PREM14A 1 nt10010096x1_prem14a.htm PREM14A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Material
Soliciting Material under §240.14a-12
TAUBMAN CENTERS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
 
(1)
Title of each class of securities to which transaction applies: Taubman Centers, Inc. Common Stock, par value $0.01 (“Taubman common stock”) and Series B Non-Participating Convertible Preferred Stock, par value $0.001 per share (“Taubman Series B preferred stock”).
 
 
 
 
(2)
Aggregate number of securities to which the transaction applies:
 
 
61,608,379 shares of Taubman common stock
 
 
598,189 shares of Taubman common stock subject to issuance upon the settlement of outstanding equity awards pursuant to the Taubman Stock Plans (as defined below).
 
 
27,012,863.8 shares of Taubman common stock issuable upon conversion of 27,012,863.8 outstanding units of partnership interest in The Taubman Realty Group Limited Partnership, including 44,844 Taubman Incentive Units (as defined below) and 871,261.76 Option Deferred units (as defined below).
 
 
26,079,159 shares of Taubman Series B preferred stock.
 
 
 
 
(3)
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): Solely for the purpose of calculating the filing fee, the underlying value of the transaction was calculated based on the sum of (a) the product of (i) 89,219,431.8 shares of Taubman common stock (including 598,189 shares of Taubman common stock subject to issuance upon the settlement of outstanding equity awards pursuant to the Taubman Stock Plans and 27,012,863.8 shares of Taubman common stock issuable upon conversion of 27,012,863.8 outstanding units of partnership interest in The Taubman Realty Group Limited Partnership, including 44,844 Taubman Incentive Units and 871,261.76 Option Deferred units) and (ii) the common stock merger consideration of $52.50 and (b) the product of (A) 26,079,159 shares of Taubman Series B preferred stock and (B) the Series B preferred stock merger consideration of $52.50 divided by 14,000 (collectively, the “Total Consideration”). The filing fee equals the product of 0.0001298 multiplied by the Total Consideration.
 
 
 
 
(4)
Proposed maximum aggregate value of transaction: $4,684,117,966.35
 
 
 
 
(5)
Total fee paid: $607,998.51
 
 
 
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
 
(1)
Amount Previously Paid:
 
 
 
 
(2)
Form, Schedule or Registration Statement No.:
 
 
 
 
(3)
Filing Party:
 
 
 
 
(4)
Date Filed:
 
 
 

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MERGER AGREEMENT PROPOSAL — YOUR VOTE IS VERY IMPORTANT
[•], 2020
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders of Taubman Centers, Inc. (“Taubman” or the “Company”), which will be held at [•], Eastern Time, on [•], 2020, at [•]. Formal notice of the special meeting, a proxy statement and a proxy card accompany this letter. As part of our precautions regarding the coronavirus or COVID-19, the special meeting may be held solely by means of remote communication rather than in person. If we take this step, we will announce the decision to do so in advance and provide details on how to participate in a press release issued by the Company and on our website, www.taubman.com. We will also file the press release with the Securities and Exchange Commission (the “SEC”) as definitive additional solicitation material. We encourage you to vote by proxy—over the Internet, by telephone or by mail—well in advance of the special meeting, to ensure your shares are represented whether or not you decide to attend.
At the special meeting, holders of our common stock, par value $0.01 per share (“Taubman common stock”), and our Series B Non-Participating Convertible Preferred Stock, par value $0.001 per share (“Taubman Series B preferred stock” and, together with the Taubman common stock, the “Taubman voting stock”), will be asked to consider and vote upon a proposal to adopt and approve an Agreement and Plan of Merger, dated as of February 9, 2020 (as it may be amended from time to time, the “merger agreement”), by and among Simon Property Group, Inc. (“Simon”), Simon Property Group, L.P. (the “Simon operating partnership”), Silver Merger Sub 1, LLC (“Merger Sub 1”), Silver Merger Sub 2, LLC (“Merger Sub 2” and together with Simon, the Simon operating partnership and Merger Sub 1, the “Simon parties”), the Company and The Taubman Realty Group Limited Partnership (the “Taubman operating partnership”), and the transactions contemplated by the merger agreement (the “Transactions”) (such proposal, the “Merger Agreement Proposal”).
Pursuant to the merger agreement, subject to the satisfaction or waiver of certain conditions, Merger Sub 2 will be merged with and into the Taubman operating partnership (the “Partnership Merger”) and the Company will be merged with and into Merger Sub 1 (the “REIT Merger” and, together with the Partnership Merger, the “Mergers”). Upon completion of the Partnership Merger, the Taubman operating partnership will survive (the “Surviving Taubman operating partnership”) and the separate existence of Merger Sub 2 will cease. Upon completion of the REIT Merger, Merger Sub 1 will survive (“Surviving TCO”) and the separate existence of the Company will cease. Immediately following the Partnership Merger, the Surviving Taubman operating partnership will be converted (the “LLC Conversion”) into a Delaware limited liability company (the “Joint Venture”). The Mergers, the LLC Conversion and the other Transactions are described further in the accompanying proxy statement.
If the REIT Merger is completed, holders of Taubman common stock will be entitled to receive $52.50 in cash for each share of Taubman common stock held (the “common stock merger consideration”) and holders of Taubman Series B preferred stock will be entitled to receive, for each share of Taubman Series B preferred stock held, an amount in cash equal to the common stock merger consideration, divided by 14,000 (the “Series B preferred stock merger consideration”). If the Partnership Merger is completed, holders of units of partnership interest in the Taubman operating partnership (each, a “Taubman OP unit”) who are not one of the Taubman family members (as defined below) will be entitled to receive, for each Taubman OP unit held, at their election, the common stock merger consideration or 0.3814 limited partnership units in the Simon operating partnership (each, a “Simon OP unit”), certain Taubman OP units held by the Taubman family members will remain outstanding as units of partnership interest in the Surviving Taubman operating partnership, and all other Taubman OP units held by the Taubman family members will be converted into the right to receive the common stock merger consideration. Following the Mergers and the LLC Conversion, the Simon operating partnership will own 100% of the outstanding equity of Surviving TCO, Surviving TCO will own 80% of the limited liability company interests of the Joint Venture and the Taubman family members will own the remaining 20% of the limited liability company interests of the Joint Venture (assuming, for purposes of this calculation, that Taubman OP units issuable under the Option Deferral Agreement are outstanding interests of the Joint Venture).

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The proposed Transactions constitute a “going-private transaction” under the rules of the SEC. As of April 22, 2020, Robert S. Taubman (“R. Taubman”), the Company’s Chairman, President and Chief Executive Officer, William S. Taubman (“W. Taubman”), the Company’s Chief Operating Officer, and certain entities and trusts affiliated with R. Taubman, with W. Taubman, or with other members of their immediate family (collectively, the “Taubman family members”) in the aggregate, have the power to vote approximately 30% of the outstanding shares of Taubman voting stock.
The board of directors of the Company (the “Taubman Board”) formed a special committee (the “Special Committee”) consisting solely of independent and disinterested directors of the Company to, among other things, review, evaluate and negotiate the Transactions, including the Mergers, and other alternatives available to the Company. The Special Committee unanimously determined that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders, and unanimously recommended that the Taubman Board, among other things: (i) determine that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders; (ii) adopt and approve the merger agreement and the Transactions; (iii) subject to the terms of the merger agreement, resolve to recommend that the Taubman common shareholders adopt and approve the merger agreement; and (iv) direct that the merger agreement be submitted to the Taubman common shareholders and the holders of Taubman Series B preferred stock for their adoption and approval. The Taubman Board, acting upon the unanimous recommendation of the Special Committee: (i) determined that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders; (ii) adopted and approved the merger agreement and the Transactions; (iii) subject to the terms of the merger agreement, resolved to recommend that the Taubman common shareholders adopt and approve the merger agreement; and (iv) directed that the merger agreement be submitted to the Taubman common shareholders and the holders of Taubman Series B preferred stock for their adoption and approval. The Taubman Board unanimously recommends that you vote “FOR” the Merger Agreement Proposal.
The Taubman family members and Simon entered into a voting agreement in connection with the execution of the merger agreement. Under the voting agreement, subject to certain exceptions, the Taubman family members have covenanted to, among other things, vote any shares of Taubman voting stock owned by them in favor of the Merger Agreement Proposal and the Adjournment Proposal (as defined in the accompanying proxy statement) at the special meeting.
Pursuant to rules of the SEC, you also will be asked to vote at the special meeting on a non-binding, advisory proposal to approve compensation that may become payable to the Company’s named executive officers in connection with the REIT Merger and the other Transactions (the “Advisory Compensation Proposal”), as described in the accompanying proxy statement. However, approval of the Advisory Compensation Proposal is not required to complete the REIT Merger or the other Transactions. The Taubman Board also unanimously recommends that you vote “FOR” the Advisory Compensation Proposal.
The accompanying proxy statement describes the merger agreement, the Transactions and related agreements and provides specific information concerning the special meeting. In addition, you may obtain information about us from documents filed with the SEC. We urge you to read the entire proxy statement, including the annexes, carefully, as they set forth the details of the merger agreement and other important information related to the Transactions.
In considering the recommendation of the Taubman Board, you should be aware that certain of the Company’s directors and executive officers may have interests in the Transactions that may be different from, or in addition to, those of the other Taubman shareholders, as further described in the accompanying proxy statement.
Your vote is very important, regardless of the number of shares of Taubman common stock or Taubman Series B preferred stock you own. The consummation of the Transactions is subject to the approval of the Merger Agreement Proposal by (i) the holders of at least two-thirds of the outstanding shares of Taubman common stock and Taubman Series B preferred stock entitled to vote thereon (voting together as a single class), (ii) the holders of at least a majority of Taubman Series B preferred stock entitled to vote thereon and (iii) the holders of at least a majority of the outstanding shares of Taubman common stock and Taubman Series B preferred stock entitled to vote thereon (voting together as a single class), but excluding the outstanding shares of Taubman common stock and Taubman Series B preferred stock owned of record or beneficially by the Taubman family members. If you fail to vote on the Merger Agreement Proposal, the effect will be the same as a vote against the Merger Agreement Proposal.

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If you own shares of record, you will find enclosed one or more proxy cards with instructions about how to vote over the Internet or by telephone. Whether or not you plan to attend the special meeting, we encourage you to vote over the Internet, or by telephone, as soon as possible so that your shares can be voted at the special meeting in accordance with your instructions. If you do not have access to the Internet or a touch-tone telephone, you may also sign, date and return your enclosed proxy card(s) in the envelope provided. You can revoke your proxy before the special meeting and issue a new proxy as you deem appropriate. The accompanying proxy statement describes the procedures to follow if you wish to revoke your proxy.
If your shares are held by a bank, broker or other nominee on your behalf in “street name,” you should follow the directions provided by your bank, broker or other nominee regarding how to instruct your bank, broker or other nominee to vote your shares. If you do not follow those instructions, your shares will not be voted, which will have the same effect as voting against the Merger Agreement Proposal.
If you have any questions or need assistance voting your shares, please contact Innisfree M&A Incorporated, which is acting as Taubman’s proxy solicitation agent and information agent in connection with the Transactions:

Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, NY 10022
Shareholders may call toll-free at (877) 456-3427
Banks and brokers may call collect at (212) 750-5833
If your shares are held by a bank, broker or other nominee on your behalf in “street name,” you should also call your bank, broker or other nominee for additional information.
 
Sincerely yours,
 
 
 
 
Chris Heaphy
Secretary
 
Neither the SEC nor any state securities commission has: approved or disapproved of the Mergers or the other Transactions; passed upon the merits or fairness of the Mergers or the other Transactions; or passed upon the adequacy or accuracy of the disclosure in the accompanying proxy statement. Any representation to the contrary is a criminal offense.
The obligations of parties to the merger agreement to complete the Mergers and the other Transactions are subject to the satisfaction or waiver of the conditions set forth in the merger agreement, a copy of which is included as part of the accompanying proxy statement.
The accompanying proxy statement is dated [•], 2020 and, together with the enclosed form of proxy, is first being mailed to the Company’s shareholders on or about [•], 2020.

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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held On: [•], 2020
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of Taubman Centers, Inc. (the “Company”) will be held at [•] A.M., Eastern Time, at [•], to consider and vote on the following proposals:
(1)
a proposal to adopt and approve an Agreement and Plan of Merger, dated as of February 9, 2020 (as it may be amended from time to time, which we refer to as the “merger agreement”), by and among Simon Property Group, Inc. (“Simon”), Simon Property Group, L.P. (the “Simon operating partnership”), Silver Merger Sub 1, LLC (“Merger Sub 1”), Silver Merger Sub 2, LLC (“Merger Sub 2” and together with Simon, the Simon operating partnership and Merger Sub 1, the “Simon parties”), the Company and The Taubman Realty Group Limited Partnership (the “Taubman operating partnership”), and the transactions contemplated thereby (the “Transactions”), including the merger of the Company with and into Merger Sub 1 (the “REIT Merger”) (such proposal, the “Merger Agreement Proposal”);
(2)
a non-binding, advisory proposal to approve compensation that may become payable to the named executive officers of the Company in connection with the REIT Merger and the other Transactions (the “Advisory Compensation Proposal”); and
(3)
a proposal to approve an adjournment of the special meeting, even if a quorum is present, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Merger Agreement Proposal (the “Adjournment Proposal”).
As part of our precautions regarding the coronavirus or COVID-19, the special meeting may be held solely by means of remote communication rather than in person. If we take this step, we will announce the decision to do so in advance and provide details on how to participate in a press release issued by the Company and on our website, www.taubman.com. We will also file the press release with the Securities and Exchange Commission (the “SEC”) as definitive additional solicitation material. We encourage you to vote by proxy—over the Internet, by telephone or by mail—well in advance of the special meeting, to ensure your shares are represented whether or not you decide to attend.
The holders of record of Taubman common stock and Taubman Series B preferred stock at the close of business on [•], 2020 are entitled to notice of, and to vote at, the special meeting and at any adjournment or postponement thereof. All shareholders of record are invited to attend the special meeting in person.
The Taubman Board unanimously recommends that the common shareholders of the Company and the holders of Taubman Series B preferred stock vote “FOR” the Merger Agreement Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal.
The proposed Transactions constitute a “going-private transaction” under the rules of the SEC. As of April 22, 2020, Robert S. Taubman (“R. Taubman”), the Company’s Chairman, President and Chief Executive Officer, William S. Taubman (“W. Taubman”), the Company’s Chief Operating Officer, and certain entities and trusts affiliated with R. Taubman, with W. Taubman, or with other members of their immediate family (collectively, the “Taubman family members”) in the aggregate, have the power to vote approximately 30% of the outstanding shares of Taubman voting stock.
Your vote is very important, regardless of the number of shares of Taubman common stock or Taubman Series B preferred stock you own. The consummation of the Transactions is subject to the approval of the Merger Agreement Proposal by (i) the holders of at least two-thirds of the outstanding shares of Taubman common stock and Taubman Series B preferred stock entitled to vote thereon (voting together as a single class), (ii) the holders of at least a majority of Taubman Series B preferred stock entitled to vote thereon and (iii) the holders of at least a majority of the outstanding shares of Taubman common stock and Taubman Series B preferred stock entitled to vote thereon

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(voting together as a single class), but excluding the outstanding shares of Taubman common stock and Taubman Series B preferred stock owned of record or beneficially by the Taubman family members. If you fail to vote on the Merger Agreement Proposal, the effect will be the same as a vote against the Merger Agreement Proposal.
Approval, on a non-binding, advisory basis, of the Advisory Compensation Proposal requires the affirmative vote of two-thirds of the outstanding shares of Taubman voting stock entitled to vote thereon (voting as a single class). The Adjournment Proposal will be approved if the votes cast in favor of such proposal exceed the votes cast against such proposal by the holders of shares of Taubman voting stock entitled to vote thereon. Approval of the Advisory Compensation Proposal and the Adjournment Proposal are not conditions to the completion of the Mergers.
Whether or not you plan to attend the special meeting in person, please submit your proxy electronically over the Internet or by telephone as promptly as possible. If you do not have access to the Internet or a touch-tone telephone, please sign, date, and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope. If you attend the special meeting you may revoke any prior proxy by voting by ballot in person or, in the event that the special meeting is held by means of remote communication, virtually.
If your shares are held by a bank, broker or other nominee on your behalf in “street name,” you should instruct your bank, broker or other nominee regarding how to vote your shares in accordance with the voting instruction form that you will receive from your bank, broker or other nominee. Your bank, broker or other nominee cannot vote on any of the proposals, including the Merger Agreement Proposal, without your instructions.
You may revoke your proxy at any time before the vote at the special meeting by following the procedures outlined in the accompanying proxy statement.
The Transactions, including the REIT Merger, are described in the accompanying proxy statement, which we urge you to read carefully. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement.
By Order of the Board of Directors of Taubman Centers, Inc.
Chris B. Heaphy
Secretary
Dated: [•], 2020
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING, PLEASE VOTE PROMPTLY ELECTRONICALLY OVER THE INTERNET OR BY TELEPHONE. ALTERNATIVELY, PLEASE COMPLETE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE.

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DEFINED TERMS
The following terms are used throughout this proxy statement. Unless stated otherwise, the terms set forth below, whenever used in this proxy statement, have the following meanings:
“Acceptable Confidentiality Agreement” means an agreement with Taubman that is either (i) in effect as of the execution and delivery of the merger agreement; or (ii) executed, delivered and effective after the execution and delivery of the merger agreement, in either case containing provisions that require any counterparty thereto (and any of its affiliates and representatives named therein) that receive material non-public information of, or with respect to, Taubman to keep such information confidential that, in each case, contains confidentiality and use provisions that are no less restrictive to such counterparty (and any of its affiliates and representatives as provided therein) than the terms of the Mutual Non-Disclosure Agreement, dated as of November 8, 2019, between Taubman and Simon (it being understood that such agreement need not contain any “standstill” or similar provisions or otherwise prohibit the making of any Acquisition Proposal); provided, that in no event will any agreement that permits the counterparty thereto to enter into exclusive arrangements (other than customary “tree” arrangements) with potential financing sources be considered an “Acceptable Confidentiality Agreement.”
“Acquisition Proposal” means any offer or proposal (other than an offer or proposal by Simon, the Simon operating partnership, Merger Sub 1 or Merger Sub 2) to engage in an Acquisition Transaction.
“Acquisition Transaction” means any transaction or series of related transactions (other than the Transactions) providing for:
any direct or indirect acquisition (whether by merger, consolidation or otherwise) of more than 15% of the voting power of Taubman or the Taubman operating partnership by any person or group;
any consolidation, business combination, reorganization, share exchange, sale of assets, recapitalization, equity investment, joint venture, liquidation, dissolution or other similar transaction involving Taubman or the Taubman operating partnership that would result in any person or group, directly or indirectly, acquiring assets (including capital stock of or interests in any subsidiary or affiliate of Taubman) representing, directly or indirectly, more than 15% of the consolidated assets of Taubman and its subsidiaries, taken as a whole (as determined on a book value basis (including indebtedness secured solely by such assets));
any tender offer or exchange offer or any other direct or indirect purchase or other acquisition of securities, that, if consummated, would result in any person or group, whether from Taubman or any other person(s), beneficially owning more than 15% of the outstanding shares of Taubman common stock or more than 15% of the outstanding Taubman OP units;
any other transaction or series of related transactions pursuant to which any person or group proposes to acquire, directly or indirectly, control of assets of Taubman or any of its subsidiaries having a fair market value greater than 15% of the fair market value of all of the assets of Taubman and its subsidiaries, taken as a whole, immediately prior to such transaction; or
any combination of the foregoing.
“Advisory Compensation Proposal” means the non-binding, advisory proposal to approve compensation that may become payable to the named executive officers of the Company in connection with the REIT Merger and the other Transactions.
“Adjournment Proposal” means the proposal to approve an adjournment of the special meeting, even if a quorum is present, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Merger Agreement Proposal.
“Cash Tender Agreement” means the Amended and Restated Cash Tender Agreement, dated as of May 16, 2000, by and among Taubman, the Taubman operating partnership, and A. Alfred Taubman, A. Alfred Taubman, acting not individually but as Trustee of the A. Alfred Taubman Restated Revocable Trust (the “Revocable Trust”), and TRA Partners.
“closing” means the closing of the Transactions.
“Code” means the U.S. Internal Revenue Code of 1986, as amended.
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“common stock merger consideration” means $52.50 in cash for each share of Taubman common stock.
“Compensation Committee” means the compensation committee of the Taubman Board.
“Continuing Offer” means the Second Amended and Restated Continuing Offer, dated as of May 16, 2000, by Taubman to certain holders of Taubman OP units and Taubman Incentive Units.
“DRULPA” means the Delaware Revised Uniform Limited Partnership Act.
“excess threshold” means $10 million annually, determined in aggregate (and based on absolute value) with respect to all instances where such term is used in the JV agreement (except that any action, project or expenditure that is approved or ratified by the board of the Joint Venture will not reduce or count against such figure).
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“family transferee” means certain immediate family members or related entities of the Taubman family.
“FFO” means funds from operations.
“GAAP” means generally accepted accounting principles as applied in the United States.
“go-shop period” means the period beginning on February 9, 2020 (the date of the merger agreement) and continuing until 11:59 p.m., New York City time, on March 25, 2020 (the 45th day after the date of the merger agreement).
“G. Taubman Kalisman” means Gayle Taubman Kalisman.
“IRS” means the U.S. Internal Revenue Service.
“Joint Venture” means the Surviving Taubman operating partnership after it is converted into a limited liability company in the LLC Conversion.
“Joint Venture unit” means one unit of limited liability company interests in the Joint Venture.
“JV agreement” means the operating agreement of the Joint Venture.
“LLC Conversion” means the conversion of the Surviving Taubman operating partnership into a Delaware limited liability company.
“Manager” means The Taubman Company LLC.
“MBCA” means the Michigan Business Corporation Act.
“merger agreement” means the Agreement and Plan of Merger, dated as of February 9, 2020, as it may be amended from time to time, by and among Simon, the Simon operating partnership, Merger Sub 1, Merger Sub 2, the Company and the Taubman operating partnership.
“Merger Agreement Proposal” means the proposal to adopt and approve the merger agreement and the Transactions, including the REIT Merger.
“Mergers” means the REIT Merger and the Partnership Merger.
“Merger Sub 1” means Silver Merger Sub 1, LLC.
“Merger Sub 2” means Silver Merger Sub 2, LLC.
“Michigan LARA” means the Corporations, Securities & Commercial Licensing Bureau of the State of Michigan Department of Licensing and Regulatory Affairs.
“minority partners” means the holders of Taubman OP units (other than Taubman) who are not the Taubman family members.
“NAV” means net asset value.
“NOI” means net operating income.
“NYSE” means the New York Stock Exchange.
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“Option Deferral Agreement” means that certain Amended and Restated Option Deferral Agreement, dated as of January 27, 2011, by and among R. Taubman, the Taubman operating partnership and the Manager, together with that certain Subsequent Deferral Election under the Taubman operating partnership and The Taubman Company LLC Election and Option Deferral Agreement, dated as of October 7, 2016.
“Option Deferred unit” means a right to receive a Taubman OP unit that has been deferred by R. Taubman pursuant to the Option Deferral Agreement.
“Partnership Merger” means the merger of Merger Sub 2 with and into the Taubman operating partnership, with the Taubman operating partnership surviving such merger.
“Projections” means certain non-public financial projections as to the potential future performance of Taubman for the years 2020 through 2024 prepared by Taubman’s management at the direction of the Special Committee in connection with the Transactions.
“Redemption” means the redemption of the Taubman Series J Preferred Stock and Taubman Series K Preferred Stock.
“REIT” means a real estate investment trust within the meaning of Section 856 of the Code.
“REIT Merger” means the merger of the Company with and into Merger Sub 1, with Merger Sub 1 surviving such merger.
“R. Taubman” means Robert S. Taubman.
“SEC” means the Securities and Exchange Commission.
“Series B preferred stock merger consideration” means an amount in cash equal to the common stock merger consideration (i.e., $52.50 in cash), divided by 14,000 for each share of Taubman Series B preferred stock.
“Severance Plan” means the Severance Plan for Senior Level Management of the Company, approved by the Compensation Committee on December 11, 2017, as reinstated by the Compensation Committee on February 9, 2020.
“shareholders of the Company” or “Company shareholders” or “Taubman shareholders” means, holders of the Taubman common stock and the Taubman Series B preferred stock, as the context may require.
“Simon” means Simon Property Group, Inc.
“Simon operating partnership” means Simon Property Group, L.P.
“Simon operating partnership preferred contribution” means the contribution, immediately following the effective time of the LLC Conversion, by the Simon operating partnership to the capital of the Joint Venture of an amount equal to the aggregate Taubman Series J and Series K Preferred Stock liquidation preference in exchange for a certain number of Series A Preferred Units (as defined in the JV agreement).
“Simon OP unit” means limited partnership units in the Simon operating partnership.
“Simon parties” means Simon, the Simon operating partnership, Merger Sub 1 and Merger Sub 2.
“Simon Period” means the period following the Taubman Period.
“Special Committee” means the special committee of the Taubman Board.
“Superior Proposal” means any written Acquisition Proposal for an Acquisition Transaction on terms that the Taubman Board (or the Special Committee) has determined in good faith (after consultation with its financial advisor and outside legal counsel), taking into account all legal, financial and regulatory aspects of such Acquisition Proposal, would be more favorable, from a financial point of view, to the shareholders of Taubman (in their capacity as such) than the Transactions. For purposes of the reference to an “Acquisition Proposal” and “Acquisition Transaction” in this definition, all references to “15%” in the definition of “Acquisition Transaction” will be deemed to be references to “75%.”
“Surviving Taubman operating partnership” means the Taubman operating partnership after the effective time of the Partnership Merger.
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“Surviving TCO” means Merger Sub 1 after the effective time of the REIT Merger.
“Taubman” or the “Company” or “TCO” means Taubman Centers, Inc.
“Taubman Board” means the board of directors of the Company.
“Taubman common stock” means the common stock, par value $0.01 per share, of Taubman.
“Taubman Equity Awards” means, collectively, TCO RSUs, TCO PSUs, TCO DSUs, TCO DERs, Taubman Incentive Units, and Option Deferred units.
“Taubman family” means, collectively, the Taubman family members.
“Taubman family members” means R. Taubman, W. Taubman, and certain entities and trusts affiliated with R. Taubman, with W. Taubman, or with other members of their immediate family.
“Taubman family representative” means R. Taubman, in his capacity as the Taubman family representative (or another duly appointed representative of the Taubman family members).
“Taubman filing persons” means R. Taubman, W. Taubman and TVG.
“Taubman Incentive Unit” means an incentive partnership unit granted pursuant to any Taubman Stock Plan that is intended to constitute a “profits interest” within the meaning of the Code and the regulations promulgated thereunder, and IRS Revenue Procedure 93-27 and IRS Revenue Procedure 2001-43, and that has been granted pursuant to a “Profits Units Designation” as defined in the Taubman OP Agreement.
“Taubman non-voting preferred stock” means, collectively, the Taubman Series J Preferred Stock and the Taubman Series K Preferred Stock.
“Taubman OP agreement” means the Third Amendment and Restatement of Agreement of Limited Partnership of the Taubman operating partnership, dated as of December 12, 2012, as amended by that First Amendment dated as of June 1, 2016, by that Second Amendment dated as of December 18, 2018 and as may be subsequently amended from time to time.
“Taubman OP payment” means the payment, immediately after the Simon operating partnership preferred contribution, by the Joint Venture to Taubman in an amount equal to the aggregate Taubman Series J and Series K Preferred Stock liquidation preference.
“Taubman operating partnership” or “TRG” means The Taubman Realty Group Limited Partnership.
“Taubman OP unit” means a unit of partnership interest in the Taubman operating partnership.
“Taubman Period” means the period beginning on the effective date of the JV agreement and upon the occurrence of specified events set forth in the JV agreement (including the Taubman family members’ ownership of the Joint Venture falling below a specified threshold).
“Taubman Series B preferred stock” means the Series B Non-Participating Convertible Preferred Stock, par value $0.001 per share, of Taubman.
“Taubman Series J Preferred Stock” means the Series J Cumulative Redeemable Preferred Stock, no par value, of Taubman.
“Taubman Series J and Series K Preferred Stock Redemption Amount” means cash in immediately available funds in the amount of $25.00 plus all accumulated and unpaid dividends to, but not including, the redemption date set forth in the notice of redemption, per share of Taubman Series J Preferred Stock and Taubman Series K Preferred Stock, respectively.
“Taubman Series K Preferred Stock” means the Series K Cumulative Redeemable Preferred Stock, no par value, of Taubman.
“Taubman shareholder approval” means, collectively, the approval of the Merger Agreement Proposal by: (i) the holders of at least two-thirds of the outstanding shares of Taubman voting stock entitled to vote thereon (voting together as a single class); (ii) the holders of at least a majority of the outstanding shares
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of Taubman Series B preferred stock entitled to vote thereon; and (iii) the holders of at least a majority of the outstanding shares of Taubman voting stock entitled to vote thereon (voting together as a single class), excluding the outstanding shares of Taubman voting stock owned of record or beneficially by the Taubman family members.
“Taubman Stock Plans” means collectively, the Taubman 2008 Omnibus Long-Term Incentive Plan and the Taubman 2018 Omnibus Long-Term Incentive Plan.
“Taubman voting stock” means the Taubman common stock and the Taubman Series B preferred stock.
“TCO DER” means a dividend equivalent right granted in tandem with any TCO RSU or TCO PSU.
“TCO DSU” means a right to receive a share of Taubman common stock that has been deferred pursuant to any Taubman Stock Plan (excluding under the Option Deferral Agreement).
“TCO PSU” means an outstanding performance-based stock unit award of TCO granted under the TCO Stock Plans that vests in whole or in part on the basis of the achievement of performance targets.
“TCO RSU” means a restricted stock unit award of TCO granted under the TCO Stock Plans that vests solely on the basis of a recipient’s service to TCO or its affiliates.
“Transactions” means the transactions contemplated by the merger agreement, including the Mergers.
“TVG” means Taubman Ventures Group LLC.
“unaffiliated security holders” means unaffiliated security holders as defined under Rule 13e-3 of the Exchange Act.
“voting agreement” refers to the voting agreement, dated as of February 9, 2020, by and among Simon and the Taubman family members that own Taubman voting stock or Taubman OP units.
“W. Taubman” means William S. Taubman.
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SUMMARY TERM SHEET
This summary highlights selected information from this proxy statement related to the merger agreement and the Transactions, and may not contain all of the information that is important to you. To understand the Transactions more fully and for a more complete description of the legal terms of the merger agreement, Mergers and the other Transactions, you should carefully read this entire proxy statement, the annexes to this proxy statement and the documents that we refer to in this proxy statement. You may obtain any additional information referred to in this proxy statement without charge as described under the caption “Where You Can Find Additional Information.”
Because the Transactions constitute a “going private” transaction under SEC rules, the Company, the Taubman filing persons and certain of the Simon parties and their affiliates have filed with the SEC a Transaction Statement on Schedule 13E-3 with respect to the Transactions. You may obtain any additional information about the Schedule 13E-3 under the caption “Where You Can Find Additional Information.”
The Parties to the Mergers (Page 74)
Taubman Centers, Inc. and The Taubman Realty Group Limited Partnership
Taubman is a Michigan corporation (incorporated in 1973) that operates as a self-administered and self-managed REIT. Taubman’s sole asset is an approximate 70% general partnership interest in the Taubman operating partnership, which owns direct or indirect interests in all of Taubman’s real estate properties. In this proxy statement, the terms “we,” “us,” and “our” refer to Taubman, the Taubman operating partnership and/or the Taubman operating partnership’s subsidiaries as the context may require.
We own, manage, lease, acquire, dispose of, develop, and expand retail shopping centers and interests therein. Our owned portfolio of operating centers as of December 31, 2019 included 24 urban and suburban shopping centers operating in 11 U.S. states, Puerto Rico, South Korea, and China. The Taubman Company LLC (the “Manager”) provides certain management and administrative services for us and for our U.S. properties.
Simon Property Group, Inc.
Simon, a Delaware corporation, operates as a self-administered and self-managed REIT. Simon is structured as an umbrella partnership REIT under which substantially all of its business is conducted through the Simon operating partnership, Simon’s majority-owned partnership subsidiary, for which Simon is the general partner. Simon’s primary business is owning, developing and managing premier shopping, dining, entertainment and mixed-use destinations, which consist primarily of malls, Premium Outlets®, and The Mills®. Simon’s properties, as of December 31, 2019, comprised 191 million square feet in North America, Asia and Europe. As of December 31, 2019, Simon owned or held an interest in 204 income-producing properties in the United States, which consisted of 106 malls, 69 Premium Outlets, 14 Mills, four lifestyle centers, and 11 other retail properties in 37 states and Puerto Rico. Internationally, as of December 31, 2019, Simon had ownership interests in 29 Premium Outlets and Designer Outlet properties primarily located in Asia, Europe and Canada. As of December 31, 2019, Simon also owned a 22.2% equity stake in Klépierre SA, or Klépierre, a publicly traded, Paris-based real estate company, which owns, or has an interest in, shopping centers located in 15 countries in Europe.
Simon Property Group, L.P.
The Simon operating partnership is a Delaware limited partnership that is a majority-owned subsidiary of Simon, owning all of Simon’s real estate properties and other assets. As of December 31, 2019, Simon owned an approximate 86.8% ownership interest in the Simon operating partnership, with the remaining 13.2% ownership interest owned by limited partners. As the sole general partner of the Simon operating partnership, Simon has exclusive control of the Simon operating partnership’s day-to-day management.
Silver Merger Sub 1, LLC
Merger Sub 1, LLC is a newly formed Delaware limited liability company. Merger Sub 1, LLC is a wholly owned subsidiary of the Simon operating partnership and was formed solely for the purpose of engaging in the Transactions. As of the date hereof, Merger Sub 1, LLC has not engaged in any business other than in connection with the Transactions.
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Silver Merger Sub 2, LLC.
Merger Sub 2, LLC is a newly formed Delaware limited liability company. Merger Sub 2, LLC is a wholly owned subsidiary of Merger Sub 1, LLC and was formed solely for the purpose of engaging in the Transactions. As of the date hereof, Merger Sub 2, LLC has not engaged in any business other than in connection with the Transactions.
For more information, see “The Parties to the Mergers.”
The Merger Agreement Proposal (Page 79)
You are being asked to consider and vote on a proposal to adopt and approve the merger agreement and the Transactions, including the REIT Merger. Pursuant to the merger agreement, subject to the satisfaction or waiver of certain conditions, Merger Sub 2 will be merged with and into the Taubman operating partnership. Following completion of the Partnership Merger, the Taubman operating partnership will survive and the separate existence of Merger Sub 2 will cease. Immediately following the Partnership Merger, the Taubman operating partnership will be converted into a Delaware limited liability company pursuant to the LLC Conversion. Following the LLC Conversion, Taubman will be merged with and into Merger Sub 1 in the REIT Merger. Following the REIT Merger, Merger Sub 1 will survive and the separate existence of Taubman will cease. On the terms and subject to the conditions set forth in the merger agreement, at the effective time of the REIT Merger, each share of the Taubman common stock then issued and outstanding, other than certain shares of excluded Taubman common stock (as set forth in the merger agreement), will be converted into the right to receive the common stock merger consideration (i.e., $52.50 in cash) and each share of Taubman Series B preferred stock then issued and outstanding will be converted into the right to receive an amount in cash equal to the common stock merger consideration (i.e., $52.50 in cash), divided by 14,000.
For more information, see “The Merger Agreement Proposal.”
Conditions to the Completion of the Transactions (Page 83)
The obligations of Taubman, the Taubman operating partnership and the Simon parties to effect the Transactions are subject to the satisfaction or waiver (except for the conditions to obtain the Taubman shareholder approval and the Taubman operating partnership approval, which cannot be waived), at or prior to the closing date, of the following conditions:
receipt of Taubman shareholder approval from (i) the holders of at least two-thirds of the outstanding shares of Taubman voting stock entitled to vote thereon (voting together as a single class); (ii) the holders of at least a majority of the outstanding shares of Taubman Series B preferred stock entitled to vote thereon; and (iii) the holders of at least a majority of the outstanding shares of Taubman voting stock entitled to vote thereon (voting together as a single class), excluding the outstanding shares of Taubman voting stock owned of record or beneficially by the Taubman family members;
receipt of Taubman operating partnership approval, and such approval must not have been rescinded, modified or withdrawn;
no law, judgment, legal restraint, prohibition or binding order shall be in effect, or imminently threatened by any governmental entity of competent jurisdiction, which prohibits, makes illegal, enjoins, or otherwise prevents the consummation of the Transactions; and
the shares of Simon common stock to be reserved for issuance upon exchange or redemption of Simon OP units issued or issuable to holders of Taubman OP units in the Transactions have been approved for listing on the NYSE.
In addition, the Simon parties’ obligations to effect the closing are further subject to the following conditions:
the accuracy of the representations and warranties of Taubman and the Taubman operating partnership, subject to certain materiality standards as described under the section entitled “The Merger Agreement—Conditions to the Completion of the Transactions;”
the performance by Taubman and the Taubman operating partnership in all material respects of their covenants under the merger agreement;
the absence of a material adverse effect with respect to Taubman;
the receipt of an officer’s certificate certifying that the foregoing conditions have been satisfied; and
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the receipt of a tax opinion of Honigman LLP, tax counsel to Taubman (or, if Honigman LLP is unable or unwilling to render such opinion, Kirkland & Ellis LLP or another nationally recognized REIT counsel as may be reasonably acceptable to Simon) with respect to Taubman’s qualification and taxation as a REIT under the Code.
In addition, Taubman’s and the Taubman operating partnership’s obligations to effect the closing are further subject to the following conditions:
the accuracy of the representations and warranties of the Simon parties, subject to certain materiality standards as described under the section entitled “The Merger Agreement—Conditions to the Completion of the Transactions;”
the performance by the Simon parties in all material respects of their covenants under the merger agreement; and
the receipt of an officer’s certificate certifying that the foregoing conditions have been satisfied.
These conditions to the Transactions are described in more detail in the section entitled “The Merger Agreement—Conditions to the Completion of the Transactions.”
When the Transactions Become Effective (Page 82)
We anticipate completing the Transactions in the second or third quarter of 2020, subject to the approval of the Merger Agreement Proposal and the satisfaction of the other closing conditions described in this proxy statement.
However, the Simon parties will not be required to effect the closing (unless they otherwise consent):
prior to November 9, 2020, if, on the date that closing would otherwise have occurred, any investigation or legal action by any governmental entity is then-pending that, in Simon’s reasonable judgment, following consultation with Taubman and the Taubman family representative, is seeking or would reasonably be expected to lead to or result in a Simon Burdensome Condition (as further described under “The Merger Agreement—Regulatory Matters”), or
prior to July 9, 2020, if, on the date that the closing would otherwise have occurred, consents and waivers with respect to the Transactions (as described under “The Merger Agreement—Certain Consents; Treatment of Existing Debt”) have not been obtained from certain third parties or, with respect to any such consent under a loan document that has not been obtained, the underlying loan has not been prepaid or defeased.
Reasons for the Transactions and the Recommendation of the Special Committee and of the Taubman Board; Fairness of the REIT Merger (Page 34)
After careful consideration, and with the assistance of its legal and financial advisors, the Special Committee evaluated the merger agreement and the Transactions and, on February 9, 2020, the Special Committee unanimously determined that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders, and unanimously recommended that the Taubman Board, among other things: (i) determine that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders; (ii) adopt and approve the merger agreement and the Transactions; (iii) subject to the terms of the merger agreement, resolve to recommend that the Taubman common shareholders adopt and approve the merger agreement; and (iv) direct that the merger agreement be submitted to the Taubman common shareholders and the holders of Taubman Series B preferred stock for their adoption and approval.
On February 9, 2020, the Taubman Board, acting upon the unanimous recommendation of the Special Committee: (i) determined that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders; (ii) adopted and approved the merger agreement and the Transactions; (iii) subject to the terms of the merger agreement, resolved to recommend that the Taubman common shareholders adopt and approve the merger agreement; and (iv) directed that the merger agreement be submitted to the Taubman common shareholders and the holders of Taubman Series B preferred stock for their adoption and approval. Accordingly, the Taubman Board recommends that you vote “FOR” the Merger Agreement Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal.
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Opinion of Financial Advisor to the Special Committee (Page 41 and Annex B)
On February 9, 2020, Lazard Frères & Co. LLC (“Lazard”) rendered its written opinion, consistent with its oral opinion rendered on the same date, to the Special Committee that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the common stock merger consideration to be paid to holders of Taubman common stock (other than holders of shares of excluded Taubman common stock and the Taubman family members) pursuant to the merger agreement was fair, from a financial point of view, to such holders of Taubman common stock.
The full text of Lazard’s written opinion, dated February 9, 2020, which sets forth the assumptions made, procedures followed, factors considered and qualifications and limitations on the review undertaken by Lazard in connection with its opinion, is attached to this proxy statement as Annex B and is incorporated by reference herein in its entirety. The following summary of Lazard’s opinion is qualified in its entirety by reference to the full text of the opinion. You are encouraged to read Lazard’s opinion and this section carefully and in their entirety.
Lazard’s engagement and its opinion were for the benefit of the Special Committee (in its capacity as such) and Taubman’s other independent directors (in their capacities as such), and Lazard’s opinion was rendered to the Special Committee in connection with its evaluation of the REIT Merger and addressed only the fairness as of the date of the opinion, from a financial point of view, to the holders of Taubman common stock (other than holders of shares of excluded Taubman common stock and the Taubman family members) of the common stock merger consideration to be paid to such holders pursuant to the merger agreement. Lazard’s opinion was not intended to, and does not, constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the merger or any matter relating thereto.
Purposes and Reasons of the Simon Parties for the Transactions (Page 48)
Under the SEC rules governing “going private” transactions, each of the Simon parties may be deemed an affiliate of the Company and, therefore, is required to express its purposes and reasons for the Transactions to the Company’s unaffiliated security holders. For a description of the Simon parties’ purposes and reasons for the Transactions to the Company’s unaffiliated security holders, see “Special Factors—The Simon Parties’ Purposes and Reasons for the Transactions.”
Purposes and Reasons of the Taubman Filing Persons for the Transactions (Page 48)
Under the SEC rules governing “going private” transactions, each of the Taubman filing persons may be deemed an affiliate of the Company and, therefore, is required to express its purposes and reasons for the Transactions to the Company’s unaffiliated security holders. For a description of the Taubman filing persons’ purposes and reasons for the Transactions to the Company’s unaffiliated security holders, see “Special Factors—The Taubman Filing Persons’ Purposes and Reasons for the Transactions.”
Position of the Simon Parties as to Fairness of the Transactions (Page 49)
Under the SEC rules governing “going private” transactions, each of the Simon parties may be deemed an affiliate of the Company and, therefore, is required to express its beliefs as to the fairness of the REIT Merger to the Company’s unaffiliated security holders. For a description of the Simon parties’ beliefs as to the fairness of the REIT Merger to the Company’s unaffiliated security holders, see “Special Factors—Position of the Simon Parties as to the Fairness of the REIT Merger.
Position of the Taubman Filing Persons as to the Fairness of the Transactions (Page 51)
Under the SEC rules governing “going private” transactions, each of the Taubman filing persons may be deemed an affiliate of the Company and, therefore, is required to express its beliefs as to the fairness of the REIT Merger to the Company’s unaffiliated security holders. For a description of the Taubman filing persons’ beliefs as to the fairness of the REIT Merger to the Company’s unaffiliated security holders, see “Special Factors—Position of the Taubman Filing Persons as to the Fairness of the REIT Merger.
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Certain Effects of the Transactions (Page 54)
If the Taubman shareholder approval is obtained and the other conditions to closing of the Mergers are either satisfied or waived, the following will occur:
at the effective time of the Partnership Merger, (i) each Taubman OP unit issued and outstanding immediately prior to the effective time of the Partnership Merger held by a minority partner will be converted into the right to receive, at the election of such minority partner, the common stock merger consideration or 0.3814 new Simon OP units; (ii) certain Taubman OP units issued and outstanding immediately prior to the effective time of the Partnership Merger held by the Taubman family members will remain outstanding as units of partnership interest in the Surviving Taubman operating partnership; and (iii) all other Taubman OP units issued and outstanding immediately prior to the effective time of the Partnership Merger held by the Taubman family members will be converted into the right to receive the common stock merger consideration;
immediately following the effective time of the Partnership Merger, at the effective time of the LLC Conversion, the Surviving Taubman operating partnership will be converted into a Delaware limited liability company pursuant to the LLC Conversion, in which each unit of partnership interest in the Surviving Taubman operating partnership that is owned by the Taubman family members, Merger Sub 1 or by Taubman immediately prior to the effective time of the LLC Conversion will be converted into one Joint Venture unit;
immediately prior to the effective time of the REIT Merger, Taubman will issue a redemption notice and cause funds to be set aside to pay the redemption price for each share of Taubman Series J Preferred Stock and Taubman Series K Preferred Stock, at their respective liquidation preference of $25.00 plus all accumulated and unpaid dividends to, but not including, the redemption date of such share (the “Redemption”); and
at the effective time of the REIT Merger, (i) each share of Taubman common stock issued and outstanding immediately prior to the effective time of the REIT Merger (other than certain excluded shares) will be converted into the right to receive the common stock merger consideration; and (ii) each share of Taubman Series B preferred stock will be converted into the right to receive the Series B preferred stock merger consideration.
Following the Mergers and the LLC Conversion, the Simon operating partnership will own 100% of the outstanding equity of Surviving TCO, Surviving TCO will own directly or indirectly 80% of the limited liability company interests of the Joint Venture, and the Taubman family members will own the remaining 20% of the limited liability company interests of the Joint Venture (assuming, for purposes of this calculation, that Taubman OP units issuable under the Option Deferral Agreement become outstanding limited liability company interests of the Joint Venture). Surviving TCO and the Taubman family members will enter into the JV agreement with respect to the Joint Venture at the time of the LLC Conversion. See “The JV Agreement.”
For a further discussion of the effects of the Transactions, see “Special Factors—Certain Effects of the Transactions.”
Treatment of Company Equity Awards (Page 60)
Company Restricted Stock Units, Performance Stock Units, Deferred Stock Units and Dividend Equivalent Rights
Upon the effective time of the REIT Merger: (1) each outstanding TCO RSU and each outstanding TCO PSU that vests in accordance with its terms in connection with the closing of the REIT Merger will automatically convert into the right to receive the common stock merger consideration (with such TCO PSUs vesting based on the greater of the average of actual performance achievement, as of the closing, of the two performance metrics applicable to such grants, and target performance); (2) each outstanding TCO RSU and TCO PSU that is not eligible to vest in accordance with its terms in connection with the closing of the REIT Merger will be converted into a cash substitute award to be paid (A) with respect to any such award granted prior to 2020, in accordance with the same service-vesting schedule that applied to the original TCO RSU or TCO PSU award and (B) with respect to any such award granted in 2020, in accordance with the same vesting schedule (including performance-vesting conditions) that
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applied to the original TCO RSU or TCO PSU award; (3) each outstanding TCO DSU will be converted into the right to receive the common stock merger consideration; and (4) each TCO DER granted in tandem with any TCO RSU or TCO PSU will be treated in the same manner as the outstanding TCO RSU or TCO PSU to which such TCO DER relates.
Also, upon the effective time of the Partnership Merger, each outstanding time-vesting and performance-vesting Taubman Incentive Unit will vest and be converted into a Taubman OP unit (with such Taubman Incentive Units vesting based on the greater of the average of actual performance achievement, as of the closing, of the two performance metrics applicable to such grants, and target performance), which shall then be treated in the same manner (and having the right to the same election) as the Taubman OP units held by the minority partners.
Finally, at the effective time of the LLC Conversion, the Option Deferral Agreement will be deemed to be amended so that each Option Deferred unit will represent the right to receive, following the LLC Conversion, one Joint Venture unit, and will remain subject to all other terms and conditions of the Option Deferral Agreement.
Interests of Taubman’s Directors and Executive Officers in the Transactions (Page 59)
In considering the recommendations of the Special Committee and of the Taubman Board with respect to the merger agreement, you should be aware that, aside from their interests as shareholders of the Company, the Company’s directors and executive officers may have interests in the Transactions that may be different from, or in addition to, those of the other Taubman shareholders. In particular, several of Taubman’s directors and executive officers are members of the Taubman family and own interests in TRG. Following the Transactions, the Simon operating partnership will own 100% of the outstanding equity of Surviving TCO, Surviving TCO will own 80% of the limited liability company interests of the Joint Venture, and the Taubman family members will own the remaining 20% of the limited liability company interests of the Joint Venture (assuming, for purposes of this calculation, that Taubman OP units issuable under the Option Deferral Agreement become outstanding limited liability company interests of the Joint Venture). Surviving TCO and the Taubman family members will enter into the JV agreement with respect to the Joint Venture at the time of the LLC Conversion in the form attached as Exhibit B to the merger agreement and described further in this proxy statement under the caption “The JV Agreement.” Other interests of the Company’s directors and executive officers that may be different from, or in addition to, the interests of the Company’s shareholders include:
The vesting of certain outstanding and unvested TCO RSUs and TCO PSUs, as applicable, held by executive officers of the Company will be accelerated pursuant to their terms (except that TCO PSUs granted prior to 2020 will become vested based on the greater of the average of actual performance achievement, as of the closing, of the two performance metrics applicable to such grants, and target performance), and the executive officers will receive the common stock merger consideration in respect of such awards pursuant to the merger agreement in connection with the completion of the Transactions.
TCO RSUs and TCO PSUs held by executive officers of the Company, the vesting of which will not be accelerated pursuant to their terms (including awards that were granted in March of 2020 in the ordinary course of business consistent with past practice), will be converted into cash substitute awards, on a per share basis, in an amount equal to the common stock merger consideration, which will become vested and paid in accordance with the same service-vesting schedule that applied to the original TCO RSU or TCO PSU award (and for TCO PSUs that were granted in March of 2020, in accordance with performance-vesting conditions, which will, after the closing, vest based solely on achievement of pre-established NOI growth targets), and paid if and to the extent they become vested in accordance with their terms after the Transactions. These cash substitute awards are also generally subject to vesting upon a qualifying termination of employment occurring within two years after the completion of the Transactions.
TCO DSUs held by directors, to the extent unvested as of the closing of the Transactions, will become fully vested and the directors will receive the common stock merger consideration in respect of such awards pursuant to the merger agreement in connection with the completion of the Transactions.
TCO DERs that relate to any TCO RSUs or TCO PSUs will be treated in the same manner as the TCO RSUs or TCO PSUs, as applicable, to which the TCO DER relates, with TCO DERs that relate to TCO RSUs or TCO PSUs that become cash substitute awards continuing to accrue, at the rate set forth in the merger agreement (a “cash substitute DER”), and will be paid if and to the same extent the cash substitute awards to which the TCO DERs relate become vested and payable in accordance with their terms after the completion of the Transactions.
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Time-vesting and performance-vesting Taubman Incentive Units that vest in accordance with their terms in connection with the closing of the Transactions will vest and will automatically convert into a Taubman OP unit (with such performance-vesting Taubman Incentive Units vesting based on the greater of the average of actual performance achievement, as of the closing, of the two performance metrics applicable to such grants, and target performance), which shall then be treated in the same manner (and have the right to the same election) as all other Taubman OP units held by the minority partners.
At the effective time of the LLC Conversion, the Option Deferral Agreement will be deemed to be amended so that each Option Deferred unit will represent the right to receive, following the LLC Conversion, one Joint Venture unit, and will remain subject to all other terms and conditions of the Option Deferral Agreement.
The Company’s executive officers as of the effective time of the Transactions are expected to remain the executive officers of the Joint Venture.
Executive officers (other than R. Taubman and W. Taubman) are entitled to severance benefits if they experience a qualifying termination of employment within a specified period following the closing of the Transactions, which benefits include cash payments in respect of lost base salary and bonus amounts and accelerated vesting of cash substitute awards (described below), among other benefits.
The Company’s directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement, the Company’s articles of incorporation and Surviving TCO’s limited liability company agreement.
These interests are discussed in more detail in the section entitled “Special Factors—Interests of Taubman’s Directors and Executive Officers in the Transactions.” The Special Committee and the Taubman Board were aware of the different or additional interests described herein and considered those interests along with other matters in recommending and/or approving, as applicable, the merger agreement and the Transactions, including the REIT Merger.
Interests of Certain Other Shareholders in the Transactions (Pages 48, 51, 104)
In considering the recommendation of the Taubman Board, you should be aware that the Taubman family members, including our CEO, R. Taubman, and COO, W. Taubman, may have interests in the Transactions that may be different from, or in addition to, those of the other Taubman shareholders. The Taubman family members will have equity interests in Surviving Taubman operating partnership after the consummation of the Transactions. These interests may have created or will create potential conflicts of interest. The Special Committee and the Taubman Board were aware of these interests during their respective deliberations on the merits of the Transactions and in making their decisions to recommend and approve, respectively, the merger agreement and the transactions contemplated by the merger agreement. These interests are discussed under the captions “Special Factors—The Taubman Filing Persons’ Purposes and Reasons for the Transactions,” “Special Factors—Position of the Taubman Filing Persons as to the Fairness of the REIT Merger,” “Special Factors—Interests of Taubman’s Directors and Executive Officers in the Transactions” and “The JV Agreement.”
Intent to Vote in Favor of the Mergers (Page 67)
Our directors and executive officers have informed us that, as of the date of this proxy statement, they intend to vote all of the shares of Taubman voting stock owned directly by them in favor of the Merger Agreement Proposal and each of the other proposals listed in this proxy statement. As of [•], 2020, the record date for the special meeting, our directors and executive officers directly owned, in the aggregate, [•] shares of Taubman common stock and [•] shares of Taubman Series B preferred stock entitled to vote at the special meeting, or collectively approximately [•]% of the outstanding shares of Taubman voting stock entitled to vote at the special meeting. See also “The Voting Agreement.
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The Taubman Family Members’ Obligation to Simon to Vote in Favor of the Merger Agreement Proposal (Page 68)
Under the voting agreement, the Taubman family members party thereto have covenanted to Simon to, among other things, vote any shares of Taubman voting stock owned by them in favor of the Merger Agreement Proposal and the Adjournment Proposal at the special meeting. As of April 22, 2020, the Taubman family members party to the voting agreement, in aggregate, have the power to vote approximately 30% of the outstanding shares of Taubman voting stock. For more information regarding the voting agreement, see “The Voting Agreement.
Alternative Acquisition Proposals (Pages 86, 87)
The “Go-Shop” Period
Under the merger agreement, from the date of the merger agreement until 11:59 p.m., New York City time, on March 25, 2020 (the “No-Shop Period Start Date”), Taubman and the Taubman operating partnership and their respective directors, officers, employees, accountants, consultants, legal counsel, financial advisors and agents and other representatives (collectively, “Representatives”), had the right to, among other things: (1) solicit, seek, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any inquiry, proposal or offer that constitutes, or that could constitute, an Acquisition Proposal (as defined in the section entitled “The Merger Agreement—The ‘Go-Shop’ Period”) and (2) engage in, enter into, continue or otherwise participate in any discussions or negotiations with any person with respect to any Acquisition Proposals and cooperate with or assist or participate in or facilitate any such inquiries, proposals, offers, discussions or negotiations or any effort or attempt to make any Acquisition Proposals, as further described under the section entitled “The Merger Agreement—The ‘Go-Shop’ Period.”
The “No-Shop” Period
Under the merger agreement, except as it may relate to any Excluded Party (as defined in the section entitled “The Merger Agreement—The ‘No-Shop’ Period”), from the No-Shop Period Start Date until the effective time of the REIT Merger, Taubman and the Taubman operating partnership have agreed not to, and to instruct each of their respective Representatives not to, directly or indirectly, among other things and subject to certain exceptions: (1) solicit, initiate or propose the making or submission of, or knowingly encourage or facilitate the making or solicitation of, any offer or proposal that constitutes or would reasonably be expected to lead to an Acquisition Proposal; (2) furnish to any person any non-public information relating to Taubman or its subsidiaries with the intent to induce the making or submission of, or to knowingly encourage, facilitate or assist, an Acquisition Proposal; (3) participate in, knowingly facilitate or engage in discussions or negotiations with any person with respect to an Acquisition Proposal; (4) enter into any letter of intent, memorandum of understanding, agreement in principle, investment agreement, merger agreement, acquisition agreement or other contract relating to an Acquisition Proposal or that would reasonably be expected to lead to an Acquisition Proposal, other than an Acceptable Confidentiality Agreement (as defined under the section entitled “The Merger Agreement—The ‘No-Shop’ Period”); or (5) reimburse or agree to reimburse the expenses of any other person (other than the Representatives of Taubman or the Taubman operating partnership) in connection with an Acquisition Proposal or any inquiry, discussion, offer or request that would reasonably be expected to lead to an Acquisition Proposal.
Notwithstanding the foregoing restrictions, under certain specified circumstances, from the No-Shop Period Start Date and continuing until Taubman’s receipt of the Taubman shareholder approval, Taubman and the Taubman operating partnership and their respective Representatives may, among other things, after giving Parent reasonably prompt notice of its intent to do so, participate or engage in discussions or negotiations with, furnish non-public information relating to Taubman or any of its subsidiaries to, or afford access to the business, properties, assets, books, records or other non-public information, or to any personnel, of, Taubman or any of its subsidiaries pursuant to an Acceptable Confidentiality Agreement to, any person that has made, renewed or delivered to Taubman an Acquisition Proposal after the date of the merger agreement, and otherwise facilitate such Acquisition Proposal or assist such person (and its Representatives and financing sources) with such Acquisition Proposal (in each case, if requested by such person), if the Special Committee has determined in good faith (after consultation with its financial advisors and outside legal counsel) that such Acquisition Proposal either constitutes a Superior Proposal or is reasonably likely to lead to a Superior Proposal. For more information, please see “The Merger Agreement—The ‘No-Shop’ Period.”
The “Go-Shop” and “No-Shop” provisions are described in more detail in the sections entitled “The Merger Agreement—The ‘Go-Shop’ Period” and “The Merger Agreement—The ‘No-Shop’ Period.”
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Termination (Page 102)
Taubman or Simon may terminate the merger agreement at any time before the effective time of the REIT Merger under the following circumstances (and subject to certain conditions):
by mutual written consent of Taubman and Simon;
if the Transactions have not been completed on or before February 9, 2021 (the “end date”);
if any governmental entity of competent authority issues a final, non-appealable order or enacts an applicable law that prohibits, makes illegal, enjoins, or otherwise restricts or prevents the consummation of the Transactions; or
if the Taubman shareholder approval has not been obtained at a duly convened meeting of Taubman shareholders.
In addition, Taubman may terminate the merger agreement under the following circumstances (and subject to certain conditions):
at any time before the effective time of the REIT Merger, if the Simon parties have breached any representation, warranty or covenant contained in the merger agreement, or if any representation or warranty of such party has become untrue, in each case, such that, if such breach or failure to be true occurs or continues on the closing date, the conditions to closing relating to the accuracy of such party’s representations and warranties or the performance by such party of its covenants under the merger agreement would not be satisfied as of the closing date (subject, as applicable, to a 45-day cure period); or
prior to Taubman’s receipt of the Taubman shareholder approval, in order to enter into a definitive written agreement providing for a Superior Proposal in compliance with the “No-Shop” provisions of the merger agreement.
In addition, Simon has certain rights to terminate the merger agreement under the following circumstances (and subject to certain conditions):
at any time before the effective time of the REIT Merger, if Taubman or the Taubman operating partnership has breached any representation, warranty or covenant contained in the merger agreement (other than the “No-Shop” provisions), or if any representation or warranty of such party has become untrue, in each case, such that, if such breach or failure to be true occurs or continues on the closing date, the conditions to closing relating to the accuracy of such party’s representations and warranties or the performance by such party of its covenants under the merger agreement would not be satisfied as of the closing date (subject, as applicable, to a 45-day cure period); or
prior to Taubman’s receipt of the Taubman shareholder approval, if a Taubman Board recommendation change has occurred or if Taubman has willfully breached the “No-Shop” provisions of the merger agreement.
In some cases, termination of the merger agreement may require the Taubman operating partnership to pay a termination fee to Simon as described below.
Termination Fees (Page 94)
Upon a termination of the merger agreement under certain circumstances, the Taubman operating partnership will be required to pay a termination fee to Simon of $111,851,783. If such termination had occurred prior to the No-Shop Period Start Date under certain circumstances (and for a limited period beyond the No-Shop Period Start Date in certain cases), the Taubman operating partnership would have been be required to pay a termination fee to Simon of $46,604,909.
For more information, see “The Merger Agreement—Termination Fees.”
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Specific Performance (Page 100)
The parties will be entitled to an injunction to prevent a breach or threatened breach of the merger agreement and to enforce specifically the performance of the terms and provisions of the merger agreement, including the right of a party to cause the other parties to consummate the Transactions, in addition to any other remedy to which they are entitled at law or in equity.
Financing (Page 72)
It is expected that the funds necessary to complete the Transactions will come from the working capital of Simon and the existing credit facilities of the Simon operating partnership. Simon has no alternative financing arrangements.
Material U.S. Federal Income Tax Consequences of the REIT Merger (Page 68)
The exchange of Taubman common stock for cash in the REIT Merger will be a taxable transaction for U.S. federal income tax purposes. A U.S. holder (as defined in the discussion under the heading “Special Factors—Material U.S. Federal Income Tax Consequences of the REIT Merger”) of Taubman common stock who receives cash in the REIT Merger is generally expected to recognize gain or loss in an amount equal to the difference, if any, between (1) the amount of cash received and (2) such U.S. holder’s adjusted tax basis in the Taubman common stock exchanged therefor. Subject to the exceptions discussed under the heading “Special Factors—Material U.S. Federal Income Tax Consequences of the REIT Merger—Non-U.S. Holders,” non-U.S. holders are generally not expected to be subject to U.S. federal income tax on the gain or loss recognized on cash received with respect to their Taubman common stock pursuant to the REIT Merger.
Holders of shares of Taubman common stock should read “Special Factors—Material U.S. Federal Income Tax Consequences of the REIT Merger” beginning on page 68 for a more detailed discussion of the U.S. federal income tax consequences of the receipt the common stock merger consideration in exchange for Taubman common stock pursuant to the REIT Merger. Such holders should also consult their tax advisors for a complete analysis of the effect of the REIT Merger on their U.S. federal, state, local and/or foreign taxes in light of their particular circumstances.
The Special Meeting (Page 75)
The special meeting of Taubman shareholders will be held on [•], 2020, starting at [•] A.M., Eastern Time, at [•]. At the special meeting, holders of Taubman voting stock will be asked to consider and vote upon:
The Merger Agreement Proposal;
The Advisory Compensation Proposal; and
The Adjournment Proposal.
As part of our precautions regarding the coronavirus or COVID-19, the special meeting may be held solely by means of remote communication rather than in person. If we take this step, we will announce the decision to do so in advance and provide details on how to participate in a press release issued by the Company and on our website, www.taubman.com. We will also file the press release with the SEC as definitive additional solicitation material. We encourage you to vote by proxy—over the Internet, by telephone or by mail—well in advance of the special meeting, to ensure your shares are represented whether or not you decide to attend.
Record Date and Quorum (Page 75)
The record holders of Taubman voting stock at the close of business on [•], 2020 (the “record date”) are entitled to receive notice of the special meeting and to vote the shares of Taubman voting stock that they held on the record date at the special meeting. Each outstanding share of Taubman voting stock is entitled to one vote on each matter to be voted upon at the special meeting. As of the record date, [•] shares of Taubman voting stock were outstanding, consisting of [•] shares of Taubman common stock and [•] shares of Taubman Series B preferred stock.
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The presence at the special meeting, in person or by proxy, of the holders of a majority of the shares of Taubman voting stock outstanding on the record date will constitute a quorum for all purposes, permitting Taubman to conduct its business at the special meeting.
For more information, see “The Special Meeting—Record Date and Quorum.”
Required Votes (Pages 79, 121, 122)
The Merger Agreement Proposal
The Merger Agreement Proposal requires the approval of (i) the holders of at least two-thirds of the outstanding shares of Taubman voting stock entitled to vote thereon (voting together as a single class); (ii) the holders of at least a majority of the outstanding shares of Taubman Series B preferred stock entitled to vote thereon; and (iii) the holders of at least a majority of the outstanding shares of Taubman voting stock entitled to vote thereon (voting together as a single class), excluding the outstanding shares of Taubman voting stock owned of record or beneficially by the Taubman family members. If you fail to vote on the Merger Agreement Proposal, the effect will be the same as a vote against the Merger Agreement Proposal. The Taubman family members have covenanted to Simon in the voting agreement to vote all of the shares of Taubman voting stock that they hold in favor of the approval of the Merger Agreement Proposal.
The Advisory Compensation Proposal
The Advisory Compensation Proposal requires the approval of two-thirds of the outstanding shares of Taubman voting stock entitled to vote thereon, voting together as a single class.
The Adjournment Proposal
The Adjournment Proposal will be approved if the shares of Taubman voting stock cast in favor of such proposal exceed the shares of Taubman voting stock cast against such proposal.
The Voting Agreement (Page 101)
In connection with the execution of the merger agreement, on February 9, 2020, Simon and certain Taubman family members entered into the voting agreement whereby each of those Taubman family members, has covenanted to Simon to, among other things, vote any of its shares of Taubman voting stock in favor of the Merger Agreement Proposal and the Adjournment Proposal at the special meeting. As of April 22, 2020, the Taubman family members party to the voting agreement, in aggregate, have the power to vote approximately 30% of the outstanding shares of Taubman voting stock. For more information about the voting agreement, see “The Voting Agreement.”
The JV Agreement (Page 104)
Under the merger agreement, immediately following the LLC Conversion, Surviving TCO and the Taubman family members will enter into the JV agreement with respect to the Joint Venture that will define the rights, duties and responsibilities of Surviving TCO and the Taubman family members as members of the Joint Venture. At the time of the LLC Conversion, Surviving TCO will hold 80% of the common units of the Joint Venture and the Taubman family members will hold the remaining 20% (assuming, for purposes of this calculation, that Taubman OP units issuable under the Option Deferral Agreement are outstanding interests of the Joint Venture). For more information on the JV agreement, see “The JV Agreement.
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QUESTIONS AND ANSWERS
The following questions and answers address briefly some questions you may have regarding the special meeting, the merger agreement and the Transactions, including the Mergers. These questions and answers may not address all questions that may be important to you as a shareholder of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.
Q:
When and where is the special meeting?
A:
[•] A.M., Eastern Time, on [•], 2020, at [•]. As part of our precautions regarding the coronavirus or COVID-19, the special meeting may be held solely by means of remote communication rather than in person. If we take this step, we will announce the decision to do so in advance and provide details on how to participate in a press release issued by the Company and on our website, www.taubman.com. We will also file the press release with the SEC as definitive additional solicitation material. We encourage you to vote by proxy—over the Internet, by telephone or by mail—well in advance of the special meeting, to ensure your shares are represented whether or not you decide to attend.
Q:
Who can attend and vote at the special meeting?
A:
All holders of Taubman common stock and Taubman Series B preferred stock as of the close of business on [•], 2020, the record date for voting at the special meeting, including shareholders of record and beneficial owners of Taubman common stock and Taubman Series B preferred stock registered in the “street name” of a bank, broker or other nominee, are invited to attend the special meeting. If you are a shareholder of record, please be prepared to provide proper identification, such as a driver’s license. If you hold your shares in “street name,” you will need to provide proof of ownership, such as a recent account statement or letter from your bank, broker or other nominee, along with proper identification.
Q:
What is a quorum?
A:
The presence at the special meeting, in person or, in the event that the special meeting is held by means of remote communication, virtually, or by proxy, of the holders of a majority of the shares of Taubman voting stock outstanding on the record date will constitute a quorum for all purposes. As of the record date, [•] shares of Taubman voting stock were outstanding, consisting of [•] shares of Taubman common stock and [•] shares of Taubman Series B preferred stock. If you submit a proxy but fail to provide voting instructions or abstain on any of the proposals listed on the proxy card, your shares will be counted for purpose of determining whether a quorum is present at the special meeting. If your shares are held in “street name” by your bank, broker or other nominee and you do not tell the bank, broker or other nominee how to vote your shares, these shares will not be counted for purposes of determining whether a quorum is present for the transaction of business at the special meeting.
Q:
How many votes do I have?
A:
At the special meeting, holders of Taubman common stock and Taubman Series B preferred stock will each have one vote per share that our records show are owned by such holder as of the record date.
Q:
What are the proposed Transactions?
A:
Pursuant to the merger agreement, subject to the satisfaction or waiver of certain conditions, in the Partnership Merger, Merger Sub 2 will be merged with and into the Taubman operating partnership and, in the REIT Merger, the Company will be merged with and into Merger Sub 1. Upon completion of the Partnership Merger, the Taubman operating partnership will survive, as the Surviving Taubman operating partnership, and the separate existence of Merger Sub 2 will cease. Upon completion of the REIT Merger, Merger Sub 1 will survive, as Surviving TCO, and the separate existence of the Company will cease. Immediately following the Partnership Merger, in the LLC Conversion, the Surviving Taubman operating partnership will be converted into the Joint Venture, a Delaware limited liability company.
If the REIT Merger is completed, holders of Taubman common stock will be entitled to receive the common stock merger consideration of $52.50 in cash for each share of Taubman common stock held and holders of
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Taubman Series B preferred stock will be entitled to receive, for each share of Taubman Series B preferred stock held, the Series B preferred stock merger consideration of an amount in cash equal to the common stock merger consideration, divided by 14,000. Immediately prior to the effective time of the REIT Merger, Taubman will issue a redemption notice and cause funds to be set aside to pay the redemption price for each share of Taubman Series J Preferred Stock and each share of Taubman Series K Preferred Stock, at their respective liquidation preference of $25.00 plus all accumulated and unpaid dividends to, but not including, the redemption date of such share. If the Partnership Merger is completed, holders of Taubman OP units who are not Taubman family members will be entitled to receive, at their election, the common stock merger consideration or 0.3814 Simon OP units, certain Taubman OP units held by the Taubman family members will remain outstanding as units of partnership interest in the surviving Taubman operating partnership and all other Taubman OP units held by the Taubman family members will be converted into the right to receive the common stock merger consideration. Following the Mergers and the LLC Conversion, the Simon operating partnership will own 100% of the outstanding equity of Surviving TCO, Surviving TCO will own 80% of the limited liability company interests of the Joint Venture and the Taubman family members will own the remaining 20% of the limited liability company interests of the Joint Venture.
For a discussion of the merger agreement and the Transactions, see “The Merger Agreement.
Q:
What will holders of Taubman common stock receive in the REIT Merger?
A:
If the REIT Merger is completed, holders of shares of Taubman common stock (other than shares of Taubman common stock owned by the Company as treasury stock, by any direct or indirect wholly owned subsidiary of the Company, by any of the Simon parties or by any direct or indirect wholly owned subsidiary of the Simon parties) will be entitled to receive $52.50 in cash for each share of Taubman common stock issued and outstanding immediately prior to the effective time of the REIT Merger, without interest and less applicable withholding taxes.
Q:
What will holders of Taubman Series B preferred stock receive in the REIT Merger?
A:
If the REIT Merger is completed, holders of Taubman Series B preferred stock will be entitled to receive, for each share of Taubman Series B preferred stock held, an amount in cash equal to the common stock merger consideration, divided by 14,000.
Q:
What will holders of Taubman Equity Awards granted under the Taubman Stock Plans receive in the REIT Merger?
A:
Upon the effective time of the REIT Merger: (1) each outstanding TCO RSU and each outstanding TCO PSU that vests in accordance with its terms in connection with the closing of the REIT Merger will automatically convert into the right to receive the common stock merger consideration (with such TCO PSUs vesting based on the greater of the average of actual performance achievement, as of the closing, of the two performance metrics applicable to such grants, and target performance); (2) each outstanding TCO RSU and TCO PSU that is not eligible to vest in accordance with its terms in connection with the closing of the REIT Merger will be converted into a cash substitute award to be paid (A) with respect to any such award granted prior to 2020, in accordance with the same service-vesting schedule that applied to the original TCO RSU or TCO PSU award and (B) with respect to any such award granted in 2020, in accordance with the same vesting schedule (including performance-vesting conditions) that applied to the original TCO RSU or TCO PSU award; (3) each outstanding time-vesting and performance-vesting Taubman Incentive Unit will vest and be converted into a Taubman OP unit (with such Taubman Incentive Units vesting based on the greater of the average of actual performance achievement, as of the closing, of the two performance metrics applicable to such grants, and target performance), which shall then be treated in the same manner (and having the right to the same election) as all other Taubman OP units held by the minority partners; (4) each TCO DER granted in tandem with any TCO RSU or TCO PSU will be treated in the same manner as the outstanding TCO RSU or TCO PSU to which such TCO DER relates; and (5) each outstanding TCO DSU will be converted into the right to receive the common stock merger consideration. Finally, at the effective time of the LLC Conversion, the Option Deferral Agreement will be deemed to be amended so that each Option Deferred unit will represent the right to receive, following the LLC Conversion, one Joint Venture unit and will remain subject to all other terms and conditions of the Option Deferral Agreement.
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Q:
How does the common stock merger consideration compare to the market price of the Taubman common stock prior to the announcement of the REIT Merger?
A:
The $52.50 per share to be paid in respect of each share of Taubman common stock represents: an implied premium of 98.7% to the closing price for Taubman common stock of $26.42 on January 31, 2020, the last trading day prior to market rumors emerging that Simon was engaging in discussions to acquire Taubman, and a 51% premium to the closing price for the Taubman common stock on February 7, 2020 (the last trading day before the announcement of the merger agreement on February 10, 2020).
Q:
What matters will be voted on at the special meeting?
A:
You will be asked to vote on the following proposals:
the Merger Agreement Proposal;
the Advisory Compensation Proposal; and
the Adjournment Proposal.
For more information, see “The Merger Agreement Proposal,” “The Advisory Compensation Proposal,” and “Adjournment Proposal.”
Q:
How does the Taubman Board recommend that I vote?
A:
Based in part on the unanimous recommendation of the Special Committee, the Taubman Board unanimously recommends that our shareholders vote:
FOR” the Merger Agreement Proposal;
FOR” the Advisory Compensation Proposal; and
FOR” the Adjournment Proposal.
You should read “Special Factors—Reasons for the Transactions and Recommendation of the Special Committee and the Taubman Board.” for a discussion of the factors that the Special Committee and the Taubman Board considered in deciding to recommend and/or approve, as applicable, the merger agreement and the Transactions.
Q:
What vote is required to approve the Merger Agreement Proposal?
A:
The Merger Agreement Proposal requires the approval of (1) the holders of at least two-thirds of the outstanding shares of Taubman voting stock entitled to vote thereon (voting together as a single class), (2) the holders of at least a majority of the shares of the Taubman Series B preferred stock entitled to vote thereon, and (3) the holders of at least a majority of the outstanding shares of Taubman voting stock entitled to vote thereon (voting together as a single class), but excluding the outstanding shares of Taubman voting stock owned of record or beneficially by the Taubman family members. If you fail to vote on the Merger Agreement Proposal, the effect will be the same as a vote against the Merger Agreement Proposal.
Q:
If my shares are held by my bank, broker or other nominee on my behalf in “street name,” will my bank, broker or other nominee vote my shares for me?
A:
No. In accordance with the rules of NYSE, banks, brokers and other nominees who hold Taubman voting stock in “street name” for their customers do not have discretionary authority to vote those shares with respect to the Merger Agreement Proposal, the Advisory Compensation Proposal, or the Adjournment Proposal. Accordingly, if banks, brokers or other nominees do not receive specific voting instructions from the beneficial owners of those shares, they are not permitted to vote those shares with respect to any of the proposals to be presented at the special meeting. As a result, if you hold your Taubman voting stock in “street name” and you do not provide voting instructions for any of the proposals, your Taubman voting stock will (1) not be counted for purposes of determining whether a quorum is present at the special meeting, (2) have the same effect as a vote “AGAINST” the Merger Agreement Proposal and Advisory Compensation Proposal and (3) assuming a quorum is present, have no effect on the Adjournment Proposal.
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Q:
May I vote in person?
A:
Yes. Shareholders of record will be able to attend the special meeting in person and complete a written ballot or, in the event that the special meeting is held by means of remote communication, attend the special meeting virtually and complete a virtual ballot, whether or not you sign and return your proxy card. If you are not a shareholder of record, but instead your shares are held by a bank, broker or other nominee on your behalf in “street name,” you must provide a proxy executed in your favor from your bank, broker or other nominee in order to be able to vote in person at the special meeting or virtually in the event that the special meeting is held by means of remote communication. If you hold your shares through The Taubman Company and Related Entities Employee Retirement Savings Plan (the 401(k) plan), only Vanguard Fiduciary Trust Company, the trustee for the plan, may vote on your behalf. Accordingly, 401(k) plan participants may not vote their shares in person at the special meeting or virtually in the event that the special meeting is held by means of remote communication. We encourage you to vote by proxy—over the Internet, by telephone or by mail—well in advance of the special meeting, to ensure your shares are represented whether or not you decide to attend.
Q:
Will the Taubman family members vote their voting shares in favor of the merger agreement at the special meeting?
A:
Yes. The Taubman family members and Simon entered into a voting agreement in connection with the execution of the merger agreement. Under the voting agreement, subject to certain exceptions, the Taubman family members have covenanted to Simon to, among other things, vote any shares of Taubman voting stock owned by them in favor of the Merger Agreement Proposal at the special meeting. As of April 22, 2020, the Taubman family members, in aggregate, have the power to vote approximately 30% of the outstanding shares of Taubman voting stock. For a discussion of the Taubman family members’ obligation to Simon to vote in favor of the Merger Agreement Proposal, see “Special Factors—The Taubman Family Members’ Obligation to Simon to Vote in Favor of the Merger Agreement Proposal.
Q:
What effects will the REIT Merger have on shares of Taubman common stock and Taubman Series B preferred stock?
A:
The shares of Taubman common stock are currently registered under the Exchange Act and are listed on NYSE under the symbol “TCO.” The shares of the Taubman Series B preferred stock are not registered under the Exchange Act and are not listed on a national securities exchange. As a result of the REIT Merger, the Company will become privately held and there will be no public market for shares of Taubman common stock or shares of Taubman Series B preferred stock. After the REIT Merger, the shares of Taubman common stock will cease to be listed on NYSE. In addition, registration of the Taubman common stock under the Exchange Act will be terminated.
For more information see “Special Factors—Certain Effects of the Transactions.”
Q:
Who will own the Company and the Taubman operating partnership after the Transactions?
A:
Upon completion of the REIT Merger, Merger Sub 1, a wholly owned subsidiary of the Simon operating partnership, will survive, as Surviving TCO, and the separate existence of the Company will cease. Upon completion of the Partnership Merger, the Taubman operating partnership will survive, as the Surviving Taubman operating partnership, and the separate existence of Merger Sub 2 will cease. Immediately following the Partnership Merger, the Surviving Taubman operating partnership will be converted in the LLC Conversion into the Joint Venture, a Delaware limited liability company. Following the Mergers and the LLC Conversion, the Simon operating partnership will own 100% of the outstanding equity of Surviving TCO, Surviving TCO will own 80% of the limited liability company interests of the Joint Venture and the Taubman family members will own the remaining 20% of the limited liability company interests of the Joint Venture.
Q:
What will happen if the Mergers are not consummated?
A:
If the Mergers are not consummated for any reason, the Company’s shareholders will not receive any payment for their shares in connection with the REIT Merger. Instead, the Company will remain a public company. The Taubman common stock will continue to be listed and traded on NYSE. Upon a termination of the merger agreement, under certain circumstances, the Taubman operating partnership will be required to pay a termination fee to Simon of $46,604,909 if such termination had occurred during the go-shop period (and for a limited period
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beyond the go-shop period in certain cases) and $111,851,783 if such termination occurs after the conclusion of the go-shop period. For more information on the fees that may be payable upon termination of the merger agreement, see “The Merger Agreement—Termination Fees.
Q:
What vote is required to approve the Advisory Compensation Proposal?
A:
Approval, on a non-binding, advisory basis, of the Advisory Compensation Proposal requires the affirmative vote of two-thirds of the shares of Taubman voting stock entitled to vote thereon, voting as a single class.
Q:
What will happen if shareholders do not approve the Advisory Compensation Proposal?
A:
The approval of the Advisory Compensation Proposal is not a condition to the completion of the Mergers or the other Transactions. SEC rules require the Company to seek approval on a non-binding, advisory basis of compensation payable to the Company’s named executive officers in connection with the Transactions. The vote on this proposal is an advisory vote and will not be binding on the Company or Simon. If the Merger Agreement Proposal is approved by Taubman shareholders and the Transactions are completed, the Transactions-related compensation may be paid to the Company’s named executive officers (to the extent such compensation becomes payable pursuant to its terms), even if shareholders fail to approve the Advisory Compensation Proposal.
Q:
What do I need to do now?
A:
We urge you to read this proxy statement carefully, including its annexes and the documents referred to as incorporated by reference in this proxy statement, as well as the related Schedule 13E-3, including the exhibits thereto, filed with the SEC, and to consider how the Mergers and the Transactions affect you. See “Where You Can Find Additional Information.
If you are a shareholder of record, you can ensure that your shares are voted at the special meeting by submitting your proxy via:
the Internet, at the address provided on your proxy card;
telephone, using the toll-free number listed on your proxy card; or
mail, if you do not have access to the Internet or a touch-tone telephone. Please complete, sign, date and return your proxy card in the envelope provided.
If your shares are held by a bank, broker or other nominee on your behalf in “street name,” you should follow the directions provided by your bank, broker or other nominee regarding how to instruct it to vote your shares. Without those instructions, your shares will not be voted, which will have the same effect as voting against the Merger Agreement Proposal.
Q:
Should I send in my stock certificates or other evidence of ownership now?
A:
No. After the Mergers are completed, you will receive a letter of transmittal with detailed written instructions for exchanging your shares of Taubman voting stock for the common stock merger consideration or the Series B preferred stock merger consideration, as applicable. If your shares of Taubman voting stock are held by a bank, broker or other nominee on your behalf in “street name,” you may receive instructions from your bank, broker or other nominee as to what action, if any, you need to take to effect the surrender of your “street name” shares in exchange for the common stock merger consideration or the Series B preferred stock merger consideration, as applicable. Do not send in your certificates now.
Q:
Can I revoke my proxy and voting instructions?
A:
Yes. Your proxy is revocable. If you are a shareholder of record, you may revoke your proxy at any time before the vote is taken at the special meeting by giving written notice of revocation to the Secretary of the Company, Chris Heaphy, 200 East Long Lake Road, Suite 300, Bloomfield Hills, Michigan 48304-2324, by giving written notice of revocation in person at the special meeting, by submitting a new proxy by Internet, using the telephone or by completing, signing, dating and returning a new proxy card by mail to the Company (at the address set forth above), or by attending the special meeting and voting in person or, in the event that the special meeting is held by means of remote communication, virtually (but simply attending the special meeting will not cause your proxy to be revoked).
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Please note that if your shares are held by a bank, broker or other nominee on your behalf in “street name” and you have instructed a bank, broker or other nominee to vote your shares, the above-described options for revoking your voting instructions do not apply, and instead you must follow the instructions received from your bank, broker or other nominee to revoke your voting instructions.
Q:
What happens if I sell my shares of Taubman common stock or Taubman Series B preferred stock before completion of the REIT Merger?
A:
If you transfer your shares of Taubman common stock or Taubman Series B preferred stock, you will have transferred your right to receive the common stock merger consideration or the Series B preferred stock merger consideration, as applicable, in the REIT Merger. In order to receive the common stock merger consideration or the Series B preferred stock merger consideration, as applicable, you must hold your shares of Taubman common stock or Taubman Series B preferred stock, as applicable, through completion of the REIT Merger.
The record date for shareholders entitled to vote at the special meeting is earlier than the date on which the REIT Merger will be consummated. So, if you transfer your shares of Taubman common stock or Taubman Series B preferred stock after the record date but before the special meeting, you will have transferred your right to receive the common stock merger consideration or the Series B preferred stock merger consideration, as applicable, but retained the right to vote at the special meeting.
Q:
Will I have to pay U.S. federal income taxes on the common stock merger consideration I receive in the REIT Merger?
A:
The exchange of Taubman common stock for cash in the REIT Merger will be a taxable transaction for U.S. federal income tax purposes. A U.S. holder (as defined in the discussion under the heading “Special Factors—Material U.S. Federal Income Tax Consequences of the REIT Merger”) of Taubman common stock who receives cash in the REIT Merger is generally expected to recognize gain or loss in an amount equal to the difference, if any, between (1) the amount of cash received and (2) such U.S. holder’s adjusted tax basis in the Taubman common stock exchanged therefor. Subject to the exceptions discussed under the heading “Special Factors—Material U.S. Federal Income Tax Consequences of the REIT Merger—Non-U.S. Holders,” non-U.S. holders are generally not expected to be subject to U.S. federal income tax on the gain or loss recognized on cash received with respect to their Taubman common stock pursuant to the REIT Merger.
Holders of shares of Taubman common stock should read “Special Factors—Material U.S. Federal Income Tax Consequences of the REIT Merger” beginning on page 68 for a more detailed discussion of the U.S. federal income tax consequences of the receipt the common stock merger consideration in exchange for Taubman common stock pursuant to the REIT Merger. Such holders should also consult their tax advisors for a complete analysis of the effect of the REIT Merger on their U.S. federal, state, local and/or foreign taxes in light of their particular circumstances.
Q:
If I do not favor the approval and adoption of the merger agreement, what are my appraisal rights under Michigan law?
A:
If you are a holder of Taubman common stock or Taubman Series B preferred stock as of the record date, you can vote against the Merger Agreement Proposal. You do not have, however, any dissenters’ or appraisal rights with respect to the REIT Merger or the other Transactions, including any right to receive notice with respect to dissenters’ rights under Section 703a of the MBCA, any right or remedy under Sections 762 et seq. of the MBCA, any dissenters’ or appraisal rights under the DRULPA or any dissenters’ or appraisal rights under the Taubman OP agreement.
Q:
Who will solicit and pay the cost of soliciting proxies?
A:
The Company has retained Innisfree M&A Incorporated, a proxy solicitation firm, to assist it in the solicitation of proxies for the special meeting and will pay Innisfree M&A Incorporated a fee not to exceed $[•], plus reimbursement of out-of-pocket expenses. In addition, the Company has agreed to indemnify Innisfree M&A Incorporated against certain liabilities and expenses that relate to or arise out of its solicitation of proxies (subject to certain exceptions). Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward soliciting materials to beneficial owners and will be reimbursed for their reasonable out-of-pocket expenses incurred in sending proxy materials to beneficial owners.
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Q:
What is householding?
A:
We have elected to send a single copy of this proxy statement to any household at which two or more shareholders reside unless one of the shareholders at such address provides notice that he or she desires to receive individual copies or has elected e-mail delivery of proxy materials. A separate proxy card is included in the proxy materials for each of these shareholders. This “householding” practice reduces our printing and postage costs. If you would like to request additional copies of this proxy statement, you can request householding by contacting Innisfree M&A Incorporated as described under “Who can help answer my other questions?” below.
Q:
Who can help answer my other questions?
A:
If you have more questions about the special meeting, the Mergers or the other Transactions, or require assistance in submitting your proxy or voting your shares or need additional copies of the proxy statement or the enclosed proxy card(s), please contact Innisfree M&A Incorporated, which is acting as the proxy solicitation agent and information agent in connection with the Transactions:

Innisfree M&A Incorporated
501 Madison Avenue, 20th Floor
New York, NY 10022
Shareholders may call toll-free at (877) 456-3427
Banks and brokers may call collect at (212) 750-5833
If your shares are held by your bank, broker or other nominee on your behalf in “street name,” you can also call your bank, broker or other nominee for additional information.
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SPECIAL FACTORS
The following, together with the summary of the merger agreement set forth under “The Merger Agreement,” is a description of the material aspects of the REIT Merger. While we believe that the following description covers the material aspects of the REIT Merger, the description may not contain all of the information that is important to you. We encourage you to read carefully this entire document, including the merger agreement attached to this proxy statement as Annex A, for a more complete understanding of the REIT Merger. The following description is subject to, and is qualified in its entirety by reference to, the merger agreement. You may obtain additional information without charge as described in the section “Where You Can Find Additional Information.
Background of the Transactions
The Taubman Board, with the assistance of Taubman’s management and Taubman’s advisors, regularly evaluates Taubman’s strategic direction, potential operational changes and ongoing business plans and opportunities, including in light of Taubman’s performance, competitive dynamics, macroeconomic developments and industry trends, all with a view toward maximizing shareholder value. As part of these evaluations, the Taubman Board has considered a variety of strategic alternatives for Taubman, including the continuation of Taubman as an independent public company, the sale of Taubman, a combination of Taubman with other companies, joint ventures and partnerships, the sale of selected assets, a spin-off of a subset of its portfolio, private placements and various other alternatives to enhance shareholder value. These evaluations also included an assessment of Taubman’s shareholder base, the rights and ownership percentage of members of the Taubman family, Taubman’s share price performance and the challenges facing the mall industry, including as a result of the growth of online retail, continued competition from shopping through alternative means and channels, weakening department store sales and mall tenant bankruptcies (including the bankruptcy of Forever 21 in September 2019).
Among the broad strategic initiatives considered by the Taubman Board in 2019 was a potential joint venture with respect to certain assets of Taubman and Simon, which the Taubman Board believed could help reduce leverage, strengthen Taubman’s balance sheet and reduce Taubman’s overall risk in a challenging retail environment. Accordingly, at the direction of the Taubman Board, on October 24, 2019, Robert S. Taubman (“Mr. R. Taubman”), Chairman of the Taubman Board and President and Chief Executive Officer of Taubman, met for dinner with David Simon, Chairman of the Simon Board and President and Chief Executive Officer of Simon, to explore the possibility of such a joint venture. During this meeting, Mr. Simon indicated that he would be interested in assisting Taubman go private. Mr. R. Taubman responded that he would need to consider such a transaction with the Taubman Board. After the meeting, Mr. R. Taubman consulted with Mr. Myron E. Ullman, III, Taubman’s independent Lead Director, over the course of several days, regarding a potential acquisition of Taubman and the numerous issues that would need to be considered by the Taubman Board, as well as by members of the Taubman family, in any such transaction, if the Taubman Board were to authorize exploring such a transaction. Following discussions between Mr. R. Taubman and Mr. Ullman over the course of several days, Mr. Ullman advised Mr. R. Taubman that he was supportive of exploring such a potential transaction with Simon, and that he understood the various complicated issues for all parties that would need to be evaluated and negotiated, including that both the members of the Taubman family and the unaffiliated shareholders of Taubman would have to approve the transaction, and recommended that Mr. R. Taubman speak with Mr. Simon again to determine Mr. Simon’s willingness to proceed in the framework of a transaction that would address these many complicated issues in a satisfactory manner before bringing this possibility to the full Taubman Board for consideration.
On October 28, 2019, Mr. R. Taubman and Mr. Simon spoke by telephone. Mr. R. Taubman noted various elements of a potential transaction that he expected would be required for him and members of the Taubman family to support such a transaction, as well as emphasizing that any such transaction, and moving forward to consider any such transaction, would also be entirely subject to discussion and approval by the Taubman Board and the independent members of the Taubman Board. Among the terms that Mr. R. Taubman noted were that members of the Taubman family would need to retain a substantial position in the Taubman operating partnership (potentially around two-thirds of their current position), that members of the Taubman family would need to be protected on minimum distributions and the annual budget approval process, that the transaction would not be a deferred sale and therefore Simon would not have any call right with respect to the interests retained by the members of the Taubman family, and that the members of the Taubman family would need an ability to voluntarily exit the Taubman operating partnership at some future point. Messrs. R. Taubman and Simon also discussed the industrial logic of a transaction, and Mr. R. Taubman asked whether the consideration for the unaffiliated public shareholders would consist of all cash or a combination of cash and shares. Mr. Simon stated that he would need to consider that issue, but that his initial
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reaction was that the consideration would be paid 75% in cash and 25% in Simon shares. Mr. R. Taubman noted his expectation that the Taubman family members must not receive any differential consideration in respect of shares or units being sold, as compared to unaffiliated shareholders and unitholders, and that any transaction would be subject to review, recommendation and approval not only of independent directors of Taubman, but of a majority of the voting power not held by members of the Taubman family. Mr. R. Taubman also indicated that he would expect that the Taubman Board would require a “go-shop” as part of any transaction. Following these discussions, Mr. Simon confirmed that he was interested in pursuing a potential transaction and that it would be helpful for Simon to have certain limited, nonpublic information about Taubman in order to further evaluate Simon’s interest. Mr. R. Taubman stated that before Taubman could provide nonpublic information he would need to discuss the matter with the independent members of the Taubman Board, and, if the independent members of the Taubman Board were to approve further engagement, that Taubman and Simon would need to enter into a customary confidentiality and standstill agreement.
On November 1, 2019, the Taubman Board held a meeting, which was attended by members of Taubman senior management. Mr. R. Taubman updated the other members of the Taubman Board on his October 24, 2019 and October 28, 2019 conversations with Mr. Simon, his discussions with Mr. Ullman and the preliminary transaction parameters that Messrs. Simon and R. Taubman had discussed to date. Mr. R. Taubman explained his preliminary views regarding a transaction with Mr. Simon, including the industrial logic of such a transaction and his initial thoughts on the potential post-closing governance and liquidity framework. Mr. R. Taubman further stated that he believed it would be productive for Taubman to provide to Simon, subject to signing an appropriate confidentiality and standstill agreement, certain limited nonpublic information about Taubman to allow the parties to determine whether a transaction acceptable to the Taubman Board might be achievable. Following an executive session of the Taubman Board (with Mr. R. Taubman and members of Taubman senior management recused), the members of the Taubman Board discussed the industrial logic of a potential transaction with Simon, the potential benefits to Taubman shareholders of a potential transaction and the appropriate process for evaluating such a transaction. Following discussion, it was the consensus of such members of the Taubman Board that further consideration of a potential transaction with Simon would be in the best interests of Taubman and its shareholders, and the Taubman Board authorized Mr. R. Taubman and Wachtell, Lipton, Rosen & Katz (“Wachtell Lipton”) and Honigman LLP (“Honigman”), each counsel to Taubman, to negotiate and execute a confidentiality and standstill agreement with Simon and to provide nonpublic information to Simon in order to facilitate the making of an acquisition proposal by Simon.
On November 3, 2019, the Taubman Board held a meeting, which was attended by representatives of Kirkland & Ellis LLP (“Kirkland”), at the invitation of the independent directors, to discuss the potential transaction with Simon. Mr. R. Taubman recused himself from this meeting. The members of the Taubman Board discussed the appropriate process for evaluating such a transaction, including the formation of a properly empowered committee of the Taubman Board consisting solely of independent and disinterested directors for the purpose of reviewing, evaluating and negotiating any potential transaction with Simon and other alternatives that may be available to Taubman. At the meeting, a representative of Kirkland discussed the formation of such a committee. The Taubman Board formed the Special Committee, with Mayree C. Clark, Michael J. Embler, Cia Buckley Marakovits and Myron Ullman III as its members, and appointed Mr. Ullman as its chairman. The Special Committee was delegated the full power and authority of the Taubman Board to review, evaluate and negotiate a potential sale of Taubman and any alternatives that may be available to Taubman, including remaining an independent company, to engage its own advisors and to make a recommendation to the Taubman Board regarding any such transaction. The Taubman Board’s delegation also provided that the Taubman Board would not recommend a potential sale of Taubman to Simon without a prior favorable recommendation by the Special Committee. The Taubman Board also approved the selection of Kirkland as counsel to the Special Committee and Taubman’s other independent directors. The representative of Kirkland reviewed the fiduciary duties of the directors.
Between November 3, 2019 and November 8, 2019, Taubman and Simon negotiated the terms of a confidentiality and standstill agreement, with Wachtell Lipton and Kirkland participating in such negotiations. On November 8, 2019, Taubman and Simon executed the agreement, which included mutual confidentiality terms, as well as reciprocal standstill provisions. Simon thereafter conducted due diligence on Taubman subject to the confidentiality and standstill agreement.
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On November 4, 2019, the Special Committee held a meeting, which was attended by representatives of Kirkland, to discuss the process for selecting a financial advisor to the Special Committee as well as other organizational matters to facilitate the Special Committee’s process.
Between November 4, 2019 and November 11, 2019, the Special Committee evaluated and discussed the potential engagement of multiple potential financial advisors, including Lazard. In connection with the potential engagement of Lazard, Lazard provided to the Special Committee information regarding its relationships with the Taubman family members, Taubman and Simon. On November 11, 2019, the Special Committee selected Lazard to act as its financial advisor. The Special Committee selected Lazard in light of Lazard’s extensive experience in M&A transactions in the REIT industry, its experience representing special committees in acquisitions and its lack of material relationships with the Taubman family members, Taubman and Simon.
On November 15, 2019, the Special Committee held a meeting, which was attended by representatives of Kirkland, to discuss structural aspects of a potential transaction with Simon and the respective roles and responsibilities of advisors in the Special Committee’s process for evaluating a potential transaction.
Also on November 15, 2019, Mr. Simon contacted Mr. R. Taubman and submitted an oral indication of interest (the “November 15 Proposal”) on behalf of Simon to acquire Taubman at a price of $53.00 per Taubman common share, comprised of a to-be-determined mix of cash and shares of Simon common stock. This proposal represented a 51.3% premium over the $35.03 closing price of Taubman’s common shares on November 14, 2019, the day prior to their conversation. Mr. R. Taubman and Mr. Simon discussed a proposed transaction that would provide for Simon’s acquisition of an 80% interest in the Taubman operating partnership, by way of the acquisition of Taubman itself, with members of the Taubman family (i) retaining two-thirds of their interest in the Taubman operating partnership (thus maintaining ownership of a 20% interest in the Taubman operating partnership) and selling one-third of their interest in the Taubman operating partnership to Simon in exchange for the same consideration as the unaffiliated holders of Taubman operating partnership units would receive in the transaction and (ii) selling their shares of Taubman common stock in exchange for the same consideration as the unaffiliated Taubman shareholders would receive in the transaction. Mr. R. Taubman informed Mr. Simon that although he was disappointed with the price proposed by Mr. Simon, the Special Committee would need to review the November 15 Proposal and that Mr. R. Taubman would respond to Mr. Simon following such review.
Later on November 15, 2019, the Special Committee held a meeting, which was attended by Mr. R. Taubman. Mr. R. Taubman provided the Special Committee with an overview of discussions with Mr. Simon to date regarding a potential transaction with Simon, including his November 15, 2019 conversation with Mr. Simon and the November 15 Proposal.
On November 17, 2019, the Taubman Board held a meeting, which was attended by representatives of Taubman’s senior management and Kirkland, Lazard, Wachtell Lipton, Honigman and Goldman, Sachs & Co. (“Goldman”), Taubman’s financial advisor. Mr. R. Taubman provided the Taubman Board with an overview of discussions with Mr. Simon to date regarding a potential transaction with Simon, including his November 15, 2019 conversation with Mr. Simon and the November 15 Proposal. The Taubman Board discussed various aspects of the November 15 Proposal and instructed Mr. R. Taubman to continue discussions with Mr. Simon in order to first negotiate to maximize price for the unaffiliated Taubman shareholders, with further discussions of potential post-closing governance terms to follow.
Following the November 17, 2019 meeting of the Taubman Board, the Special Committee held a meeting, which was attended by all of Taubman’s other independent directors as well as representatives of Kirkland and Lazard. The Special Committee discussed the November 15 Proposal, including structural, financial and governance aspects. The independent directors (other than members of the Special Committee) then left the meeting and the Special Committee discussed potential next steps for the Special Committee’s evaluation process as well as the role of the Special Committee in future interactions between Mr. R. Taubman and Mr. Simon. It was the consensus of the Special Committee that Mr. R. Taubman should continue to discuss the potential transaction with Mr. Simon directly in order to maintain a productive negotiating dynamic, but that Mr. R. Taubman’s next discussion with Mr. Simon should be conducted under the oversight of, and in accordance with appropriate guidelines from, the Special Committee (the “Initial Process Guidelines”), and that the framework for engagement would be revisited on an ongoing basis. The Special Committee instructed the representatives of Kirkland to prepare a draft of the Initial Process Guidelines for the Special Committee’s review, which would be conveyed to Mr. R. Taubman in advance of his next discussion with Mr. Simon.
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On November 18, 2019, the Special Committee held a meeting, which was attended by representatives of Kirkland and Lazard, to further discuss the November 15 Proposal and the process for evaluating and negotiating a potential transaction with Simon. At the meeting, the members of the Special Committee provided input on the Initial Process Guidelines, to be reflected by Kirkland in a written draft of the Initial Process Guidelines.
On November 19, 2019, Kirkland provided a draft of the Initial Process Guidelines to the Special Committee. Later that day, the Special Committee held a meeting to discuss the Initial Process Guidelines. Following the meeting, on November 19, 2019, the Special Committee provided comments on the written draft of the Initial Process Guidelines to Kirkland.
On November 20, 2019, the Special Committee held a meeting, which was attended by several of Taubman’s other independent directors as well as representatives of Kirkland. At the meeting, the representatives of Kirkland reviewed the corporate and governance structure of Taubman and the Taubman operating partnership. The directors discussed the impact of the corporate and governance structure on a potential transaction, including with respect to the treatment of Taubman’s common stock, Taubman’s preferred stock, the Taubman operating partnership’s partnership units and the contractual relationships between Taubman and its subsidiaries and the Taubman family members. The directors also discussed that certain Taubman family members had consent rights over the sale of a number of properties owned by the Taubman operating partnership. The representatives of Kirkland also discussed options for conducting a “market check,” as well as evaluating other strategic and financial alternatives to the potential transaction with Simon, including Taubman continuing to operate as a standalone public company. The Special Committee also discussed the circumstances in which Mr. R. Taubman could be obligated to vote in favor of an alternative proposal and, following discussion, it was the consensus of the Special Committee that they would further discuss this matter and make a proposal to Mr. R. Taubman at the appropriate time. The independent directors (other than members of the Special Committee) then left the meeting and the representatives of Kirkland discussed the draft Initial Process Guidelines as revised after November 19, 2019 to reflect the comments provided by the Special Committee. The revised draft Initial Process Guidelines emphasized, among other things, that the Special Committee must be centrally involved in the evaluation and negotiation processes for any transaction with Simon and provided parameters for discussions with Mr. Simon.
Later on November 20, 2019, members of the Special Committee spoke with Mr. R. Taubman and conveyed the Initial Process Guidelines to Mr. R. Taubman that would govern Mr. R. Taubman’s next discussion with Mr. Simon, which had been scheduled for November 21.
On November 21, 2019, the Special Committee held a meeting, with representatives of Kirkland and Lazard present. The members of the Special Committee discussed the November 20, 2019 conversation with Mr. R. Taubman, noting that Messrs. R. Taubman and Simon intended to have dinner together that evening. Representatives of Lazard then reviewed with the Special Committee preliminary financial analyses relating to the November 15 Proposal, Taubman’s share price performance and past communications from Taubman’s shareholders (including from Land & Buildings Investment Management, LLC, which had communicated from time to time that there were actions the Taubman Board could potentially take to increase shareholder value, including a sale or spin-off of certain Taubman assets, none of which specifically referenced a transaction with Simon). The Special Committee concluded that it should reconvene after Mr. R. Taubman and Mr. Simon spoke that evening.
Later on November 21, 2019, Messrs. R. Taubman and Simon had dinner to discuss the potential transaction. At the dinner, in accordance with the Initial Process Guidelines, Mr. R. Taubman noted that, while he and the Special Committee believed that the November 15 Proposal undervalued Taubman, the Special Committee was prepared to continue engaging to explore a transaction with Simon.
On November 22, 2019, Ms. Marakovits and Ms. Clark spoke telephonically with Mr. R. Taubman, who provided them with an update regarding his November 21 dinner with Mr. Simon.
On November 23, 2019, the Special Committee held a meeting, which was attended by Mr. R. Taubman. At the meeting Mr. R. Taubman provided an update to the Special Committee regarding his November 21 dinner with Mr. Simon, and the Special Committee discussed potential next steps.
On November 25, 2019, the Special Committee held a meeting, which was attended by representatives of Kirkland and Lazard, as well as Mr. R. Taubman. At the meeting Mr. R. Taubman again discussed with the members of the Special Committee his November 21 dinner with Mr. Simon, and they discussed potential next steps.
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On December 1, 2019, the Special Committee held a meeting, with representatives of Kirkland and Lazard present, to discuss drafts of the term sheet for the merger agreement and voting agreement that would require, among other things, the Taubman family members to vote in favor of the contemplated transaction with Simon (the “Transaction Term Sheet”) and the JV agreement (the “JV Term Sheet”), the sequencing of Mr. R. Taubman’s further interactions with Mr. Simon regarding price, transaction terms and post-closing governance, including whether and when to send the Transaction Term Sheet and/or the JV Term Sheet to Simon, and the role of the Special Committee in interactions between Messrs. R. Taubman and Simon. During the meeting, the Special Committee discussed with the representatives of Kirkland and Lazard the potential sequencing of sending the term sheets to Simon and the merits and potential risks of the Special Committee having direct participation in negotiations with Mr. Simon at that time. At the conclusion of the meeting, the Special Committee determined that it would further discuss these matters with Mr. R. Taubman.
On December 2, 2019, the Special Committee held a meeting, which was attended by Mr. R. Taubman and representatives of Kirkland, Lazard, Wachtell Lipton and Goldman. The Special Committee discussed the November 15 Proposal and potential next steps for responding to Simon. Following discussion, the Special Committee instructed Mr. R. Taubman that, before any term sheets were sent to Simon, Mr. R. Taubman should meet with Mr. Simon again to seek to improve Simon’s proposed purchase price. In particular, the Special Committee instructed Mr. R. Taubman that he should not commit to a purchase price less than $63.00 per share, and indicated that the Special Committee could be flexible regarding the mix of cash and shares of Simon common stock in order to achieve the highest possible price (including potentially accepting all cash). The Special Committee concluded that, subject to Mr. R. Taubman’s adherence to these negotiating instructions, in order to avoid disrupting the negotiating dynamic at that time, Mr. R. Taubman would next meet with Mr. Simon without representatives of the Special Committee or Lazard present.
Later on December 2, 2019, Messrs. R. Taubman and Simon had dinner to further discuss the terms of a potential transaction. During the course of these discussions, Mr. Simon made an oral proposal for Simon to acquire Taubman at a price of $58.00 per common share in cash. This proposal represented an 81.3% premium over the $31.99 closing price of Taubman’s common shares on December 2, 2019. Mr. R. Taubman conveyed to Mr. Simon that, based on direction from the Special Committee, he did not believe that the Special Committee would accept Simon’s revised proposal, but that a purchase price of $63.00 per share might be viewed by the Special Committee as acceptable and the committee could be flexible regarding the mix of cash and shares of Simon common stock in order to achieve the highest possible price (including potentially accepting all cash).
On December 3, 2019, the Special Committee held a meeting, which was attended by Mr. R. Taubman and representatives of Kirkland and Lazard. At the meeting, Mr. R. Taubman updated the Special Committee on his discussions with Mr. Simon during their December 2, 2019 dinner and noted that he expected to speak with Mr. Simon again later that week. After discussion, the Special Committee determined that it would meet with Mr. R. Taubman again before his next discussion with Mr. Simon in order to discuss guidelines and the appropriate participants for such discussion.
On December 4, 2019, the Taubman Board held a meeting, which was attended by representatives of Honigman. During the meeting, Mr. R. Taubman provided an update on discussions with Simon to date. Mr. R. Taubman discussed with the Taubman Board the Green Street Advisors (“Green Street”) report that was issued on December 3, 2019 regarding regional mall REITs. Mr. R. Taubman described that while Green Street’s NAV analysis did not change in the report, Green Street had reduced Taubman’s intrinsic value and increased Simon’s intrinsic value, primarily related to Simon’s balance sheet strength. Members of the Taubman Board thereafter discussed the recent discussions with Simon and the Green Street report.
On December 5, 2019, the Special Committee held a meeting, with representatives of Kirkland and Lazard in attendance. At the meeting, the members of the Special Committee considered the merits and potential risks of the Special Committee having direct participation in the upcoming discussion between Mr. R. Taubman and Mr. Simon. Following discussion, it was the consensus of the Special Committee that in light of the risk that adding participants to the discussions between Mr. R. Taubman and Mr. Simon could disrupt the negotiating dynamic and potentially impair the outcome for the unaffiliated Taubman common shareholders in a transaction with Simon, Mr. R. Taubman would attend the upcoming discussion with Mr. Simon without representatives of the Special Committee or Lazard attending, subject to Mr. R. Taubman’s adherence to guidelines from the Special Committee regarding the matters to
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be discussed (the “Additional Process Guidelines”). Representatives of Lazard then reviewed with the Special Committee preliminary financial analyses relating to a potential transaction with Simon, and the members of Special Committee discussed with Lazard the Special Committee’s views on price and Simon’s ability to pay, including the impact of leverage, accretion and consideration mix.
On December 6, 2019, members of the Special Committee spoke with Mr. R. Taubman by telephone to convey the Additional Process Guidelines. The Additional Process Guidelines emphasized, among other things, that Mr. R. Taubman should not commit to a purchase price less than $60.00 per share and should not agree to any final post-closing governance or other non-price terms with potential implications on the value to be received by unaffiliated Taubman common shareholders in a transaction with Simon prior to an initial agreement on price.
Also on December 6, 2019, Messrs. R. Taubman and Simon met for lunch and discussed the potential transaction. During the meeting, Mr. Simon made a revised oral proposal to Mr. R. Taubman for Simon to acquire Taubman for $57.00 per share, in a mix of cash and shares of Simon common stock (which Mr. Simon indicated may likely be 75% in cash and 25% in shares). Mr. R. Taubman conveyed to Mr. Simon that, based on prior feedback from the Special Committee, he did not believe that the Special Committee would accept the proposal. Mr. Simon then made a further revised oral proposal to Mr. R. Taubman for Simon to acquire Taubman for $60.00 per share, again in a mix of cash and shares of Simon common stock (the “Updated December 6 Proposal”). Mr. Simon again indicated that, while he was not yet sure of the cash and stock mix, Simon was leaning toward paying 75% in cash and 25% in Simon shares. This proposal represented a 92.7% premium over the $31.13 closing price of Taubman’s common shares on December 5, 2019, the most recent completed trading day before their discussion. Mr. Simon also asked that Simon receive term sheets outlining the key terms of the merger agreement and the JV agreement. Mr. R. Taubman stated that he would communicate the revised proposal and request for term sheets to the Special Committee.
Later on December 6, 2019, members of the Special Committee spoke with Mr. R. Taubman by telephone. During the discussion, Mr. R. Taubman provided members of the Special Committee with an update regarding his lunch with Mr. Simon and the Updated December 6 Proposal. The members of the Special Committee indicated that the Special Committee would discuss the Updated December 6 Proposal later on December 6, 2019.
Later on December 6, 2019, the Special Committee held a meeting to discuss the Updated December 6 Proposal, with representatives of Kirkland and Lazard in attendance. The members of the Special Committee discussed the telephone call with Mr. R. Taubman earlier that day, the Updated December 6 Proposal and potential responses, including possible outreach to other parties that may potentially be interested in a transaction involving Taubman. Following discussion, the Special Committee determined that Mr. R. Taubman should continue discussions with Simon regarding a potential transaction on the basis of the Updated December 6 Proposal and that the Special Committee should further consider whether to solicit potential interest from additional parties, taking into account the potential benefits and risks of doing so, as well as the likelihood of another party having the scale and strategic focus, the liquidity, balance sheet, and leverage (in particular, during the present challenging environment), the potential synergies, the knowledge of the business, and the understanding of Taubman’s assets and their value, to enable it to present a proposal that could be competitive with the Updated December 6 Proposal. The Special Committee also discussed the potential impact of Taubman’s corporate and governance structure on any potential transaction involving Taubman, including in light of certain Taubman family members having a consent right over the sale of a number of properties of the Taubman operating partnership. At the meeting, representatives of Kirkland also reviewed with the Special Committee drafts of the Transaction Term Sheet and the JV Term Sheet, with the members of the Special Committee providing direction on provisions of the term sheets. The Special Committee then authorized the submission of the term sheets to Simon following the implementation of the feedback provided by the Special Committee at the meeting.
Later on December 6, 2019, Taubman sent drafts of the JV Term Sheet and the Transaction Term Sheet to Simon. The draft of the Transaction Term Sheet contemplated, among other things: (i) a 45-day “open” go-shop period that would permit Taubman to pay a lower termination fee in connection with any alternative proposal that was initially received during the go-shop period, even if the merger agreement was terminated after the go-shop period; (ii) a “fiduciary out” provision that would allow Taubman to terminate the merger agreement to accept a superior proposal during and following the go-shop period; and (iii) a requirement that holders of a majority of the outstanding Taubman common shares and Series B preferred shares, other than the Taubman family members, approve the transaction. The draft of the JV Term Sheet, among other things: (i) contemplated that Mr. R. Taubman would be the chief executive officer of the Joint Venture, with general authority to operate the Joint Venture’s business, subject to
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various consent rights that Simon would have on material transactions and decisions, and the mechanisms for resolving any deadlocks, (ii) provided that starting two years from the closing, subject to certain limitations and procedures, the Taubman family members would be entitled to exchange their equity interests in the Joint Venture for, at the option of the Taubman family members, units in the Simon operating partnership or cash, based on the greater of three alternative valuation mechanisms and (iii) set forth a process for establishing an annual budget, operating plan and distribution policy and provided rules on what would happen if an annual budget, operating plan or distribution policy were not approved.
On December 7, 2019, the Special Committee held a meeting, which was attended by Mr. R. Taubman, members of Taubman senior management and representatives of Kirkland, Lazard, Wachtell Lipton, Honigman and Goldman. At the meeting, the Taubman Board discussed with Mr. R. Taubman, among other things, certain aspects of the term sheets, including termination fees and antitrust efforts and structure matters, as well as potential timing for negotiating a transaction with Simon. During the discussion, the members of the Special Committee provided their views on various transaction terms, with representatives of Kirkland providing perspectives on these topics, and the members of the Special Committee provided direction to Mr. R. Taubman regarding such terms. Mr. R. Taubman noted that he planned to speak with Mr. Simon regarding the term sheets the following day and would reflect the feedback of the Special Committee in his discussions and provide an update to the Special Committee following such discussion.
On December 8, 2019, Messrs. R. Taubman and Simon met to discuss, among other things, the JV Term Sheet and the Transaction Term Sheet, focusing in particular on the JV Term Sheet. At the conclusion of the meeting, Messrs. R. Taubman and Simon agreed that it would be beneficial to hold a meeting on December 9, 2019 to further discuss these matters.
Later on December 8, 2019, the Taubman Board held a meeting, with members of Taubman senior management and representatives of Honigman in attendance. During the meeting, members of the Special Committee and Mr. R. Taubman provided the other members of the Taubman Board with an update on discussions with Simon, including the Updated December 6 Proposal and the distribution of the JV Term Sheet and Transaction Term Sheet to Simon. Mr. R. Taubman also provided an overview of his meeting with Mr. Simon earlier in the day on December 8, 2019. Following discussion, the Taubman Board indicated its support for the Updated December 6 Proposal and Taubman’s continued exploration of a potential transaction with Simon.
On December 9, 2019, Taubman and Simon held a meeting at the offices of Wachtell Lipton in which representatives of Taubman senior management, Simon senior management, Wachtell Lipton, Kirkland, Honigman, Latham & Watkins, LLP, counsel to Simon (“Latham”), and Paul, Weiss, Rifkind, Wharton & Garrison LLP, counsel to Simon (“Paul Weiss”), participated. The parties discussed, among other things, the JV Term Sheet and the Transaction Term Sheet.
Later on December 9, 2019, Simon sent revised drafts of the Transaction Term Sheet and the JV Term Sheet to Taubman. The draft of the Transaction Term Sheet contemplated, among other things: (i) a “force the vote” provision that would prevent Taubman from terminating the merger agreement to accept a superior proposal following the go-shop period unless and until the Taubman shareholders voted against the Simon transaction at a meeting of Taubman shareholders; (ii) a 45-day “closed” go-shop period that would not permit Taubman to pay a lower termination fee if the merger agreement was terminated after the expiration of the go-shop period in connection with any alternative proposal that was initially received during the go-shop period; (iii) recurring matching rights for Simon with respect to any alternative proposal received by Taubman; (iv) a termination fee payable by Taubman to Simon of 4% of the aggregate equity value of Taubman in the event that Taubman terminates the merger agreement to enter into a superior proposal following the go-shop period; (v) a termination fee of 2% of the aggregate equity value of Taubman in the event that Taubman terminates the merger agreement to enter into a superior proposal during the go-shop period; (vi) a “naked no vote” expense reimbursement amount payable by Taubman to Simon of up to 1% of the aggregate equity value of Taubman if the merger agreement is terminated because Taubman’s shareholders do not approve the merger agreement; and (vii) a “tail” provision in the voting agreement that would require the Taubman family members to vote against any alternative proposal submitted to Taubman’s shareholders during the 12-month period following any termination of the merger agreement (other than a superior proposal accepted by Taubman during the go-shop period). The draft of the JV Term Sheet, among other things: (i) provided that the period during which Mr. R. Taubman would have operational control over the Joint Venture would be time limited and added certain other events that would shift operational control to Simon, (ii) deleted the proposed valuation mechanisms if the Taubman family members exercised their sale rights and indicated that the valuation mechanisms would be
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discussed at a later stage, (iii) added additional consent rights for Simon during the period in which Mr. R. Taubman would have operational control of the Joint Venture and modified the deadlock dispute procedures and items that could be capable of being resolved through arbitration, (iv) indicated that the Taubman family members would be subject to a non-compete, (v) added various parameters and limitations on annual distributions and the annual budget process and (vi) provided that the Joint Venture would be responsible for any preferred equity or debt of Taubman that is repaid by Simon and for any transaction expenses incurred by Taubman in connection with the transaction.
On December 10, 2019, Mr. R. Taubman and Mr. Simon met to discuss, among other things, the timing for the potential transaction and various issues in the revised JV Term Sheet.
On December 12, 2019, the Taubman Board held a regularly scheduled meeting, with members of Taubman senior management in attendance. At the meeting, Mr. R. Taubman provided the other members of the Taubman Board with an update on the potential transaction with Simon, including Mr. R. Taubman’s discussions with Mr. Simon to date.
On December 13, 2019, the Special Committee held a meeting, which was attended by representatives of Kirkland and Lazard. The representatives of Kirkland reviewed with the Special Committee the December 9 draft of the Transaction Term Sheet, including the fiduciary and termination provisions and the ability of the Special Committee to solicit and negotiate alternative proposals, as well as the December 9 draft of the JV Term Sheet. The Special Committee provided the representatives of Kirkland with its views and direction on such matters, and authorized the submission of a draft merger agreement to Simon reflecting the Special Committee’s feedback. The Special Committee also discussed the circumstances in which Mr. R. Taubman and other Taubman family members could be obligated to vote in favor of an alternative proposal and, following discussion, it was the consensus of the Special Committee that the Special Committee would further discuss this matter and make a proposal to Mr. R. Taubman at the appropriate time.
Between December 13, 2019 and December 16, 2019, Wachtell Lipton and Paul Weiss exchanged several drafts of the JV Term Sheet, negotiating, among other items, the liquidity mechanics and valuation mechanisms, consent rights for each party when the other party would have operational control of the Joint Venture, the dispute resolution mechanism, the time period during which Mr. R. Taubman would have operational control of the Joint Venture, the minimum distribution requirements and annual budget matters.
On December 16, 2019, representatives of Kirkland, Wachtell Lipton and Latham discussed by telephone the various issues that were unresolved in the Transaction Term Sheet, including the “force the vote” provision, the “closed” go-shop provision, the “tail” provision of the voting agreement, the size of the termination fees and the inclusion of the “naked no vote” expense reimbursement provision.
On December 17, 2019, representatives of Kirkland sent an initial draft of the merger agreement to Latham. The draft merger agreement contemplated, among other things: (i) a “fiduciary out” termination provision that would allow Taubman to terminate the merger agreement to accept a superior proposal before and after the go-shop period; (ii) a 45-day “open” go-shop provision; (iii) a termination fee payable by Taubman to Simon of 1% of the value of Taubman’s equity to be acquired by Simon in the proposed transaction in the event that Taubman terminates the merger agreement to enter into a superior proposal during the go-shop period or with any party that has submitted an acquisition proposal during the go-shop period that the Special Committee has determined in good faith constitutes or could reasonably be expected to lead to a superior proposal; (iv) a termination fee payable by Taubman to Simon of 2% of the equity value of Taubman to be acquired by Simon in the proposed transaction in the event that Taubman terminates the merger agreement to enter into a superior proposal in other circumstances following the go-shop period; (v) a regulatory efforts provision that required Simon to do all things necessary, proper and advisable to obtain regulatory approvals, except as would have a material adverse effect on the combined business of Simon and Taubman; and (vi) no closing conditions related to the receipt of contractual consents from third parties and no mandated delay period to complete the proposed transaction if any third-party consents have not been obtained when all other closing conditions have been satisfied. Thereafter, until execution of the merger agreement on February 9, 2020, Taubman and Simon and their representatives exchanged multiple drafts of the merger agreement and engaged in related negotiations.
On December 20, 2019, the Special Committee held a meeting, which was attended by representatives of Taubman’s senior management, Kirkland, Lazard and Goldman. At the meeting, Taubman’s senior management reviewed with the Special Committee a set of preliminary financial projections that the Special Committee had instructed management to prepare in the context of evaluating a transaction with Simon, with management noting that
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such projections remained incomplete pending additional details that management was still preparing. The Special Committee reviewed with management the key drivers and rationale behind the preliminary financial projections, including the shifting retail landscape, and views on the achievability of such projections. During an executive session of the Special Committee, the Special Committee concluded that it should receive and review the additional portions of such projections prior to making any final determination with respect to such projections.
On December 23, 2019, the Special Committee held a meeting, with representatives of Kirkland and Lazard in attendance. At the meeting, the representatives of Kirkland reviewed with the Special Committee the directors’ fiduciary duties, both generally and in the context of the potential transaction with Simon, and various other legal matters, including process considerations. The representatives of Lazard discussed with the Special Committee the potential merits and risks of conducting a pre-signing market check, and they identified certain third parties that could potentially be interested in a transaction involving Taubman. After discussion and consideration of various factors, including the fact that any merger agreement with Simon would contain a “go-shop” provision, the risk that Simon would terminate negotiations with Taubman should Taubman explore strategic options with other parties, the view of the Special Committee that it would be unlikely that another counterparty would be in a position to make a proposal that would be superior to the proposed transaction with Simon, the fact that the Taubman family members had a consent right over the sale of a number of properties of the Taubman operating partnership and the risk of a leak and the resulting management distraction that could occur if the Special Committee engaged in outreach efforts at that time, the Special Committee determined that it would not be in the best interests of Taubman and its shareholders to engage in a market check before signing an agreement with Simon, but that Taubman should conduct a post-signing market check if it were to proceed with a transaction with Simon.
On December 24, 2019, Taubman sent an initial draft of the JV agreement and a revised draft of the JV Term Sheet to Simon, with terms generally consistent with prior versions of the JV Term Sheet that had been circulated to Simon. Thereafter, until execution of the merger agreement and finalization of the form of the JV agreement on February 9, 2020, Taubman and Simon and their representatives exchanged multiple drafts of the JV agreement and engaged in related negotiations, including negotiating various provisions regarding governance and consent rights, deadlock and dispute resolution procedures, liquidity options (both for Simon and for the Taubman family members) and related valuation mechanisms, annual budgets and minimum distribution requirements.
On January 5, 2020, Messrs. R. Taubman and Simon discussed the timing of the contemplated transaction and potential next steps.
On January 6, 2020, Simon sent revised drafts of the merger agreement and the JV agreement to Taubman. The draft merger agreement contemplated, among other things: (i) a “force the vote” provision that would prevent Taubman from terminating the merger agreement to accept a superior proposal following the go-shop period; (ii) a 45-day “closed” go-shop provision that would not permit Taubman to pay a lower termination fee if the merger agreement was terminated after the expiration of the go-shop period in connection with any alternative proposal that was initially received during the go-shop period; (iii) a termination fee payable by Taubman to Simon of 2% of the value of Taubman’s equity to be acquired by Simon in the Transactions in the event that Taubman terminates the merger agreement to enter into a superior proposal during the go-shop period; (iv) a termination fee payable by Taubman to Simon of 4% of the equity value of Taubman to be acquired by Simon in the Transactions in the event that Taubman terminates the merger agreement to enter into a superior proposal following the go-shop period; (v) a regulatory efforts provision that required Simon to do all things necessary, proper and advisable to obtain regulatory approvals, except that Simon would not be required to commit to or make any regulatory concession with respect to properties of Taubman or Simon that satisfied certain materiality criteria; and (vi) a closing condition related to the receipt of certain required contractual consents from third parties. The draft JV agreement continued to include the open issues that the parties had been discussing, including the liquidity mechanics and valuation mechanisms, consent rights for each party when the other party would have operational control of the Joint Venture, the dispute resolution mechanism, the time period during which Mr. R. Taubman would have operational control of the Joint Venture, and distribution policy and annual budget matters.
Later on January 6, 2020, the Special Committee held a meeting, with representatives of Taubman’s senior management, Wachtell Lipton, Kirkland, Lazard and Goldman in attendance. At the meeting, members of Taubman’s senior management reviewed with the Special Committee the Projections (as described in “–Certain Unaudited Prospective Financial Information”), which reflected updates to the preliminary financial projections presented to the Special Committee on December 20, 2019. The Projections reflected the inclusion of the portions of the projections that had not been included in the projections reviewed by the Special Committee on December 20, 2019
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and took into account, among other things, continuing developments in Taubman’s business, including the continuing uncertainty and headwinds in the retail environment, the rise of e-commerce and slower than expected rent growth. The Special Committee approved the Projections and authorized Lazard to use the Projections for purposes of Lazard’s valuation analyses in connection with a potential transaction involving Simon.
On January 8, 2020, Taubman and Simon held a meeting at the offices of Paul Weiss in which representatives of Taubman senior management, Simon senior management, Kirkland, Wachtell Lipton, Honigman and Paul Weiss participated. At the meeting, the parties continued to discuss various open issues in the JV agreement.
On January 9, 2020, Taubman and Simon held a meeting at the offices of Kirkland in which representatives of Taubman senior management, Simon senior management, Kirkland, Latham and Wachtell Lipton participated. At the meeting, the parties discussed open issues in the merger agreement, including, among other things, provisions regarding termination rights, termination fees, the go-shop period and third-party consents.
Also on January 9, 2020, Mr. Simon and Mr. R. Taubman met to continue discussing the proposed transaction and the current market environment. During this discussion, Mr. Simon communicated that, in light of, among other things, the uncertain and deteriorating retail environment, the critical situation with Forever 21, and the recent performance of Simon’s stock, Simon was no longer willing to pursue a transaction on the terms of the Updated December 6 Proposal, and Simon instead submitted a revised verbal proposal for Simon to acquire Taubman for $57.00 per share in cash (as opposed to cash and stock, as previously proposed). Further, Mr. Simon indicated that Simon wanted the Taubman family members to retain their full ownership stake in the Taubman operating partnership rather than selling one-third of their interest as part of the transaction as previously proposed (the “January 9 Proposal”). This proposal represented a 78.2% premium over the $31.99 closing price of Taubman’s common shares on January 8, 2019, the most recent completed trading day before their discussion. In response, Mr. R. Taubman informed Mr. Simon that the Special Committee would need to review the January 9 Proposal. Mr. R. Taubman also noted to Mr. Simon that he expected that the Taubman family members would be willing to retain their full ownership interest in the Taubman operating partnership if Simon would agree to certain liquidity terms (which ultimately were not agreed). Mr. R. Taubman also expressed his disappointment with the reduced price reflected in the January 9 Proposal, but Mr. Simon did not change his position following extensive further discussion. After their meeting and as previously scheduled, Mr. R. Taubman and Mr. Simon proceeded to meet with other representatives of Taubman senior management, Simon senior management, Wachtell Lipton and Paul Weiss to continue discussing the open issues in the JV agreement, including the liquidity mechanics and valuation mechanisms, consent rights for each party when the other party would have operational control of the Joint Venture, the dispute resolution mechanism, the minimum distribution requirements and annual budget matters.
On January 10, 2020, the Special Committee held a meeting, with representatives of Kirkland and Lazard present. During the meeting, and in advance of a meeting of the Special Committee scheduled for later that day at which Mr. R. Taubman would be providing an update on recent interactions with Simon (including an overview of the January 9 Proposal), the representatives of Kirkland provided the Special Committee with an update on recent negotiations between the parties on the merger agreement and the JV agreement. The Special Committee also discussed with the representatives of Kirkland certain open issues in the merger agreement, including, among other things, provisions regarding termination rights, termination fees, the go-shop period and third party consents. Following discussion, the Special Committee determined that it would reconvene after the scheduled call with Mr. R. Taubman to discuss the January 9 Proposal.
Later on January 10, 2020, the Special Committee held a meeting, with Mr. R. Taubman and representatives of Kirkland, Lazard and Wachtell Lipton present. The Special Committee discussed with Mr. R. Taubman the January 8, 2020 and January 9, 2020 meetings between the parties described above, and Mr. R. Taubman provided the Special Committee with an overview of his January 9, 2020 conversation with Mr. Simon and the January 9 Proposal. Mr. R. Taubman indicated that, in light of, among other things, the uncertain and deteriorating retail environment, he was supportive of continuing to explore a transaction with Simon on the terms set forth in the January 9 Proposal, but noted that the Special Committee had been delegated the full power and authority of the Taubman Board to review, evaluate and negotiate a potential transaction with Simon. Following discussion, the members of the Special Committee concluded that the Special Committee would hold an additional meeting with the representatives of Kirkland and Lazard later that day to further consider these matters and the January 9 Proposal.
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Later on January 10, 2020, the Special Committee held a meeting, with representatives of Kirkland and Lazard present. At the meeting, the Special Committee discussed the January 9 Proposal, including with respect to price, consideration mix and post-closing governance as it related to these matters, and potential next steps. Following deliberation, the Special Committee concluded that Ms. Marakovits, on behalf of the Special Committee, should directly participate in the next meeting between Mr. R. Taubman and Mr. Simon, which had been scheduled for January 12, 2020.
Later on January 10, 2020, Ms. Marakovits and Mr. Embler held a telephone conversation with Mr. R. Taubman to discuss potential next steps, indicating, among other things, the Special Committee’s determination that Ms. Marakovits should participate in the January 12, 2020 discussion between Mr. R. Taubman and Mr. Simon. Ms. Marakovits and Mr. Embler asked Mr. R. Taubman whether the Taubman family would be interested in potentially selling all of their interests in the Taubman operating partnership to Simon in the proposed transaction, and Mr. R. Taubman said that the Taubman family would not be interested in doing so.
Later on January 10, 2020, the Special Committee held a meeting, with representatives of Kirkland and Lazard present. Ms. Marakovits provided an update on the conversation that she and Mr. Embler had earlier that day with Mr. R. Taubman. The Special Committee discussed with the representatives of Kirkland open issues in the merger agreement and the JV agreement. The representatives of Lazard reviewed with the Special Committee Lazard’s preliminary analysis of the January 9 Proposal, including relative to the Updated December 6 Proposal. The Special Committee then discussed next steps for responding to the January 9 Proposal, including views on the best way to increase Simon’s proposed price and the appropriate sequencing of discussions regarding price and governance terms to obtain the best outcome for the unaffiliated Taubman common shareholders. The Special Committee also discussed a framework for obligating the Taubman family members to facilitate the making of a superior proposal (the “Taubman Family Commitments”) and instructed Kirkland to propose to Mr. R. Taubman a draft of the Taubman Family Commitments that would require the Taubman family members to vote all of their ownership interests in favor of a superior proposal that provided for (i) (x) aggregate sale proceeds to the Taubman family members that are at least equal to the proceeds to be received in a transaction with Simon and (y) other terms with respect to the Taubman family members’ investment that are at least as favorable as a whole to those provided in a transaction with Simon or (ii) the sale of all of the Taubman family members’ ownership interests at a price that would provide per share net sale proceeds to the Taubman family members that are at least equal to the proceeds they would receive in a transaction with Simon. The draft Taubman Family Commitments also required the Taubman family members to negotiate in good faith with the Special Committee any superior proposal that did not initially satisfy these criteria.
On January 11, 2020, the Special Committee held a meeting, with representatives of Kirkland and Lazard present. At the meeting, the Special Committee and its advisors further discussed next steps for responding to the January 9 Proposal, including views on the best way to increase Simon’s proposed price and the appropriate sequencing of discussions regarding price and governance terms to obtain the best outcome for the unaffiliated Taubman shareholders. Following discussion, it was the consensus of the Special Committee that the parties should agree on price prior to further negotiating governance terms.
Later on January 11, 2020, Ms. Marakovits contacted Mr. R. Taubman and informed him that the Special Committee had concluded that at the upcoming January 12 meeting with Mr. Simon, the parties should agree on price prior to further negotiating governance terms.
On January 12, 2020, Lazard provided Ms. Marakovits with preliminary financial analyses relating to the January 9 Proposal, to assist Ms. Marakovits in her discussion with Mr. R. Taubman and Mr. Simon scheduled for later that day.
On January 12, 2020, Ms. Marakovits, Mr. R. Taubman and Mr. Simon met to discuss the January 9 Proposal. The parties discussed the financial aspects of the January 9 Proposal, including in light of Taubman’s prospects, potential accretion to Simon in light of the shift in consideration mix to all-cash and Simon’s ability to pay, among other aspects. During this conversation, Mr. Simon communicated to Ms. Marakovits and Mr. R. Taubman that, in light of a variety of factors, including the deteriorating retail environment, the pending bankruptcy of Forever 21 and Simon’s recent stock performance, the per share price of $57.00 represented Simon’s best and final price and that, should the parties fail to agree on price and move forward with the transaction at that time, Simon would need to put the transaction on hold, for a period of four to six weeks, while it focused on a potential transaction involving Forever 21. At the meeting, Ms. Marakovits agreed on behalf of the Special Committee to proceed with the potential transaction on the basis of a per share price of $57.00 in cash and, on behalf of the Special Committee, she then
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authorized Mr. R. Taubman to further discuss governance terms with Mr. Simon. Mr. R. Taubman also indicated that he was in favor of proceeding with the potential transaction on the basis of a per share price of $57.00 in cash. Mr. R. Taubman and Mr. Simon then discussed, among other terms, that the Taubman family members would sell approximately one-third of their interests in the Taubman operating partnership for cash at the same price to be received by the unaffiliated holders of Taubman operating partnership units, the terms of a one-time put right for the Taubman family members to sell all of their interests in the Taubman operating partnership to Simon during the third year following the closing of the transaction, and certain other aspects of the draft JV agreement, including minimum distribution requirements, consent rights and the valuation mechanisms in the case of sales by the Taubman family members of their interests in the Joint Venture.
Later on January 12, 2020, and again on January 13, 2020, representatives of Taubman senior management, Simon senior management, Wachtell Lipton and Paul Weiss met to discuss the open issues in the JV agreement, including the Taubman family members’ desire to have the right to sell to Simon, following the closing of the acquisition of Taubman, all of their interests in the Taubman operating partnership at a fixed price equal to the price paid to the unaffiliated holders of Taubman operating partnership units in the acquisition of Taubman. In the course of these discussions, Mr. R. Taubman ultimately agreed, among other things, that the Taubman family members would not have the right under the JV agreement to sell to Simon, following the closing of the acquisition of Taubman, all of their remaining interests in the Taubman operating partnership at a fixed price equal to the price paid to the unaffiliated Taubman shareholders in the acquisition of Taubman.
On January 14, 2020, members of Simon senior management and Taubman senior management met for a due diligence session to discuss, among other things, Taubman’s 2020 budget.
Also on January 14, 2020, a draft of the voting agreement was sent to Simon. The draft of the voting agreement did not include a “tail” provision requiring the Taubman family members to vote against any alternative proposal submitted to Taubman’s shareholders during the 12-month period following any termination of the merger agreement. Between January 14, 2020 and February 9, 2020, the parties negotiated the provisions of the voting agreement, including the circumstances under which the voting agreement would terminate.
Also on January 14, 2020, Kirkland sent the draft Taubman Family Commitments to Wachtell Lipton for review by Mr. R. Taubman.
On January 15, 2020, the Special Committee held a meeting, with Mr. R. Taubman and representatives of Kirkland and Lazard present. At the meeting, Mr. R. Taubman provided the members of the Special Committee with an update on his discussions with Mr. Simon regarding the JV agreement to date, including the January 12 meeting with Mr. Simon and subsequent discussions. The Special Committee discussed these matters and potential next steps, and it was the consensus of the Special Committee that the parties should proceed to execute a transaction subject to finalizing all open issues in the agreements in a satisfactory manner.
On January 16, 2020, representatives of Kirkland and Wachtell Lipton sent revised drafts of the merger agreement and JV agreement to Simon. The draft merger agreement contemplated, among other things: (i) a “fiduciary out” termination provision that would allow Taubman to terminate the merger agreement to accept a superior proposal before and after the go-shop period; (ii) a 45-day “open” go-shop provision; (iii) a termination fee payable by Taubman to Simon of 1.25% of the value of Taubman’s equity to be acquired by Simon in the Transactions in the event that Taubman terminates the merger agreement to enter into a superior proposal during the go-shop period or with any party that has submitted an acquisition proposal during the go-shop period that the Special Committee has determined in good faith constitutes or could reasonably be expected to lead to a superior proposal; (iv) a termination fee payable by Taubman to Simon of 2.5% of the equity value of Taubman to be acquired by Simon in the Transactions in the event that Taubman terminates the merger agreement to enter into a superior proposal in other circumstances following the go-shop period; (v) a regulatory efforts provision that required Simon to do all things necessary, proper and advisable to obtain regulatory approvals, except that Simon would not be required to commit to or make any regulatory concession with respect to specified properties of Taubman; and (vi) no closing conditions related to the receipt of contractual consents from third parties and no mandated delay period to complete the proposed transaction if any third-party consents have not been obtained when all other closing conditions have been satisfied. The revised draft of the JV agreement continued to have open points regarding, among other items, minimum distribution requirements, the process to approve the annual budget and consequences if an annual budget was not approved, consent rights regarding the operation of the Joint Venture following the closing, the dispute
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resolution process if a consent from the other party on operational matters was not obtained, the right of the Taubman family members to exchange all of their interests in the Joint Venture between the second and third anniversaries of the closing and other liquidity mechanics and valuation mechanisms.
Later on January 16, 2020, Wachtell Lipton sent a revised draft of the Taubman Family Commitments to Kirkland reflecting the positions of the Taubman family members. The draft provided, among other things, that the Taubman family members would reasonably cooperate with the go-shop process, but only with respect to transactions that provide a structure similar to that of the transaction with Simon, including an ongoing partnership arrangement with respect to the Taubman operating partnership.
On January 19, 2020, representatives of Taubman and Simon met to discuss the merger agreement, with representatives of Kirkland, Wachtell Lipton and Latham present. At the meeting, the parties discussed open issues in the merger agreement, including, among other things, provisions regarding termination rights, termination fees, the go-shop period and third-party consents.
On January 20, 2020, Simon sent a revised draft of the merger agreement to Taubman. The draft merger agreement contemplated, among other things: (i) a 45-day “closed” go-shop provision that would not permit Taubman to pay a lower termination fee if the merger agreement was terminated after the expiration of the go-shop period in connection with any alternative proposal that was initially received during the go-shop period; (ii) a termination fee payable by Taubman to Simon of 1.9% of the value of Taubman’s equity to be acquired by Simon in the proposed transaction in the event that Taubman terminates the merger agreement to enter into a superior proposal during the go-shop period; (iii) a termination fee payable by Taubman to Simon of 3.8% of the equity value of Taubman to be acquired by Simon in the proposed transaction in the event that Taubman terminates the merger agreement to enter into a superior proposal following the go-shop period; and (iv) closing conditions related to the receipt of certain contractual consents from third parties. The revised draft of the merger agreement did not change the regulatory efforts covenant that was in Taubman’s previous draft, but noted that the regulatory efforts provision was subject to review and comment by Simon’s counsel.
On January 21, 2020, Messrs. R. Taubman and Simon and representatives of Wachtell Lipton and Paul Weiss met to discuss the open issues in the JV agreement, including required minimum distributions and the liquidity provisions. After the meeting, Taubman sent a draft of the JV agreement to Simon reflecting these discussions. Thereafter, the parties continued to exchange and negotiate drafts of the JV agreement.
Later on January 21, 2020, representatives of Taubman and Simon met to discuss the merger agreement, with representatives of Kirkland, Wachtell Lipton and Latham present. At the meeting, the parties discussed open issues in the merger agreement, including, among other things, the provisions regarding termination fees, the go-shop period and third party consents.
On January 22, 2020, Kirkland sent a revised draft of the Taubman Family Commitments to Wachtell Lipton. The draft provided, among other things, that (i) any Taubman family member that is a director or officer of Taubman will cooperate with the Special Committee and its advisors to facilitate the go-shop process, (ii) Mr. R. Taubman will negotiate in good faith (on behalf of the Taubman family members) with a competing bidder that has made a proposal which the Special Committee determines is a superior proposal, or is reasonably likely to lead to a superior proposal, and that has a structure similar to the transactions with Simon and (iii) Mr. R. Taubman will discuss in good faith with the Special Committee terms on which the Taubman family members might be willing to agree to an alternative transaction that does not have a structure similar to the transaction with Simon.
Later on January 22, 2020, the Special Committee held a meeting, which was attended by certain of the Company’s other independent directors and representatives of Kirkland and Lazard. During the meeting, the representatives of Kirkland again reviewed the fiduciary duties of the directors, and the representatives of Lazard reviewed with the Special Committee Lazard’s financial analyses relating to a potential transaction with Simon. The representatives of Lazard also reviewed with the Special Committee various strategic alternatives that could potentially be available to Taubman, including executing on its strategic plan, engaging in joint ventures with respect to various assets, spinning-off a portfolio of various assets and selling Taubman to an alternative strategic or financial buyer. In connection with this discussion, the representatives of Kirkland provided the Special Committee with an update on the status of the Taubman Family Commitments and the other draft transaction documents, including the merger agreement and the JV agreement. Between January 22, 2020 and January 25, 2020, representatives of Kirkland and Wachtell Lipton finalized the terms of the Taubman Family Commitments.
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On January 23, 2020, representatives of Kirkland sent a revised draft of the merger agreement to Simon. The draft merger agreement contemplated, among other things: (i) a termination fee payable by Taubman to Simon of 1.25% of the value of Taubman’s equity to be acquired by Simon in the Transactions in the event that Taubman terminates the merger agreement to enter into a superior proposal during the go-shop period or within two full “match” right periods following the expiration of the go-shop period with any third party that has submitted an acquisition proposal during the go-shop period that the Special Committee has determined in good faith constitutes or could reasonably be expected to lead to a superior proposal; (ii) a termination fee payable by Taubman to Simon of 3.0% of the equity value of Taubman to be acquired by Simon in the Transactions in the event that Taubman terminates the merger agreement to enter into a superior proposal in other circumstances following the go-shop period; (iii) a regulatory efforts provision that required Simon to do all things necessary, proper and advisable to obtain regulatory approvals, except that Simon would not be required to commit to or make any regulatory concession with respect to specified properties of Simon; and (iv) no closing conditions related to the receipt of contractual consents from third parties and no mandated delay period to complete the proposed transaction if any third party consents have not been obtained when all other closing conditions have been satisfied.
Later on January 23, 2020, representatives of Taubman and Simon held a telephone conversation to discuss the merger agreement, with representatives of Kirkland, Wachtell Lipton and Latham present. The parties discussed, among other things, the regulatory commitments applicable to Taubman and Simon and the provisions regarding termination fees, the go-shop period and third party consents.
On January 24, 2020, Simon sent a revised draft of the merger agreement to Taubman. The draft merger agreement contemplated, among other things: (i) a termination fee payable by Taubman to Simon of 1.25% of the value of Taubman’s equity to be acquired by Simon in the Transactions (which amount was bracketed in the draft merger agreement, and subsequently accepted by Simon) in the event that Taubman terminates the merger agreement to enter into a superior proposal during the go-shop period or within 10 business days following the expiration of any “match” period beginning prior to the expiration of the go-shop period with any party that has submitted an acquisition proposal during the go-shop period that the Special Committee has determined in good faith constitutes or could reasonably be expected to lead to a superior proposal; (ii) a regulatory efforts provision that required Simon to do all things necessary, proper and advisable to obtain regulatory approvals, except that Simon would not be required to commit to or make any regulatory concession with respect to specified properties of Taubman or Simon; (iii) no closing condition related to the receipt of contractual consents from third parties; and (iv) a provision allowing Simon to delay the closing of the Transactions until six months after the date of the merger agreement if certain contractual consents from third parties have not been obtained.
From January 24, 2020 through January 26, 2020, the parties continued to exchange drafts of, and negotiate the provisions of, the merger agreement and the JV agreement and related transaction documents and schedules.
On January 26, 2020, Mr. Simon contacted Mr. R. Taubman and communicated that while Simon was still interested in pursuing a transaction with Taubman, it would need to assess market conditions further and would not continue to engage in negotiations of the transaction agreements until Simon had made such an assessment.
Later on January 26, 2020, the Taubman Board held a meeting, which was attended by members of senior management and representatives of Wachtell Lipton, Honigman and Kirkland. During the meeting, Mr. R. Taubman updated the Taubman Board regarding the latest discussions with Mr. Simon and Mr. Simon’s position on transaction timing and the open issues in the transaction documents.
Later on January 26, 2020, the Special Committee held a meeting, which was attended by representatives of Kirkland and Lazard. During the meeting, the representatives of Kirkland provided an update on the status of the transaction documents and the representatives of Lazard reviewed with the Special Committee Lazard’s financial analyses of the potential transaction with Simon.
Following January 26, 2020 and until February 5, 2020, Mr. Simon and Mr. R. Taubman remained in contact and discussed market developments and whether to reengage in discussions regarding a potential transaction. Mr. R. Taubman regularly informed members of the Special Committee regarding such discussions.
On January 28, 2020, the Special Committee held a meeting, which was attended by representatives of Kirkland and Lazard. During the meeting, the Special Committee discussed the status of discussions with Simon regarding a potential transaction.
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Between the close of trading on January 23, 2020 and January 31, 2020, Taubman’s stock price declined by 16.4% (from $31.59 to $26.42) and Simon’s stock price declined by 9.6% (from $147.25 to $133.15).
On January 31, 2020, the Taubman Board held a meeting, which was attended by members of senior management and representatives of Wachtell Lipton and Honigman. During the meeting, Mr. R. Taubman informed members of the Taubman Board regarding the latest discussions with Mr. Simon and the status of the proposed transaction.
On February 3, 2020, market rumors emerged that Simon was engaging in discussions to acquire Taubman. On February 4, 2020, Bloomberg published an article reporting that Taubman and Simon had been engaged in discussions regarding a potential transaction.
On February 5, 2020, Mr. Simon contacted Mr. R. Taubman and communicated that Simon was prepared to reengage in transaction discussions, but that Simon would not pay more than $52.00 per share. Following Mr. R. Taubman’s objection to the revised proposal, Mr. Simon offered to increase the purchase price to $52.50 per share in cash (the “February 5 Proposal”), but stated that this was Simon’s best and final offer, and that the February 5 Proposal was conditioned on the agreement of the Taubman family members to certain points that had not previously been requested, namely to (i) further explore the ability of Simon to obtain potential synergies in the context of the Taubman operating partnership post-closing ownership structure, (ii) provide Simon with the ability to delay payment for one year on its acquisition of one-half of the Taubman family members’ equity interests in the Joint Venture if the Taubman family members exercise their one-time exchange right to sell 100% of their equity in the Joint Venture in the third year following the closing of the transactions as permitted by the JV agreement and (iii) provide Simon with a right to call all of the Taubman family members’ equity interests in the Joint Venture in certain circumstances. Mr. R. Taubman indicated to Mr. Simon that while the Special Committee would need to determine the acceptability of the price being proposed, Mr. R. Taubman would be willing to consider the proposed changes to the governance provisions in the context of the overall transaction.
On February 5, 2020, the Taubman Board held a meeting, which was attended by members of senior management and representatives of Wachtell Lipton and Honigman. At the meeting, Mr. R. Taubman provided an update on his recent discussions with Mr. Simon and the February 5 Proposal. The Taubman Board discussed the February 5 Proposal and potential responses to Simon.
Later on February 5, 2020, the Special Committee held a meeting, which was attended by Mr. R. Taubman and representatives of Kirkland and Lazard. During the meeting, Mr. R. Taubman further discussed the February 5 Proposal and his perspectives on the terms proposed by Simon, noting his willingness to agree to post-closing governance provisions proposed by Simon in the context of a transaction that provided significant value to the unaffiliated Taubman common shareholders, subject to negotiating the specific terms and conditions of such provisions. Mr. R. Taubman further noted that since the publication of the February 4 Bloomberg article regarding a potential acquisition of Taubman, Taubman had received many calls from investors and other parties, but that no party had called to inquire about acquiring Taubman. After Mr. R. Taubman left the meeting, the Special Committee discussed the possibility of again requesting that the Taubman family members sell all of their interests to Simon or concede additional post-closing governance rights if doing so could lead Simon to pay additional consideration to the unaffiliated Taubman common shareholders. Following discussion, the Special Committee concluded that pursuing such an approach was unlikely to generate additional value for the unaffiliated Taubman common shareholders from Simon and would likely instead jeopardize a transaction that the members of the Special Committee viewed as compelling, particularly in light of the significant market risk and Simon’s concerns about the market and retail environment. Following discussion, it was the consensus of the Special Committee that the parties should work expeditiously to finalize and execute the transaction agreements.
That same day, on February 5, 2020, Mr. Embler contacted Mr. R. Taubman to convey the Special Committee’s views.
Later on February 5, 2020, Simon sent revised drafts of the merger agreement, the JV agreement, the voting agreement and other various transaction documents and schedules to Taubman. From February 5, 2020 through the execution of the merger agreement on February 9, 2020, the parties negotiated the provisions of the merger agreement, the JV agreement, the voting agreement and other various transaction documents and schedules.
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On February 6, 2020, the Special Committee held a meeting, which was attended by representatives of Kirkland and Lazard. At the meeting, the representatives of Kirkland provided an update on the status of the transaction agreements and the representatives of Lazard reviewed with the Special Committee Lazard’s financial analyses of the February 5 Proposal.
Between the close of trading on January 31, 2020 and February 7, 2020, Taubman’s stock price increased by 31.2% (from $26.42 to $34.67).
On February 9, 2020, the Special Committee held a meeting, which was attended by Taubman’s other independent directors and representatives of Kirkland and Lazard. At the meeting, the representatives of Kirkland again reviewed the fiduciary duties of the directors and provided a summary of the final terms of the transaction agreements. The representatives of Lazard reviewed Lazard’s financial analysis of the Transactions and rendered its oral opinion, confirmed by delivery of a written opinion dated February 9, 2020, to the Special Committee to the effect that, as of that date and based upon and subject to the qualifications, limitations and assumptions stated in such opinion, the consideration to be paid by Simon to the holders of Taubman common stock (other than the Taubman family members) in the REIT Merger was fair, from a financial point of view, to such holders. The representatives of Lazard also reviewed with the Special Committee the proposed go-shop process. The Special Committee unanimously determined that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman shareholders, and the Special Committee unanimously recommended that the Taubman Board: (i) determine that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman shareholders; (ii) adopt and approve the merger agreement and the Transactions; (iii) subject to the terms of the merger agreement, resolve to recommend that the Taubman shareholders adopt and approve the merger agreement; and (iv) direct that the merger agreement be submitted to the Taubman shareholders and the holders of Taubman Series B Preferred Stock for their adoption and approval.
Immediately following the meeting of the Special Committee on February 9, 2020, the Taubman Board held a meeting, which was attended by Taubman senior management and representatives of Wachtell Lipton, Honigman, Kirkland and Lazard. At the meeting, the Taubman Board, acting upon the unanimous recommendation of the Special Committee: (i) unanimously determined that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman shareholders; (ii) adopted and approved the merger agreement and the Transactions; (iii) subject to the terms of the merger agreement, resolved to recommend that the Taubman shareholders adopt and approve the merger agreement; and (iv) directed that the merger agreement be submitted to the Taubman shareholders and the holders of Taubman Series B preferred stock for their adoption and approval.
Later in the evening on February 9, 2020, the parties executed and delivered the merger agreement and the voting agreement.
On the morning of February 10, 2020, Taubman and Simon issued a joint press release announcing the proposed transaction and the go-shop period commenced. Later that same day, in connection with the go-shop period, at the direction of the Special Committee, representatives of Lazard began contacting potential counterparties to actively solicit their interest in making an acquisition proposal with respect to Taubman.
During the go-shop period, Lazard contacted 18 potential counterparties, consisting of 4 strategic parties and 14 financial sponsor parties. None of these parties entered into a confidentiality agreement with Taubman or received non-public due diligence information about Taubman. In addition, none of these parties made an acquisition proposal with respect to Taubman. During the go-shop period, the Special Committee regularly held meetings with representatives of Lazard and Kirkland to discuss updates regarding the go-shop process.
The go-shop period expired at 11:59 p.m., New York City time, on March 25, 2020.
Reasons for the Transactions and Recommendation of the Special Committee and the Taubman Board
As described above under the section entitled “—Background of the Transactions,” the Taubman Board established the Special Committee and delegated to it the Taubman Board’s power and authority to, among other things: (i) review and evaluate the possible sale of Taubman; (ii) identify, review and evaluate alternatives to the possible sale of Taubman that may be available to Taubman, including remaining an independent company; (iii) if the Special Committee considers it advisable or appropriate, negotiate the price, structure, form, terms and conditions of a sale of Taubman or any alternative thereto and the form, terms and conditions of any definitive agreements in connection therewith; (iv) determine whether a sale of Taubman or any alternative thereto is fair to, advisable and in the best interests of Taubman and its shareholders; (v) engage, and obtain any necessary or desirable advice,
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assistance and opinions from, financial advisors or other advisors, consultants and agents; and (vi) recommend to the full Taubman Board what action, if any, should be taken by Taubman with respect to a sale of Taubman or any alternative thereto.
With the assistance of its legal and financial advisors, the Special Committee evaluated the merger agreement and the Transactions and, on February 9, 2020, the Special Committee unanimously determined that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders, and unanimously recommended that the Taubman Board, among other things: (i) determine that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders; (ii) adopt and approve the merger agreement and the Transactions; (iii) subject to the terms of the merger agreement, resolve to recommend that the Taubman common shareholders adopt and approve the merger agreement; and (iv) direct that the merger agreement be submitted to the Taubman common shareholders and the holders of Taubman Series B preferred stock for their adoption and approval.
On February 9, 2020, the Taubman Board, acting upon the unanimous recommendation of the Special Committee: (i) determined that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders; (ii) adopted and approved the merger agreement and the Transactions; (iii) subject to the terms of the merger agreement, resolved to recommend that the Taubman common shareholders adopt and approve the merger agreement; and (iv) directed that the merger agreement be submitted to the Taubman common shareholders and the holders of Taubman Series B preferred stock for their adoption and approval. Accordingly, the Taubman Board unanimously recommends that you vote “FOR” the Merger Agreement Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal.
When you consider the Special Committee and the Taubman Board’s recommendation, you should be aware that certain Taubman directors and executive officers may have interests in the Transactions that may be different from, or in addition to, those of the other Taubman shareholders. The Special Committee, consisting entirely of independent directors, was aware of and considered these interests, among other matters, in evaluating the merger agreement and the Transactions and in making its decision to recommend that the Taubman Board adopt and approve the merger agreement and the Transactions. For more information about these interests, refer to the section entitled “—Interests of Taubman’s Directors and Executive Officers in the Transactions.” The Special Committee and the Taubman Board believe that the Transactions, including the REIT Merger, are fair to Taubman’s unaffiliated security holders.
The Special Committee engaged its own legal and financial advisors and received advice throughout the negotiations from such advisors. Since the members of the Special Committee are disinterested with respect to the Transactions, independent of and not affiliated with Simon, the Taubman family members or any of their respective affiliates, the Special Committee believed that it could effectively represent the interests of the unaffiliated Taubman shareholders in negotiating the terms of the Transactions. In evaluating the merger agreement and the Transactions, including the REIT Merger, and in the course of reaching their determinations and decisions described above, and making the recommendations described above, the Special Committee and the Taubman Board considered, among other things, the following factors and potential benefits of the Transactions (not necessarily in order of relative importance), each of which they believed supported their respective decisions:
the Special Committee’s belief and the Taubman Board’s belief that the consideration to unaffiliated Taubman shareholders per share of Taubman common stock, as further described under the section entitled “The Merger Agreement—REIT Merger—Treatment of Taubman Common Stock and Taubman Series B Preferred Stock,” was more favorable to such holders than the potential value that might result from other alternatives reasonably available to Taubman, including the alternative of remaining an independent company and pursuing Taubman’s current strategic plan, and other strategic or financial alternatives that might be undertaken as an independent company, in light of a number of factors, including the risks and uncertainties associated with those alternatives;
the current and historical market prices of Taubman common stock, including the fact that the consideration of $52.50 per share of Taubman common stock represents:
an implied premium of 98.7% to the closing share price for Taubman common stock of $26.42 on January 31, 2020, the last trading day prior to market rumors emerging that Simon was engaging in discussions to acquire Taubman;
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an implied premium of 51.4% to the closing share price for Taubman common stock of $34.67 on February 7, 2020, the last completed trading day before the announcement of the Transactions; and
an implied premium of 32.6% to the volume-weighted average price of $39.60 for the shares of Taubman common stock over the 52-week period ended January 31, 2020, the last trading day prior to market rumors emerging that Simon was engaging in discussions to acquire Taubman;
the Special Committee’s and the Taubman Board’s respective reviews of Taubman’s business, operations, financial condition, strategy, prospects and the risk in achieving such prospects, as well as industry conditions and trends, and the Special Committee’s and the Taubman Board’s view that the consideration to be paid in connection with the Transactions was fair in light of Taubman’s business, operations, financial condition, strategy, prospects and the risk in achieving such prospects, as well as Taubman’s historical and projected financial performance, taking into account, among other things, the projections prepared by Taubman management with respect to Taubman’s prospects as an independent company, as further described below in the section entitled “—Certain Unaudited Prospective Financial Information”;
the Special Committee’s and the Taubman Board’s respective understandings of Taubman’s business, assets, financial condition and results of operations, its competitive position and historical and projected financial performance, and the nature and challenges of the retail property industry;
that the transaction consideration provides Taubman shareholders with immediate certainty of greater value and liquidity at an attractive per share equity value without the market or execution risks associated with continued independence;
the financial presentation of Lazard dated February 9, 2020, and the oral opinion of Lazard, subsequently confirmed by delivery of a written opinion dated February 9, 2020, rendered to the Special Committee, to the effect that, as of February 9, 2020, and based on and subject to the factors and assumptions set forth in the written opinion, the consideration to be paid to the Taubman common shareholders (other than Simon, the Taubman family members and any of their respective affiliates) pursuant to the merger agreement was fair from a financial point of view to such holders, as further described under “—Opinion of Financial Advisor to the Special Committee”;
that the merger agreement allows all unaffiliated holders of Taubman OP units to elect to receive (i) the same cash consideration to be received by Taubman shareholders or (ii) a number of Simon OP units equal to a fixed exchange ratio, as further described under “—Certain Effects of the Transactions—The Partnership Merger and LLC Conversion”;
that the exchange ratio with respect to the exchange of Taubman OP units for Simon OP units is fixed and will not be adjusted for fluctuations in the market price of Simon common stock and, because Simon OP units are convertible into shares of Simon common stock, the holders of Taubman OP units receiving Simon OP units in the Transactions will benefit from any increase in the trading price of Simon OP units between the announcement and the closing of the Transactions;
the Special Committee’s and the Taubman Board’s respective views that the consideration to be paid in the Transactions represented the highest per share consideration that could be reasonably obtained;
the fact that, during the period since discussions regarding the Transactions began until the signing of the merger agreement, share prices for both Taubman and Simon had declined;
that the Special Committee and the Taubman Board, with the assistance of their respective financial and legal advisors, had considered alternatives, including continuing to operate Taubman on a standalone basis, a sale of selected assets, a spin-off of selected assets or a sale to an alternative buyer, and considered the risks and uncertainties associated with such alternatives, and the Special Committee’s and the Taubman Board’s view that no other alternatives were reasonably likely to create greater value for Taubman common shareholders than the Transactions, taking into account the risk of execution as well as business, competitive, industry and market risk;
the fact that market rumors that Simon was engaging in discussions to acquire Taubman became public, which provided any third party wishing to engage in discussions with Taubman with an opportunity to make its interest known, and the fact that, although the Special Committee had not granted Simon exclusivity and was free to consider indications from any other party, no potential acquiror other than
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Simon made a proposal to acquire Taubman before the merger agreement was publicly announced on February 10, 2020, and the Special Committee’s view that, if potential acquirors were interested in exploring a transaction with Taubman, such potential acquirors could have engaged with the Special Committee or its representatives after such public announcement;
the Special Committee’s and the Taubman Board’s review of the merger agreement, the structure of the Transactions and the financial and other terms and conditions of the Transactions;
the efforts made by the Special Committee, with the assistance of its legal and financial advisors, to be fully informed and to negotiate and execute transaction agreements as favorable to Taubman and the unaffiliated Taubman shareholders as possible, and the fact that extensive negotiations regarding the merger agreement were held between the Special Committee and its advisors and Simon and its advisors;
that the Taubman family members have agreed to negotiate in good faith with a competing bidder that has made a proposal which the Special Committee determines is a Superior Proposal, or is reasonably likely to lead to a Superior Proposal, and that has a structure similar to the Transactions, and that the Taubman family members have agreed to discuss in good faith with the Special Committee terms on which the Taubman family members might be willing to agree to an alternative transaction that does not have a structure similar to the Transactions;
the fact that during the go-shop period, the Special Committee and its advisors were permitted to solicit, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any proposal or offer that could constitute an acquisition proposal from a person other than Simon, and were permitted to terminate the merger agreement to accept a Superior Proposal from such person as long as Taubman paid the applicable termination fee to Simon and complied with certain other procedures in the merger agreement, as more fully described under “The Merger Agreement—The ‘Go-Shop’ Period”;
that the merger agreement permits the Special Committee to evaluate, negotiate and recommend that the Taubman Board approve a competing transaction, including that:
the Special Committee (or the Taubman Board acting on the Special Committee’s recommendation) may make a Taubman Board recommendation change prior to the approval and adoption of the merger agreement by the Taubman shareholders, subject to compliance with the merger agreement, if it determines in good faith (after consultation with its legal counsel and financial advisor) that, with respect to a Superior Proposal, the failure to take such action would be inconsistent with its fiduciary duties under applicable law; and
the merger agreement provides for the payment of a termination fee of either $46,604,909 (if the merger agreement had been terminated during the go-shop period or in certain circumstances for a limited time period thereafter) or $111,851,783 (if the merger agreement is terminated following the conclusion of such periods) to Simon if (i) Taubman terminates the merger agreement in connection with a Superior Proposal, (ii) Simon terminates the merger agreement in connection with a Taubman Board recommendation change or (iii) under specified circumstances, Taubman enters into a competing proposal within twelve months following a termination of the merger agreement. The Special Committee and the Taubman Board both believed that these fees are reasonable in light of the circumstances and the overall terms of the merger agreement, consistent with fees in comparable transactions, and not preclusive of other offers. For additional information, see the section entitled “The Merger Agreement—Termination” and “The Merger Agreement—Termination Fees”;
the other terms of the merger agreement, including the conditions to the closing of the Transactions, and that:
the merger agreement does not contain a financing condition with respect to any financing by Simon;
the merger agreement requires Simon to use its reasonable best efforts to obtain any necessary regulatory approvals, subject to certain limitations described in the section entitled “The Merger Agreement—Regulatory Matters”;
the outside date under the merger agreement on which either party, subject to specified exceptions, can terminate the merger agreement, should provide sufficient time to consummate the Transactions; and
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the merger agreement permits Taubman to enforce specifically the terms of the merger agreement, and to seek damages in the event of a breach by Simon;
that Taubman would be permitted to continue to declare and pay its regular quarterly cash dividends to holders of Taubman common stock and accrue quarterly dividends to holders of eligible Taubman Equity Awards in each fiscal quarter through the closing of the Transactions (as well as any prorated dividends for the portion of any quarter in which the closing of the Transactions occurs, which may be declared prior to the closing of the Transactions and have a record and/or payment date immediately prior to closing of the Transactions), in each case, subject to the limits set forth in the merger agreement;
that the merger agreement is subject to the adoption by (i) the affirmative vote of the holders of at least two-thirds of the outstanding shares of Taubman voting stock entitled to vote thereon (voting together as a single class), (ii) the affirmative vote of the holders of a majority of the outstanding shares of Taubman Series B preferred stock entitled to vote thereon and (iii) the affirmative vote of the holders of at least a majority of the outstanding shares of Taubman voting stock entitled to vote thereon (voting as a single class), excluding the outstanding shares of Taubman voting stock owned of record or beneficially by the Taubman family members;
that the merger agreement does not provide for a termination fee in the event that the Taubman shareholders do not approve the Transactions in the absence of a competing proposal; and
that the Taubman family members covenanted to Simon in the voting agreement to vote their shares of Taubman voting stock and their Taubman OP units in favor of the Transactions and that the voting agreement terminates automatically if the merger agreement is validly terminated and could be terminated by the Taubman family members if the Taubman Board changes its recommendation of the Transactions.
In the course of reaching its determinations and decisions described above and making the recommendation described above, the Special Committee and the Taubman Board also considered a number of factors relating to the procedural safeguards that the Special Committee and the Taubman Board both believe were and are present to ensure the fairness of the Transactions and to permit the Special Committee to effectively represent the interests of the unaffiliated Taubman shareholders, which procedural safeguards the Taubman Board and the Special Committee each believed supported the Special Committee’s decision and provided assurance of the fairness of the Transactions to such holders. These procedural safeguards, which are not intended to be exhaustive and are not necessarily listed in any relative order of importance, are discussed below:
that the Special Committee was formed at the outset of the Transactions;
that the Special Committee consists of four directors who are independent of, and not affiliated with, Simon, the Taubman family members or any of their respective affiliates;
that the members of the Special Committee are disinterested with respect to the Transactions;
that the Special Committee had exclusive authority to decide whether or not to proceed with a transaction or any alternative thereto, subject to the Taubman Board’s approval of the Transactions as required by Michigan law;
that the Special Committee retained and was advised by its own legal and financial advisors;
that the Special Committee was empowered to, among other things: (i) review and evaluate the possible sale of Taubman; (ii) identify, review and evaluate alternatives to the possible sale of Taubman that may be available to Taubman, including remaining an independent company; (iii) if the Special Committee considers it advisable or appropriate, negotiate the price, structure, form, terms and conditions of a sale of Taubman or any alternative thereto and the form, terms and conditions of any definitive agreements in connection therewith; (iv) determine whether a sale of Taubman or any alternative thereto is fair to, advisable and in the best interests of Taubman and its shareholders; (v) engage, and obtain any necessary or desirable advice, assistance and opinions from, financial advisors or other advisors, consultants and agents; and (vi) recommend to the full Taubman Board what action, if any, should be taken by Taubman with respect to a sale of Taubman or any alternative thereto;
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that the Special Committee had no obligation to recommend any transaction, including a transaction with Simon, and that the Special Committee had the authority to reject any proposals made by Simon or any other person;
that the Special Committee was involved in frequent and extensive deliberations over a period of more than three months regarding Simon’s proposal to acquire Taubman and the other transactions contemplated by the merger agreement, including 32 Special Committee meetings, and was provided with full access to Taubman management and its advisors in connection with its evaluation process;
that the merger agreement is subject to a “majority-of-the-minority” voting requirement, pursuant to which the consummation of the Transactions is subject to a condition that the merger agreement be approved and adopted by the affirmative vote of holders of a majority of the outstanding shares of Taubman voting stock not beneficially owned by the Taubman family members;
that the merger agreement provides for a “go-shop” period, during which the Special Committee and its advisors were permitted to solicit, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any proposal or offer that could constitute an acquisition proposal from a person other than Simon, and were permitted to ultimately terminate the merger agreement to accept a Superior Proposal from such person as long as Taubman complies with certain procedures in the merger agreement, as more fully described under “The Merger Agreement—The ‘Go-Shop’ Period”;
that the merger agreement permits the Special Committee, under certain circumstances, to change, withhold, withdraw, qualify or modify its recommendation and permits Taubman under certain circumstances to respond to inquiries regarding acquisition proposals and, upon payment of a termination fee of either $46,604,909 (if the merger agreement had been terminated during the go-shop period or in certain circumstances for a limited time period thereafter) or $111,851,783 (if the merger agreement is terminated following such periods) to Simon, to terminate the merger agreement to accept a Superior Proposal (as such term is defined in the merger agreement), as described under the section entitled “The Merger Agreement—The ‘No-Shop’ Period” and “The Merger Agreement—Termination Fees”;
that the Taubman family members are receiving the same consideration as the unaffiliated Taubman shareholders with respect to (i) all shares of Taubman common stock held by the Taubman family members (all of which are being sold in the Transactions), (ii) all shares of Taubman Series B preferred stock held by the Taubman family members (all of which are being sold in the Transactions) and (iii) the Taubman OP units that are being sold by the Taubman family members in connection with the closing of the Transactions; and
that the Special Committee made its evaluation of the Transactions independent of the Taubman family members and their affiliates, and with knowledge of the interests of the Taubman family members and their affiliates in the Transactions.
The Special Committee and the Taubman Board also considered and balanced against the potential benefits of the Transactions a number of uncertainties and risks concerning the Transactions, including the following (not necessarily in the order of relative importance):
the participation in the Transactions by the Taubman family members and their affiliates, and the fact that their interests in the Transactions differ from the other Taubman common shareholders (for more information about these interests, refer to the section entitled “—Interests of Taubman’s Directors and Executive Officers in the Transactions”);
the fact that the consideration to be paid in connection with the Transactions of $52.50 per share of Taubman common stock represents:
an implied discount of 3.3% to the highest trading price for the shares of Taubman common stock of $54.30 over the 52-week period ended February 7, 2020, the last completed trading day before the date of the announcement of the Transactions; and
a reduction of $0.50 per share compared to Simon’s initial proposal on November 15, 2019, and a reduction of $7.50 per share compared to the highest price proposed by Simon during the course of negotiations with Taubman, and that such changes were accompanied by a shift from a consideration mix of 25% stock consideration and 75% cash consideration to 100% cash consideration;
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the potential impact of the Taubman family members’ existing ownership in Taubman and the Taubman operating partnership on other potential bidders;
the fact that the Special Committee did not conduct a formal pre-signing market check prior to signing the merger agreement;
the risk of Taubman incurring substantial expenses related to the Transactions, including in connection with any litigation that may result;
the merger agreement’s restrictions on the conduct of Taubman’s and its subsidiaries’ business prior to the completion of the Transactions, generally requiring Taubman and its subsidiaries to conduct their business only in the ordinary course, subject to specific limitations, which may delay or prevent Taubman and its subsidiaries from undertaking business opportunities that may arise pending completion of the Transactions;
the risk that the announcement and pendency of the Transactions may cause substantial harm to Taubman’s business or its relationships with employees or tenants or other business relationships and may divert management and employee attention away from the day-to-day operation of Taubman’s business;
the fact that the unaffiliated Taubman shareholders will not have the opportunity to continue participating in Taubman’s potential upside as a standalone company but that the Taubman family will;
that the exchange ratio with respect to the exchange of Taubman OP units for Simon OP units in the Transactions is fixed and will not be adjusted for fluctuations in the market price of Simon common stock and, because Simon OP units are convertible into shares of Simon common stock, the holders of Taubman OP units receiving Simon OP units in the Transactions will be impacted by any decrease in the trading price of Simon common stock between the announcement and the closing of the Transactions;
that the receipt of cash in respect of shares of Taubman common stock in the Transactions will be taxable to Taubman common shareholders for U.S. federal income tax purposes (for more information about these tax matters, refer to the section entitled “—Material U.S. Federal Income Tax Consequences of the REIT Merger”);
that, under specified circumstances, the Taubman operating partnership may be required to pay a termination fee in the event the merger agreement is terminated and the effect this could have on Taubman and its subsidiaries, including:
the possibility that the termination fee could discourage other potential parties from making a competing offer, although the Special Committee and the Taubman Board both believed that the sizes of the termination fees, representing approximately 1.0% of the total equity value of Taubman (or 1.25% of the total equity value of Taubman and its subsidiaries to be acquired by Simon in the Transactions) based on the consideration of $52.50 per share of Taubman common stock if the merger agreement is terminated during the go-shop period or in certain circumstances for a limited time period thereafter or approximately 2.4% of the total equity value of Taubman (or 3% of the total equity value of Taubman and its subsidiaries to be acquired by Simon in the Transactions) based on the consideration of $52.50 per share of Taubman common stock if the merger agreement is terminated following the conclusion of such periods, were reasonable in amount and would not unduly deter any other party that might be interested in making a competing proposal; and
if the merger is not consummated, Taubman may be required to pay its own expenses associated with the Transactions;
the fact that there can be no assurance that all conditions to the parties’ obligations to complete the Transactions will be satisfied and that, as a result, it is possible that the Transactions may not be completed even if the merger agreement is adopted and the requisite shareholder approval is obtained;
the risks and costs to Taubman if the Transactions do not close, including the diversion of management and employee attention, potential employee attrition and the potential effect on business and tenant relationships;
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that certain Taubman directors and officers may have interests in the Transactions that may be different from, or in addition to, those of the other Taubman shareholders (for more information about these interests, refer to the section entitled “—Interests of Taubman’s Directors and Executive Officers in the Transactions”);
the risks and costs to Taubman in connection with potential litigation relating to the Transactions; and
risks of the type and nature described under the sections titled “Cautionary Statement Concerning Forward-Looking Information.”
In reaching their determinations and making their recommendations, the Special Committee and the Taubman Board did not consider estimates of NAV of Taubman to be a reliable valuation method because, among other things: (i) they considered the impracticability of determining a liquidation value given the significant execution risk involved in any breakup of Taubman and lack of relevant comparable A-rated mall and lifestyle center assets and/or portfolios that have traded in the marketplace, (ii) a liquidation process would likely involve additional and potentially significant legal fees, taxes, costs of sale and other expenses that would reduce any amounts that shareholders might receive upon liquidation, (iii) NAV does not account for overhead and other similar costs and (iv) the Taubman family members have a consent right over the sale of a number of Taubman properties.
While the Special Committee and the Taubman Board considered potentially positive and potentially negative factors, the Special Committee and the Taubman Board concluded that, overall, the potentially positive factors outweighed the potentially negative factors. Accordingly, the Special Committee and the Taubman Board both unanimously determined that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders.
The foregoing discussion is not intended to be an exhaustive list of the information and factors considered by the Special Committee and the Taubman Board in their consideration of the Transactions, but includes the material positive factors and material negative factors considered by the Special Committee and the Taubman Board in that regard. In view of the number and variety of factors and the amount of information considered, the Special Committee and the Taubman Board did not find it practicable to, and did not, make specific assessments of, quantify, or otherwise assign relative weights to the specific factors considered in reaching its determination. In addition, individual members of the Special Committee and the Taubman Board may have given different weights to different factors. Based on the totality of the information presented, the Special Committee collectively reached the unanimous decision to recommend that the Taubman Board submit the merger agreement to the Taubman shareholders and the holders of Taubman Series B preferred stock for their adoption and approval, and the Taubman Board did so, in each case, in light of the factors described above and other factors that the members of the Special Committee and the Taubman Board felt were appropriate.
The Special Committee unanimously recommends and the Taubman Board also unanimously recommends (after having received the unanimous recommendation of the Special Committee) that the Company’s shareholders vote “FOR” the Merger Agreement Proposal, “FOR” the Advisory Compensation Proposal, and “FOR” the Adjournment Proposal.
Opinion of Financial Advisor to the Special Committee
The Special Committee retained Lazard as financial advisor in connection with the Transactions. On February 9, 2020, Lazard rendered its written opinion, consistent with its oral opinion rendered on the same date, to the Special Committee that, as of such date, and based upon and subject to the assumptions, procedures, factors, qualifications and limitations set forth therein, the common stock merger consideration to be paid to holders of Taubman common stock (other than holders of shares of excluded Taubman common stock and the Taubman family members) pursuant to the merger agreement was fair, from a financial point of view, to such holders of Taubman common stock.
The full text of Lazard’s written opinion, dated February 9, 2020, which sets forth the assumptions made, procedures followed, factors considered and qualifications and limitations on the review undertaken by Lazard in connection with its opinion, is attached to this proxy statement as Annex B and is incorporated by reference herein in its entirety. The following summary of Lazard’s opinion is qualified in its entirety by reference to the full text of the opinion. You are encouraged to read Lazard’s opinion and this section carefully and in their entirety.
Lazard’s engagement and its opinion were for the benefit of the Special Committee (in its capacity as such) and Taubman’s other independent directors (in their capacities as such), and Lazard’s opinion was rendered to the Special
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Committee in connection with its evaluation of the REIT Merger and addressed only the fairness as of the date of the opinion, from a financial point of view, to the holders of Taubman common stock (other than holders of shares of excluded Taubman common stock and the Taubman family members) of the common stock merger consideration to be paid to such holders pursuant to the merger agreement. Lazard’s opinion was not intended to, and does not, constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the Transactions or any matter relating thereto. Lazard’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard, as of the date of the opinion. Lazard assumed no responsibility for updating or revising its opinion based on circumstances or events occurring after the date of the opinion. Lazard did not express any opinion as to the price at which shares of Taubman common stock may trade at any time subsequent to the announcement of the Transactions. In addition, Lazard’s opinion did not address the relative merits of the REIT Merger as compared to any other transaction or business strategy in which Taubman might have engaged or the merits of the underlying decision by Taubman to engage in the REIT Merger.
In connection with its opinion, Lazard:
Reviewed the financial terms and conditions of the merger agreement;
Reviewed certain publicly available historical business and financial information relating to Taubman;
Reviewed various financial forecasts and other data provided to Lazard by Taubman relating to the business of Taubman (including the Projections);
Held discussions with members of the senior management of Taubman with respect to the business and prospects of Taubman;
Reviewed public information with respect to certain other companies in lines of business Lazard believed to be generally relevant in evaluating the business of Taubman;
Reviewed historical stock prices and trading volumes of Taubman common stock; and
Conducted such other financial studies, analyses and investigations as Lazard deemed appropriate.
Lazard assumed and relied upon the accuracy and completeness of the foregoing information, without independent verification of such information. Lazard did not conduct any independent valuation or appraisal of any of the assets or liabilities (contingent or otherwise) of Taubman or concerning the solvency or fair value of Taubman, and Lazard was not furnished with any such valuation or appraisal. With respect to the financial forecasts (including the Projections) utilized in Lazard’s analyses, Lazard assumed, with the consent of the Special Committee, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments as to the future financial performance of Taubman. Lazard assumed no responsibility for and expressed no view as to any such forecasts or the assumptions on which they were based. While Lazard noted that the merger agreement contains a “go-shop” provision pursuant to which potential third parties would be contacted following the announcement of the Transactions, prior to the issuance of Lazard’s opinion, Lazard was not directed to, and it did not, solicit indications of interest from third parties regarding a potential transaction with Taubman.
In rendering its opinion, Lazard assumed, with the consent of the Special Committee, that the REIT Merger would be consummated on the terms described in the merger agreement, without any waiver or modification of any material terms or conditions. Lazard also assumed, with the consent of the Special Committee, that obtaining the necessary governmental, regulatory or third party approvals and consents for the REIT Merger would not have an adverse effect on Taubman or the REIT Merger. Lazard did not express any opinion as to any tax or other consequences that might result from the REIT Merger, nor did Lazard’s opinion address any legal, tax, regulatory or accounting matters, as to which Lazard understood that Taubman had obtained such advice as it deemed necessary from qualified professionals. Lazard expressed no view or opinion as to any terms or other aspects (other than the common stock merger consideration to the extent expressly specified in the opinion) of the Transactions, including, without limitation, the form or structure of the REIT Merger, the Series B preferred stock merger consideration, the voting agreement, the Partnership Merger (including the option of the minority partners to elect to receive the common stock merger consideration or Simon OP units), the LLC Conversion, or any other agreements or arrangements entered into in connection with, or contemplated by, the REIT Merger. In addition, Lazard expressed no view or opinion as to the fairness of the amount or nature of, or any other aspects relating to, the compensation to any officers, directors or employees of any parties to the REIT Merger, or class of such persons, relative to the common stock merger consideration or otherwise.
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In connection with rendering its opinion, Lazard performed certain financial analyses and reviews of certain information that Lazard deemed appropriate in connection with rendering its opinion as summarized below. The summary of the analyses and reviews provided below is not a complete description of the analyses and reviews underlying Lazard’s opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and review and the application of those methods to particular circumstances, and, therefore, is not readily susceptible to partial analysis or summary description. Considering selected portions of these analyses and reviews or the summary set forth below without considering the analyses and reviews as a whole, could create an incomplete or misleading view of the analyses and reviews underlying Lazard’s opinion. In arriving at its opinion, Lazard considered the results of all of its analyses and reviews and did not attribute any particular weight to any particular analysis or review or application thereof considered by it; rather, Lazard made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses and reviews.
For purposes of its analyses and reviews, Lazard considered industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Taubman. No company, business or transaction used in Lazard’s analyses and reviews, as a comparison, is identical to Taubman, its business or the REIT Merger, and an evaluation of the results of those analyses and reviews is not entirely mathematical. Rather, the analyses and reviews involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the acquisition, public trading or other values of the companies, businesses or transactions used in Lazard’s analyses and reviews. The estimates contained in Lazard’s analyses and reviews and the ranges of valuations resulting from any particular analysis or review are not necessarily indicative of actual results or values or predictive of future results or values, which may be significantly more or less favorable than those suggested by Lazard’s analyses and reviews. In addition, analyses and reviews relating to the value of companies, businesses or securities do not purport to be appraisals or to reflect the prices at which companies, businesses or securities actually may be sold. Accordingly, the estimates used in, and the results derived from, Lazard’s analyses and reviews are inherently subject to substantial uncertainty.
Summary of Lazard Financial Analyses
The summary of the analyses and reviews provided below includes information presented in tabular format. In order to fully understand Lazard’s analyses and reviews, the tables must be read together with the full text of each summary. The tables alone do not constitute a complete description of Lazard’s analyses and reviews. Considering the data in the tables below without considering the full description of the analyses and reviews, including the methodologies and assumptions underlying the analyses and reviews, could create a misleading or incomplete view of Lazard’s analyses and reviews.
Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before February 7, 2020, the last trading day before the announcement of the Transactions, and is not necessarily indicative of current market conditions. Lazard has been instructed by the Special Committee to use the Projections as a basis for its analyses.
Discounted Cash Flow Analysis
Lazard performed a discounted cash flow analysis of Taubman. A discounted cash flow analysis is a valuation methodology used to derive an intrinsic valuation of a company by calculating the present value of its estimated future cash flows. “Future cash flows” refers to projected unlevered free cash flows of a company (calculated by beginning with EBITDA and adjusting for certain other income and expenses, and subtracting capital expenditures). “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting the future cash flows or amounts by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, capital structure, expected returns and other appropriate factors. Lazard calculated the discounted cash flow value for Taubman as the sum of the net present value, as of February 9, 2020, of each of:
the estimated future cash flows that Taubman is expected to generate for each of fiscal years 2020 through 2023; and
the estimated value of Taubman at the end of fiscal year 2023 or the terminal value.
The estimated future cash flows of Taubman were calculated by Lazard based on the Projections. Lazard additionally deducted projected annual share-based compensation expenses of $10.6 million as provided in the Projections from the estimated future cash flows in its analysis of the Projections.
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Lazard then calculated the implied capitalization rates of the select comparable companies, using the same methodology for calculating the average of the financial multiples and ratios described under “Comparable Companies Public Trading Analysis” below. The following table summarizes the results of this review for the select comparable companies:
 
Taubman
Select Comparable
Companies
As of February 7, 2020*
7.1%
7.2%
As of January 31, 2020**
7.7%
7.4%
1-Year Average
6.6%
6.6%
3-Year Average
5.9%
6.2%
5-Year Average
5.5%
5.7%
*
The last trading day before the announcement of the Transactions.
**
The last trading day prior to market rumors emerging that Simon was engaging in discussions to acquire Taubman.
Lazard then selected and applied a range of capitalization rates of 5.50% to 6.50% to estimated share of 2024 property net operating income of $660 million as set forth in the Projections, to calculate the terminal value of Taubman. Lazard selected the range of capitalization rates applied to the terminal year property net operating income based on Lazard’s analysis of the implied historical capitalization rates of the select comparable companies (as defined below), as adjusted based on its professional judgment and experience, and further informed by Taubman’s observed historical implied capitalization rates as compared to those of the select comparable companies.
For its discounted cash flow calculations, Lazard applied discount rates ranging from 5.50% to 6.75% to the estimated share of future cash flows. Such discount rates were based on Lazard’s estimated range of Taubman’s weighted average cost of capital, derived from a number of factors using the Capital Asset Pricing Model, taking into account certain metrics, including, among others, the applicable risk free rate of return, unlevered risk profile, cost of long-term debt and leverage ratio of Taubman and the select comparable companies.
Lazard then calculated an enterprise value range for a valuation date of December 31, 2019 by taking the sum of the estimated discounted cash flows (including the net present value of the implied terminal value) adjusted for an amount in respect of net tangible other assets and liabilities and plus the value of peripheral land, with such adjustment based on values as of September 30, 2019 (being the last date for which such information was available), in each case as provided by Taubman management.
Lazard then calculated an equity value range for Taubman by taking the implied enterprise value range and subtracting (i) the outstanding principal amount of Taubman’s share of consolidated secured debt, subtracting (ii) the outstanding principal amount of Taubman’s share of unconsolidated secured debt, subtracting (iii) the outstanding principal amount of Taubman’s other credit facilities and term loans, subtracting (iv) the outstanding principal amount due to the holders of Taubman Series J Preferred Stock and Taubman Series K Preferred Stock, and adding (v) Taubman’s cash and cash equivalents, in each case as provided by Taubman management as of December 31, 2019. Lazard divided the resulting equity value range by 61.5 million, the fully diluted shares of Taubman common stock outstanding as of February 6, 2020 as provided by Taubman management, to estimate an implied range per share of Taubman common stock, and compared it to the common stock merger consideration to be paid to holders of Taubman common stock (other than holders of shares of excluded Taubman common stock and the Taubman family members) pursuant to the merger agreement:
Implied Price Per Share Range
$43.84 – $65.28
Comparable Companies Public Trading Analysis
Lazard applied comparable company multiples to perform a valuation analysis of Taubman to determine an implied per share value for the Taubman common stock.
Lazard reviewed various financial multiples and ratios of selected publicly traded companies that Lazard believed, based on its experience with companies operating in the high quality mall REIT industry and its professional judgment, to be relevant for purposes of this analysis, considered such companies’ operations, lines of business, markets, sizes and geographies, and applied such multiples to the applicable estimated Adjusted FFO for 2020 for Taubman as set forth in the Projections.
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The selected group of companies Lazard reviewed, referred to as the “select comparable companies,” were (i) Simon and (ii) The Macerich Company.
Lazard selected the companies reviewed in this analysis because, among other things, the select comparable companies operate businesses similar to the business of Taubman. However, no selected company is identical to Taubman and certain of these companies may have characteristics that are materially different from those of Taubman. Accordingly, Lazard believes that purely quantitative analyses are not, in isolation, determinative in the context of the REIT Merger and that qualitative judgments concerning differences between the businesses, financial and operating characteristics and prospects of Taubman and the select comparable companies are also relevant.
For each of the select comparable companies, Lazard calculated the ratio of such company’s closing trading price, as of (i) for reference only, February 7, 2020 (the last trading day before the announcement of the Transactions) and (ii) January 31, 2020 (the last trading day prior to market rumors emerging that Simon was engaging in discussions to acquire Taubman) to each company’s estimated funds from operations, or “FFO,” for the next 12-month period, or the “2020 FFO.” The 2020 FFO estimates for the select comparable companies used by Lazard in its analysis were based on publicly available Wall Street equity research estimates. Lazard also calculated the same ratio on an average basis as observed over the historical one-year, three-year and, for reference only, five-year basis.
Lazard then observed the average of these ratios for the select comparable companies. The following table summarizes the results of this review for the select comparable companies:
 
Taubman
Select Comparable
Companies
As of February 7, 2020*
9.4x
8.9x
As of January 31, 2020**
7.2x
8.4x
1-Year Average
11.1x
11.0x
3-Year Average
13.8x
13.0x
5-Year Average
16.2x
15.2x
*
The last trading day before the announcement of the Transactions.
**
The last trading day prior to market rumors emerging that Simon was engaging in discussions to acquire Taubman.
Lazard then selected and applied a range of FFO multiples of (i) 6.4x to 10.4x for the 2020 FFO as of January 31, 2020, (ii) 9.0x to 13.0x for the 1-year average and (iii) 11.0x to 15.0x for the 3-year average, to Taubman’s estimated 2020 Adjusted FFO as set forth in the Projections. Lazard selected the range of FFO multiples applied to Taubman based on Lazard’s analysis of the average FFO multiple of the select comparable companies as of January 31, 2020, the last trading day prior to market rumors emerging that Simon was engaging in discussions to acquire Taubman, as adjusted based on its professional judgment and experience, and further informed by Taubman’s observed FFO multiple trading premium to the average of the select comparable companies over the last five years.
From this analysis, Lazard estimated an implied range per share of Taubman common stock and compared it to the common stock merger consideration to be paid to holders of Taubman common stock (other than holders of shares of excluded Taubman common stock and the Taubman family members) pursuant to the merger agreement:
 
Implied Price Per Share Range
Current 2020 FFO*
$23.34-$37.94
2020 FFO 1-Year Average
$32.88-$47.47
2020 FFO 3-Year Average
$40.21-$54.81
*
As of January 31, 2020, the last trading day prior to market rumors emerging that Simon was engaging in discussions to acquire Taubman.
Precedent Transaction Valuation Analysis
Lazard reviewed and analyzed, to the extent publicly available, financial information for selected precedent transactions in the high quality mall REIT industry that Lazard believed, based on its professional judgement and experience, to be relevant for purposes of this analysis, which are collectively referred to as the Lazard precedent transactions. Although none of the Lazard precedent transactions or the companies party to such transactions is directly comparable to the REIT Merger or to Taubman, the Lazard precedent transactions were chosen because
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certain aspects of the Lazard precedent transactions, for purposes of this analysis and based on the professional judgment and experience of Lazard, may be considered similar to the REIT Merger. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the Lazard precedent transactions differently than they would affect the REIT Merger. The Lazard precedent transactions reviewed, and the implied capitalization rate of each, as of the time of the announcement of the applicable Lazard precedent transaction, were:
Announcement Date
Target / Acquiror
Capitalization Rate
03/26/18
General Growth Properties / Brookfield Property Partners L.P.
5.7%
09/16/14
Glimcher Realty Trust / Washington Prime Group, Inc.
5.8%
 
Mean
5.8%
 
Median
5.8%
Based on its professional judgment and experience, and taking into consideration the observed implied capitalization rates for the Lazard precedent transactions, Lazard then applied a selected a range of capitalization rates of 5.8% ± 50 basis points, based on Lazard’s professional judgment and experience, to Taubman’s estimated share of 2020 property net operating income of $583 million to derive an implied enterprise value range for Taubman. Lazard then calculated an equity value range using the same methodology for calculating the equity value based on enterprise value described under “Discounted Cash Flow Analysis” above. Financial data of the Lazard precedent transactions were based on public filings and other public information.
This precedent transactions valuation analysis indicated the following implied range per share of Taubman common stock equity value reference range for Taubman, as compared to the common stock merger consideration to be paid to holders of Taubman common stock (other than holders of shares of excluded Taubman common stock and the Taubman family members) pursuant to the merger agreement:
Implied Per Share Equity
Value Reference Range
$47.41 – $67.17
Other Analyses
The analyses and data described below were presented to the Special Committee for informational purposes only and did not provide the basis for the rendering of Lazard’s opinion.
52-Week High/Low Trading Prices
Lazard reviewed the range of trading prices of shares of Taubman common stock for the 52 weeks ended on February 7, 2020, the last trading day before the announcement of the Transactions. Lazard observed that, during such period, the closing share price of Taubman common stock ranged from $26.42 per share to $54.30 per share, as compared to the common stock merger consideration to be paid to holders of Taubman common stock (other than holders of shares of excluded Taubman common stock and the Taubman family members) pursuant to the merger agreement.
Analyst Price Targets Analysis
Lazard reviewed publicly available share price targets of ten Wall Street research analysts for Taubman common stock as of February 7, 2020, the last trading day before the announcement of the Transactions. The range of these target prices was $29.50 to $55.00, with a mean of $35.05 and a median of $33.00, as compared to the common stock merger consideration to be paid to holders of Taubman common stock (other than holders of shares of excluded Taubman common stock and the Taubman family members) pursuant to the merger agreement.
Comparable Company Trading Premium/Discount to Net Asset Value Analysis
Lazard reviewed the discount to net asset value per share of Taubman common stock based on published, publicly available Wall Street equity research reports, which indicated a discount range of 24% for Simon and 50% for The Macerich Company for the selected comparable companies, as of January 31, 2020, the last trading day prior to market rumors emerging that Simon was engaging in discussions to acquire Taubman. Lazard applied this discount range to the Wall Street consensus estimate of Net Asset Value for Taubman, as of January 31, 2020, of $61.34.
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This analysis implied a price per share range for shares of Taubman common stock of $30.73 per share to $46.83 per share, as compared to the common stock merger consideration to be paid to holders of Taubman common stock (other than holders of shares of excluded Taubman common stock and the Taubman family members) pursuant to the merger agreement.
Premiums Paid Analysis
Lazard performed an illustrative premiums paid analysis based on the premiums paid, where applicable, in selected transactions involving a U.S. acquirer and a U.S. REIT target with a transaction value greater than $1.0 billion and at least 50% of the total consideration consisted of common stock merger consideration announced in the five years prior to February 7, 2020, the last trading day before the announcement of the Transactions. Lazard calculated the 25th percentile, median and 75th percentile premia by comparing, to the extent publicly available, the per share acquisition price to the relevant target company’s closing share price on the date prior to the announcement of the transaction, or other relevant date as referenced in public filings for the respective transaction, referred to as the “undisturbed date.”
 
Premia to Share Price on
Undisturbed Date
75th Percentile
22.4%
25th Percentile
13.1%
Using a 13.1% to 22.4% premia range based on the 25th percentile and 75th percentile one-day premia paid in the transactions referenced above and Taubman closing price per share as of January 31, 2020, the last trading day prior to market rumors emerging that Simon was engaging in discussions to acquire Taubman, Lazard estimated an implied price per share range for shares of Taubman common stock of $29.88 to $32.35, as compared to the common stock merger consideration to be paid to holders of Taubman common stock (other than holders of shares of excluded Taubman common stock and the Taubman family members) pursuant to the merger agreement.
Miscellaneous
In connection with Lazard’s services as financial advisor to the Special Committee with respect to the Transactions, Taubman agreed to pay Lazard the following fees: (i) $3 million, which was paid following the rendering of Lazard’s opinion, and (ii) $13.5 million, to be paid upon the completion of the REIT Merger, which may be increased by $1.5 million if (and only if), following the announcement of the Transactions, a shareholder engages in an activist campaign in connection with the REIT Merger or a potential alternative purchaser makes or delivers a bona fide written offer or proposal for a potential alternative transaction that could lead to greater consideration for Taubman’s shareholders and, in either case, Lazard or another financial advisor or investment bank has rendered material assistance in connection therewith. Taubman also agreed to reimburse Lazard for certain expenses incurred in connection with Lazard’s engagement and to indemnify Lazard and certain related persons under certain circumstances against various liabilities that may arise from or be related to Lazard’s engagement, including certain liabilities under United States federal securities laws.
Lazard has not received any other fees for providing financial advisory services to Simon or Taubman or an entity known by Lazard to be an affiliate of Simon or Taubman during the last two years.
Lazard, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts, and valuations for estate, corporate and other purposes. In addition, in the ordinary course, Lazard and its affiliates and employees may trade securities of Taubman, Simon and certain of their respective affiliates for their own accounts and for the accounts of their customers, may at any time hold a long or short position in such securities, and may also trade and hold securities on behalf of Taubman, Simon and certain of their respective affiliates. The issuance of Lazard’s opinion was approved by the opinion committee of Lazard.
Lazard is an internationally recognized investment banking firm providing a full range of financial advisory and other services. Lazard was selected to act as investment banker to the Special Committee because of its qualifications, expertise and reputation in investment banking and mergers and acquisitions generally and in the real estate industry specifically, as well as its familiarity with the business of Taubman.
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Lazard Materials
In addition to the presentation made to the Special Committee on February 9, 2020, which has been filed with the SEC as an exhibit to the Schedule 13E-3 of which this proxy statement forms a part and as described in “Special Factors—Opinion and Materials of Financial Advisor to the Special Committee (Lazard),” copies of preliminary illustrative presentations presented or delivered by Lazard to the Special Committee on November 21, 2019, December 5, 2019, January 10, 2020, January 12, 2020, January 22, 2020, February 6, 2020 and February 9, 2020 containing preliminary illustrative financial analyses also are attached as exhibits to such Schedule 13E-3. None of these other preliminary illustrative presentations by Lazard, alone or together, constitute, or form the basis of, an opinion of Lazard with respect to the common stock merger consideration, and the preliminary illustrative financial analyses therein were based on economic, monetary, market and other conditions as in effect on, and the information made available to Lazard as of, the dates of the respective presentations.
The Simon Parties’ Purposes and Reasons for the Transactions
Under the SEC rules governing “going private” transactions, each of the Simon parties may be deemed an affiliate of Taubman and, therefore, is required to express its purposes and reasons for the Transactions to Taubman’s unaffiliated security holders. Each of the Simon parties is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules and regulations under the Exchange Act. The views of each of the Simon parties should not be construed as a recommendation to any Taubman shareholder as to how that shareholder should vote on the Merger Agreement Proposal.
For the Simon parties, the purpose of the Transactions is to enable the Simon parties to form the Joint Venture and enter into the JV agreement in transactions in which the holders of Taubman common stock will be cashed out, such that the Simon parties will bear the rewards and risks of such ownership after the Transactions are completed and the Taubman common stock ceases to be publicly traded.
At the time they decided to execute the merger agreement, the Simon parties considered what then appeared to be potential benefits of the Transactions, including the following:
if Taubman can successfully execute its business strategy, the value of Simon’s equity investment could increase;
the Transactions could provide Taubman with greater operational flexibility than it would have had as an independent public company; and
ceasing to be a public entity would free Taubman from reporting and other substantial burdens placed on public entities.
In the course of considering the going-private transaction, the Simon parties did not consider alternative structures because the Simon parties believed the Transactions were the most direct and effective way to enable the Simon parties to form the Joint Venture and enter into the JV agreement.
The Taubman Filing Persons’ Purposes and Reasons for the Transactions
Under the SEC rules governing “going private” transactions, each of the Taubman filing persons may be deemed an affiliate of the Company and, therefore, is required to express its purposes and reasons for the Transactions to the Company’s unaffiliated security holders. Each Taubman filing person is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of each Taubman filing person should not be construed as a recommendation to any Taubman shareholder as to how that shareholder should vote on the Merger Agreement Proposal.
If the Transactions are completed, Taubman will become an indirect, wholly owned subsidiary of Simon, and the Taubman common stock will cease to be publicly traded. Additionally, following the consummation of the Transactions, the Simon parties will own 80% of the limited liability company interests in the Joint Venture and the Taubman family members will own the remaining 20% of the limited liability company interests in the Joint Venture (assuming, for purposes of this calculation, that Taubman OP units issuable under the Option Deferral Agreement are outstanding interests of the Joint Venture). For the Taubman filing persons, the purpose of the Transactions is to allow the Simon parties and the Taubman family members to form the Joint Venture and enter into the JV agreement. Through their ownership interest in the Joint Venture, the Taubman filing persons will bear the rewards and risks of such ownership after the Transactions are completed and the Taubman common stock ceases to be publicly traded.
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Additionally, pursuant to the terms of the merger agreement and the JV agreement, the Transactions will allow the Taubman filing persons to realize value for a portion of their investment in Taubman and the Taubman operating partnership while providing an opportunity to form a partnership with an experienced market participant. The Taubman filing persons believe that a partnership between the Taubman family members and the Simon parties in the Joint Venture presents an outstanding fit in terms of corporate culture and maintains the Taubman operating partnership’s unique brand, while also providing the Taubman filing persons access to future liquidity for their holdings in the Joint Venture pursuant to the terms of the JV agreement. Additionally, the Taubman filing persons believe that the Joint Venture will provide beneficial opportunities to Taubman’s employees, and allow, in a more efficient and flexible manner, the Joint Venture to invest in innovative retail environments that create exciting shopping and entertainment experiences for consumers, immersive opportunities for retailers, and substantial new job prospects for the local communities served by the Joint Venture.
Each of the Taubman filing persons believes that it is in the best interests of Taubman and the Taubman operating partnership for Taubman and the Joint Venture to operate with no publicly traded equity. The Taubman filing persons believe that without publicly traded equity, Taubman and the Joint Venture could have greater operational flexibility than it would have had as an independent public company.
An additional purpose of the Transactions is to enable Taubman shareholders to immediately realize the value of their investment in Taubman through their receipt of the common stock merger consideration of $52.50 in cash.
Additionally, the Transactions will allow all unaffiliated holders of Taubman OP units to elect to receive, at their election, (i) the same common stock merger consideration of $52.50 to be received by Taubman shareholders, or (ii) 0.3814 Simon OP units per Taubman OP unit, and all unaffiliated holders of Taubman Series B preferred stock to receive the Series B preferred stock merger consideration.
Accordingly, the Taubman filing persons have decided to undertake the going-private transaction at this time for the reasons described above.
The Taubman filing persons did not consider any form of transaction other than the Transactions because the Taubman filing persons believe that the Transactions are the most direct, efficient and effective way for Simon to acquire all of the outstanding shares of Taubman and indirectly, an 80% ownership interest in the Joint Venture, while allowing the Taubman family members to own a 20% interest in the Joint Venture (assuming, for purposes of this calculation, that Taubman OP units issuable under the Option Deferral Agreement are outstanding interests of the Joint Venture). The Taubman filing persons did not consider any other alternative transaction structure based on their determination that no other alternatives available would (i) provide the Taubman operating partnership both with the perspective of an experienced sector participant that would bring resources to the Taubman operating partnership with a party willing to pay a fair price for an investment in an entity in which the Taubman family members maintained meaningful governance rights and R. Taubman and W. Taubman remained executive officers, (ii) not result in the cessation of the Taubman operating partnership’s existence as an autonomous entity, (iii) provide Taubman shareholders the opportunity to realize value at a significant premium to the trading price of the Taubman common stock, (iv) provide the Taubman family members with an opportunity to realize immediate value for their shares of Taubman common stock and for approximately one-third of their Taubman OP units, and (v) provide the Taubman family members with access to future liquidity pursuant to the terms of the JV agreement.
Position of the Simon Parties as to the Fairness of the REIT Merger
Under the SEC rules governing “going private” transactions, each of the Simon parties may be deemed an affiliate of Taubman and, therefore, is required to express its beliefs as to the fairness of the REIT Merger to Taubman’s unaffiliated security holders. Each of the Simon parties is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules and regulations under the Exchange Act. The views of each of the Simon parties should not be construed as a recommendation to any Taubman shareholder as to how that shareholder should vote on the merger proposal.
Simon negotiated with the Special Committee and Taubman with the intent to achieve the terms of a transaction that would be most favorable to Simon, and not necessarily to Taubman’s unaffiliated security holders, and, accordingly, did not negotiate the merger agreement with the goal of obtaining terms that were fair to the Taubman’s unaffiliated security holders. The Special Committee is comprised entirely of non-management independent directors who are not affiliated with Taubman, and the members of the Special Committee have no financial interest in the Transactions different from, or in addition to, the interests of Taubman’s unaffiliated security holders other than their interests described under “—Interests of Taubman’s Directors and Executive Officers in the Transactions.
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None of the Simon parties participated in the deliberations of the Special Committee or the Taubman Board regarding, or received advice from Taubman’s or the Special Committee’s legal advisors or financial advisors as to, the substantive or procedural fairness of the Transactions to Taubman’s unaffiliated security holders. None of the Simon parties has performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the Transactions to unaffiliated Taubman shareholders.
At the time the merger agreement was executed, each of the Simon parties believed that the Transactions are substantively and procedurally fair to Taubman’s unaffiliated security holders based on its understanding that:
the Special Committee, composed of non-management independent directors who are not affiliated with Taubman, determined, by unanimous vote of all of the members of the Special Committee, and the Taubman Board determined, by the unanimous vote of all members of the Taubman Board that the Transactions are fair to, and in the best interests of, Taubman’s unaffiliated security holders;
the Special Committee retained independent, nationally recognized legal and financial advisors, each of which has extensive experience in transactions similar to the REIT Merger;
the common stock merger consideration of $52.50 per share in cash represents an implied premium of 51.4% to the closing share price for Taubman common stock of $34.67 on February 7, 2020, the last completed trading day before the announcement of the Transactions;
the $52.50 per share common stock merger consideration and other terms and conditions of the merger agreement resulted from extensive negotiations between the Special Committee and its advisors and the Simon parties and their advisors;
the Special Committee received an opinion, dated February 9, 2020, from its financial advisor as to the fairness, from a financial point of view and as of such date, of the common stock merger consideration to be received by holders of Taubman’s unaffiliated security holders pursuant to the merger agreement, which opinion was based upon and subject to various assumptions made, procedures followed, factors considered and limitations on the review undertaken;
the merger agreement allows the Taubman Board, acting upon the recommendation of the Special Committee, to withdraw its recommendation of the merger agreement in favor of the Mergers in response to a Superior Proposal or intervening event, subject to Taubman paying Simon a termination fee of $46,604,909 (if the merger agreement had been terminated during the go-shop period or in certain circumstances for a limited time period thereafter) or $111,851,783 (if the merger agreement is terminated following the conclusion of such periods) to Simon if (i) Taubman terminates the merger agreement in connection with a Superior Proposal, (ii) Simon terminates the merger agreement in connection with a Taubman Board recommendation change or (iii) under specified circumstances, Taubman enters into a competing proposal within twelve months following a termination of the merger agreement; and
the merger agreement is subject to the approval and adoption by (i) the affirmative vote of the holders of at least two-thirds of the outstanding shares of Taubman voting stock entitled to vote thereon (voting together as a single class), (ii) the affirmative vote of the holders of a majority of the outstanding shares of Taubman Series B preferred stock and (iii) the affirmative vote of the holders of at least a majority of the outstanding shares of Taubman voting stock entitled to vote thereon (voting together as a single class) excluding the outstanding shares of Taubman voting stock owned of record or beneficially by the Taubman family members.
At the time the merger agreement was executed, the Simon parties also considered a variety of risks and other countervailing factors related to the merger agreement and REIT Merger, including the following:
the risk that the REIT Merger might not be completed in a timely manner or at all; and
the fact that the merger agreement provides that, during the period from the date 45 days following the execution of the merger agreement until the effective time of the REIT Merger, Taubman is subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties and to provide non-public information to third parties and to engage in negotiations with third parties regarding alternative acquisition proposals, subject to customary exceptions.
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The Simon parties did not conduct a going-concern valuation of Taubman common stock or consider the prices paid by Taubman or certain of the Taubman family for past purchases of Taubman common stock for the purposes of determining the fairness of the common stock merger consideration to Taubman’s unaffiliated security holders.
The foregoing discussion of the information and factors considered and given weight by the Simon parties in connection with the fairness of the REIT Merger is not intended to be exhaustive but includes all material factors considered by the Simon parties. The Simon parties did not find it practicable to, and did not, quantify or otherwise assign relative weights to the individual factors considered in reaching their conclusions as to the fairness of the REIT Merger.
Position of the Taubman Filing Persons as to the Fairness of the REIT Merger
Under the SEC rules governing “going private” transactions, each of the Taubman filing persons may be deemed an affiliate of the Company and, therefore, is required to express its beliefs as to the fairness of the REIT Merger to the Company’s unaffiliated security holders. Each Taubman filing person is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The views of each Taubman filing persons should not be construed as a recommendation to any Taubman shareholder as to how that shareholder should vote on the Merger Agreement Proposal.
The Taubman filing persons may have interests in the Transactions that may be different from, or in addition to, those of the other Taubman shareholders. These interests are described under “—Interests of Taubman’s Directors and Executive Officers in the Transactions,” “—The Taubman Filing Persons’ Purposes and Reasons for the Transactions,” and “The JV Agreement.” In light of these different interests, the Taubman Board established the Special Committee, which consists solely of individuals (i) not directly or indirectly affiliated with Taubman or the Taubman family members, or their respective affiliates (other than an affiliation with Taubman by virtue of serving as a director of Taubman), (ii) not members of Taubman’s management, and (iii) who are independent and disinterested (other than their interests described under “—Interests of Taubman’s Directors and Executive Officers in the Transactions”) and delegated to it the Taubman Board’s power and authority to, among other things: (a) review and evaluate the possible sale of Taubman, (b) identify, review and evaluate alternatives to the possible sale of Taubman that may be available to Taubman, including remaining an independent company, (c) if the Special Committee considers it advisable or appropriate, negotiate the price, structure, form, terms and conditions of a sale of Taubman or any alternative thereto and the form, terms and conditions of any definitive agreements in connection therewith, (d) determine whether a sale of Taubman or any alternative thereto is fair to, advisable and in the best interests of Taubman and its shareholders, (e) engage, and obtain any necessary or desirable advice, assistance and opinions from, financial advisors or other advisors, consultants and agents, and (f) recommend to the full Taubman Board what action, if any, should be taken by Taubman with respect to a sale of Taubman or any alternative thereto.
The Transactions were approved unanimously by (i) members of the Taubman Board, including all of independent directors, and (ii) all of the members of the Special Committee.
None of the Taubman filing persons or the other Taubman family members participated in the deliberations of the Special Committee as to the substantive or procedural fairness of the REIT Merger to the Taubman shareholders. For these reasons, the Taubman filing persons do not believe that their interests in the Transactions influenced the decision of the Special Committee with respect to the merger agreement or the Transactions.
Based on the knowledge and analysis of each of the Taubman filing persons of available information regarding Taubman, as well as discussions with Taubman’s senior management regarding Taubman and its business and factors considered by, and the analysis and resulting conclusions of, the Taubman Board and the Special Committee discussed under “—Reasons for the Transactions and Recommendation of the Special Committee and the Taubman Board” (which analysis and resulting conclusions each of the Taubman filing persons adopt as their own), each of the Taubman filing persons believe that the REIT Merger is substantively and procedurally fair to the Taubman unaffiliated shareholders based on the following factors, among others:
the Special Committee unanimously determined that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders;
the Taubman Board, based on the recommendation of the Special Committee, unanimously determined that the merger agreement and the Transactions are advisable and fair to, and in the best interests of, Taubman and the Taubman common shareholders;
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the common stock merger consideration of $52.50 per share in cash represents an implied premium of 98.7% to the closing share price for Taubman common stock of $26.42 on January 31, 2020, the last trading day prior to market rumors emerging that Simon was engaging in discussions to acquire Taubman, and an implied premium of 51.4% to the closing share price for Taubman common stock of $34.67 on February 7, 2020, the last completed trading day before the announcement of the Transactions;
the common stock merger consideration payable to the Taubman shareholders, and the other terms and conditions of the merger agreement, resulted from negotiations between and among Taubman, the Special Committee, the Taubman family members, the Simon parties and each of their respective advisors;
notwithstanding that the opinion of Lazard was provided for the information and assistance of the Special Committee and that none of the Taubman filing persons and the Simon parties are entitled to rely on (or relied on) such opinion, the fact that the Special Committee received the opinion of Lazard, dated February 9, 2020, to the effect that, as of February 9, 2020, and based on and subject to the factors and assumptions set forth in the written opinion of Lazard, the consideration to be paid to the Taubman shareholders (other than the Simon parties, the Taubman family members and any of their respective affiliates) pursuant to the merger agreement was fair from a financial point of view to such holders, as further described under “—Opinion of Financial Advisor to the Special Committee”;
the Special Committee retained and was advised by its own legal and financial advisors, each of which has extensive experience in transactions similar to the Transactions;
the Special Committee was involved in frequent and extensive deliberations over a period of more than three months regarding Simon’s proposal to acquire Taubman and the other transactions contemplated by the merger agreement, including 32 Special Committee meetings, and was provided with full access to Taubman management and its advisors in connection with its evaluation process;
the belief that the value to Taubman shareholders of Taubman continuing as an independent public company would not be as great as the common stock merger consideration;
the common stock merger consideration provides Taubman shareholders with immediate certainty of greater value and liquidity at an attractive per share equity value without the market or execution risks associated with continued independence as a public company;
the Special Committee’s belief that the common stock merger consideration to be paid in the Transactions represented the highest per share consideration that could be obtained;
the approval and adoption of the merger agreement is subject to a “majority-of-the-minority” voting requirement, pursuant to which the consummation of the Transactions is subject to a condition that the merger agreement be adopted by the affirmative vote of holders of a majority of the outstanding shares of Taubman voting not beneficially owned by the Taubman family members;
the Taubman Board agreed not to approve a transaction or any alternative thereto without a prior favorable recommendation with respect to such transaction or alternative by the Special Committee;
the Taubman family members are receiving the same consideration as the unaffiliated Taubman shareholders with respect to all shares of the Taubman common stock held by the Taubman family members (all of which are being sold in the Transactions);
the merger agreement provides for a “go-shop” period, during which the Special Committee and its advisors may solicit, initiate, propose or induce the making, submission or announcement of, or encourage, facilitate or assist, any proposal or offer that could constitute an acquisition proposal from a person other than the Simon parties, and may ultimately terminate the merger agreement to accept a Superior Proposal from such person as long as Taubman complies with certain procedures in the merger agreement, as more fully described under “The Merger Agreement—The ‘Go-Shop’ Period”;
the merger agreement permits the Special Committee, under certain circumstances, to change, withhold, withdraw, qualify or modify its recommendation and permits Taubman under certain circumstances to respond to inquiries regarding acquisition proposals and, upon payment of a termination fee to Simon of either $46,604,909 (if the merger agreement had been terminated during the go-shop period or in certain circumstances for a limited time period thereafter) or $111,851,783 (if the merger agreement is terminated
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following such periods), to terminate the merger agreement to accept a Superior Proposal (as such term is defined in the merger agreement), as described under the section entitled “The Merger Agreement—The ‘No-Shop’ Period” and “The Merger Agreement—Termination Fees”;
the Taubman family members have agreed to negotiate in good faith with a competing bidder that has made a proposal that the Special Committee determines is a Superior Proposal, or is reasonably likely to lead to a Superior Proposal, and that has a structure similar to the Transactions, and the Taubman family members have agreed to discuss in good faith with the Special Committee terms on which the Taubman family members might be willing to agree to an alternative transaction that does not have a structure similar to the Transactions; and
the Special Committee had considered alternatives, including continuing to operate Taubman on a standalone basis, a sale of selected assets, a spin-off of selected assets or a sale to an alternative buyer, and considered the risks and uncertainties associated with such alternatives, and the Special Committee concluded that no other alternatives were reasonably likely to create greater value for the unaffiliated holders of Taubman common stock than the Transactions.
None of the Taubman filing persons has performed, or engaged a financial advisor to perform, any valuation or other analyses for the purposes of assessing the fairness of the mergers to the Taubman shareholders.
In their consideration of the fairness of the REIT Merger, the Taubman filing persons did not find it practicable to, and did not, appraise Taubman’s assets to determine the liquidation value for Taubman’s shareholders (i) because of their belief that liquidation sales generally result in proceeds that are substantially less than the proceeds of a sale of a going concern, (ii) because of the impracticability of determining a liquidation value given the significant execution risk involved in any breakup, and (iii) because a liquidation-based valuation does not appropriately take into account overhead and other potentially significant costs of a liquidation. None of the Taubman filing persons considered net book value, which is an accounting concept, for purposes of determining the fairness of the common stock merger consideration to the Taubman shareholders because, in their view, net book value is not indicative of Taubman’s market value but rather an indicator of historical costs. Each of the Taubman filing persons note, however, that the common stock merger consideration of $52.50 in cash per share is higher than the net book value of Taubman per share of $(2.90) as of December 31, 2019. As of December 31, 2019, Taubman’s net book value was approximately $(177,406,000). None of the Taubman filing persons sought to establish a pre-Transactions going concern value for the Taubman common stock to determine the fairness of the common stock merger consideration to the Taubman shareholders because following the Transactions Taubman and the Taubman operating partnership will have a significantly different capital structure. However, to the extent the pre-Transactions going concern value was reflected in the share price of the Taubman common stock on February 7, 2020, the last completed trading day before the public announcement of the Transactions, the common stock merger consideration of $52.50 per share represented an implied premium of 51.4% to the closing share price for Taubman common stock of $34.67 on February 7, 2020.
The foregoing discussion of the information and factors considered and given weight by the Taubman filing persons in connection with the fairness of the REIT Merger is not intended to be exhaustive but includes the material factors considered by the Taubman filing persons. The Taubman filing persons did not find it practicable to, and did not, quantify or otherwise assign relative weights to the individual factors considered in reaching their conclusions as to the fairness of the REIT Merger. Rather, the fairness determinations were made after consideration of the foregoing factors as a whole.
Plans for the Company After the Mergers
Following completion of the Transactions, Taubman will have been merged with and into Merger Sub 1 and Taubman will cease to exist as a separate corporate entity. The shares of Taubman common stock, Taubman Series J Preferred Stock and Taubman Series K Preferred Stock are currently registered under the Exchange Act. Following the consummation of the Transactions, it is expected that all stock of Taubman will be delisted from the NYSE.
Pursuant to the terms of the JV agreement it is expected that Taubman’s operations will be conducted after the Mergers through the Joint Venture. Prior to the occurrence of certain specified termination events (including, but not limited to, the ownership of the Taubman family members falling below a specified threshold) (the “Taubman Period”), the operations of the Joint Venture and its subsidiaries will be managed by the Chief Executive Officer and President, R. Taubman (or, if R. Taubman ceases to be Chief Executive Officer and President, W. Taubman or another
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appointee of the Taubman family members reasonably acceptable to Surviving TCO), subject to approval rights held by Surviving TCO over certain matters, including, but not limited to, equity issuances, debt incurrences beyond certain agreed-upon exceptions, the annual budget (subject to certain procedures and exceptions), certain litigation, affiliate transactions and certain contracts.
Following the end of the Taubman Period, the operations of the Joint Venture and its subsidiaries will be managed by a board of directors appointed by Surviving TCO, subject to a more limited set of approval rights held by the Taubman family members and the Taubman family members maintaining certain minimum ownership thresholds.
As of the date of this proxy statement, other than the Mergers, the Simon parties have no current plans, proposals or negotiations which would relate to or result in an extraordinary transaction involving Taubman’s business or management, such as a merger, reorganization, liquidation, relocation of any operations, or sale or transfer of a material amount of assets, or the incurrence of any indebtedness (other than the debt financing described herein).
Certain Effects of the Transactions
If the merger agreement is approved by the Taubman shareholder approval and the other conditions to closing of the Mergers are either satisfied or waived, the following will occur.
The Partnership Merger and LLC Conversion
At the effective time of the Partnership Merger, (i) each Taubman OP unit issued and outstanding immediately prior to the effective time of the Partnership Merger held by a minority partner will be converted into the right to receive, at the election of such minority partner, the common stock merger consideration or 0.3814 Simon OP units; (ii) certain Taubman OP units issued and outstanding immediately prior to the effective time of the Partnership Merger held by the Taubman family members will remain outstanding as units of partnership interest in the Surviving Taubman operating partnership; and (iii) all other Taubman OP units issued and outstanding immediately prior to the effective time of the Partnership Merger held by the Taubman family members will be converted into the right to receive the common stock merger consideration. In addition, at the effective time of the Partnership Merger, each Taubman Incentive Unit will vest and be converted into a Taubman OP unit, to be treated in the Partnership Merger in the same manner as the Taubman OP units held by the minority partners. The membership interests of Merger Sub 2 issued and outstanding immediately prior to the effective time of the Partnership Merger will automatically be converted into a number of units of partnership interest in Surviving Taubman operating partnership such that following the Partnership Merger, Merger Sub 1 and Taubman will collectively own 80% (assuming, for purposes of this calculation, that the Taubman OP units issuable under the Option Deferral Agreement are outstanding interests of Surviving Taubman operating partnership) of the outstanding interests of Surviving Taubman operating partnership.
Immediately following the effective time of the Partnership Merger, at the effective time of the LLC Conversion, the Surviving Taubman operating partnership will be converted into a Delaware limited liability company pursuant to the LLC Conversion, in which each unit of partnership interest in the Surviving Taubman operating partnership that is owned by the Taubman family members, Merger Sub 1 or by Taubman immediately prior to the effective time of the LLC Conversion will be converted into one Joint Venture unit, and each Option Deferred unit will be converted into the right to receive one Joint Venture unit.
The Preferred Stock Redemption
On the closing date and prior to the effective time of the Partnership Merger, the Taubman operating partnership will redeem any “preferred equity” of the Taubman operating partnership held by Taubman for an amount equal to the sum of the Taubman Series J and Series K Preferred Stock Redemption Amount, which will be paid by the Taubman operating partnership to Taubman on the closing date. Immediately following the effective time of the LLC Conversion, the Simon operating partnership will contribute to the capital of the Joint Venture an amount equal to the aggregate Taubman Series J and Series K Preferred Stock liquidation preference in exchange for a certain number of Series A Preferred Units (as defined in the JV agreement). Immediately after the Simon operating partnership preferred contribution, the Joint Venture will pay to Taubman an amount equal to the aggregate Taubman Series J and Series K Preferred Stock liquidation preference. Immediately after the Taubman OP payment and prior to the effective time of the REIT Merger, Taubman will issue a redemption notice and cause funds to be set aside to pay
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the redemption price for each share of the Taubman Series J Preferred Stock and each share of the Taubman Series K Preferred Stock, at their respective liquidation preference of $25.00 plus all accumulated and unpaid dividends to, but not including, the redemption date of such share.
The REIT Merger
Immediately following the Redemption, at the effective time of the REIT Merger, (i) each share of Taubman common stock (other than excluded Taubman common stock, as set forth in the merger agreement) issued and outstanding immediately prior to the REIT Merger Effective Time will be converted into the right to receive the common stock merger consideration; and (ii) each share of Taubman Series B preferred stock will be converted into the right to receive an amount in cash equal to the common stock merger consideration, divided by 14,000.
Equity Awards
Upon the effective time of the REIT Merger: (1) each outstanding TCO RSU and each outstanding TCO PSU that vests in accordance with its terms in connection with the closing of the REIT Merger will automatically convert into the right to receive the common stock merger consideration (with such TCO PSUs vesting based on the greater of the average of actual performance achievement, as of the closing, of the two performance metrics applicable to such grants, and target performance); (2) each outstanding TCO RSU and TCO PSU that is not eligible to vest in accordance with its terms in connection with the closing of the REIT Merger will be converted into a cash substitute award to be paid (A) with respect to any such award granted prior to 2020, in accordance with the same service-vesting schedule that applied to the original TCO RSU or TCO PSU award and (B) with respect to any such award granted in 2020, in accordance with the same vesting schedule (including performance-vesting conditions) that applied to the original TCO RSU or TCO PSU award; (3) each outstanding time-vesting and performance-vesting Taubman Incentive Unit will vest and be converted into a Taubman OP unit (with such Taubman Incentive Units vesting based on the greater of the average of actual performance achievement, as of the closing, of the two performance metrics applicable to such grants, and target performance), which shall then be treated in the same manner (and having the right to the same election) as all other Taubman OP units held by the minority partners; (4) each TCO DER granted in tandem with any TCO RSU or TCO PSU will be treated in the same manner as the outstanding TCO RSU or TCO PSU to which such TCO DER relates; and (5) each outstanding TCO DSU will be converted into the right to receive the common stock merger consideration. Finally, at the effective time of the LLC Conversion, the Option Deferral Agreement will be deemed to be amended so that each Option Deferred unit will represent the right to receive, following the LLC Conversion, one Joint Venture unit, and will remain subject to all other terms and conditions of the Option Deferral Agreement.
Final Structure
Following the Mergers and the LLC Conversion, the Simon operating partnership will own 100% of the outstanding equity of Surviving TCO, Surviving TCO will directly or indirectly own 80% of the limited liability company interests of the Joint Venture, and the Taubman family members will collectively own the remaining 20% of the limited liability company interests of the Joint Venture. Surviving TCO and the Taubman family members will enter into the JV agreement with respect to the Joint Venture at the time of the LLC Conversion in the form attached as Exhibit B to the merger agreement, which is attached to this proxy statement as Annex A.
Other Effects
The Taubman common stock is currently registered under the Exchange Act and is quoted on the NYSE under the symbol “TCO.” As a result of the Transactions, Taubman will become privately held and there will be no public market for the Taubman common stock. After the Transactions, the Taubman common stock will cease to be quoted on the NYSE and price quotations with respect to sales of Taubman common stock in the public market will no longer be available. In addition, the registration of the Taubman common stock under the Exchange Act will be terminated and Taubman will no longer file periodic reports with the SEC with respect to the Taubman common stock. Termination of registration of the Taubman common stock under the Exchange Act will reduce the information required to be furnished by Taubman to its shareholders and the SEC, and would make certain provisions of the Exchange Act, such as the short-swing trading provisions of Section 16(b) of the Exchange Act and the requirement to furnish a proxy statement in connection with stockholders’ meetings pursuant to Section 14(a) of the Exchange Act, no longer applicable to Taubman.
The directors of Merger Sub 1 immediately prior to the effective time of the REIT Merger will be the directors of Surviving TCO and the officers of Merger Sub 1 immediately prior to the effective time of the REIT Merger will
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be the officers of Surviving TCO. The limited liability company agreement of Surviving TCO will be in the form of the limited liability company agreement attached as Exhibit A to the merger agreement.
Simon does not currently own any interest in Taubman. Following the Transactions, the Simon operating partnership will own 100% of the equity interests in Surviving TCO and will have a corresponding interest in Taubman’s net book value and net earnings. Each partner of the Simon operating partnership will have an indirect interest in our net book value and net earnings in proportion to such partner’s ownership interest in the Simon operating partnership. Taubman’s net income attributable to the holders of the Taubman common stock for the fiscal year ended December 31, 2019 was $203,925,000 and Taubman’s net book value as of December 31, 2019 was approximately $(177,406,000).
Benefits of the Transactions for Taubman’s Unaffiliated Shareholders
The primary benefit of the Transactions to the Taubman unaffiliated shareholders will be their right to receive the common stock merger consideration of $52.50 per share, which represents an implied premium of 51.4% to the closing share price for Taubman common stock of $34.67 on February 7, 2020, the last completed trading day before the announcement of the Transactions. Additionally, the Taubman unaffiliated shareholders will avoid the risk after the Transactions of any possible decrease in Taubman’s future earnings, potential growth or value.
Detriments of the Transactions for Taubman’s Unaffiliated Shareholders
The primary detriment of the Transactions to Taubman’s unaffiliated shareholders is the lack of an interest of such shareholders in the potential future earnings, growth or value realized by Taubman or the Joint Venture after the REIT Merger.
Benefits of the Transactions for the Taubman Filing Persons
In connection with the Transactions, the Taubman filing persons will receive benefits and be subject to obligations that are different from, or in addition to, the benefits received by the Taubman shareholders generally. The primary benefits of the Transactions to the Taubman filing persons will be to retain a 20% ownership interest in, and certain management and governance rights in, the Joint Venture (subject to certain ownership requirements; see The JV Agreement”), continuing to receive cash distributions from the Joint Venture and having the option of obtaining liquidity for their Joint Venture units as described under “The JV Agreement.”
Detriments of the Transactions for the Taubman Filing Persons
The primary detriments of the Transactions to the Taubman filing persons include the fact that the Taubman filing persons will only be able to obtain liquidity for their Joint Venture units after a certain period of time and subject to certain limitations, with such liquidity calculated through a mechanism that may result in a purchase price per Joint Venture unit that is lower than the price that would have been received had such Taubman filing persons received the common stock merger consideration in return for such Joint Venture unit. The liquidity rights pursuant to the JV agreement are described in more detail under the section entitled “The JV Agreement.” Additionally, the Taubman filing persons will bear the risk of any potential decrease in the Joint Venture’s earnings, potential growth or value.
Certain Unaudited Prospective Financial Information
While Taubman has from time to time provided limited financial guidance to investors, Taubman has not, as a matter of course, otherwise publicly disclosed internal projections as to future performance, earnings or other results beyond the upcoming annual period due to, among other reasons, the uncertainty, unpredictability and subjectivity of the underlying assumptions and estimates. However, in connection with the Transactions, at the direction of the Special Committee, Taubman’s management prepared certain non-public financial projections as to the potential future performance of Taubman for the years ended December 31, 2020 through December 31, 2024 (referred to as the “Projections”), which were provided to the Special Committee in connection with its evaluation of the Transactions. At the direction of the Special Committee, the Projections were provided to Lazard in connection with its financial analyses, including Lazard’s financial analyses described under “—Opinion of Financial Advisor to the Special Committee.” Portions of the Projections with respect to 2020 were also provided to Simon for its use in connection with its evaluation of the Transactions. For more information, see “—Background of the Transactions.”
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The following summary of the Projections is included for the purpose of providing Taubman shareholders access to certain non-public information that was furnished to certain parties in connection with the Transactions. This information may not be appropriate for other purposes and is not included to influence the voting decision of any shareholder. The inclusion of this summary should not be regarded as an indication that Taubman’s management or anyone who received the Projections then considered, or now considers, them to be a reliable prediction of future events, and the Projections should not be relied upon as such.
The Projections were not prepared with a view toward public disclosure or with a view toward complying with the published guidelines of the SEC regarding projections or GAAP, or the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information. Neither Taubman’s independent auditor nor any other independent accountant has compiled, examined, or performed any procedures with respect to the Projections, nor have they expressed any opinion or any other form of assurance on such information or its achievability. Beneficial interest in Property NOI, Beneficial interest in EBITDA, Adjusted FFO, Adjusted FFO per Diluted Share and Unlevered Free Cash Flow contained in the summary set forth below are non-GAAP financial measures within the meaning of the applicable rules and regulations of the SEC, which are financial measures that are not calculated in accordance with GAAP. These non-GAAP financial measures should not be viewed as a substitute for GAAP financial measures and may be different from non-GAAP financial measures used by other companies. Accordingly, these non-GAAP financial measures should be considered together with, and not as an alternative to, financial measures prepared in accordance with GAAP. SEC rules that may otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure do not apply to non-GAAP financial measures provided to directors or a financial advisor (like the Projections) in connection with a proposed transaction like the Transactions when the disclosure is included in a document like this proxy statement. In addition, reconciliations of non-GAAP financial measures to GAAP financial measures were not relied upon by Lazard for purposes of its opinion or by the Special Committee or the Taubman Board in connection with their consideration of the Transactions. Accordingly, Taubman has not provided a reconciliation of the non-GAAP financial measures included in the Projections to the relevant GAAP financial measures.
Although the Projections are presented with numerical specificity, they reflect numerous estimates and assumptions made by Taubman’s management with respect to industry performance, general business, economic, regulatory, market and financial conditions and other future events, as well as matters specific to Taubman’s business, all of which are difficult or impossible to predict accurately and many of which are beyond Taubman’s control. The Projections reflect subjective judgment in many respects and thus are susceptible to multiple interpretations and periodic revisions based on actual experience and business developments. As such, the Projections constitute forward-looking information and are subject to many risks and uncertainties that could cause actual results to differ materially from the results forecasted in the Projections, including, but not limited to, general economic conditions, changes in market rental rates, unscheduled closings or bankruptcies of tenants, relationships with tenants, trends in the retail industry, changes in consumer shopping behavior, the impact of the COVID-19 pandemic and other factors discussed in this proxy statement and in other reports filed with or furnished to the SEC by Taubman. There can be no assurance that the Projections will be realized or that actual results will not be significantly higher or lower than those forecasted. The Projections cover several years and such information by its nature becomes less reliable with each successive year.
The Projections were developed by Taubman’s management without giving effect to the Transactions, including, but not limited to, any costs incurred in connection with the Transactions. In addition, the Projections will be affected by Taubman’s ability to achieve strategic goals, objectives and targets over the applicable periods. The Projections do not take into account the impact of the COVID-19 pandemic. The Projections reflect assumptions as to certain business decisions that are subject to change. The Projections cannot, therefore, be considered a guarantee of future operating results, and should not be relied on as such.
In addition, the Projections have not been updated or revised to reflect information, circumstances, events or results after the date they were prepared or as of the date of this proxy statement, and except as required by applicable securities laws, Taubman does not intend to update or otherwise revise the Projections or the specific portions presented to reflect circumstances existing after the date the Projections were prepared or to reflect the occurrence of future events, even in the event that any or all of the underlying assumptions are shown to be in error.
The inclusion of the following summary of the Projections should not be deemed an admission or representation by Taubman or any other person that Taubman or any other person views such Projections as material information,
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particularly in light of the inherent risks and uncertainties associated with such long-range forecasts. No representation is made by Taubman or any other person regarding the Projections or Taubman’s ultimate performance compared to such information. In light of the foregoing factors, and the uncertainties inherent in the Projections, shareholders are cautioned not to place undue, if any, reliance on the Projections or the following summary. The Projections and the following summary should be evaluated, if at all, in conjunction with the historical consolidated financial statements and other information contained in Taubman’s public filings with the SEC.
The following is a summary of the Projections, which are presented for the Taubman operating partnership, and reflect its beneficial interest in the underlying properties, primarily in respect of NOI, capital expenditures and interest expense. These Projections are applicable to Taubman at its pro rata interest in the Taubman operating partnership. The Projections were based on numerous variables and assumptions, including the following key assumptions:
NOI growth is based on, where applicable, specific redevelopment plans for each property, and it is otherwise based on assumed same property growth rates ranging from -2.0% to 4.0% per annum, based on the assessed growth potential of the properties. The growth potential of each property is evaluated based on various factors including, but not limited to, the location of the property, foot traffic, competitive positioning, upcoming supply and tenant demand. Property revenues and expenses are estimated based on a stabilized occupancy rate, forward lease expirations, tenant sales projections (which are based on historical and expected tenant performance), releasing and renewal rental rates (which are based on recently signed rents, tenant feedback and historical and expected occupancy cost ratios) and historical and projected expense margins and cost reimbursement from tenants. The properties are categorized into four distinct groups, each with a different assumed same property growth rate, based on their assessed potential and projected performance.
Straight-line adjustments to rental revenues for 2021 through 2024 at each property are based on the average of the actual straight-line adjustments recognized in 2018 and 2019 and the estimated straight-line adjustments in 2020.
Beneficial interest in total lease cancellation income across all properties will normalize from approximately $10 million in 2020 to approximately $5 million in 2024.
Straight-line of ground rent expense for 2020 through 2024 will remain flat, based on 2019 actual amount of $1.5 million per annum.
Non-real estate depreciation will remain flat, based on 2020 estimate of $4.5 million per annum.
Stamford Town Center is sold in 2020.
Proceeds from the sale of 50% of Taubman’s interest in CityOn.Xi’an to Blackstone are received in 2020.
General and administrative expenses relating to corporate overhead in the U.S., and other operating expenses related to corporate overhead in Asia will grow at a rate of 2.0% per annum, based on the 2020 estimated amount.
Pre-construction development costs, fees associated with management, leasing and development services, and other corporate income and expenses will remain constant after 2020 estimated amount.
Share-based compensation expense will remain at approximately $11 million per year, in line with historical averages of the actual share-based compensation expenses for the years ended December 31, 2016, 2017 and 2018.
Mortgages will be refinanced at their respective maturities in-line with existing debt yields and cost of debt. Interest expense from term loans and credit facilities are projected based on existing swap arrangements and contractual spreads to monthly one-month forward LIBOR, and includes a 25 bps cushion.
Available free cash flow in excess of an assumed minimum cash balance outside of Asia at the end of each year will be used to repay existing indebtedness.
The Taubman Series J Preferred Stock and Taubman Series K Preferred Stock will remain in place.
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Common area maintenance capital expenses, leasing capital expenses and development and renovation capital expenditures for each property for 2020 to 2024 are estimated based on historical and expected capital spending and take into account specific redevelopment plans for each property.
No equity issuances will occur other than in connection with share-based compensation.
No dividend growth through the period.
 
For the Year Ending December 31,
($ in millions, except for per share amounts)
2020
2021
2022
2023
2024
Beneficial interest in Property NOI(1)
$582.7
$607.2
$627.6
$643.9
$660.3
Beneficial interest in EBITDA(2)
$552.2
$572.7
$590.9
$605.1
$619.5
Interest Expense
$(197.0)
$(209.9)
$(217.0)
$(227.4)
$(224.9)
Adjusted FFO(3)
$324.0
$331.7
$342.6
$346.2
$363.0
Adjusted FFO Per Diluted Share(4)
$3.65
$3.73
$3.85
$3.88
$4.06
Unlevered Free Cash Flow(5)
$277.2
$412.1
$458.8
$498.9
$560.1
Certain amounts in the above table may reflect rounding adjustments.
(1)
Beneficial interest in Property NOI is defined as property-level operating revenue (excluding straight-line adjustments to rental revenue), less maintenance, property taxes, utilities, promotion, ground rent, other property operating expenses, and lease cancellation income.
(2)
Beneficial interest in EBITDA represents the Taubman operating partnership’s share of earnings before interest, income taxes, and depreciation and amortization of the consolidated and unconsolidated businesses.
(3)
Adjusted FFO is defined as FFO as defined by the National Association of Real Estate Investments Trusts (NAREIT FFO) excluding certain non-recurring items including, but not limited to, restructuring charges, deferred income tax expense, costs associated with shareholder activism, charges recognized in connection with the write-off of deferred financings costs, promote fees, and fluctuation in the fair value of equity securities.
(4)
Adjusted FFO Per Diluted Share is calculated as Adjusted FFO divided by the projected number of weighted average shares outstanding, as adjusted for the dilutive impact of share-based compensation ((i) 88,778,702 shares outstanding as of 2020, (ii) 88,851,190 shares outstanding as of 2021, (iii) 89,058,463 shares outstanding as of 2022, (iv) 89,284,430 shares outstanding as of 2023 and (v) 89,502,217 shares outstanding as of 2024).
(5)
Unlevered Free Cash Flow is defined as Beneficial interest in EBITDA, plus straight-line rent adjustments, plus straight-line of ground leases, plus share-based compensation, plus net proceeds from dispositions, less taxes, less capital expenditures.
Interests of Taubman’s Directors and Executive Officers in the Transactions
In considering the recommendation of the Special Committee and of the Taubman Board that you vote to approve the Merger Agreement Proposal, you should be aware that, aside from their interests as shareholders of the Company, the Company’s directors and executive officers may have interests in the Transactions that may be different from, or in addition to, those of the other Taubman shareholders. The members of the Special Committee were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the Transactions, and in making recommendations to the Taubman Board, which was also aware of and took into account these interests, among other matters, when making its recommendation to the shareholders of the Company that the Merger Agreement Proposal be approved. See “—Background of the Transactions,” and “—Reasons for the Transactions and Recommendation of the Special Committee and the Taubman Board,” —Opinion of Financial Advisor to the Special Committee” and “The JV Agreement.”
The Company’s shareholders should take these interests into account in deciding whether to vote “FOR” the Merger Agreement Proposal. These interests are described in more detail below, and certain of them are quantified in the narrative and the tables below.
R. Taubman and W. Taubman
The Option Deferral Agreement pursuant to which R. Taubman has the right to receive Taubman OP units at certain specified dates in the future, shall be deemed to be amended so that each of these units shall represent the right to receive, following the LLC Conversion effective time, one Joint Venture unit, with such deferred Joint Venture units remaining subject to all other terms and conditions of the Option Deferral Agreement (including the continued right to receive distributions in the same manner and in the same amount as received by any other Joint Venture unit).
Following the Transactions, the Simon operating partnership will own 100% of the outstanding equity of Surviving TCO, Surviving TCO will own 80% of the limited liability company interests of the Joint Venture, and the
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Taubman family members will own the remaining 20% of the limited liability company interests of the Joint Venture (assuming, for purposes of this calculation, that Taubman OP units issuable under the Option Deferral Agreement become outstanding limited liability company interests of the Joint Venture). Surviving TCO and the Taubman family members will enter into a JV agreement with respect to the Joint Venture at the time of the LLC Conversion in the form attached as Exhibit B to the merger agreement and described further below. For a description of the treatment of the Taubman common stock and other Taubman OP units beneficially owned by R. Taubman, W. Taubman and the other Taubman family members in the Transactions and a discussion of their continuing interest in the Joint Venture, see “—Certain Effects of the Transactions” and the “The JV Agreement.”
As indicated below, neither R. Taubman nor W. Taubman has any employment or change in control agreements or other severance protections, and does not hold any long-term incentive awards. However, Messrs. R. Taubman and W. Taubman will continue to be eligible to receive, in the ordinary course consistent with past practice, annual bonus amounts based on achievement of pre-established performance metrics, above the level that is required to fund the annual bonus pool for other executive officers. R. Taubman and W. Taubman will also continue to be entitled to use the company plane for personal use, subject to reimbursement for such use, in accordance with past practice.
Treatment of Taubman Equity Awards
At the effective time of the Transactions, each then outstanding equity award held by our directors and executive officers will be treated as described below.
Each TCO RSU, other than a TCO RSU granted in 2020, which by its terms vests in full in connection with the closing of the Transactions, and each TCO DSU, shall, without any action by the holder thereof, vest in full, and in each case shall be converted into the right of the holder thereof to receive an amount in cash, without interest, equal to the product of (i) the number of shares of Taubman common stock subject to such TCO RSU or TCO DSU, as applicable, and (ii) the common stock merger consideration. Any common stock merger consideration payable with respect such TCO RSUs and TCO DSUs shall be paid as soon as practicable, and in any event within five (5) business days, following the effective time of the Transactions and subject to any required withholding taxes.
Each TCO PSU, other than a TCO PSU granted in 2020, which by its terms is eligible to become vested in connection with the closing of the Transactions shall, without any action by the holder thereof, become vested (determined based on the greater of (x) the average of actual performance achievement of the two performance metrics applicable to such grants, as of the closing, and (y) target performance) and shall be converted into the right of the holder thereof to receive an amount in cash, without interest, equal to the product of (i) the number of shares of Taubman common stock subject to the vested portion of such TCO PSU and (ii) the common stock merger consideration. Any common stock merger consideration payable with respect to such TCO PSUs shall be paid as soon as practicable, and in any event within five (5) business days, following the effective time of the Transactions and subject to any required withholding taxes. The portion of any TCO PSU described above that does not become vested following the determination of performance as described above shall be cancelled and forfeited immediately prior to the effective time of the Transactions without consideration therefor.
Each TCO RSU and any TCO PSU, other than a TCO RSU or TCO PSU granted in 2020, which is not, by its terms, eligible to become vested upon the effective time of the Transactions, shall, immediately prior to the effective time of the Transactions, without any action by the holder thereof, be cancelled and converted into a substitute award in respect thereof (assuming, for any applicable TCO PSU, achievement of performance conditions at the greater of (x) the average of actual performance achievement of the two performance metrics applicable to such grants, as of the closing, and (y) target performance), which substitute award shall constitute a right to receive, on a per share basis with respect to the portion of such substitute award that vests, a cash payment equal to the common stock merger consideration (a “cash substitute award amount”). Each such cash substitute award shall continue to be subject to the same service-vesting schedule that applied to the original TCO RSU or TCO PSU to which it relates, with any cash substitute award granted in respect of a TCO PSU vesting solely subject to service conditions being satisfied through the end of the originally scheduled performance period, and the cash substitute award amounts that vest and becomes payable shall be paid at such time.
Each TCO RSU and any TCO PSU, in each case that is granted in 2020 shall, immediately prior to the effective time of the Transactions, without any action by the holder thereof, be cancelled and converted into a substitute award in respect thereof, which substitute award shall constitute a right to receive, on a per share basis with respect to the portion of such substitute award that vests, a cash payment equal to the cash substitute award amount. Each 2020 cash substitute award shall continue to be subject to the same service-based and performance-based vesting schedule
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(as applicable) that applied to the original TCO RSU or TCO PSU to which it relates, and the applicable cash substitute award amount that vests and becomes payable shall be paid at such time.
Each TCO DER that relates to an outstanding TCO RSU, TCO PSU or TCO DSU which by its terms is, as of immediately prior to the effective time of the Transactions, already vested, or is eligible to become vested in connection with the effective time of the Transactions, shall, without any action by the holder thereof, become vested (to the extent not previously vested) to the same extent as the TCO RSU, TCO PSU or TCO DSU to which such TCO DER relates as described above, and shall become immediately due and payable in accordance with its terms and, upon payment in full thereof in accordance with its terms, shall be cancelled as of the effective time of the Transactions.
Each TCO DER that relates to an outstanding TCO RSU or TCO PSU which is not, by its terms, eligible to become vested upon the effective time of the Transactions shall, immediately prior to the effective time of the Transactions, without any action by the holder thereof, be cancelled and shall be converted into a cash substitute DER that continues to accrue, at the rate set forth in the merger agreement and will be paid on the same terms that applied to the original related TCO RSU or TCO PSU.
Notwithstanding anything to the contrary, any payment in respect of any TCO RSUs, TCO PSUs, TCO DERs or TCO DSUs (including any cash substitute awards and cash substitute DERs) which immediately prior to the cancellation thereof was treated as “deferred compensation” subject to Section 409A of the Code shall be made on the applicable settlement date for such TCO RSUs, TCO PSUs, TCO DERs or TCO DSUs if required in order to comply with Section 409A of the Code.
Each outstanding time-vesting and performance-vesting Taubman Incentive Unit that vests in accordance with its terms in connection with the closing of the Transactions will vest and will automatically convert into a Taubman OP unit (with such Taubman Incentive Units vesting based on the greater of (x) the average of actual performance achievement, as of the closing, of the two performance metrics applicable to such grants, and (y) target performance), which shall then be treated in the same manner (and having the right to the same election) as all other Taubman OP units held by the minority partners. See the section entitled “—Quantification of Potential Payments” beginning on page 65 of this proxy statement for an estimate of the amounts that would become payable to each of Taubman’s named executive officers in respect of their unvested equity awards.
The following table provides information for each of the Company’s executive officers regarding the aggregate number of TCO RSUs, TCO PSUs and Taubman Incentive Units that would be outstanding, and the aggregate amount of TCO DERs that would be accrued, in each case immediately prior to the closing of the Transactions, assuming that the Transactions closed on April 1, 2020.
Name
TCO RSUs
(#)
TCO PSUs
(#)(a)
Time-Vesting
Taubman
Incentive Units
(#)
Performance-
Vesting Taubman
Incentive Units
(#)(a)
TCO DERs
($)
Robert S. Taubman
Chief Executive Officer
Simon J. Leopold
EVP, Chief Financial Officer & Treasurer
18,399
22,460
8,154
36,690
68,536.13
William S. Taubman
Chief Operating Officer
Paul A. Wright
President, Taubman Asia
18,772
18,592
113,510.08
Peter J. Sharp
President, Taubman Asia
(a)
TCO PSUs and performance-vesting Taubman Incentive Units are granted (and therefore outstanding) assuming the maximum number of shares or units, as applicable, that are eligible to become vested. If performance achievement does not result in the maximum number of shares or units being vested, any then unvested portion of the shares or units are forfeited.
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For additional information regarding the amount of payments that would be payable to each of the Company’s executive officers in respect of these TCO RSUs, TCO PSUs and TCO DERs in connection with the closing of the Transactions, assuming, among other facts, that the Transactions closed on April 1, 2020, see “—Golden Parachute Compensation.”
Finally, at the effective time of the LLC Conversion, the Option Deferral Agreement will be deemed to be amended so that each Option Deferred unit will represent the right to receive, following the LLC Conversion, one Joint Venture unit, and will remain subject to all other terms and conditions of the Option Deferral Agreement. See the section entitled “—R. Taubman and W. Taubman” beginning on page 59 of this proxy statement for more details.
Non-Employee Directors Deferred Stock Units
Non-employee directors of the Company have been granted TCO DSUs pursuant to the Taubman Stock Plans in the ordinary course of business consistent with the Company’s non-employee director compensation program effective January 1, 2020. As described below under “The Merger Agreement—REIT Merger—Treatment of Outstanding Equity Awards,” at the effective time of the Transactions, all then outstanding TCO DSUs will receive the common stock merger consideration for each share of Taubman common stock subject to each such TCO DSU.
The following table provides information for each of the Company’s non-employee directors regarding the aggregate number of TCO DSUs that would be outstanding and exchanged for common stock merger consideration assuming that the Transactions closed on April 1, 2020.
Name
Number of TCO
DSUs (#)
Amount Payable at
Closing(1) ($)
Mayree Clark
Michael J. Embler
7,036
369,390
Janice L. Fields
7,352
385,980
Michelle J. Goldberg
5,245
275,363
Nancy Killefer
4,818
252,945
Cia Buckley Marakovits
15,544
816,060
Ronald W. Tysoe
29,767
1,562,768
Myron E. Ullman, III
20,759
1,089,846
(1)
Amounts are calculated by multiplying (a) the common stock merger consideration price of $52.50 per share, times (b) the number of shares of Taubman common stock subject to the TCO DSUs held by each of the non-employee directors as of April 1, 2020, the assumed closing date of the Transactions.
For additional information about beneficial ownership of Taubman common stock by the Company’s directors and executive officers, see “Important Information Regarding Taubman Centers, Inc.—Security Ownership of Management and Certain Beneficial Owners.
Termination Protections
If the Transactions are completed, the Company’s executive officers, as of the effective time of the Transactions, are expected to remain the executive officers of the Joint Venture.
Messrs. R. Taubman and W. Taubman have not entered into any employment or change in control agreements and are not eligible to participate in the Severance Plan.
Simon J. Leopold, Executive Vice President, Chief Financial Officer and Treasurer of Taubman, is party to a change of control employment agreement with us. Mr. Leopold and Paul A. Wright, President of Taubman Asia, are also party to the Severance Plan, described below. Mr. Leopold will continue to be eligible to receive severance benefits under his change in control employment agreement if they are more favorable than the severance benefits provided through the Severance Plan, and any benefits payable under the change-in-control agreement will be offset by any benefit provided under the Severance Plan.
Change in Control Employment Agreement – Simon Leopold
Mr. Leopold’s agreement has a three-year term that automatically extends for an additional year on each anniversary of the first day of its terms unless a notice not to extend is given by us at least 60 days prior to the renewal date. If a change of control of Taubman occurs during the term of the agreement, then the agreement becomes operative for a fixed three-year period commencing on the date of the change of control and supersedes any other employment agreement between us and any of our affiliates, on the one hand, and the executive, on the other.
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The agreement provides generally that Mr. Leopold’s terms and conditions of employment, including position, location, compensation and benefits, will not be adversely changed during the three-year period after a change of control of Taubman. In addition, the agreement also provides that upon a change of control of Taubman or a termination of employment in anticipation of a change of control of Taubman, generally all of the executive’s share-based compensation awards that are outstanding on the date of the change of control will vest and, in specified circumstances, will become exercisable or payable. After a change of control of Taubman, if the executive’s employment is terminated (1) by reason of the executive’s death or disability, the executive or his or her beneficiary or estate will generally be entitled to receive accrued but unpaid base salary and an annual cash bonus for the year in which the termination of employment occurs, pro-rated through the date of termination; or (2) by us other than for cause, death or disability, or if the executive resigns for good reason, or upon certain terminations in connection with or in anticipation of a change of control, the executive will generally be entitled to receive:
the amounts noted above for termination by reason of death or disability;
two and a half times the executive’s annual base salary and an annual cash bonus amount;
continued welfare benefits and perquisites for at least thirty months; and
outplacement services for one year.
The annual cash bonus portion of this severance amount will be based on the higher of (x) the highest bonus earned by the executive during the three full fiscal years prior to the change of control of Taubman or (y) the most recent bonus earned by the executive prior to the date of termination of employment.
For purposes of the change in control employment agreement, (a) “cause” is defined as the willful and continued failure of Mr. Leopold to substantially perform his duties after a written demand for substantial performance (other than any such failure resulting from incapacity due to physical or mental illness or following Mr. Leopold’s delivery of a notice of termination for good reason) or the willful engaging of Mr. Leopold in illegal conduct, or gross misconduct, that is materially and demonstrably injurious to the Company; and (b) “good reason” is defined as (i) the assignment to Mr. Leopold of any duties inconsistent in any respect with his position (including status, offices, titles, and reporting requirements), authority, duties or responsibilities as contemplated by the agreement, or any other diminution in such position, authority, duties or responsibilities (whether or not occurring solely as a result of the Company ceasing to be a publicly traded entity), excluding an isolated, insubstantial and inadvertent action not taken in bad faith that the Company promptly cures, (ii) any failure of the Company to comply with any of the provisions of the agreement pertaining to the Company’s obligations to provide Mr. Leopold with his compensation (base salary, annual bonus, incentive, savings and retirement plans, welfare benefit plans, expenses, fringe benefits, office and support staff, and vacation), excluding an isolated, insubstantial and inadvertent action not taken in bad faith that the Company promptly cures, (iii) the Company requiring Mr. Leopold to be based at any office or location that is 35 miles or more away from his current office or to travel on business to a substantially greater extent than required immediately prior to the date of the change in control; and (iv) the Company’s failure to require any successor to the Company or TRG to assume expressly and agree to honor the agreement.
The change in control employment agreement provides that if any payments and benefits to be paid or provided to Mr. Leopold, whether pursuant to the terms of the agreement or otherwise, would be subject to “golden parachute” excise taxes under the Code, the payments and benefits will be reduced to the extent necessary to avoid such excise taxes, but only if such a reduction of pay or benefits would result in a greater after-tax benefit to the eligible employee (a so called “best-net reduction”).
Further, as a condition to receiving the foregoing and subject to limited specified exceptions, Mr. Leopold must sign a release of claims agreement against Taubman and its agents, and is also subject to customary confidentiality provisions after the termination of employment with Taubman.
Severance Plan for Senior Level Management (Severance Plan)
The Severance Plan provides Messrs. Leopold, Wright and certain other members of senior management (each, a “Participant”) with various benefits in the event of an “Involuntary Termination,” which is defined as a termination of employment (1) by us other than for cause or because of such employee’s death or disability or (2) by the employee for good reason. Messrs. R. Taubman and W. Taubman are not eligible to participate in the Severance Plan. The Severance Plan expired in accordance with its terms on December 11, 2019, but effective February 9, 2020, the Severance Plan was renewed, and will remain in effect unless and until the Joint Venture determines to amend or
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terminate the plan (provided, that no such amendment or termination can adversely affect a Participant’s rights under the plan without the Participant’s consent). For purposes of the Severance Plan, (a) “cause” is defined as the willful and continued failure of a Participant to substantially perform such Participant’s duties after a written demand for performance (other than any such failure resulting from incapacity due to physical or mental illness or following the Participant’s delivery to the Company of a valid notice of termination for good reason) or the willful engaging of a Participant in illegal conduct, or gross misconduct, that is materially and demonstrably injurious to the Company; and (b) “good reason” is defined as, without the Participant’s consent, a material diminution in a Participant’s authority, duties or responsibilities (whether or not occurring solely as a result of the Company ceasing to be a publicly traded entity and excluding an insubstantial action not taken in bad faith that the Company promptly cures), a material diminution in a Participant’s then current base salary, a material diminution in a Participant’s total target annual bonus and annual incentive award opportunity (provided that such diminution is not offset by a related increase in base salary or other incentive compensation arrangement), a material relocation of 35 miles or more from a Participant’s primary place of work, or a material breach by the Company of any employment agreement with a Participant.
The Severance Plan includes coverage for an Involuntary Termination within one year after a change in control of Taubman (a “Severance Plan CIC Termination”). In the event of a Severance Plan CIC Termination, a Participant will be entitled to the following:
(i)
payment of annual salary and (if any) unused paid time off or unused vacation earned and accrued prior to such termination (paid no more than 30 days after termination);
(ii)
a cash lump sum payment (payable within 65 days after termination) equal to the sum of: (A) 250% of the sum of (x) 12 times the highest monthly base salary in the 12-month period preceding the month in which termination occurs (“Annual Base Salary”) and (y) the greater of the Participant’s target bonus in the year of termination or the highest bonus earned in the last three full fiscal years (or for such lesser number of full fiscal years prior to termination), including annualization for a bonus earned in a partial fiscal year plus (B) 18 times the applicable monthly COBRA premium;
(iii)
full and immediate vesting of the Participant’s unvested equity awards (other than performance equity awards) granted under the applicable Taubman Stock Plan prior to 2019; and
(iv)
the vesting of the Participant’s unvested performance equity awards granted under the applicable Taubman Stock Plan prior to 2019, with the determination of performance and other factors as provided under the terms of such plan and related award agreements.
Except as specifically set forth above, the foregoing amounts and rights will not be reduced or canceled pursuant to any provision regarding the same in any employment agreement (including any change in control employment agreement) a Participant otherwise has. Any benefits payable under either a change-in-control employment agreement or employment agreement will be offset by any benefit provided under the Severance Plan. The Severance Plan provides for a best-net reduction in the event that Sections 280G and Section 4999 of the Code would otherwise impose “golden parachute” excise taxes.
Receipt of the payments and benefits (other than the annual salary and (if any) unused paid time off or unused vacation earned and accrued prior to such termination) under the Severance Plan is subject to execution by the Participant of a general waiver and release of claims with us that becomes effective. Further, any rights to payment under the Severance Plan will terminate immediately if the Participant violates any proprietary information or confidentiality obligation to us.
In addition to those benefits provided by the Severance Plan, if Mr. Wright is terminated following the transaction – which is not currently contemplated – he would be entitled, in accordance with local practice in Hong Kong, where he is employed, to 90 days’ notice of any such termination (or payment of base salary in lieu thereof) from Taubman, and, in lieu of any payments that may be otherwise due in respect of the monthly COBRA premium under the Severance Plan, to three months of continued medical coverage under the Taubman Asia medical plan.
Treatment of 2019 and 2020 Company Equity Awards upon Certain Terminations of Employment on or following the Transactions
Pursuant to the terms of the Taubman Stock Plans and the award agreements pursuant to which the grant of the TCO RSUs, TCO PSUs and TCO DERs held by certain Taubman’s executive officers were made in 2019 and 2020, if the employment of an executive officer (other than Mr. Leopold, with respect to those awards granted to him in 2020) is terminated by Taubman without “cause” or due to the executive officer’s resignation for “good reason,” in
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each case, on or within two years following a change in control of Taubman, which is referred to in this proxy statement as an “ Equity Plan CIC Termination,” all such equity awards then held by such executive officer would fully vest upon such termination of employment. These “double trigger” vesting provisions are applicable in lieu of any “single trigger” vesting provisions contained in any employment agreement or severance plan to Taubman equity awards held by the applicable executive officers, and will continue to apply to such awards after such awards are converted into cash substitute awards at the effective time of the Transactions. For purposes of the Taubman Stock Plans and award agreements thereunder governing such awards, “cause” is defined as (a) an executive’s engaging in willful misconduct that is injurious to Taubman, the willful failure to substantially perform an executive’s duties to a satisfactory degree (other than any such failure resulting from incapacity due to physical or mental illness or following the executive’s delivery to the Company of a valid notice of termination for good reason), an executive’s material violation of the employment or operation procedures of Taubman or an executive’s embezzlement or misappropriation of funds or property from Taubman; and (b) “good reason” is defined as, without the executive’s consent, a material diminution in authority, duties or responsibilities of an executive (whether or not occurring solely as a result of the Company’s ceasing to be a publicly traded entity and excluding an insubstantial action not taken in bad faith that the Company promptly cures), a material diminution in an executive’s then current base salary, a material diminution in an executive’s total target annual bonus and annual incentive award opportunity (provided that such diminution is not offset by a related increase in base salary or other incentive compensation arrangement), a material relocation of 35 miles or more from an executive’s primary place of work, or a material breach by the Company of any employment agreement with an executive.
Information for each of the Company’s executive officers regarding the amounts payable in respect of the aggregate number of TCO RSUs, TCO PSUs, TCO DSUs, TCO DERs and Taubman Incentive Units that will vest, and the amount thereof that would become payable, in each case as a result of the Transactions assuming, among other things, that the Transactions closed on April 1, 2020 are described below under “—Golden Parachute Compensation.”
For additional information about beneficial ownership of Taubman common stock by the Company’s directors and executive officers, see “Important Information Regarding Taubman Centers, Inc.—Security Ownership of Management and Certain Beneficial Owners.
Indemnification / Insurance
The Company’s articles of incorporation provide for indemnification of directors and executive officers against certain liabilities that may arise by reason of their status or service as directors or officers. In addition, pursuant to the merger agreement, the Company’s directors and executive officers will be entitled to certain ongoing indemnification from Parent and the surviving corporation and coverage under directors’ and officers’ liability insurance policies for at least six years following the Transactions. The indemnification and insurance provisions in the merger agreement are further described in the section entitled “The Merger Agreement—Indemnification; Directors’ and Officers’ Insurance.
Compensation of the Special Committee
The Special Committee consists of four independent members of the Taubman Board, Mayree C. Clark, Michael J. Embler, Cia Buckley Marakovits and Myron Ullman III. At a meeting of the Taubman Board held on February 9, 2020, the Taubman Board unanimously adopted resolutions providing that each member of the Special Committee would receive compensation of $60,000 for such member’s service on the Special Committee. These fees are not dependent on the closing of the Transactions or on the Special Committee’s or the Taubman Board’s approval of, or recommendations with respect to, the Transactions.
Quantification of Potential Payments
For an estimate of the value of the payments and benefits described above that would be payable to the Company’s executive officers, all of whom serve as the Company’s named executive officers, in connection with the Transactions, see the section entitled “—Golden Parachute Compensation” below.
Golden Parachute Compensation
The following table sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for each of the Company’s named executive officers that is based on or otherwise becomes payable immediately prior to, or upon the effectiveness of, the Transactions.
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Certain Assumptions
Except as otherwise specifically noted, for purposes of quantifying the potential payments and benefits described in this section, the following assumptions were used:
The relevant price per share of Taubman common stock is $52.50 (see “Background of the Transactions” for more information as to how this price per share was determined);
The effective time of the Transactions is April 1, 2020, which is the assumed date of the closing of the Transactions solely for purposes of the disclosure in this section;
For purposes of determining the amount payable in respect of TCO PSUs, the target performance was used;
The employment of each executive officer of Taubman was terminated by Taubman without “cause” or due to the officer’s resignation for “good reason” (as such terms are defined in the relevant plans and agreements), in either case, immediately following the assumed effective time of April 1, 2020;
The number of outstanding Taubman Equity Awards and the compensation and benefits levels used in the calculations below reflect levels in effect on April 1, 2020, which may change based on when the effective time of the Transactions occurs; and
Although this disclosure provides information for each of our named executive officers, all references to “TCO NEOs” used below refer solely to Messrs. Leopold and Wright.
The amounts indicated below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including the assumptions described above, and do not reflect certain compensation actions or events that may occur before completion of the merger.
Name
Cash ($)(1)
Equity ($)(2)
Perquisites/
Benefits ($)(3)
Tax
Reimbursement
($)
Total ($)
R. Taubman
Chief Executive Officer
Simon Leopold
EVP, Chief Financial Officer & Treasurer
3,136,875
2,190,372
116,916
 
W. Taubman
Chief Operating Officer
Paul A. Wright
President, Taubman Asia
2,026,417
2,075,120
10,101
 
Peter J. Sharp
President, Taubman Asia(4)
(1)
Cash. On a Severance Plan CIC Termination, Mr. Leopold is entitled to a lump sum cash payment equal to (a) 250% of the sum of (x) his annual base salary ($525,000) and (y) the annual cash bonus amount determined as provided in his change of control employment agreement (which for purposes of the table above, is assumed to be equal to Mr. Leopold’s annual cash bonus earned in respect of 2018, equal to 129% of his base salary ($677,250)), which is equal to $3,005,625 and (b) a prorated portion of his annual bonus for the year of termination, which for purposes of the table above, is calculated assuming achievement of target performance, and equal to $131,250 (i.e., 3/12 of 100% of his $525,000 annual base salary). On a Severance Plan CIC Termination, Mr. Wright is entitled to severance benefits equal to the following: (1) a lump sum cash payment equal to 250% of the sum of (x) his Annual Base Salary ($502,577) and (y) the annual cash bonus amount determined as provided in the Severance Plan (which for purposes of the table above, is assumed to be equal to Mr. Wright’s target annual cash bonus opportunity, equal to $257,732) which is equal to $1,900,773, and (2) three months base salary ($125,644) per his employment terms. Note that for Mr. Wright, all amounts have been converted from Hong Kong dollars to U.S. dollars based on the exchange rate of HKD:USD of 7.76:1.
The cash severance payable to each of these two TCO NEOs is a “double-trigger” benefit contingent upon a termination without cause or resignation with good reason during the three years (for Mr. Leopold) or one year (for Mr. Wright) following the Severance Plan CIC Termination date.
For further details regarding the cash payments, please see “Termination Protections” above.
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(2)
Equity Awards. On the Stock Plan CIC Termination date, each TCO NEO becomes fully vested in unvested TCO RSUs and TCO PSUs (and related TCO DERs) that “single trigger” vest on the closing of the Transactions, and also in those unvested cash substitute awards into which TCO RSUs and TCO PSUs were converted on the closing of the Transactions, and related TCO DERs, which “double trigger” vest on the Stock Plan CIC Termination. The amounts in the table below reflect the value of the TCO RSUs, TCO PSUs and TCO DERs that become vested, in accordance with their terms, on the Stock Plan CIC Termination Date. Note that for Mr. Leopold, the amounts in the table below also reflect those time-vesting and performance-vesting Taubman Incentive Units which “single trigger” vest on the closing of the Transactions and “double trigger” vest on the Stock Plan CIC Termination.
 
Single Trigger Vesting ($)
Double Trigger Vesting ($)
 
 
Cash Substitute Awards
Named Executive Officer
TCO
RSUs(a)
TCO
PSUs(a)
TCO
DERs(a)
TCO
RSUs(b)
TCO
PSUs(b)
TCO
DERs(b)
R. Taubman
Mr. Leopold
423,098
634,620
426,458
639,660
68,536
W. Taubman