Company B, and a diversified public company, which is referred to as Company C. In addition, Mr. Callahan was contacted by another private real estate company, which is referred to as Company D. These discussions generally consisted of informal discussions about Trizec, Trizec Canada and the companies’ respective businesses based upon publicly available information. The discussions between Mr. Munk and/or Mr. Callahan and these entities remained at a very preliminary level and did not at that time result in the submission of an indicative purchase price for, or an offer to purchase, Trizec and/or Trizec Canada. During this same period of time, senior management of Trizec Canada involved representatives of Davies Ward and RBC in considering possible transaction structures to address the treatment of Trizec Canada’s net other assets in the event a third party were to make a proposal to acquire Trizec and Trizec Canada.

 

On April 20, 2006, senior management of Trizec Canada and representatives of Davies Ward and RBC met with representatives of Morgan Stanley to discuss possible transaction structures to address the treatment of Trizec Canada’s net other assets in the event Trizec Canada were to engage in a transaction involving the acquisition of Trizec Canada and Trizec, together with related issues.

 

On April 26, 2006, representatives of Morgan Stanley met with Messrs. Munk and Callahan. The general topics of this meeting were market conditions and the level of interest by third parties in pursuing a business combination or strategic transaction with Trizec and Trizec Canada, particularly in light of the discussions that Messrs. Munk and/or Callahan had had with Company A, Company B, Company C and Company D during March and April. Representatives of Morgan Stanley indicated that they believed there was significant interest by certain third parties in pursuing a transaction with Trizec and Trizec Canada, and that current market conditions were favorable to consummate such a transaction at an attractive price to Trizec, Trizec’s stockholders, Trizec Canada and Trizec Canada’s shareholders. At this meeting, Messrs. Munk and Callahan concluded that representatives of Morgan Stanley should meet with Trizec’s board of directors to provide the board with an update of current market conditions.

 

On May 1, 2006, representatives of Morgan Stanley updated Trizec’s board of directors on the state of the REIT market generally and, more specifically, office REITs. Morgan Stanley’s representatives also discussed recent strategic and business combination transactions involving other REITs, including the acquisitions of CarrAmerica Realty Corporation and Arden by Blackstone and General Electric Capital

Corporation, respectively. Morgan Stanley’s representatives also updated Trizec’s board of directors regarding discussions that Messrs. Munk and/or Callahan had had with Company A, Company B, Company C and Company D. Morgan Stanley’s representatives discussed with Trizec’s board of directors overall structural issues related to Trizec Canada, and how these issues could affect any business combination or strategic transaction involving Trizec and Trizec Canada. After such discussion, Trizec’s board of directors authorized representatives of Morgan Stanley to continue to analyze the feasibility of a transaction involving Trizec, and to begin to compile due diligence information and other materials that would likely be requested by a third party bidder.

 

On May 2, 2006, members of Trizec Canada’s board of directors and its senior management and legal advisors were informally briefed by Mr. Munk on the matters discussed at Trizec’s May 1 board meeting.

 

On May 3, 2006 and May 9, 2006, members of Trizec’s senior management team and the senior management of Trizec Canada, as well as representatives of Morgan Stanley, Hogan & Hartson, RBC and Davies Ward met to discuss structural issues related to a possible transaction and coordinating Trizec’s efforts with those of Trizec Canada in considering any such possible transaction.

 

On May 9, 2006, Trizec’s board of directors met again. Representatives of Morgan Stanley and Hogan & Hartson participated in this meeting. Representatives of Morgan Stanley reported on market-related developments since the May 1, 2006 meeting of Trizec’s board of directors, and discussed their views on the likelihood of Trizec being able to consummate a business combination or strategic transaction at an attractive price. Morgan Stanley’s representatives presented their view that, given the current market conditions, such a transaction at an attractive price could be consummated. After discussion among the board members, Trizec’s board of directors authorized representatives of Morgan Stanley, Trizec’s senior management team and Hogan & Hartson to commence discussions with potential business combination partners and to make non-public information available to interested parties for due diligence purposes, subject to entering into suitable confidentiality agreements. Six potential business combination partners were identified by Morgan Stanley and Trizec’s senior management as most likely to be willing and able to acquire Trizec at an attractive price — Blackstone, Brookfield Properties, Company A, Company B, Company C and Company D.

 

On May 10, 2006, Trizec Canada’s board of directors met. After discussion among the board members, Trizec Canada’s board of directors determined that, although no decision had been made to engage in any strategic transaction, RBC should be formally engaged to assist Trizec Canada in assessing the various alternatives which could be considered by Trizec Canada should any proposed transaction be brought forward by Trizec. Trizec Canada’s board of directors also authorized members of Trizec Canada’s senior management and Trizec Canada’s advisors to coordinate with Trizec and Trizec’s advisors in order to assist Trizec and its advisors in Trizec’s informal discussions with potential bidders, and authorized senior management of Trizec Canada to make non-public information available to interested potential business combination partners for due diligence purposes, subject to entering into suitable confidentiality agreements.

 

Following these meetings, representatives of Morgan Stanley, Hogan & Hartson, Davies Ward and RBC, as well as members of senior management of both Trizec and Trizec Canada, began to gather and compile due diligence information and other materials about Trizec and Trizec Canada. Between May 10 and May 15, 2006, Trizec’s advisors held conversations with representatives of each of Blackstone, Brookfield Properties, Company A, Company B, Company C and Company D concerning these entities’ respective interests in pursuing a potential business combination or strategic transaction with Trizec and Trizec Canada. The potential bidders were informed that they would be given a specified period of time in which to conduct their due diligence, and that more specific instructions for submitting offers regarding a potential acquisition would be provided at a later date by representatives of Morgan Stanley. Trizec and Trizec Canada entered into confidentiality agreements with each of Blackstone, Brookfield Properties, Company A, Company B, Company C and Company D at various times between May 12 and May 19, 2006.

 

Trizec Canada’s board of directors met again on May 15, 2006. Representatives of RBC and Davies Ward participated in this meeting. RBC provided a presentation on the current state of the capital markets and the real estate investment market in general, and office property companies and REITs in particular, recent consolidation activity involving U.S. office REITs, shareholder value considerations for Trizec Canada in the context of a potential business combination or strategic transaction, including considerations relating to Trizec

Canada’s net other assets, and potential transaction structures and process considerations for a potential business combination or strategic transaction involving Trizec Canada. Following a discussion among the members of Trizec Canada’s board of directors and with the representatives of both RBC and Davies Ward, Trizec Canada’s board of directors authorized Trizec Canada’s senior management and Trizec Canada’s advisors to continue to cooperate with Trizec and its advisors in Trizec’s discussions with the potential bidders and to evaluate the interests expressed by the potential bidders in these discussions.

 

Also on May 15, 2006, representatives of Morgan Stanley activated an electronic data room containing due diligence information about Trizec, and, once confidentiality agreements were executed, each of the bidders obtained access to such data room and started to review the due diligence material.

 

On May 18, 2006, Trizec’s board of directors held a special meeting during which representatives of Morgan Stanley provided the board with an update of the meetings and discussions they had had with the various potential bidders up to that date. During this meeting, the members of Trizec’s board of directors and representatives of Hogan & Hartson discussed the potential conflicts that Mr. Munk might have as a result of the involvement of Trizec Canada in a potential transaction and Mr. Munk’s control over Trizec Canada (in light of his roles as the chairman of Trizec’s board of directors and chairman of the board, chief executive officer and the controlling shareholder of Trizec Canada). After discussion, Trizec’s board of directors resolved to form the special committee, a committee of the board of directors that would consist of all of the directors other than Mr. Munk, and proceeded to appoint such directors as the members of the special committee. The special committee was given broad authority to, among other things, evaluate and consider offers of interest and determine the advisability of any transaction, negotiate the terms of any potential transaction with any prospective purchaser and take any other action in connection with such transaction as the special committee determined was necessary or appropriate. Mr. Glenn J. Rufrano was appointed as the chairman of the special committee. At this meeting, the special committee also authorized the engagement of Hogan & Hartson as legal counsel to the special committee and Morgan Stanley and JPMorgan as co-financial advisors to the special committee and Trizec. In making this decision, the special committee considered that Morgan Stanley had indicated that one or more of its affiliates would be prepared to offer financing to all potential purchasers and that such financing could enhance the bid process. The special committee, after considering the potential conflict of interest that might arise from allowing Morgan Stanley to offer such financing and the potential benefits thereof, determined that it would be desirable to retain JPMorgan to consider the fairness of any proposed transaction. Representatives of Hogan & Hartson also discussed with the special committee at this meeting its fiduciary duties in considering any proposals relating to an acquisition of Trizec.

 

Also on May 18, 2006, the compensation committee of Trizec’s board of directors met. At this meeting, the compensation committee discussed the possibility of adopting a broader severance plan that would provide enhanced severance payments to Trizec’s executive officers, other than Mr. Callahan, and would provide enhanced severance payments for additional members of Trizec’s management team under certain circumstances if they were terminated or if they resigned for “good reason” within a specified period following the consummation of a change in control transaction. The compensation committee also discussed the possibility of adopting a retention bonus plan that would provide both professional and hourly employees a financial incentive to continue to remain employees of Trizec through the closing date of any transaction that Trizec might pursue and during a specified transition period following the closing of such a transaction. No formal action was taken at this meeting approving any of these arrangements.

 

Between May 16 and May 22, 2006, representatives of Morgan Stanley, Hogan & Hartson and Davies Ward held various meetings and telephone calls with representatives of the potential bidders and their respective advisors to discuss a potential transaction, including due diligence and structural matters. Members of Trizec’s and Trizec Canada’s senior management teams also participated in due diligence calls with potential bidders. Representatives of Morgan Stanley, Hogan & Hartson and Davies Ward periodically advised members of Trizec’s and Trizec Canada’s senior management teams of the progress of the discussions with the bidders during this time, and Mr. Callahan periodically updated Mr. Rufrano as to the progress of these discussions. Specifically, representatives of Morgan Stanley met or had substantive calls with Company A and Company B on May 17, 2006, with Brookfield Properties on May 18, 2006, with Blackstone and Company D on May 19, 2006 and with Company C on May 22, 2006. At each of these meetings, representatives of

Morgan Stanley provided each of the bidders additional information about the potential transaction, including an overview of a potential structure of the transaction.

 

On May 23, 2006, representatives of Morgan Stanley distributed formal bid instruction letters to representatives of Blackstone, Brookfield Properties, Company A, Company B, Company C and Company D. The potential bidders were requested, in these letters and in subsequent communications between Morgan Stanley and such potential bidders, to return by May 31, 2006 indications of interest in a potential strategic transaction with Trizec and Trizec Canada, including a price and proposed structure for any such transaction, as well as comments to a draft merger and arrangement agreement that would be provided. On May 26, 2006, a draft merger and arrangement agreement prepared by Hogan & Hartson and Davies Ward was distributed by Morgan Stanley to the various potential bidders.

 

Between May 23 and May 31, 2006, the potential bidders continued to perform due diligence on Trizec and Trizec Canada, and representatives of the various potential bidders also had numerous conversations with representatives of Morgan Stanley, Hogan & Hartson and Trizec’s senior management team. Representatives of the various potential bidders also had numerous conversations with representatives of the senior management team of Trizec Canada and with representatives of Davies Ward.

 

On May 25, 2006, Trizec Canada’s board of directors met and received a report from senior management of Trizec Canada on, and discussed, the efforts underway to explore possible strategic alternatives involving Trizec Canada and Trizec. Also on May 25, 2006, Davies Ward activated an electronic data room and, subsequently, granted access to physical data rooms containing additional due diligence information about Trizec Canada.

 

On May 31, 2006, representatives of Morgan Stanley and RBC received written preliminary indications of interest from Brookfield Properties, Blackstone, Company A and Company B (which presented a joint bid with a financial partner). Neither Company C nor Company D submitted a written preliminary indication of interest, and no further discussions took place with Company C or Company D after May 31. On May 31, 2006, copies of the bid letters, along with a summary of the various bids, were distributed to the special committee and Trizec Canada’s board of directors.

 

Brookfield Properties’ non-binding letter of interest proposed an all cash offer of (i) $28.50 per share to acquire Trizec shares (other than shares of Trizec’s capital stock held by Trizec Canada and its subsidiaries), and (ii) CDN $33.50 per share for the outstanding shares of Trizec Canada. The price offered for the shares of Trizec Canada implicitly included an amount attributable to the value of Trizec Canada’s net other assets. This amount, based on the then prevailing exchange rate, and after deducting $28.50 per share for Trizec Canada’s interest in Trizec, was calculated by RBC to be between approximately $116 million and $117 million. Brookfield Properties’ offer also contemplated a purchase of 100% of the outstanding units of interest in Trizec’s operating company, although Brookfield Properties indicated it would be willing to allow the holders of such units to continue to hold their interests in Trizec’s operating company, subject to an amended operating company agreement. Brookfield Properties’ offer also indicated that it was prepared to discuss providing an option for Trizec Canada shareholders to receive preferred stock of Brookfield Properties in order to facilitate “rollover” treatment for Trizec Canada shareholders. Brookfield Properties’ letter indicated that Brookfield Properties’ remaining due diligence would be limited and that Brookfield Properties still needed to finalize arrangements with one or more U.S. equity participants in order to provide certainty that Trizec would continue to be treated as a “domestically controlled” REIT. Brookfield Properties’ letter did not specify a timeframe for when it would be in a position to submit a binding proposal, but indicated that Brookfield Properties would continue to allocate all resources necessary to expeditiously complete the transaction. Accompanying Brookfield Properties’ letter were written comments to the merger and arrangement agreement from Brookfield Properties and its legal counsel, Goodwin Procter LLP, or “Goodwin Procter.”

 

Blackstone’s non-binding letter of interest proposed an all cash offer of $26.50 per share to acquire Trizec shares (other than shares of Trizec’s capital stock held by Trizec Canada and its subsidiaries). In its letter, Blackstone did not provide any specific details regarding its proposed treatment of the outstanding shares and net other assets of Trizec Canada, although it did acknowledge that it would pay additional consideration to reflect the value of such shares and assets. Blackstone also indicated its willingness to purchase 100% of the outstanding units of interest in Trizec’s operating company or allow the holders of such interests to “roll over”

into a new preferred security. Blackstone’s letter indicated that Blackstone was prepared to work toward executing transaction documents on or before June 7, 2006. While Blackstone did not submit a formal mark-up of the merger and arrangement agreement, it and its legal counsel, Simpson Thacher & Bartlett LLP, or “Simpson Thacher,” submitted a memorandum which listed specified points in the merger and arrangement agreement that Blackstone expected would need to be negotiated prior to consummating a transaction.

 

Company A’s non-binding letter of interest proposed an all cash offer of (i) a range of $26.00 to $28.00 per share to acquire Trizec shares (other than shares of Trizec’s capital stock held by Trizec Canada and its subsidiaries), and (ii) a range of $26.00 to $28.00 per share for the outstanding shares of Trizec Canada. Company A’s letter did not propose a specific value for the net other assets of Trizec Canada, but stated that any cash reserves of Trizec Canada, to the extent not used to satisfy liabilities, would be distributed to Trizec Canada’s shareholders after applicable statutory periods for claims had expired. Company A’s offer also contemplated a purchase of 100% of the outstanding units of interest in Trizec’s operating company, although Company A indicated it would be willing to allow the holders of such units to continue to hold their interests in Trizec’s operating company, subject to an amended operating company agreement. Company A provided a list of additional due diligence information that it indicated it needed to review in order to finalize its offer, and stated that it would be in a position to submit a binding proposal by June 15, 2006. Company A and its legal advisors also submitted comments to the merger and arrangement agreement together with Company A’s letter.

 

Finally, Company B’s non-binding letter of interest proposed an all cash offer of (i) $28.00 per share to acquire Trizec shares (other than shares of Trizec’s capital stock held by Trizec Canada and its subsidiaries), and (ii) $28.00 per share for the outstanding shares of Trizec Canada, plus approximately $105 million for the net other assets of Trizec Canada. Company B’s offer also contemplated a purchase of 100% of the outstanding units of interest in Trizec’s operating company, although Company B indicated it would be willing to allow the holders of such units to continue to hold their interests in Trizec’s operating company, subject to an amended operating company agreement. Company B’s letter indicated that Company B was prepared to work immediately toward negotiating and executing the merger and arrangement agreement and that it was confident of its ability to complete the process on or before the open of business on June 5, 2006. Company B and its legal advisors also submitted comments to the merger and arrangement agreement together with Company B’s letter.

 

On June 1, 2006, the special committee convened a special telephonic meeting for the purpose of discussing these written proposals, the principal terms and related financing issues, and the respective comments to the draft merger and arrangement agreement. Representatives of Morgan Stanley, JPMorgan and Hogan & Hartson participated in this meeting. Representatives of Morgan Stanley reviewed the key terms of the proposals and provided the directors with background information related to each of the bidders, their financing plans and, if known, financing sources, the general business strategy of each bidder and a summary of events leading up to the receipt of the proposals, as well as a summary of discussions that representatives of Morgan Stanley had had with the bidders up to that date. Representatives of Morgan Stanley also updated the special committee with respect to the amount of due diligence that each of the bidders had performed up to that date, and the proposed process for inviting bidders whose initial proposals were sufficiently attractive into a second round of bids. The special committee discussed the key terms of the proposals in the letters, including the price, the probabilities and risks of increases and decreases in such pricing, the execution risk and other potential factors and events that could affect the likelihood of closing a transaction with any one of the bidders, in order to determine which bidders’ initial proposals, if any, were sufficiently attractive to warrant being invited to submit second round bids. Hogan & Hartson also presented to the special committee its views with respect to the respective comments to the draft merger and arrangement agreement. During this meeting, representatives of Hogan & Hartson discussed with the special committee members their fiduciary duties in connection with a transaction such as the one contemplated.

 

At the meeting on June 1, 2006, the special committee discussed whether to continue discussions with specific bidders given the terms of their respective bid letters, offer prices and comments to the draft merger and arrangement agreement. The special committee considered certain of the proposals attractive enough to warrant further exploration of a possible strategic transaction. In order to coordinate with Trizec Canada the responses to the various bidders, the special committee authorized Mr. Rufrano, as chairman of the special

committee, to discuss the preliminary conclusions reached by the special committee with Mr. Donald Lenz, the lead director appointed by Trizec Canada’s board of directors (as described below). At this meeting, the special committee also discussed a possible amendment to the Trizec Properties, Inc. 2004 Outperformance Compensation Plan, or “OPP,” to provide that the valuation date for considering whether awards have been earned under the OPP should be the date of any merger agreement, as opposed to the closing date of any transaction. No formal action was taken at this meeting approving this amendment.

 

Also on June 1, 2006, Trizec Canada’s board of directors, with Mr. Munk recusing himself, convened a special telephonic meeting for the purpose of discussing the written proposals, their principal terms and related financing issues, and comments to the draft merger and arrangement agreement. Representatives of Morgan Stanley, RBC and Davies Ward participated in this meeting. Representatives of Morgan Stanley provided Trizec Canada’s board of directors with the same general report that was provided to Trizec’s board of directors and engaged in a discussion of the various proposals with the board members before leaving the meeting. RBC then made a presentation to Trizec Canada’s board of directors regarding the financial elements of each proposal and certain factors the board should consider in its deliberations. Davies Ward also presented to Trizec Canada’s board of directors its views with respect to the respective comments to the draft merger and arrangement agreement and certain other legal matters. Trizec Canada’s board of directors discussed in detail the key terms of the proposals in the letters, including the price, the probabilities and risks of increases and decreases in such pricing, the execution risk and other potential factors and events that could affect the likelihood of closing a transaction with any one of the bidders, in order to determine which bidders’ initial proposals, if any, were sufficiently attractive to warrant being invited to submit second round bids. Trizec Canada’s board of directors considered certain of the proposals to be attractive enough to warrant further exploration of a possible strategic transaction. At this meeting, Trizec Canada’s board also appointed and authorized Mr. Donald Lenz as its lead director to discuss the preliminary conclusions reached by the Trizec Canada board with Mr. Rufrano, as chairman of the special committee.

 

Later that day, Messrs. Lenz and Rufrano, certain of the respective legal and financial advisors to Trizec and Trizec Canada and Trizec’s and Trizec Canada’s senior management teams discussed the views of the special committee and Trizec Canada’s board of directors with regard to the bids received, and a consensus was reached as to the following mutual conclusions regarding the merits of the bids and the strategy for proceeding with second round bids.

 

Brookfield Properties had submitted a bid with a price that was the highest of the bids that were submitted, both for Trizec’s common stock and for Trizec Canada’s shares and net other assets. However, concerns were expressed that Brookfield Properties did not yet have a significant U.S. equity partner, an element that was considered necessary in light of the need for Trizec to continue to qualify as a “domestically controlled” REIT for tax purposes following any merger transaction. Taking into consideration the advice received from the respective legal and financial advisors, it was decided that Brookfield Properties would be invited to submit a second round bid, with the reservation that Brookfield Properties would need to provide more details regarding its source of U.S. equity capital to finance a transaction in order to ultimately be considered a viable bidder.

 

With respect to Blackstone, it was decided that representatives of Morgan Stanley should convey to Blackstone that its offer was not sufficient, both with respect to the $26.50 per share offer price for Trizec’s common stock and the lack of specificity with respect to the proposed treatment of Trizec Canada’s shares and net other assets. Blackstone’s experience in successfully completing acquisitions of public real estate companies was discussed, and it was noted that, notwithstanding that Blackstone had not submitted detailed comments to the merger and arrangement agreement, Blackstone had displayed in the past its ability to execute similar transactions in a swift manner. However, taking into consideration the advice received from the respective legal and financial advisors, it was decided that Blackstone would need to increase its offer price and submit a detailed mark-up to the merger and arrangement agreement in order to ultimately be considered a viable bidder and be invited into the second round for submitting bids.

 

With respect to Company A, taking into consideration the advice received from the respective legal and financial advisors, it was decided that Company A would not be invited to submit a second round bid unless it submitted a specific price and materially increased its offer price. This decision was based on a number of

factors, including the insufficiency of the price being offered (it being noted that the low end of the range of prices being offered by Company A for Trizec shares and for Trizec Canada’s shares, at $26.00 per share, was the lowest bid out of the four bids that were received), the proposed treatment of Trizec Canada’s net other assets that was considered unacceptable by Trizec Canada’s board of directors, the remaining due diligence that Company A indicated that it still needed to complete and the relatively lengthy time Company A stated it would need to be in a position to execute a definitive merger and arrangement agreement.

 

The proposal made by Company B, jointly with a financial partner, was generally considered to be attractive in that, while not the highest, it was in the upper range of offer prices for Trizec’s common stock and Trizec Canada’s shares, it addressed (although at a price that Trizec Canada’s board of directors believed was at the low end of the acceptable range) the value of Trizec Canada’s net other assets, and that Company B appeared to have done a substantial amount of due diligence on both Trizec and Trizec Canada. The fact that Company B was willing to proceed very quickly toward signing a definitive merger and arrangement agreement was viewed positively. After taking into consideration the advice received from the respective legal and financial advisors, it was decided that Company B would be invited to submit a second round bid.

 

It was further determined by the special committee and Trizec Canada’s board of directors that the proposals of Brookfield Properties and Company B were sufficiently attractive to warrant such bidders being invited to submit second round bids in order to explore in more depth the possibility of a strategic transaction. Later in the day on June 1, 2006, representatives of Morgan Stanley reported back to Blackstone and Company A that their offers were not sufficiently attractive to warrant being invited to submit second round bids. They also reported back to Brookfield Properties and Company B that their offers warranted being invited to submit second round bids, with instructions that each party should continue negotiating the merger and arrangement agreement and resolving other issues so that it would be in a position to execute a definitive merger and arrangement agreement as soon as possible.

 

In the evening of June 1, 2006, during their discussions with Blackstone regarding the lack of competitiveness of Blackstone’s bid, representatives of Morgan Stanley and Blackstone discussed the prospect of Blackstone teaming with Brookfield Properties, especially in light of the fact that Brookfield Properties, as a Canadian corporation, still needed to identify a U.S. equity financing source. On June 2, 2006, representatives of Blackstone contacted representatives of Morgan Stanley and indicated that Brookfield Properties and Blackstone were in discussions regarding possibly moving forward together in the bid process. In the evening of June 2, 2006, representatives of Brookfield Properties and Blackstone contacted representatives of Morgan Stanley and confirmed that Brookfield Properties and Blackstone were, in fact, prepared to move forward together at a price of $28.50 per share for Trizec’s common stock and CDN $33.50 per share for the outstanding shares of Trizec Canada. Brookfield Properties and Blackstone indicated that they would continue together based on Brookfield Properties’ proposal letter and comments on the merger and arrangement agreement.

 

During the period of time after the conclusion of the meetings of the special committee and Trizec Canada’s board of directors on June 1, 2006 and the night of June 3, 2006, representatives of Hogan & Hartson and Davies Ward continued to negotiate the terms of the merger and arrangement agreement with Goodwin Procter and Simpson Thacher (jointly) and the legal advisors of Company B, and Brookfield Properties and Blackstone (jointly) and Company B continued their due diligence efforts. During this period of time, representatives of Morgan Stanley held a series of telephone calls with Brookfield Properties, Blackstone, Company B and their respective financial advisors regarding issues that had been raised by the special committee and Trizec Canada’s board of directors concerning their respective proposals, including the proposed price, financing and other terms. The parties also began to negotiate a proposed structure and amendment to the operating agreement of Trizec’s operating company, in light of the fact that both remaining bidders expressed a willingness to allow the current holders of interests in Trizec’s operating company to continue to hold such interests, subject to an amended operating company agreement.

 

In the evening of June 3, 2006, representatives of Morgan Stanley contacted Brookfield Properties, Blackstone and Company B, and told them that best and final offers, as well as final comments to the merger and arrangement agreement, would be due no later than 12:00 noon on Sunday, June 4. As directed by the special committee and Trizec Canada’s board of directors, representatives of Morgan Stanley also advised the

bidders that they should consider assigning a value of at least $117 million to the net other assets of Trizec Canada.

 

Through the night of June 3, 2006 and into the afternoon of June 4, 2006, representatives of Hogan & Hartson and Davies Ward continued to negotiate the terms of a merger and arrangement agreement with Goodwin Procter, Simpson Thacher and the legal advisors of Company B, and Brookfield Properties, Blackstone and Company B continued their due diligence efforts. In the early afternoon of June 4, 2006, Brookfield Properties submitted a final and best offer, indicating it had secured Blackstone as a participant in such offer, and Company B also submitted a final and best offer. Company B informed Mr. Callahan that its offer would expire at 8:00 a.m. on June 5, 2006. Both of the remaining bidders also submitted revised mark-ups to the merger and arrangement agreement.

 

The final offer from Brookfield Properties and Blackstone proposed an all cash offer of (i) $29.01 per share of Trizec’s common stock to acquire Trizec (other than shares of Trizec’s capital stock held by Trizec Canada and its subsidiaries), and (ii) $30.97 per share for the outstanding shares of Trizec Canada (representing an implied value of approximately $119 million for the net other assets of Trizec Canada). The offer of Brookfield Properties and Blackstone also included a right pursuant to which Brookfield Properties could propose to Trizec Canada’s shareholders an option to receive part of the consideration in the form of Brookfield Properties preferred shares.

 

Company B’s final offer proposed an all cash offer of (i) $28.50 per share to acquire Trizec shares (other than shares of Trizec’s capital stock held by Trizec Canada and its subsidiaries), and (ii) $28.50 per share to acquire the outstanding shares of Trizec Canada, plus approximately $117 million for the net other assets of Trizec Canada.

 

On June 4, 2006, prior to the special committee meeting, the compensation committee of Trizec’s board of directors met and reviewed certain proposals regarding compensation for Trizec’s executive officers and other employees that had been previously discussed at the May 18, 2006 compensation committee meeting and the June 1, 2006 special committee meeting. The compensation committee recommended that Trizec’s board of directors approve (i) a change in control severance pay plan under which certain employees of Trizec (including Trizec’s executive officers other than Mr. Callahan) and its subsidiaries would be entitled to severance payments under certain circumstances if they were terminated or if they resigned for “good reason” within one year following the consummation of a change in control transaction, (ii) a retention bonus program for the benefit of certain professional employees of Trizec (including Trizec’s executive officers) and its subsidiaries, and a retention bonus program for the benefit of certain hourly employees of Trizec, to provide additional incentive to such employees to continue to remain employees of Trizec through the closing date of any merger that Trizec might pursue and during a specified transition period following the closing of such a merger, and (iii) an amendment to the OPP to provide that the awards made under the OPP to all participants, including Trizec’s executive officers, would vest in full and the participants would be entitled to receive payments under the OPP in the form of restricted stock immediately prior to the closing of any merger that Trizec might pursue (but contingent on the closing), based on the total return to common stockholders for the period beginning on October 20, 2004 and ending on the date of any merger agreement. Immediately following the conclusion of the compensation committee’s meeting, Trizec’s board of directors convened a meeting and, upon the recommendation of the compensation committee, approved, with Mr. Callahan abstaining, the change in control severance pay plan, the retention bonus programs and the amendment to the OPP as recommended.

 

In the evening of June 4, 2006, the special committee convened a special telephonic meeting for the purpose of discussing the final offers submitted by Brookfield Properties and Blackstone and Company B. Representatives of Morgan Stanley, JPMorgan and Hogan & Hartson participated in this meeting. In advance of the meeting, each committee member received, among other things, current drafts of the merger and arrangement agreements submitted by the two bidders and related documents. At the meeting, representatives of Morgan Stanley and JPMorgan reviewed the financial analysis of the proposed merger with the members of the special committee, summarized the final bids submitted by the remaining bidders and updated the special committee on the negotiations that had taken place over the course of the prior three days since the special committee’s last meeting.

 

Representatives of Hogan & Hartson reviewed with the special committee its fiduciary duties and the terms of the proposed merger and arrangement agreements submitted by Brookfield Properties and Blackstone and Company B. Hogan & Hartson summarized in detail the principal terms of the merger and arrangement agreements and ancillary documents, including the representations and warranties, operating covenants, the provisions regarding non-solicitation of competing acquisition proposals, closing conditions and the absence of a financing contingency, termination provisions, termination fees and expense reimbursement provisions, the guarantees and the structure and financing of the proposed transaction. While it was noted by Hogan & Hartson that the merger and arrangement agreements presented by the two remaining bidding parties were similar in many respects, the merger and arrangement agreement submitted by Brookfield Properties and Blackstone, as compared to the merger and arrangement agreement submitted by Company B, included a higher guarantee and a lower termination fee. Hogan & Hartson also discussed the terms of the support agreements that would be entered into by Trizec Canada and an affiliate of Mr. Munk in connection with the transaction. Considerable discussion concerning the proposed transaction and the strengths and weaknesses of the two bids then ensued. JPMorgan rendered its oral opinion, which was later confirmed in writing, to the special committee that, as of June 4, 2006 and based upon and subject to the various considerations and assumptions described therein, the proposed merger consideration to be received by Trizec’s common stockholders (other than Trizec Canada and its controlling shareholders) pursuant to the merger and arrangement agreement submitted by Brookfield Properties and Blackstone was fair, from a financial point of view, to such stockholders. Further discussion of the proposed transaction followed, and after its deliberations, the special committee recommended approving the merger, the merger and arrangement agreement and other transactions contemplated by the merger and arrangement agreement.

 

Trizec’s board of directors then immediately convened a meeting. Mr. Munk did not participate in this meeting. JPMorgan rendered its oral opinion, which was later confirmed in writing, to Trizec’s board of directors that, as of June 4, 2006 and based upon and subject to the various considerations and assumptions described therein, the proposed merger consideration to be received by Trizec’s common stockholders (other than Trizec Canada and its controlling shareholders) pursuant to the merger and arrangement agreement submitted by Brookfield Properties and Blackstone was fair, from a financial point of view, to such stockholders. Trizec’s board of directors then, upon the recommendation of the special committee, approved the merger, the merger and arrangement agreement and the other transactions contemplated by the merger and arrangement agreement, and declared the merger, the merger and arrangement agreement and the other transactions contemplated by the merger and arrangement agreement advisable, fair to and in the best interests of Trizec and its stockholders. The principal factors considered by Trizec’s board of directors are described in greater detail under the heading “— Reasons for the Merger.”

 

Trizec Canada’s board of directors (with Mr. Munk recusing himself) reconvened its meeting in the evening of June 4, 2006 for the purpose of discussing the final proposals submitted by Brookfield Properties and Blackstone and Company B. In advance of the meeting, each director received, among other things, the drafts of the merger and arrangement agreements and related documents for each of Brookfield Properties and Blackstone on the one hand and Company B on the other. Representatives of RBC and Davies Ward participated in this meeting and representatives of Morgan Stanley were present for part of the meeting. At the meeting, representatives of Morgan Stanley summarized the final bids submitted by the two remaining bidders and updated Trizec Canada’s board of directors on the negotiations that had taken place over the course of the prior three days since the board’s last meeting.

 

Representatives of Davies Ward reviewed with the members of Trizec Canada’s board of directors their fiduciary duties in the context of the proposals submitted by Brookfield Properties and Blackstone and Company B and summarized in detail for Trizec Canada’s board of directors the principal terms of the merger and arrangement agreements, including the representations and warranties, operating covenants, the provisions regarding non-solicitation of competing acquisition proposals, closing conditions and the absence of a financing contingency, termination provisions, termination fees and expense reimbursement provisions, the guarantees and the structure and financing of the proposed transaction, noting their similarities and distinctions. Specific note was made that the Brookfield Properties and Blackstone proposal included a higher guarantee and a lower termination fee. Representatives of Davies Ward also described for Trizec Canada’s board of directors the ancillary agreements and discussed the proposed support agreements sought from Trizec Canada in connection

with the merger and from P.M. Capital in connection with the arrangement. Considerable discussion concerning the transaction then ensued as to the merits and weaknesses of each proposal. RBC provided a detailed presentation of its financial assessment of the proposals before rendering its oral opinion, which was later confirmed in writing, to Trizec Canada’s board of directors that, as of June 4, 2006 and based upon and subject to the factors and assumptions set forth therein, RBC was of the opinion that the price of $30.97 per share for the outstanding shares of Trizec Canada offered in the arrangement proposed by Brookfield Properties was fair from a financial point of view to Trizec Canada’s shareholders. Trizec Canada’s board of directors, among other things, approved the merger and arrangement agreement and recommended that the arrangement be approved by the holders of shares of Trizec Canada. Trizec Canada’s board of directors also adopted resolutions regarding the payment of discretionary performance related bonuses and the meeting then concluded.

 

In the evening of June 4, 2006, Mr. Callahan made a telephone call to representatives of Company B to inform Company B that Trizec and Trizec Canada would not seek to consummate a transaction with Company B.

 

Through the night of June 4, 2006 and into the morning of June 5, 2006, representatives of Hogan & Hartson and Davies Ward continued to finalize the terms of the merger and arrangement agreement and related documents with Goodwin Procter and Simpson Thacher. Trading in the common stock of Trizec, the subordinate voting shares of Trizec Canada and the common shares of Brookfield Properties did not open initially on the morning of June 5, 2006 pending the execution of the merger and arrangement agreement. On June 5, 2006, the parties executed the merger and arrangement agreement and issued press releases announcing the proposed merger and arrangement.

 

In reaching its decision to approve the merger, the merger agreement and the other transactions contemplated by the merger agreement and to recommend the adoption of the merger agreement to our common stockholders, the special committee and our board of directors consulted with our senior management team, as well as our outside legal and financial advisors, and considered a number of factors, including the following material factors which the special committee and our board of directors viewed as supporting their decision to approve the merger, the merger agreement and the other transactions contemplated by the merger agreement and to recommend adoption of the merger agreement:

 

 

 

 

 

 

Our board of directors also considered the following potentially negative factors in its deliberations concerning the merger agreement and the merger:

 

 

The foregoing discussion of the factors considered by the special committee and our board of directors is not intended to be exhaustive, but rather includes the material factors considered by the special committee and our board of directors. In reaching its decision to approve the merger, the merger agreement and the other transactions contemplated by the merger agreement, neither the special committee nor our board of directors quantified or assigned any relative weights to the factors considered and individual directors may have given different weights to different factors. In the event that the merger is not completed for any reason, we expect to continue to pursue our strategic plans with the intention of delivering further improvement in our financial results and enhanced stockholder value.

 

After careful consideration and upon the recommendation of the special committee, our board of directors (with Mr. Munk recusing himself) has (a) determined that the merger, the merger agreement and the other transactions contemplated by the merger agreement are advisable, fair to and in the best interests of us and our stockholders, and (b) approved the merger, the merger agreement and the other transactions contemplated by the merger agreement. Our board of directors recommends that you vote “FOR” the adoption of the merger agreement.

 

Pursuant to an engagement letter, we retained JPMorgan as our financial advisor in connection with the proposed mergers.

 

At the meetings of the special committee and our board of directors on June 4, 2006, JPMorgan rendered its oral opinion, subsequently confirmed in writing, to the special committee and our board of directors that, as of such date and based upon and subject to the various considerations and assumptions described in the opinion, the merger consideration to be received by (i) the holders of our common stock, other than Trizec Canada and its controlling shareholders, in the proposed merger involving Trizec was fair, from a financial point of view, to such holders, and (ii) the holders of Class B common units of our operating company, other than us and our subsidiaries, in the proposed merger involving our operating company was fair, from a financial point of view, to such holders (assuming all such holders elected to redeem their redeemable preferred units and receive the cash consideration). No limitations were imposed by the special committee or our board of directors upon JPMorgan with respect to the investigations made or procedures followed by it in rendering its opinion.

 

The full text of the written opinion of JPMorgan, dated June 4, 2006, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limits on the opinion and the review undertaken in connection with rendering the opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference. You are urged to read the opinion in its entirety.

 

JPMorgan’s written opinion is addressed to the special committee and our board of directors in connection with, and for the purposes of, their evaluation of the mergers and JPMorgan’s opinion does not constitute a recommendation to our stockholders as to how such stockholders should vote with respect to the mergers or any other matter. The summary of JPMorgan’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of such opinion.

 

In arriving at its opinion, JPMorgan undertook a number of investigations and analyses, including, but not limited to, the following:

 

 

JPMorgan also held discussions with certain members of our management with respect to certain aspects of the mergers and our past and current business operations, our financial condition, results of operations and future prospects and operations, and certain other matters JPMorgan believed necessary or appropriate to its inquiry. In giving its opinion, JPMorgan relied upon and assumed, without assuming responsibility or liability for independent verification of the accuracy and completeness of all information that was publicly available or that was furnished to or discussed with JPMorgan by us or otherwise reviewed by or for JPMorgan. JPMorgan did not conduct and was not provided with any valuation or appraisal of our individual assets or liabilities, nor did JPMorgan evaluate our solvency or that of MergerCo under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to it,

JPMorgan assumed that such analyses and forecasts were reasonably prepared based on assumptions reflecting the best currently available estimates and judgments by our management as to the expected future results of our operations and financial condition to which such analyses or forecasts relate. JPMorgan expressed no view as to such analyses or forecasts or the assumptions on which they were based. We do not publicly disclose internal management projections of the type provided to JPMorgan in connection with its analysis of the mergers, and such projections were not prepared with a view toward public disclosure. These projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of our management, including, without limitation, factors relating to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such projections.

 

JPMorgan also assumed that the mergers and the other transactions contemplated by the merger agreement will be consummated as described in the merger agreement, and that the definitive merger agreement would not be different in any material respects from the draft provided to JPMorgan. JPMorgan relied as to all legal matters relevant to rendering its opinion upon the advice of its counsel. JPMorgan further assumed that all material governmental, regulatory or other consents and approvals necessary for the consummation of the mergers will be obtained without any adverse effect on us.

 

JPMorgan’s opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to JPMorgan as of, June 4, 2006. It should be understood that subsequent developments may affect JPMorgan’s opinion and that JPMorgan does not have any obligation to update, revise or reaffirm its opinion. JPMorgan’s opinion is limited to the fairness, from a financial point of view, of the merger consideration to be received by (i) the holders of our common shares, other than Trizec Canada and its controlling shareholders, in the proposed merger involving Trizec, and (ii) the holders of Class B common units of our operating company (assuming all such holders elected to redeem their preferred units and receive the cash consideration), other than us and our subsidiaries, in the proposed merger involving the operating company. JPMorgan expressed no opinion as to the fairness of the mergers to, or any consideration of, the holders of any other class of securities, creditors or other constituencies of us or our operating company or as to the underlying decision by us and our operating company to engage in the mergers. JPMorgan’s opinion did not address the relative merits of the mergers or other actions contemplated by the merger agreement compared with other business strategies or transactions that may have been considered by our management, our board of directors or any of its committees.

 

In accordance with customary investment banking practice, JPMorgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses utilized by JPMorgan in connection with providing its opinion. In calculating per share values, JPMorgan assumed outstanding common units had been converted into or redeemed for shares of common stock in accordance with the existing terms of such common units, unless otherwise indicated.

 

Share Trading History Analysis.  JPMorgan reviewed the publicly available historical trading prices for our common stock, as reported by SNL Financial and Bloomberg L.P., and noted that over the 12-month period ended June 2, 2006, the low price was $19.70 per share and the high price was $26.39 per share, which also represents the all-time high share price for our common stock since the commencement of trading on the New York Stock Exchange on May 8, 2002 and prior to June 2, 2006.

 

The value of cash consideration of $29.01 per share represents an approximate 17.9% premium over the closing price per share of our common stock of $24.60 on June 2, 2006.

 

Comparable Public Companies Analysis.  Using publicly available information, JPMorgan compared our selected financial data with similar data for selected publicly traded companies engaged in businesses which JPMorgan judged to be analogous to ours. The companies selected by JPMorgan were:

 

 

These companies were selected, among other reasons, because of their specialization in the office REIT sector, geographic location, asset quality, market capitalization and capital structure. None of the companies utilized in the analysis, however, were identical to us. Accordingly, a complete analysis of the results of the following calculations cannot be limited to a quantitative review of such results and involves complex considerations and judgments concerning the differences in the financial and operating characteristics of the comparable companies and other factors that could affect the public trading value of the comparable companies, as well as our potential trading value.

 

JPMorgan analyzed publicly available financial performance data for the comparable companies listed above. JPMorgan calculated the multiples of current share price as of June 2, 2006 to equity analysts’ estimates for 2007 consensus funds from operations, referred to in this proxy statement as “FFO,” as reported by I/B/E/S, for each of the comparable companies to determine the estimated 2007 FFO trading multiples. Based on its judgment, JPMorgan selected a range of 2007 FFO multiples of 15.0x to 17.0x. The selected multiples were then applied to the company’s 2007 FFO estimates, based on management’s projections, yielding implied trading values for the common stock for the 2007 estimate of approximately $25.20 to $28.56 per share.

Precedent Transactions Analysis.  Using publicly available information, JPMorgan examined selected transactions within both our industry segment and the overall REIT industry. Specifically, JPMorgan reviewed the following transactions:

 

 

JPMorgan selected these precedent transactions because these precedent transactions were recent deals in similar industry sectors and had other relevant similarities for comparison, including equity and total market capitalization, property characteristics and asset quality and portfolio size. Based on its judgment, JPMorgan selected a range of one-year forward FFO multiples of 15.5x to 17.5x per share. JPMorgan applied the range of multiples derived from such analysis to our management’s 2007 FFO per share estimate. JPMorgan discounted the implied equity values resulting from this analysis by one year using an estimated equity cost of capital of 9.0% and arrived at an implied range of equity values for the common stock of $23.89 to $26.97 per share.

 

Dividend Discount Model Analysis.  JPMorgan performed a dividend discount analysis for us based upon projections and assumptions provided by our management for projected FFO per share and projected annual dividend payouts per share for the quarter ending December 31, 2006 and the years ending December 31, 2007 to December 31, 2010. Under the dividend discount model methodology, implied equity values are determined by discounting dividends per share for the quarter ending December 31, 2006 and the years 2007 through 2010 using discount rates reflecting an expected equity total return. JPMorgan calculated a range of terminal values of Trizec at the end of 2010 by applying a perpetual growth rate ranging from 3.5% to 4.5% to the projected dividend of the company in 2010. The projected annual dividends and range of terminal values were then discounted to present values using a range of discount rates from 8.5% to 9.5%. JPMorgan selected these ranges of discount rates and perpetual growth rates based on JPMorgan’s estimate of expected investor total returns, discussions with our management as well as other qualitative factors, such as characteristics of our properties and asset class. The present value of the dividends and the range of terminal

values per share were added together to determine an estimated range of equity values for the common stock of $18.23 to $26.74 per share.

 

Adjusted NAV Per Share Analysis.  Using information provided by our management, JPMorgan calculated the adjusted net asset value, referred to in this proxy statement as “NAV,” per share. For this analysis, JPMorgan applied a range of blended capitalization rates from 6.07% to 6.57% to our management’s projected 2006 net operating income, as adjusted to include full-year pro forma net operating income for our acquisition of certain assets from Arden Realty, Inc. in May 2006, and to exclude certain corporate adjustments. To this result, JPMorgan added the value of our other assets, including our interest in joint ventures and other assets in order to determine gross asset value. From gross asset value, JPMorgan deducted our outstanding mortgages and other debt and our other liabilities to arrive at adjusted NAV. The adjusted NAV per share was then calculated by dividing adjusted NAV by the number of shares of common stock outstanding on a fully diluted basis. This analysis indicated an implied range for the price of our common stock of $24.98 to $29.12 per share. The capitalization rates used in the adjusted NAV per share analysis were derived from historical data for comparable asset sales from published sources, discussions with our management and real estate brokers, and an evaluation of market data from various market data services. The capitalization rates were adjusted to account for current market conditions and property specific circumstances within the asset portfolio. JPMorgan made certain adjustments in its calculation of adjusted NAV that JPMorgan deemed necessary, taking into account discussions with our management regarding our properties and co-investments.

 

The summary set forth above does not purport to be a complete description of the analyses or data presented by JPMorgan, but describes in summary form JPMorgan’s material analyses in connection with its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. JPMorgan believes that the summary set forth above and its analyses must be considered as a whole and that selecting portions thereof, without considering all of its analyses, could create an incomplete view of the processes underlying its analyses and the opinion. JPMorgan based its analyses on assumptions that it deemed reasonable, including assumptions concerning general business and economic conditions and industry-specific factors. The other principal assumptions upon which JPMorgan based its analyses are set forth above under the description of each such analysis. JPMorgan’s analyses are not necessarily indicative of actual values or actual future results that might be achieved, which values may be higher or lower than those indicated. Moreover, JPMorgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold.

 

As a part of its investment banking business, JPMorgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. JPMorgan was selected to advise us with respect to the mergers and deliver an opinion to the special committee and our board of directors with respect to the mergers on the basis of such experience and its familiarity with Trizec.

 

JPMorgan has acted as a financial advisor to us with respect to the proposed mergers and will receive a fee of approximately $10 million from us for its services only if the proposed mergers are consummated. In addition, we have agreed to reimburse JPMorgan for its expenses incurred in connection with its services, and will indemnify JPMorgan for certain liabilities arising out of its engagement.

 

JPMorgan and its affiliates have provided financial advisory services and other investment banking services to us over the past two years for which they have received aggregate fees of approximately $2.1 million, including acting as co-documentation agent on our $750.0 million unsecured credit facility, lender on our $381.0 million commercial mortgage-backed securities refinancing of the Grace Building in New York and lender on the $219.0 million refinancing of the World Apparel Center. In the ordinary course of business, JPMorgan and its affiliates may actively trade our debt and equity securities for their own account or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities.

 

In connection with the mergers, Parent will cause approximately $3.0 billion to be paid to our stockholders (other than Trizec Canada, its subsidiaries, Parent and affiliates of Parent), the members of our operating company (assuming none of the members of our operating company elect to receive preferred units or continuing common units in the surviving operating company in lieu of redeeming their redeemable preferred units for cash consideration) and the holders of our outstanding stock options, restricted stock, restricted stock units and rights, deferred restricted stock units and rights and warrants. These payments are expected to be funded by a combination of equity contributions to Parent and debt financing. Our revolving credit facility and our bridge loan will also be repaid and our mortgage loan agreements, secured debt and letters of credit will be repaid or remain outstanding. As of March 31, 2006, we had an aggregate of approximately $2.1 billion of outstanding indebtedness under our revolving credit facility, mortgage loan agreements, secured debt and letters of credit.

 

In connection with the execution and delivery of the merger agreement, Parent obtained a debt commitment letter from Merrill Lynch providing for a commitment of debt financing in an aggregate principal amount of up to $3.6 billion provided, that if additional Trizec properties are financed under the debt commitment letter, the amount of the commitment will be increased by 75% of the allocated values of such properties. Merrill Lynch has been joined in its commitment by Bear Stearns Commercial Mortgage, Inc., Morgan Stanley Mortgage Capital Inc., Deutsche Bank Securities, Inc.’s affiliate German American Capital Corporation and Royal Bank of Canada. In addition to the payment of the common stock merger consideration, the funds to be borrowed pursuant to the debt commitment letter will be used for purposes such as reserves, refinancing some of our existing debt, and for other costs and expenses related to the mergers. The funds to be borrowed under the debt commitment letter are to be secured by, among other things, a first priority mortgage lien on certain office complexes which are wholly owned or ground leased by us and certain other collateral required by the lenders.

 

The debt commitment letter terminates on December 31, 2006, unless extended, in accordance with the debt commitment letter and is conditioned on the completion of the mergers and other customary conditions. The lenders have the right to terminate the debt commitment letter under certain circumstances, including if Parent is entitled to terminate the merger agreement due to a breach of certain representations and warranties by us or Trizec Canada or a material adverse effect with respect to us or Trizec Canada.

 

The merger agreement does not contain a financing condition. Under the terms of the merger agreement, Parent has agreed to use its reasonable best efforts to arrange its debt financing on the terms and conditions described in the debt commitment letter. In the event that any portion of Parent’s debt financing becomes unavailable on the terms and conditions contemplated in the debt commitment letter, Parent is obligated to use its reasonable best efforts to obtain that portion from alternative sources. Parent is obligated to keep us informed of the status of its efforts to arrange debt financing and to give us prompt notice of any material breach by any party of the debt commitment letter or of any termination of the debt commitment letter. Before it permits any material amendment or modification to be made to, or any waiver of any material provision or remedy under, the debt commitment letter which would or would be reasonably expected to materially and adversely affect or delay in any material respect Parent’s ability to consummate the mergers, Parent must first obtain our written consent. With certain exceptions, we have agreed to provide, and to cause our and our subsidiaries’ and our and their representatives to provide, all reasonable cooperation in connection with the arrangement of the debt financing as may be reasonably requested by Parent.

 

If all other closing conditions have been satisfied or waived but Parent fails to obtain adequate financing to complete the mergers, such failure will constitute a breach of its covenants under the merger agreement. In that event, so long as we, our operating company and Trizec Canada are not in material breach of each of our respective obligations under the merger agreement, we and Trizec Canada would be entitled to terminate the merger agreement and receive from Parent an amount equal to all reasonable expenses incurred by us and Trizec Canada in connection with the proposed transactions, up to $15.5 million for us and $9.5 million for Trizec Canada. In addition, we may take legal action against Brookfield Properties to seek damages of up to a maximum of $1.1 billion less the amount of any actual expense reimbursements that we have received under a guarantee provided by Brookfield Properties of such amount.

 

In connection with the merger agreement, Brookfield Properties has agreed unconditionally to guarantee the prompt and complete payment when due of the payment obligations and the timely performance when required of all other obligations of Parent, MergerCo and AcquisitionCo that arise under the merger agreement, in an amount, in the aggregate not to exceed, $1.1 billion. The guarantee is not subject to an escrow of any funds supporting it and will terminate on the earlier of (a) the closing of the merger and payment of all obligations due by the Parent, MergerCo and AcquisitionCo under the merger agreement at such time, or (b) termination of the merger agreement by mutual written consent.

 

We cannot seek specific performance to require the Buyer Parties to complete the mergers, and our exclusive remedy for the failure of the Buyer Parties to complete the mergers is to seek damages up to the amount of the $1.1 billion guarantee.

 

Our directors and executive officers may have interests in the merger and the arrangement that are different from, or in addition to, yours. These potentially differing interests are described below.

 

Stock Options, Restricted Stock, Restricted Stock Units and Rights, Deferred Restricted Stock Units and Rights, Warrants and OPP Awards

 

As of the record date, there were approximately 1,866,041 shares of our common stock subject to stock options, of which approximately 4,800 were unvested, approximately 944,538 unvested restricted stock units and rights, and approximately 299,936 deferred restricted stock units and rights were granted to our directors and executive officers under our equity award plans. In addition, as of the record date, there were approximately 1,260,042 shares of our common stock subject to warrants, all of which were exercisable as of the record date, beneficially owned by our directors and executive officers.

 

Under the terms of the merger agreement, immediately prior to the merger effective time, all of our outstanding stock options, restricted stock units and rights, and deferred restricted stock units and rights, including those held by our directors and executive officers, whether or not exercisable, payable or vested, as the case may be, will become fully exercisable, payable or vested, as the case may be, and, in the case of restricted stock units and rights and deferred restricted stock units and rights, free of any forfeiture restrictions. Specifically, under the merger agreement:

 

 

 

In addition, in accordance with the terms of the OPP, shares of restricted common stock will be awarded under the OPP to participants, including our executive officers, based on the requisite performance criteria for the period beginning on October 20, 2004 and ending on the date of the merger agreement having been attained. Such shares of restricted common stock will be awarded to our executive officers immediately prior

to the closing of the merger (and contingent on the consummation of the merger), will become fully vested and free of any forfeiture restrictions immediately prior to the merger effective time and will be considered outstanding shares of common stock for purposes of the merger agreement, including the right to receive the common stock merger consideration. The number of shares of restricted common stock that will be issued to each of our executive officers has been calculated by dividing the dollar value allocated to each such executive officer under the OPP at its adoption by the dollar value of the transaction consideration per share of common stock payable in connection with the proposed merger, or $29.01 in the case of the merger. None of our non-employee directors participates in the OPP.

 

The following table sets forth:

 

 

 

For the purposes of this table, we have assumed that the amount of the common stock merger consideration is $29.01 per share and have excluded the additional cash amount that represents a pro rata portion of the regular quarterly dividend payable on the common stock and allocable to the quarter in which the merger closes since it is not determinable at this time. The actual amount will differ depending on the date of the closing of the merger.

 

 

 

 

 

 

Change in Control Severance Benefits and Retention Payments

 

Severance Benefits for Timothy H. Callahan

 

Pursuant to the terms of Mr. Callahan’s employment agreement, if we terminate him without “cause” or he resigns with “good reason” (as each term is defined in his employment agreement), at any time within six months prior to, or within two years following the merger, he will be entitled to receive an aggregate lump sum payment, within 15 business days after such termination or resignation, equal to the sum of (a) any unpaid base salary through the date of such termination or resignation, (b) earned but unpaid annual incentive bonus for a previously completed fiscal year, (c) reimbursement for any unreimbursed business expenses incurred prior to the date of termination or resignation, (d) payment for vacation time accrued as of the date of termination or resignation, (e) any other amounts or benefits that are required to be paid or provided by law or under any plan, program, policy or practice of Trizec, and (f) an annual incentive bonus for the fiscal year in which his termination or resignation occurs, prorated over the number of days employed during such fiscal year and based on the average of the annual incentive bonuses paid to Mr. Callahan during the immediately preceding two fiscal years, which we refer to as the “average bonus.” In addition, Mr. Callahan is entitled to receive (x) three times the sum of his base salary (at the rate in effect on the date of Mr. Callahan’s termination or resignation) and the average bonus, which payment is required to be made in a lump sum cash payment within 15 business days after such date of termination or resignation and (y) continued participation under our medical insurance plans and programs as in effect for senior executive officers for a period of three years following the date of Mr. Callahan’s termination or resignation or until such date as Mr. Callahan becomes eligible to participate in the plans of a subsequent employer. Additionally, pursuant to an award made by the compensation committee of our board of directors, Mr. Callahan is entitled to receive the value of the stock incentive award accrued to him through the date of termination, to the extent not yet paid. This amount was originally intended to be awarded to him by our board of directors when it adopted the severance plan. We also will make an additional tax gross-up payment to Mr. Callahan if any payment or benefit made or provided to him in connection with a change in control would be subject to the excise tax imposed under Section 4999 of the Code.

 

Severance Benefits for Our Other Executive Officers Under the Trizec Properties, Inc. Change in Control Severance Pay Plan

 

Under the terms of our severance plan, Messrs. Colleran, Lipson, Tresham and Jadwin are entitled to severance payments if they are terminated or if they are constructively terminated within one year following the consummation of the merger. In the case of Messrs. Colleran, Lipson and Tresham, each such officer will be entitled to receive a severance payment equal to two times the sum of (a) such officer’s annual base salary and (b) the greater of such officer’s 2005 annual bonus paid or 2006 target bonus. In the case of Mr. Jadwin, he will be entitled to receive a severance payment equal to one times the sum of (x) his annual base salary and (y) the greater of his 2005 annual bonus paid or 2006 target bonus. In addition, each such officer will be entitled to receive (i) professional outplacement services as selected by us consistent with such officer’s duties

or profession and of a type and level customary for his position, (ii) continued benefits under our health plans for two years in the case of Messrs. Colleran, Lipson and Tresham and one year in the case of Mr. Jadwin, (iii) a pro rata annual bonus (with respect to the greater of such officer’s 2005 annual bonus paid or 2006 target bonus), based on the number of days the officer was employed during the fiscal year in which his employment is terminated, (iv) the value of the stock incentive awards accrued to the officer through the date of termination, to the extent not yet paid, (v) any accrued but unpaid vacation pay, (vi) the officer’s annual base salary through the date of termination to the extent not yet paid, (vii) any compensation previously deferred by the officer (together with any accrued interest or earnings thereon), and (viii) any other amounts or benefits required to be paid or provided or which the officer is entitled to receive under any plan, program, policy, practice, contract or agreement of Trizec and its subsidiaries. Furthermore, the severance plan provides for an additional tax-gross up payment to be made if any payments made or benefits provided in connection with the merger would be subject to the excise tax imposed by Section 4999 of the Code. The severance plan benefits described here are in lieu of the severance benefits that Messrs. Colleran, Lipson, Tresham and Jadwin are entitled to under their respective employment agreements.

 

Retention Bonus Program

 

Under the terms of our retention plan, a retention bonus based on each employee’s years of service and weekly base salary amount is payable to each active, exempt professional employee or non-union, active hourly employee who continues to be actively employed with our successor for the 90-day period following the date of closing of the merger. If an eligible employee is terminated prior to the end of this 90-day period under circumstances that would entitle him or her to a severance benefit under the severance plan (described above), he or she will be paid the retention bonus within ten business days of termination of employment. If the eligible employee resigns or is terminated before the end of this 90-day period under circumstances that do not entitle him or her to severance benefits under the severance plan, he or she will not be paid any retention bonus. Different payment schedules apply for eligible professional and hourly employees.

 

As eligible professional employees, each of Messrs. Callahan, Colleran, Lipson, Tresham and Jadwin is entitled to receive a lump sum retention bonus amount if he remains actively employed by our successor on the 90th day following the closing date of the merger (or, if the merger does not occur, if he remains employed by the Company on June 1, 2007), or if he is terminated without “cause” or resigns for “good reason” (as such terms are defined for purposes of the severance plan) prior to such date. Their retention bonus amounts shall be calculated as follows: (i) if the executive has less than three years of service, three weeks of base salary plus two weeks of base salary per year of service; (ii) if the executive has at least three years of service but less than seven years, seven weeks of base salary plus two weeks of base salary per year of service; (iii) if the executive has at least seven years of service but less than ten years, nine weeks of base salary plus two weeks of base salary per year of service; or (iv) if the executive has ten or more years of service, 11 weeks of base salary plus two weeks of base salary per year of service. For purposes of this retention bonus calculation, “years of service” means the employee’s most recent continuous years and fractional years of service with us and our subsidiaries. Any fractional year of service will be rounded to the nearest month.

 

The following table sets forth an estimate of the potential cash severance payments that could be payable as described above in the event our executive officers become entitled to such severance amounts pursuant to their employment agreements and/or the severance plan (described above) following the merger (assuming for illustrative purposes that the executive officer’s employment is terminated on September 30, 2006 and utilizing current base salaries and the bonus compensation amounts provided for in the agreements). In addition, the following table sets forth the estimated tax “gross-up” payment (described above), if applicable, that may be paid to our executive officers and potential retention bonus payments that could be payable to our executive officers assuming that each of our executive officers remains employed with us through September 30, 2006.

The table does not include an amount referable to the value of the continued health and welfare benefits to be received by the executive officers, which aggregate amount is estimated to be $180,000.

 

 

 

 

Operating Company Units

 

None of our directors and executive officers owns any operating company units. As a result, they will not receive any consideration in connection with the operating company merger.

 

Interests of Our Directors and Executive Officers in the Arrangement

 

In connection with the arrangement, the shareholders of Trizec Canada will receive, with respect to each multiple voting share or subordinate voting share of Trizec Canada that they own, the Trizec Canada arrangement consideration. We have been advised by Trizec Canada that, on August 3, 2006, PMCI, a Canadian corporation that is wholly owned by Mr. Munk owned 7,522,283 multiple voting shares and 1,972,435 subordinate voting shares of Trizec Canada which as of such date represented approximately 51.9% of the aggregate voting power of the outstanding multiple voting shares and subordinate voting shares that are eligible to be voted at the special meeting of the shareholders of Trizec Canada to consider the arrangement. In addition, we have been advised by Trizec Canada that Mr. Munk owned, as of August 3, 2006, options to purchase 550,000 subordinate voting shares of Trizec Canada. Further, certain of our other directors and two of our executive officers owned, as of the record date, subordinate voting shares and/or options to purchase subordinate voting shares in Trizec Canada.

 

The following table sets forth:

 

 

 

For the purposes of this table, we have assumed that the amount of the Trizec Canada arrangement consideration is $30.97 per share and have excluded the additional cash amount that represents a pro rata portion of the regular quarterly dividend payable on the multiple voting shares and subordinate voting shares and allocable to the quarter in which the arrangement closes since it is not determinable at this time. The actual amount will differ depending on the date of the closing of the arrangement.

 

 

 

 

The merger agreement provides that for a period of at least six years after the merger effective time, the organizational documents of the surviving corporation will contain indemnification provisions that are no less favorable than the indemnification provisions in our existing charter and bylaws, and that those provisions will not be modified during that period in any manner that would affect adversely the rights of any person who at or prior to the merger effective time were our or our subsidiaries’ directors, officers, trustees, employees, agents, or fiduciaries or fiduciaries with respect to any of our or our subsidiaries’ employee benefit plans, except as required by law and then only to the minimum extent required by law.

 

Parent and the surviving corporation have agreed to indemnify, to the fullest extent permitted by applicable laws, persons who were at the date of the merger agreement or during the period between the signing of the merger agreement and the closing date serving as a director, officer or trustee, or as a fiduciary under or with respect to any of our or our subsidiaries’ employee benefit plans, with respect to any legal action, suit or proceeding, or any inquiry or investigation arising out of or relating to such service occurring at or prior to the merger effective time and, subject to certain conditions, shall pay or advance related reasonable legal fees, costs, obligations and expenses incurred by them.

 

The merger agreement requires that, with respect to claims arising from facts or events that occurred on or prior to the merger effective time, the surviving corporation maintain in effect, for a period of at least six years after the merger effective time, our and our subsidiaries’ current directors’ and officers’ liability insurance policies; provided, however, that the surviving corporation may instead substitute policies of at least the same coverage and amounts containing terms and conditions which are, in the aggregate, no less advantageous to the insured. This requirement is subject to a maximum cost per year of coverage of 300% of the annual premiums we paid for such insurance prior to the date we signed the merger agreement. If the cost per year of insurance coverage exceeds such maximum amount, the surviving corporation must obtain as much comparable insurance as possible for an annual premium equal to 300% of the annual premiums we paid prior to the date we signed the merger agreement.

Parent and MergerCo have agreed that all rights to indemnification and exculpation from liabilities for acts or omissions occurring at or prior to the merger effective time now existing in favor of the current or former directors, officers, trustees, employees, agents or fiduciaries of us or our subsidiaries as provided in our existing charter and bylaws (or, as applicable, the charter, bylaws, partnership agreement, limited liability company agreement or other organizational documents of any of our subsidiaries) and certain indemnification agreements of us or our subsidiaries will be assumed by the surviving corporation and will continue in full force and effect.

 

The merger agreement provides that Parent shall have the right to participate in the defense or settlement of any stockholder or member litigation against us, our directors or officers, or the operating company relating to the mergers or the other transactions contemplated by the merger agreement; provided, however, that no such settlement will be agreed to without Parent’s consent, which consent will not be unreasonably withheld.

 

The obligations described above regarding directors’ and officers’ indemnification, and directors’ and officers’ liability insurance must be assumed by any successor entity to the surviving corporation as a result of any consolidation, merger or transfer of all or substantially all of its properties and assets.

 

Concurrently with the execution of the merger agreement, Trizec Canada entered into the Trizec voting agreement with Parent and MergerCo pursuant to which Trizec Canada has agreed to vote or cause to be voted all of the shares of our common stock that Trizec Canada and its subsidiaries own (including any shares of our common stock that may be acquired after the date of the merger agreement) for the adoption of the merger agreement, subject to the terms and conditions contained in the Trizec voting agreement. As of the record date, Trizec Canada and its subsidiaries owned 59,922,379 shares of our common stock, entitling them to exercise approximately 38.1% of the aggregate voting power of our common stock entitled to vote at the special meeting.

 

In addition, PMCI, a corporation that is wholly owned by Mr. Munk and through which Mr. Munk owns multiple voting shares and subordinate voting shares of Trizec Canada, has entered into the Trizec Canada voting agreement with Parent and AcquisitionCo pursuant to which PMCI has agreed to vote all shares that it owns (including any shares that may be acquired by PMCI after the date of the merger agreement) for the arrangement, subject to the terms and conditions contained in the Trizec Canada voting agreement. We have been advised by Trizec Canada that on August 3, 2006, PMCI owned 7,522,283 multiple voting shares and 1,972,435 subordinate voting shares of Trizec Canada which as of such date represented approximately 51.9% of the aggregate voting power of the outstanding multiple voting shares and subordinate voting shares that are eligible to be voted at the special meeting of the shareholders of Trizec Canada to consider the arrangement. Under the Trizec Canada voting agreement, PMCI will covenant on closing of the arrangement not to acquire, directly or indirectly, shares of Trizec Canada, AcquisitionCo, Brookfield Properties or Brookfield Asset Management Inc. other than pursuant to or as contemplated by the arrangement or as otherwise contemplated by the transaction under such voting agreement for a period of 12 months following the closing of the arrangement. The covenants in the Trizec Canada voting agreement are subject to the ability of PMCI to convert into subordinate voting shares and transfer up to 3.0 million multiple voting shares of Trizec Canada held by PMCI. In addition, pursuant to the voting trust agreement, PMCI agreed not to vote more than the number of multiple voting shares which in the aggregate represent a simple majority of all votes entitled to be cast on a matter by all holders of voting securities of Trizec Canada.

 

The HSR Act provides that transactions such as the merger may not be completed until certain information has been submitted to the Federal Trade Commission and the Antitrust Division and certain waiting period requirements have been satisfied. On July 21, 2006, entities and individuals who are deemed to control Trizec and Brookfield Properties under the HSR Act and related regulations each filed a Notification and Report Form with the Antitrust Division and the Federal Trade Commission and requested an early termination of the waiting period. Early termination was granted by the relevant authorities on July 28, 2006.

 

The Competition Act provides that transactions that exceed certain financial thresholds, such as the arrangement, will require prior notice to the Commissioner of Competition unless the Commissioner of

Competition issues an advance ruling certificate or the applicable statutory waiting period expires. Brookfield Properties filed a request for an advance ruling certificate with the Commissioner of Competition on July 27, 2006 and received such certificate on August 2, 2006.

 

Other than the HSR Act and Competition Act filings, we are unaware of any other material federal, state or foreign regulatory requirements or approvals that are required for the execution of the merger agreement or the completion of either of the mergers, other than the filing of a certificate of merger by each of us and our operating company with the Secretary of State of the State of Delaware. However, the completion of the mergers is conditioned upon, among other things, the filing of the plan of arrangement by Trizec Canada relating to the arrangement with the Ontario Superior Court of Justice, approval and issuance of a final order by such court approving the arrangement and the transactions contemplated by the plan of arrangement, and sending to the director appointed under the Canada Business Corporations Act, for endorsement and filing by such director, the articles of arrangement and such other documents as may be required under the Canada Business Corporations Act to give effect to the arrangement.

 

Under the terms of the merger agreement, us, our operating company, Trizec Canada and the Buyer Parties have agreed to make promptly their respective filings and any other required submissions under the HSR Act with respect to the merger, and under the Competition Act with respect to the merger and the arrangement. In addition, us, our operating company, Trizec Canada and the Buyer Parties have agreed to use their reasonable best efforts to take all appropriate actions and do all things necessary, proper or advisable under applicable laws of the United States and Canada to consummate and make effective the merger and the arrangement as promptly as practicable, including using their reasonable best efforts to obtain all permits, consents, approvals, authorizations, qualifications and orders of governmental authorities as are necessary for the consummation of the transactions contemplated by the merger agreement and to fulfill conditions to the merger and the arrangement as promptly as practicable.

 

Litigation Relating to the Mergers

 

On June 6, 2006, two substantially identical purported stockholder class action lawsuits related to the merger agreement were filed by the same counsel in the Circuit Court of Cook County, Illinois, Doris Staehr v. Trizec Properties, et al. (Case No. 06CH11226) and Hubert Van Gent v. Trizec Properties, et al. (Case No. 06CH11571), naming us and each of our directors as defendants. The lawsuits allege, among other things, that our directors were conflicted, unjustly enriched, and engaged in self-dealing, and violated their fiduciary duties to our stockholders in approving the merger, the merger agreement and the other transactions contemplated by the merger agreement.

 

The lawsuits seek to enjoin the completion of the merger and the related transactions. Additionally, among other things, the lawsuits seek class action status, rescission of, to the extent already implemented, the merger, voting agreements, and the termination fees, and costs and disbursements incurred in connection with the lawsuits, including attorneys’ and experts’ fees. We intend to vigorously defend the actions. However, even if these lawsuits are determined to be without merit, they may potentially delay or, if the delay is substantial enough to prevent the consummation of the mergers by December 31, 2006, potentially prevent the closing of the mergers.

 

The following is a summary of the material United States federal income tax consequences of the merger to holders of our common stock whose shares are surrendered in the merger and who receive the common stock merger consideration. This summary is based on current law, is for general information only and is not tax advice. This summary is based on the Code, applicable Treasury Regulations, and administrative and judicial interpretations thereof, each as in effect as of the date hereof, all of which are subject to change or different interpretations, possibly with retroactive effect. We have not requested, and do not plan to request, any rulings from the Internal Revenue Service, or the “IRS,” concerning our tax treatment or the tax treatment of the merger, and the statements in this proxy are not binding on the IRS or any court. We can provide no assurance that the tax consequences contained in this discussion will not be challenged by the IRS, or if challenged, will be sustained by a court.

This summary assumes that our common stock is held as a capital asset within the meaning of Section 1221 of the Code and does not address all aspects of taxation that may be relevant to particular holders in light of their personal investment or tax circumstances or to persons that are subject to special tax rules and does not address the tax consequences of the merger to holders of stock options, restricted stock units, restricted stock awards, deferred restricted stock units or rights. In addition, this summary does not address the tax treatment of special classes of holders of our common stock, including, for example:

 

 

This summary also does not discuss any state, local, foreign or other tax considerations that may be relevant to any person.

 

If any entity that is treated as a partnership for United States federal tax purposes holds shares of our common stock, the tax treatment of its partners or members generally will depend upon the status of the partner or member and the activities of the entity. If you are a partner of a partnership or a member of a limited liability company or other entity classified as a partnership for United States federal tax purposes and that entity is holding our common stock, you should consult your tax advisor.

 

For purposes of this section, a “U.S. holder” means a beneficial owner of shares of our common stock that is for United States federal income tax purposes one of the following:

 

 

As used in this section, a “non-U.S. holder” means a beneficial owner of shares of our common stock that is an individual, corporation, estate or trust that is not a U.S. holder as described in the bullets above. Because our certificate of incorporation effectively prohibits the ownership of our common stock by non-U.S. holders, other than by Trizec Canada and its subsidiaries, we assume that no such non-U.S. holders own any of our common stock and thus no summary of the U.S. federal income tax consequences of the mergers to such holders is provided.

Consequences of the Merger to U.S. Holders of Our Common Stock

 

General.  The receipt of cash by U.S. holders as a result of the merger will be a taxable transaction for United States federal income tax purposes (and also may be a taxable transaction under applicable state, local and foreign income and other tax laws). In general, a U.S. holder of our common stock will recognize gain or loss for United States federal income tax purposes equal to the difference between:

 

 

Gain or loss will be calculated separately for each block of shares, with a block consisting of shares acquired at the same cost in a single transaction. Assuming that the shares constitute capital assets in the hands of the U.S. holder, this gain or loss will be capital gain or loss and will be long-term capital gain or loss if at the time of the merger the shares have been held for more than one year. An individual U.S. holder will be subject to tax on net capital gain at a maximum federal income tax rate of 15%. Capital gains of corporate U.S. holders generally are taxable at the regular tax rates applicable to corporations. The deductibility of a capital loss recognized in the exchange is subject to limitations under the Code. In addition, the IRS has the authority to prescribe, but has not yet prescribed, regulations that would apply a tax rate of 25% to a portion of capital gain realized by a noncorporate stockholder on the sale of REIT shares that would correspond to the REIT’s “unrecaptured Section 1250 gain.”

 

As described more fully below under the caption “The Merger Agreement — Treatment of Common Stock, Stock Options, Restricted Stock, Restricted Stock Units and Rights, Deferred Restricted Stock Units and Rights, Warrants and OPP Awards — Common Stock,” each share of our common stock held by holders other than Trizec Canada and its subsidiaries and Parent and AcquisitionCo will be converted into, and canceled in exchange for, one share of redeemable preferred stock of the surviving corporation. Immediately thereafter, the redeemable preferred stock will be redeemed for the right to receive $29.01 in cash plus an additional cash amount that represents the pro rata portion of the regular quarterly dividend payable on our common stock and allocable to the quarter in which the merger closes, in each case without interest and less applicable withholding taxes. Although the matter is not free from doubt, we believe that the issuance of the redeemable preferred stock and its immediate redemption should be treated as transitory steps and disregarded for U.S. federal income tax purposes, and the foregoing summary is based upon that intended characterization. We also believe, however, that even if issuance and immediate redemption of the redeemable preferred stock were not disregarded for U.S. federal income tax purposes, the tax consequences described above generally should apply in the specific circumstances of the proposed transactions for holders of our common stock who will not have a continuing interest in the surviving corporation, directly or indirectly, following consummation of the merger.

 

Special Rule for U.S. Holders Who Have Held Shares Less than Six Months.  A U.S. holder who has held our common stock for six months or less at the merger effective time, taking into account the holding period rules of Section 246(c)(3) and (4) of the Code, and who recognizes a loss on the exchange of our common stock in the merger will be treated as recognizing a long-term capital loss to the extent of any capital gain dividends received from us, or such holder’s share of any designated retained capital gains, with respect to such shares of common stock.

 

Information Reporting and Backup Withholding

 

Backup withholding, presently at a rate of 28%, and information reporting may apply to the cash received pursuant to the exchange of our common stock in the merger. Backup withholding will not apply, however, to a holder who:

 

 

Backup withholding is not an additional tax and any amount withheld under these rules may be credited against the holder’s United States federal income tax liability and may entitle the holder to a refund if required information is timely furnished to the IRS.

THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO THE MERGER AND IS NOT TAX ADVICE. THEREFORE, HOLDERS OF OUR COMMON STOCK ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF UNITED STATES FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS IN THEIR PARTICULAR CIRCUMSTANCES.

If the merger is completed, our common stock will no longer be traded on the New York Stock Exchange and will be deregistered under the Exchange Act.

 

The following summarizes material provisions of the merger agreement, a copy of which (as amended to include amendments 1, 2 and 3 thereto) is attached to this proxy statement as Annex A and which we incorporate by reference into this proxy statement. This summary may not contain all of the information about the merger agreement that is important to you. Therefore, we recommend that you read carefully the merger agreement attached to this proxy statement as Annex A in its entirety, as the rights and obligations of the parties are governed by the express terms of the merger agreement and not by this summary or any other information contained in this proxy statement.

 

The merger agreement contains representations and warranties made by, and to, us, our operating company, Trizec Canada, Parent, MergerCo, AcquisitionCo and Merger Operating Company. These representations and warranties, which are set forth in the merger agreement attached to this proxy statement as Annex A, were made for the purposes of negotiating and entering into the merger agreement between the parties. In addition, these representations and warranties were made as of specified dates, may be subject to standards of materiality different from what may be viewed as material to stockholders, or may have been used for the purpose of allocating risk between the parties instead of establishing such matters as facts. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement.

 

As used in the summary of the material terms of the merger agreement below and elsewhere in this proxy statement, unless the context requires otherwise, references to our “subsidiaries” do not include certain joint venture entities in which we, directly or indirectly, through our subsidiaries own interests.

 

The Arrangement

 

Pursuant to the arrangement, at the arrangement effective time, (a) Trizec Canada will acquire for cancellation Trizec Canada shares held by certifying Trizec Canada shareholders, and (b) an affiliate of Brookfield Properties will acquire all of the Trizec Canada shares (including additional subordinate voting shares to be issued pursuant to a share dividend by Trizec Canada under the arrangement) held by non-certifying Trizec Canada shareholders, in each case for the Trizec Canada arrangement consideration, which is $30.97 per share in cash plus an additional cash amount that represents a pro rata portion of the regular quarterly dividend payable on the shares of Trizec Canada and allocable to the quarter in which the arrangement closes. The $30.97 component of the Trizec Canada arrangement consideration represents $29.01 per share attributable to the shares of our common stock that Trizec Canada and its subsidiaries own, plus an additional $1.96 per share representing the agreed value of Trizec Canada’s net other assets.

 

The Merger

 

Promptly after the arrangement effective time, at the merger effective time, MergerCo will merge with and into Trizec, MergerCo’s separate corporate existence will cease, and we will survive the merger, with Parent owning all of our common stock not owned by Trizec Canada and its subsidiaries. All of our and MergerCo’s properties, assets and liabilities will become those of the surviving corporation. Following the completion of the merger, our common stock will be delisted from the New York Stock Exchange and deregistered under the Exchange Act and will no longer be publicly traded.

 

The Operating Company Merger

 

Immediately after the merger effective time, at the operating company merger effective time, Merger Operating Company will merge with and into our operating company, Merger Operating Company’s separate existence will cease and our operating company will survive the operating company merger and continue to exist with the surviving corporation being the sole managing member of the surviving operating company. All of our operating company’s and Merger Operating Company’s properties, assets and liabilities will become those of the surviving operating company.

 

On the closing date of the merger, Trizec Canada will send to the director appointed under the Canada Business Corporations Act, for endorsement and filing by such director, the articles of arrangement and such other documents as may be required under the Canada Business Corporations Act to give effect to the arrangement. The arrangement effective time will occur effective upon the issuance of a certificate of arrangement and at the time designated as the effective time in the plan of arrangement.

 

Promptly after the arrangement effective time, the merger effective time will occur under all applicable laws upon (a) the time the certificate of merger is executed and filed with the Secretary of State of the State of Delaware or (b) such later time agreed to by the parties to the merger agreement and designated in the certificate of merger. The closing will occur as promptly as practicable, but in no event earlier than the tenth nor later than the twentieth business day after all of the conditions set forth in the merger agreement have been satisfied or waived, unless the parties otherwise agree. In addition, in the event that the final order with respect to the arrangement is appealed, the closing of the merger will occur no earlier than the first business day following the date of such appeal is denied or withdrawn.

 

The operating company merger effective time will occur under applicable law at (a) the time the certificate of merger (relating to the operating company merger) is executed and filed with the Secretary of State of the State of Delaware or (b) such later time agreed to by the parties to the merger agreement and designated in the certificate of merger. It is the intention of the parties that the operating company merger effective time will occur immediately after the merger effective time.

 

Our certificate of incorporation, as amended at the merger effective time (as required by the merger agreement and as set forth on Exhibit F to the merger agreement), will be the certificate of incorporation of the surviving corporation, and our bylaws, as in effect immediately prior to the merger effective time will be the bylaws of the surviving corporation, in each case until amended in accordance with applicable law.

 

The certificate of formation of our operating company, as in effect immediately prior to the operating company merger effective time, will be the certificate of formation of the surviving operating company until amended in accordance with applicable law. The limited liability company operating company agreement of our operating company, as amended at the operating company merger effective time (to the extent required to implement the terms of the redeemable preferred units and as required by the merger agreement, as discussed below), will be the limited liability company operating company agreement of the surviving operating company, until amended in accordance with applicable law.

 

The directors of MergerCo immediately prior to the merger effective time will be the initial directors of the surviving corporation, and the officers of Trizec immediately prior to the merger effective time will be the initial officers of the surviving corporation. The managing member of our operating company immediately prior to the operating company merger effective time will be the managing member of the surviving operating company following the operating company merger effective time.

 

Immediately after the merger effective time, each share of our special voting stock and Class F convertible stock will continue to remain outstanding as a share of special voting stock and Class F convertible stock, respectively, of the surviving corporation.

 

Common Stock

 

At the merger effective time, each share of our common stock issued and outstanding immediately prior to the merger effective time (other than shares held in treasury and shares owned by Trizec Canada, its subsidiaries, Parent and affiliates of Parent, and shares held by stockholders who properly exercise appraisal

rights under Delaware law) will be converted and exchanged into one share of redeemable preferred stock and, immediately after the completion of the merger, each share of redeemable preferred stock will be redeemed, without further action on the part of the holder, for the right to receive cash in the amount of $29.01 per share plus an amount that represents a pro rata portion of the regular quarterly dividend and allocable to the quarter in which the merger closes, without interest and less applicable withholding taxes. The foregoing does not apply to (a) shares held in treasury, by our subsidiaries or MergerCo, which in each case will be automatically canceled and retired and cease to exist with no payment being made with respect thereto, (b) shares of common stock held by Trizec Canada or any of Trizec Canada’s subsidiaries, Parent and AcquisitionCo, which shares will continue to remain outstanding shares of common stock of the surviving corporation, and (c) shares in respect of which appraisal rights have been perfected, which will be treated as described in the section entitled “Dissenters’ Right of Appraisal.”

 

Stock Options, Restricted Stock, Restricted Stock Units and Rights and Deferred Restricted Stock Units and Rights

 

Immediately prior to the merger effective time, all of our outstanding stock options, restricted stock, restricted stock units, restricted stock rights, deferred restricted stock units and deferred restricted stock rights, whether or not exercisable or vested, as the case may be, will become fully vested and exercisable or payable, as the case may be, and, in the case of the restricted stock, restricted stock units, restricted stock rights, deferred restricted stock units, and deferred restricted stock rights, free of forfeiture restrictions. Immediately prior to the merger effective time, as discussed below, all outstanding restricted stock, restricted stock units, restricted stock rights, deferred restricted stock units and deferred restricted stock rights will be considered outstanding shares of our common stock for the purposes of the merger agreement, including the right to receive the common stock merger consideration.

 

Each stock option to purchase shares of our common stock that remains outstanding immediately prior to the merger effective time, whether vested or unvested, will be canceled and converted into the right to receive immediately prior to the merger effective time a single lump sum cash payment, without interest and less applicable withholding taxes, equal to the product of:

 

 

If the exercise price of any stock option is equal to or greater than the common stock merger consideration, such option will be canceled without any cash payment being made in respect thereof. As of the date of this proxy statement, none of our outstanding stock options had an exercise price equal to, or greater than, the common stock merger consideration.

 

Under the terms of the merger agreement, immediately prior to the merger effective time, each share of restricted stock that remains unvested will become fully vested and will be considered an outstanding share of common stock for purposes of the merger agreement, including the right to receive the common stock merger consideration, without interest and less applicable withholding taxes.

 

Under the terms of the merger agreement, immediately prior to the merger effective time, each restricted stock unit, restricted stock right, deferred restricted stock unit and deferred restricted stock right automatically will become fully vested and will be considered outstanding shares of common stock, for purposes of the merger agreement, including the right to receive the common stock merger consideration, without interest and less applicable withholding taxes. The amount of cash payable with respect to stock options, restricted stock, restricted stock units, restricted stock rights, deferred restricted stock units and deferred restricted stock rights, will be reduced by the amount of any applicable taxes required to be withheld. All stock options, restricted stock, restricted stock units, restricted stock rights, deferred restricted stock units and deferred restricted stock rights, will be canceled and all of our stock option plans and employee stock purchase plans will terminate at the merger effective time.

Warrants

 

Immediately prior to the merger effective time, the terms of each outstanding warrant to purchase shares of our common stock will be adjusted to provide that, from and after the merger effective time, each warrant will entitle the holder thereof, upon exercise of such warrant and payment of the exercise price thereof, a single lump sum cash payment, without interest and less applicable withholding taxes, equal to the product of:

 

 

OPP Awards

 

In addition, shares of restricted common stock will be awarded to participants under the OPP in accordance with the terms of the OPP based on the requisite performance criteria in connection with the merger for a performance period from October 20, 2004 and ending on the date of the merger agreement having been attained, which shares of restricted common stock will become fully vested and free of any forfeiture or holding restrictions immediately prior to the merger effective time and will be considered outstanding shares of common stock for purposes of the merger agreement, including the right to receive the common stock merger consideration, without interest and less applicable withholding taxes.

 

In connection with the operating company merger, at the operating company merger effective time, each Class A and Class B operating company unit issued and outstanding immediately prior to the operating company merger effective time (other than units owned directly or indirectly by us) will be converted into, and canceled in exchange for, one fully paid redeemable preferred unit. Prior to the operating company merger, holders of Class B operating company units (in their capacity as holders of redeemable preferred units) will be given an opportunity to elect to (a) redeem each such redeemable preferred unit at any time (including immediately after the operating company merger effective time) in exchange for an amount per unit equal to the common stock merger consideration plus all accrued and unpaid distributions on such preferred units, (b) retain each such redeemable preferred unit or (c) convert each such redeemable preferred unit on a one-for-one basis within 15 days following the completion of the merger into a Class B common unit in the surviving operating company, subject to the terms and conditions of the amended and restated operating agreement of the surviving operating company that will be adopted in connection with the operating company merger. The foregoing does not apply to units held by us or our subsidiaries, which will remain outstanding as units of the surviving operating company.

 

In general, preferred units in the surviving operating company will have the following terms:

 

 

 

 

This proxy statement does not constitute any solicitation of consents in respect of the operating company merger and does not constitute an offer to exchange or convert operating company units that you may own for or into newly issued preferred units or continuing common units in the surviving operating company, as the case may be.

 

At the merger effective time, holders of our common stock will cease to be, and have no rights as, our stockholders, other than the right to receive the common stock merger consideration.

 

On or before the operating company merger effective time, Parent will cause to be deposited the cash in respect of the consideration to be paid to the holders of our common stock, stock options, restricted stock, restricted stock units, restricted stock rights, deferred restricted stock units, deferred restricted stock rights, warrants and operating company units, respectively, with a paying agent selected by us and that is reasonably satisfactory to Parent. Promptly after the merger effective time, Parent and the surviving corporation will cause the paying agent to mail a letter of transmittal and, if applicable, instructions for surrendering certificates for our common stock and warrants to each holder thereof. The letter of transmittal and instructions will tell you how to surrender your common stock certificates and warrant certificates, as applicable, in exchange for the applicable merger consideration. You should not return your certificates with the enclosed proxy card, and you should not forward your certificates to the paying agent without a letter of transmittal.

 

You will not be entitled to receive the merger consideration until you surrender your certificate or certificates to the paying agent, together with a duly completed and executed letter of transmittal and any other documents as the paying agent may reasonably require. The merger consideration may be paid to a person other than the person in whose name the corresponding certificate is registered if the certificate is properly endorsed or is otherwise in the proper form for transfer. In addition, the person requesting payment must either pay any applicable stock transfer taxes or establish to the satisfaction of Parent that such stock transfer taxes have been paid or are not applicable.

 

No interest will be paid or will accrue on the cash payable upon surrender of the certificates. Each of the paying agent, the surviving corporation and Trizec will be entitled to deduct and withhold any applicable taxes from the merger consideration.

 

At the merger effective time, our stock transfer books will be closed and there will be no further registration of transfers of our shares of common stock.

 

None of the paying agent, Parent, MergerCo, AcquisitionCo, us or our operating company or any respective employees, officers, directors, stockholders, partners, agents or affiliates will be liable to any person for any cash merger consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Any portion of the merger consideration deposited with the paying agent that remains undistributed to the holders of shares of our common stock, restricted stock, restricted stock units, restricted stock rights, deferred restricted stock units, deferred restricted stock rights or warrants for 12 months after the merger effective time will be delivered to the surviving corporation. Holders of our common stock, stock options, restricted stock, restricted stock units, restricted stock rights, deferred restricted stock units, deferred restricted stock rights or warrants prior to the merger who have not complied with the exchange and payment procedures contained in the merger agreement within 12 months after the merger effective time may only look to the surviving corporation for the payment of the merger consideration.

 

If you have lost a certificate, or if it has been stolen or destroyed, then before you are entitled to receive the merger consideration, you will be required to deliver an affidavit stating that fact and, if required by Parent or paying agent, to post a bond in the form and amount reasonably required by Parent or the paying agent as indemnity against any claim that may be made against Parent and the paying agent on account of the alleged loss, theft or destruction of such certificate.

 

We and our operating company made customary representations and warranties in the merger agreement that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement or in the disclosure schedules delivered in connection therewith. These representations and warranties relate to, among other things:

 

 

 

 

 

Additionally, Trizec Canada made customary representations and warranties in the merger agreement that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement or in the disclosure schedules delivered in connection therewith. These representations and warranties are substantially the same as those described above relating to Trizec.

 

For the purposes of the merger agreement, “material adverse effect” means any effect, event, development or change that, individually or in the aggregate with all other effects, events, developments or changes, is materially adverse to us, our subsidiaries’, Trizec Canada’s and Trizec Canada’s subsidiaries’ assets, business, results of operations or financial condition taken as a whole.

 

A “material adverse effect” will not have occurred, however, as a result of effects, events, developments or changes arising out of or resulting from:

 

 

 

Under the merger agreement, the mere fact that there has been a decrease in the market price of our common stock or Trizec Canada’s subordinate voting shares will not itself constitute a material adverse effect. However, any effect, event, development or change underlying such price decrease will be considered in determining whether there has been a material adverse effect.

 

The merger agreement also contains customary representations and warranties made by Parent, MergerCo and AcquisitionCo that are subject, in some cases, to specified exceptions and qualifications. The representations and warranties relate to, among other things:

 

 

The representations and warranties of each of the parties to the merger agreement will expire upon the closing of the mergers.

 

Under the merger agreement, we have agreed that, subject to certain exceptions in the merger agreement and the disclosure schedules delivered in connection therewith, between June 5, 2006 and the merger effective time, we and our subsidiaries will:

 

 

We also have agreed that during the same time period, subject to certain exceptions as fully described in the merger agreement or unless Parent either gives its prior written consent or does not object within five business days from the date we request such consent, we and our subsidiaries will not, among other things:

 

 

 

In addition, under the merger agreement, Trizec Canada has agreed that, subject to certain exceptions in the merger agreement and the disclosure schedules delivered in connection therewith, between June 5, 2006 and the merger effective time, Trizec Canada and its subsidiaries will conduct their business only in the ordinary course of business consistent with past practice, and use commercially reasonable efforts to preserve substantially intact their businesses. Trizec Canada also has agreed that during the same time period, subject to certain exceptions as fully described in the merger agreement or unless Parent either gives its prior written consent or does not object within five business days from the date Trizec Canada requests such a consent,

Trizec Canada and its subsidiaries will not take certain actions, which actions are substantially the same as those described above with respect to Trizec.

 

Further, under the merger agreement, Trizec and Parent have agreed to engage in the marketing and sale of certain of Trizec’s properties as the second step of “reverse like-kind exchange” transactions. Any such sale of these properties will occur on or before October 27, 2006 and will not affect the common stock merger consideration to be received by holders of our common stock in the merger. The completion of the sale of these properties is not a condition to the completion of the merger.

 

We have agreed that, between June 5, 2006 and the merger effective time and subject to specified exceptions described below, we, Trizec Canada and our respective subsidiaries will not, nor shall any of us knowingly permit our respective representatives to:

 

 

For purposes of the merger agreement, “Trizec acquisition proposal” means any proposal or offer (other than the mergers or any of the other transactions contemplated by the merger agreement, or any merger or similar transaction solely among us and our subsidiaries, or among our subsidiaries) for any: