Exhibit 99.1
ARRANGEMENT
involving
FOUR SEASONS HOTELS INC.
and
FS ACQUISITION CORP.,
a company established by
Triples Holdings Limited
and an affiliate of
Kingdom Hotels International
and an affiliate of
Cascade Investment, L.L.C.
SPECIAL MEETING OF SHAREHOLDERS OF
FOUR SEASONS HOTELS INC.
TO BE HELD ON APRIL 5, 2007
NOTICE OF SPECIAL MEETING AND
MANAGEMENT INFORMATION CIRCULAR
March 5, 2007
These materials are important and require your immediate attention. They require Shareholders to make important decisions. If you are in doubt as to how to make such decisions, please contact your financial, legal or other professional advisors. If you have any questions or require more information with regard to voting your Limited Voting Shares, please contact Georgeson, toll-free, at 1-866-568-7442.
March 5, 2007
Dear Shareholder:
On behalf of the Board of Directors, we would like to invite you to join us at the special meeting of shareholders of Four Seasons Hotels Inc. that will be held at 10:00 a.m. (Toronto time) on Thursday, April 5, 2007 at the Four Seasons Hotel Toronto (Tudor Room), 21 Avenue Road, Toronto, Ontario.
At the meeting, you will be asked to approve a plan of arrangement under the Business Corporations Act (Ontario) that has been proposed by Mr. Isadore Sharp, the Chairman and Chief Executive Officer of Four Seasons and Triples Holdings Limited (all of the shares of which are held by Mr. Sharp and members of his immediate family), together with Kingdom Hotels International, a company owned by a trust created by His Royal Highness Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud for the benefit of His Royal Highness Prince Alwaleed and his family, and Cascade Investment, L.L.C., an entity owned by William H. Gates III. The plan of arrangement will result in the acquisition of all of the outstanding Limited Voting Shares of Four Seasons (other than those owned by Kingdom and Cascade) for US$82.00 cash per share.
The transaction has been approved unanimously by the Board of Directors of Four Seasons (with interested directors abstaining) following the report and favourable, unanimous recommendation of the transaction by a Special Committee comprised of independent directors. In doing so, the Board determined that the arrangement is fair to the shareholders of Four Seasons (other than Mr. Sharp, Kingdom, Cascade, their respective directors and senior officers and any "related parties", "interested parties" and "joint actors") and in the best interests of Four Seasons and authorized the submission of the arrangement to shareholders of Four Seasons for their approval at a special meeting of shareholders. The Board also has determined unanimously (with interested directors abstaining) to recommend to shareholders of Four Seasons that they vote in favour of the transaction.
In making their determinations, the Board and the Special Committee considered, among other things, a formal valuation and fairness opinion delivered by Merrill Lynch Canada Inc. to the Special Committee, to the effect that, as of February 5, 2007 and based upon and subject to the analyses, assumptions, qualifications and limitations set forth therein, the consideration to be received under the arrangement was fair, from a financial point of view, to the holders of Limited Voting Shares (other than Mr. Sharp, Kingdom, Cascade, their respective directors and senior officers and any "related parties", "interested parties" and "joint actors"). A copy of Merrill Lynch's valuation and fairness opinion is included as Appendix C to the management information circular accompanying this letter.
To become effective, the resolution approving the arrangement must be approved by at least 662/3% of the votes cast by holders of Limited Voting Shares present in person or represented by proxy and entitled to vote at the special meeting, voting separately as a class, and a simple majority of the votes cast by those holders of Limited Voting Shares, other than Mr. Sharp, Kingdom, Cascade, their respective directors and senior officers and any other "related parties", "interested parties" and "joint actors". The arrangement also must be approved by the holder of Variable Multiple Voting Shares voting separately as a class. Triples is currently the only holder of Variable Multiple Voting Shares. Each of Triples, Kingdom and Cascade has agreed to vote the shares of Four Seasons owned by it in favour of the resolution approving the arrangement. Each of the directors intends to vote his or her Limited Voting Shares in favour of the resolution approving the arrangement.
We are enclosing a notice of the special meeting, a management information circular for the meeting, a form of proxy (printed on blue paper) and a letter of transmittal (printed on yellow paper). The management information circular and the appendices attached to it, which we urge you to read carefully in consultation with your financial or other professional advisor, describe the arrangement and include certain other information (including the full text of the acquisition agreement relating to the transaction and the Merrill Lynch valuation and fairness opinion) to assist you in considering the arrangement. You may also obtain more information about Four Seasons at the website maintained by the Canadian Securities Administrators at www.sedar.com and at the website maintained by the United States Securities and Exchange Commission at www.sec.gov.
Your vote is important regardless of how many Limited Voting Shares you own. We hope that you will be able to attend the special meeting. To ensure that your vote is recorded, please return the enclosed proxy, properly completed and signed, prior to 5:00 p.m. (Toronto time) on Tuesday, April 3, 2007, in the envelope provided for that purpose whether or not you plan to attend the special meeting. We also encourage you to complete, sign, date and return the enclosed letter of transmittal, which will help Four Seasons to arrange for the prompt payment for your Limited Voting Shares if the proposed arrangement is completed.
If you hold Limited Voting Shares through a broker, investment dealer, bank, trust company or other intermediary, you should follow the instructions provided by your intermediary to ensure your vote is counted at the special meeting and should arrange for your intermediary to complete the necessary transmittal documents to ensure that you receive payment for your Limited Voting Shares if the proposed arrangement is completed.
If you have any questions or need assistance in your consideration of the proposed arrangement or with the completion and delivery of your proxy or letter of transmittal, please call our proxy solicitor, Georgeson, toll-free, at 1-866-568-7442, who is assisting us in answering questions you may have regarding the arrangement and soliciting votes.
On behalf of the Four Seasons Board of Directors, we would like to take this opportunity to thank you for the support you have shown as a shareholder of Four Seasons.
Yours very truly,
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Isadore Sharp Chairman and Chief Executive Officer |
J. Robert S. Prichard Lead Director of the Board of Directors |
FOUR SEASONS HOTELS INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a special meeting (the "Meeting") of the shareholders of Four Seasons Hotels Inc. ("FSHI") will be held at the Four Seasons Hotel Toronto (Tudor Room), 21 Avenue Road, Toronto, Ontario on April 5, 2007 commencing at the hour of 10:00 a.m. (Toronto time) for the following purposes:
The Board of Directors of FSHI unanimously (with interested directors abstaining) recommends that holders of Limited Voting Shares (the "Shareholders") vote FOR the resolution approving the Arrangement. Shareholders of record at the close of business on February 28, 2007, the record date for the Meeting, will be entitled to notice of, and to vote at, the Meeting and any postponement(s) or adjournment(s) thereof.
The full text of the acquisition agreement entered into in respect of the Arrangement and the related transactions, the plan of arrangement (the "Plan of Arrangement") implementing the Arrangement and the Interim Order are attached as Appendix B, Appendix D and Appendix E, respectively, to the Circular.
Pursuant to the Interim Order and the Plan of Arrangement, registered Shareholders have been granted the right to dissent in respect of the Arrangement and be paid the fair value of their Limited Voting Shares. This dissent right, and the procedures for its exercise, are described in the Circular under the heading "Dissenting Shareholders' Rights", in the Interim Order and in Appendix G to the Circular. Only registered Shareholders are entitled to exercise rights of dissent. Failure to strictly comply with the dissent procedures described in the Circular will result in the loss or unavailability of any right of dissent.
Whether or not you plan to attend the Meeting in person, please complete, date, sign and return (in the postage prepaid envelope provided for that purpose) the accompanying form of proxy (printed on blue paper) for use at the Meeting. To be used at the Meeting, proxies must be received by FSHI's transfer agent, Computershare Trust Company of Canada, 100 University Avenue, 9th Floor, Toronto, Ontario, M5J 2Y1 before 5:00 p.m. (Toronto time) on April 3, 2007 (or not less than 48 hours (excluding Saturdays, Sundays and holidays) before any reconvened Meeting if the Meeting is adjourned or postponed). Non-registered, beneficial Shareholders must follow the instructions provided by their broker, investment dealer, bank, trust company or other intermediary to ensure their vote is counted at the Meeting and should contact the broker, investment dealer, bank, trust company or other intermediary to instruct them to deliver the holder's Limited Voting Shares to the depositary under the Arrangement. If you do not vote, or do not instruct your broker, investment dealer, bank, trust company or other intermediary how to vote, you will not be considered present in person or represented by proxy for the purpose of approving the resolution approving the Arrangement. The Limited Voting Shares represented by a proxy will be voted as directed by you. However, if such a direction is not made, and you have not appointed a proxyholder (other than members of management), then your proxy will be voted FOR the resolution approving the Arrangement.
You may revoke a proxy by depositing an instrument in writing executed by you or your attorney authorized in writing or by transmitting, by electronic or telephonic means, a revocation that is signed by electronic signature, in each case, that is received:
or in any other way permitted by law.
Attendance at the Meeting without voting will not itself revoke a proxy. If you hold your Limited Voting Shares through a broker, investment dealer, bank, trust company or other intermediary you must contact your broker, investment dealer, trust company or other intermediary if you wish to revoke or change your voting instructions.
If you have any questions or need assistance regarding the completion and delivery of your proxy or letter of transmittal, please call our proxy solicitor, Georgeson, toll-free, at 1-866-568-7442.
DATED at Toronto, Ontario this 5th day of March, 2007.
By Order of the Board of Directors, | |
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Randolph Weisz Executive Vice President, Business Administration, General Counsel and Secretary |
TABLE OF CONTENTS
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Page |
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NOTICE TO SHAREHOLDERS IN THE UNITED STATES | i | ||
CURRENCY | ii | ||
FORWARD-LOOKING STATEMENTS | ii | ||
INFORMATION CONTAINED IN THIS CIRCULAR | iii | ||
SUMMARY TERM SHEET | 1 | ||
Parties to the Proposed Transaction | 1 | ||
The Meeting | 2 | ||
The Arrangement | 3 | ||
Recommendation of the Special Committee | 3 | ||
Position of the Special Committee as to Fairness | 4 | ||
Recommendation of the Board | 5 | ||
Reasons for the Arrangement from FSHI's Perspective | 6 | ||
Reasons for the Arrangement from the Perspective of Kingdom, Cascade, Triples and Mr. Sharp; Position of the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade Regarding Fairness of the Arrangement | 6 | ||
Independent Valuation and Fairness Opinion | 7 | ||
Interests of Directors, Executive Officers and Others in the Arrangement | 7 | ||
The Acquisition Agreement | 8 | ||
Court and Regulatory Approvals | 9 | ||
Convertible Notes | 10 | ||
Certain Canadian Federal Income Tax Considerations | 11 | ||
Certain United States Federal Income Tax Considerations | 11 | ||
Dissenting Shareholders' Rights | 12 | ||
SPECIAL FACTORS |
13 |
||
Background to the Proposal and the Arrangement | 13 | ||
Background to the Proposal | 13 | ||
Background to the Arrangement | 16 | ||
Position of the Special Committee as to Fairness | 21 | ||
Recommendation of the Special Committee | 22 | ||
Recommendation of the Board | 22 | ||
Reasons for the Arrangement from FSHI's Perspective | 23 | ||
Reasons for the Arrangement from the Perspective of the Purchaser, Kingdom, Cascade, Triples and Mr. Sharp | 23 | ||
Position of the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade Regarding Fairness of the Arrangement | 25 | ||
Certain Effects of the Arrangement | 27 | ||
Effects on FSHI if the Arrangement is Not Completed | 28 | ||
Independent Valuation and Fairness Opinion | 29 | ||
THE ARRANGEMENT |
33 |
||
Required Shareholder Approval | 33 | ||
Arrangement Mechanics | 33 | ||
Interests of Directors, Executive Officers and Others in the Arrangement | 36 | ||
Intentions of FSHI Directors and Senior Officers | 42 | ||
Sources of Funds for the Arrangement | 42 | ||
THE ACQUISITION AGREEMENT |
44 |
||
Conditions Precedent to the Arrangement | 44 | ||
Representations and Warranties | 45 | ||
Conduct of FSHI's Business | 46 | ||
Other Covenants of FSHI | 46 | ||
Covenants of the Purchaser | 46 | ||
Covenants of FSHI Regarding Non-Solicitation | 47 | ||
Consideration of Alternative Transactions | 47 | ||
Termination Rights | 48 | ||
Disclosure of Material Information upon Termination | 49 | ||
Termination Fee | 49 | ||
Expense Reimbursement | 50 | ||
Pre-Acquisition Reorganization | 50 | ||
Voting Agreement | 51 | ||
PRINCIPAL LEGAL MATTERS |
51 |
||
Court Approval of the Arrangement and Completion of the Arrangement | 51 | ||
Principal Regulatory Matters | 51 | ||
Canadian Securities Law Matters | 53 | ||
Judicial Developments | 53 | ||
Convertible Notes | 53 | ||
Stock Exchange De-Listing and Reporting Issuer Status | 54 | ||
INFORMATION CONCERNING FSHI |
54 |
||
Principal Shareholders | 55 | ||
Auditors | 55 | ||
Description of Share Capital | 55 | ||
Dividend Policy | 57 | ||
Previous Distributions of Securities | 57 | ||
FSHI Market Price and Trading Volume Data | 58 | ||
Material Changes in the Affairs of FSHI | 59 | ||
Previous Purchases and Sales | 59 | ||
Historical Selected Financial Data | 60 | ||
INFORMATION CONCERNING THE PURCHASER, KINGDOM, CASCADE, TRIPLES AND MR. SHARP |
61 |
||
CERTAIN TAX CONSIDERATIONS FOR SHAREHOLDERS |
63 |
||
Certain Canadian Federal Income Tax Considerations | 63 | ||
Certain United States Federal Income Tax Considerations | 65 | ||
DISSENTING SHAREHOLDERS' RIGHTS |
67 |
||
RISK FACTORS |
70 |
||
Risks Relating to the Arrangement | 70 | ||
Risks Relating to Four Seasons | 70 | ||
PAST TRANSACTIONS AND AGREEMENTS |
71 |
||
PURCHASER'S PLANS FOR FSHI |
71 |
||
EXPENSES OF THE ARRANGEMENT |
71 |
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BENEFITS FROM THE ARRANGEMENT |
71 |
||
COMMITMENTS TO ACQUIRE SHARES |
72 |
||
OTHER INFORMATION AND MATTERS |
72 |
||
PROXY SOLICITATION AND DEPOSITARY |
72 |
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LEGAL MATTERS |
72 |
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INFORMATION CONCERNING VOTING AT THE MEETING |
72 |
||
Who Can Vote | 72 | ||
Voting By Registered Shareholders | 73 | ||
Voting By Non-Registered Shareholders | 74 | ||
Please Complete Your Proxy | 75 | ||
FREQUENTLY ASKED QUESTIONS ABOUT THE ARRANGEMENT |
76 |
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ADDITIONAL INFORMATION |
80 |
||
QUESTIONS AND FURTHER ASSISTANCE |
80 |
||
APPROVAL OF FSHI |
81 |
||
CONSENT OF MERRILL LYNCH CANADA INC. |
82 |
||
CONSENT OF GOODMANS LLP |
83 |
||
GLOSSARY OF TERMS |
84 |
APPENDICES
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Page |
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APPENDIX A SPECIAL RESOLUTION OF THE FSHI SHAREHOLDERS | A-1 | |
APPENDIX B ACQUISITION AGREEMENT | B-1 | |
APPENDIX C INDEPENDENT VALUATION AND FAIRNESS OPINION | C-1 | |
APPENDIX D PLAN OF ARRANGEMENT | D-1 | |
APPENDIX E INTERIM ORDER | E-1 | |
APPENDIX F NOTICE OF APPLICATION FOR THE FINAL ORDER | F-1 | |
APPENDIX G SECTION 185 OF THE BUSINESS CORPORATIONS ACT (ONTARIO) | G-1 | |
APPENDIX H UNAUDITED INTERIM RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES | H-1 |
FOUR SEASONS HOTELS INC.
MANAGEMENT INFORMATION CIRCULAR
This Circular is furnished in connection with the solicitation of proxies by and on behalf of the management of Four Seasons Hotels Inc. The accompanying form of proxy is for use at the Meeting and at any adjournment(s) or postponement(s) of the Meeting and for the purposes set forth in the accompanying Notice of Meeting. A glossary of certain terms used in this Circular can be found on pages 84 to 90 of this Circular. In this Circular, references to FSHI are to Four Seasons Hotels Inc. and references to Four Seasons are to FSHI and its subsidiaries. See "Summary Term Sheet" starting on page 1.
NOTICE TO SHAREHOLDERS IN THE UNITED STATES
FSHI is a corporation existing under the laws of the Province of Ontario. The solicitation of proxies and the transaction contemplated in this Circular involve securities of a Canadian issuer and are being effected in accordance with Canadian corporate and securities laws. The proxy solicitation rules under the 1934 Act are not applicable to FSHI or this solicitation and, accordingly, this solicitation is not being effected in accordance with such rules. Shareholders should be aware that disclosure requirements under Canadian laws may be different from such requirements under U.S. securities laws. Shareholders should also be aware that requirements under Canadian laws may differ from requirements under U.S. corporate and securities laws relating to U.S. corporations. In connection with the Arrangement, FSHI, the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade will file with the SEC a transaction statement under Section 13(e) of the 1934 Act and Rule 13e-3 (the "Schedule 13E-3") thereunder, which transaction statement will incorporate certain portions of this Circular.
Certain of the financial information included or incorporated by reference in this Circular has been prepared in accordance with Canadian generally accepted accounting principles, which differ from United States generally accepted accounting principles in certain material respects, and thus may not be comparable to financial information of United States companies.
The enforcement by investors of civil liabilities under U.S. federal securities laws may be affected adversely by the fact that FSHI exists under the laws of the Province of Ontario and the Purchaser exists under the laws of the Province of British Columbia and that some or all of their respective officers and directors are not residents of the United States and that all or a substantial portion of their respective assets may be located outside the United States. You may not be able to sue an Ontario or British Columbia company or its respective officers or directors in a Canadian court for violations of U.S. securities laws. It may be difficult to compel an Ontario or British Columbia company and its Affiliates to subject themselves to a judgment by a U.S. court.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY ANY SECURITIES REGULATORY AUTHORITY NOR HAS ANY SECURITIES REGULATORY AUTHORITY PASSED UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
Certain information concerning the income tax consequences of the Arrangement to Shareholders is set forth in "Certain Tax Considerations for Shareholders — Certain Canadian Federal Income Tax Considerations" and "Certain Tax Considerations for Shareholders — Certain United States Federal Income Tax Considerations". Shareholders should be aware that the transactions contemplated in this Circular may have tax consequences in Canada and any other jurisdiction in which a Shareholder is subject to income taxation. Such consequences may not be described fully in this Circular.
i
CURRENCY
Except where otherwise indicated, all dollar amounts set forth in this Circular are expressed in U.S. dollars and "$" and "US$" shall mean U.S. dollars. The following table sets forth (a) the noon rates for the Canadian dollar, expressed in Canadian dollars (Cdn.$) per U.S. dollar, in effect at the end of the periods indicated, (b) the average noon rates for such periods, and (c) the high and low noon rates during such periods, in each case based on the rates quoted by the Bank of Canada.
|
|
Year Ended December 31, |
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Canadian Dollar per U.S. Dollar |
January 1, 2007 through February 23, 2007 |
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2006 |
2005 |
2004 |
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Noon rate at end of period | 1.1585 | 1.1653 | 1.1659 | 1.2036 | ||||
Average noon rate for period | 1.1736 | 1.1342 | 1.2116 | 1.3015 | ||||
High noon rate for period | 1.1851 | 1.1726 | 1.2704 | 1.3968 | ||||
Low noon rate for period | 1.1585 | 1.0990 | 1.1507 | 1.1774 |
On February 23, 2007, the rate of exchange was Cdn.$1.1585 equals US$1.00, based on the noon rate as quoted by the Bank of Canada.
FORWARD-LOOKING STATEMENTS
This Circular and the information incorporated in this Circular by reference contain "forward-looking statements" within the meaning of applicable securities laws, including RevPAR, profit margin and earning trends; statements concerning the number of lodging properties expected to be added in this and future years; expected investment spending; and similar statements concerning the Arrangement and anticipated future events, results, circumstances, performance or expectations that are not historical facts. Forward-looking information typically contains statements with words such as "anticipate," "believe," "expect," "plan," "guidance," "judgement" or similar words suggesting future outcomes. Various factors and assumptions were applied or taken into consideration in arriving at these statements, which do not take into account the effect that non-recurring or other special items announced after the statements are made may have on Four Seasons' business. These statements are not guarantees of future performance and, accordingly, you are cautioned not to place undue reliance on these statements. These statements are subject to numerous risks and uncertainties, including without limitation those described in FSHI's management's discussion and analysis and in its annual information form under the heading "Operating Risks" and under "Risk Factors" in this Circular. Those risks and uncertainties include the satisfaction of the conditions to consummate the Arrangement, including the approval of the Arrangement Resolution by Shareholders and the Court, the occurrence of any event, change or other circumstances that could give rise to the termination of the Acquisition Agreement, the delay of consummation of the Arrangement or failure to complete the Arrangement for any other reason (including the delay or failure to obtain the required approvals or clearances from regulatory authorities), the amount of the costs, fees, expenses and charges related to the Arrangement, adverse factors generally encountered in the lodging industry, the risks associated with world events, including war, terrorism, international conflicts, natural disasters, extreme weather conditions and infectious diseases, general economic conditions, fluctuations in relative exchange rates of various currencies, supply and demand changes for hotel rooms and residential properties, competitive conditions in the lodging industry, the risks associated with Four Seasons' ability to maintain and renew management agreements and expand the portfolio of properties that Four Seasons manages, relationships with clients and property owners and the availability of capital to finance growth. Many of these risks and uncertainties can affect Four Seasons' actual results and could cause its actual results to differ materially from those expressed or implied in any forward-looking statement made by FSHI or on its behalf. All forward-looking statements in this Circular are qualified by these cautionary statements. These statements are made as of the date of this Circular and FSHI undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Additionally, FSHI undertakes no obligation to comment on analyses, expectations or statements made by third parties in respect of Four Seasons, its financial or operating results or its securities or any of the properties that Four Seasons manages or in which it may have an interest.
ii
INFORMATION CONTAINED IN THIS CIRCULAR
No person has been authorized to give information or to make any representations in connection with the Arrangement other than those contained or incorporated by reference in this Circular and, if given or made, any such information or representations should not be relied upon in making a decision as to how to vote on the Arrangement Resolution or be considered to have been authorized by FSHI or the Purchaser.
All information relating to the Purchaser, Kingdom, Cascade, Triples or any of their respective Affiliates (other than FSHI and its subsidiaries) contained in this Circular has been provided to FSHI by those parties. The Board has relied upon this information without having made independent inquiries as to the accuracy or completeness thereof; however, it has no reason to believe such information is misleading or inaccurate.
This Circular does not constitute an offer to buy, or a solicitation of an offer to sell, any securities, or the solicitation of a proxy, by any person in any jurisdiction in which such an offer or solicitation is not authorized or in which the person making such an offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such an offer or solicitation.
Shareholders should not construe the contents of this Circular as legal, tax or financial advice and should consult with their own professional advisors in considering the relevant legal, tax, financial or other matters contained in this Circular.
If you hold Limited Voting Shares through a broker, investment dealer, bank, trust company or other intermediary, you should contact your intermediary for instructions and assistance in voting and surrendering the Limited Voting Shares that you beneficially own.
iii
The following is a summary of information contained elsewhere in this Circular. This summary is provided for convenience only and this summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information appearing or referred to elsewhere in this Circular, including the appendices and documents or portions of documents incorporated by reference in this Circular. Certain capitalized words and terms used in this summary and the Circular are defined in the Glossary of Terms found on pages 84 to 90.
Parties to the Proposed Transaction
Four Seasons Hotels Inc.
FSHI is a corporation existing under the laws of Ontario. Four Seasons is one of the world's leading managers of luxury hotels and resorts. Four Seasons has a portfolio of 74 luxury hotel and resort properties (containing approximately 18,090 guest rooms), several of which include a residential component. These properties are operated primarily under the Four Seasons brand name in principal cities and resort destinations in 31 countries in North America, the Caribbean, Europe, Asia, Australia, the Middle East and South America. In addition, 30 properties are under construction or development in a further 13 countries around the world. Of these, 20 new properties are to include a residential component.
Purchaser
The Purchaser was incorporated under the BCBCA on February 9, 2007. The Purchaser is owned by Triples, Kingdom and Cascade Subco. The Purchaser has no subsidiaries and was organized solely for the purpose of entering into the Acquisition Agreement and consummating the Arrangement. The Purchaser has not carried on any activities to date other than activities related to its formation and in connection with the Arrangement.
Kingdom Hotels International
Kingdom Hotels International is a Cayman Islands company, owned by a trust created by HRH Prince Alwaleed for the benefit of HRH Prince Alwaleed and his family. HRH Prince Alwaleed and related trusts and entities have made substantial investments in multiple sectors, including banking, hotels, media, telecommunications, technology, construction and real estate, entertainment, and upscale fashion, among others. Significant hotel-related investments include various Four Seasons, Fairmont and Mövenpick hotel properties and interests in FSHI, Fairmont Raffles Holdings International and Mövenpick Hotels & Resorts, covering the ownership, management and/or development of more than 200 hotels throughout North America, Europe, the Middle East, Asia and Africa. Significant investments in other sectors include interests in Citigroup, News Corp., Time Warner, Motorola, Apple Inc., Ballast Nedam, Canary Wharf, Disneyland Paris, Saks Inc. and Kingdom Center.
Kingdom has advised FSHI that, as of February 23, 2007, it beneficially owns or controls 7,389,182 Limited Voting Shares, representing approximately 22% of the outstanding Limited Voting Shares. In addition, HRH Prince Alwaleed may also be deemed to be the beneficial owner of an additional 179,322 Limited Voting Shares, in which he shares voting and dispositive powers. These 179,322 Limited Voting Shares are not subject to the Proposal and will receive the same consideration of US$82.00 per share as the Minority Shareholders. Upon completion of the Arrangement and the exchange of its Limited Voting Shares for an interest in the Purchaser, Kingdom will own an approximate 47.5% common equity interest in FSHI.
Cascade Investment, L.L.C.
Cascade Investment, L.L.C. is a limited liability company organized under the laws of the State of Washington. The sole member of Cascade is William H. Gates III. Cascade is a private investment entity.
Cascade has advised FSHI that, as of February 23, 2007, it beneficially owns or controls 715,850 Limited Voting Shares, representing approximately 2% of the outstanding Limited Voting Shares. Upon completion of the Arrangement and the exchange of its Limited Voting Shares for an interest in the Purchaser, Cascade Subco will own an approximate 47.5% common equity interest in FSHI.
1
Triples Holdings Limited and Mr. Sharp
Triples Holdings Limited is a corporation existing under the laws of the Province of Ontario, all of the shares of which are beneficially owned by Mr. Sharp, the Chairman and Chief Executive Officer of FSHI, and members of his immediate family. As of February 23, 2007, Triples owns 3,725,698 Variable Multiple Voting Shares, representing all of the outstanding Variable Multiple Voting Shares. As a result of the exchange of its Variable Multiple Voting Shares for an interest in the Purchaser pursuant to the Arrangement and the Amalgamation, Triples will own a 5% common equity interest in FSHI, as well as an investment in Preferred Shares that will be issued in exchange for Variable Multiple Voting Shares owned by Triples that have not been ultimately exchanged for this 5% common equity interest.
The Meeting
The Arrangement Resolution
At the Meeting, Shareholders will be asked to vote on the Arrangement Resolution as required by the OBCA and the Interim Order, in the form attached as Appendix A to this Circular. If Shareholders approve the Arrangement Resolution and the other closing conditions under the Acquisition Agreement are satisfied or waived, including the issuance of the Final Order by the Court, the Purchaser will acquire all of the outstanding Limited Voting Shares for a price equal to US$82.00 in cash per share pursuant to the Arrangement, without interest and subject to applicable withholding taxes (other than the Limited Voting Shares held by the Foundation, which will be acquired by FSHI pursuant to the Arrangement and a separate agreement for identical consideration, and the Limited Voting Shares held by Kingdom and Cascade Subco).
Record Date and Notice
The Meeting will take place on April 5, 2007 at 10:00 a.m. (Toronto time), at the Four Seasons Hotel Toronto (Tudor Room), 21 Avenue Road, Toronto, Ontario. All Registered Shareholders and the registered holders of Variable Multiple Voting Shares as of the close of business on February 28, 2007, the Record Date for the Meeting, are entitled to receive notice of and attend, and to vote at, the Meeting or any adjournments or postponements of the Meeting. As of February 23, 2007, there were 33,681,238 Limited Voting Shares outstanding and entitled to vote at the Meeting. For additional information, see "Information Concerning Voting at the Meeting — Who Can Vote" and "Information Concerning Voting at the Meeting — Voting by Registered Shareholders" in this Circular.
The Meeting Materials are being sent to both Registered Shareholders and Non-Registered Shareholders. Only Registered Shareholders or the persons they appoint as their proxyholders are permitted to vote at the Meeting. However, in accordance with applicable securities laws, FSHI is distributing copies of the Meeting Materials to certain Intermediaries for onward distribution to Non-Registered Shareholders. Non-Registered Shareholders may direct their Intermediaries to vote the Limited Voting Shares beneficially owned by them in accordance with their instructions. If you are a Non-Registered Shareholder and your Limited Voting Shares are held on your behalf in the name of an Intermediary, please see "Information Concerning Voting at the Meeting — Voting by Non-Registered Shareholders" in this Circular.
Vote Required to Approve the Arrangement
Pursuant to the Interim Order, the Arrangement Resolution must be approved by the affirmative vote of:
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Pursuant to the Voting Agreement, each of Kingdom and Cascade has agreed to vote the Limited Voting Shares owned by it in favour of the Arrangement Resolution, and Triples has agreed to vote all of the Variable Multiple Voting Shares owned by it in favour of the Arrangement Resolution, subject in each case to the terms and conditions contained in the Voting Agreement.
See "The Arrangement — Required Shareholder Approval" in this Circular.
Proxies and Revocation
If you are a Registered Shareholder, there are two ways to vote your Limited Voting Shares. You may vote in person at the Meeting or you may vote by submitting your proxy in accordance with the instructions contained in the enclosed form of proxy. For instructions on how to execute your proxy, see "Information Concerning Voting at the Meeting — Voting by Registered Shareholders" in this Circular.
If you abstain from voting or fail to vote, the votes represented by your Limited Voting Shares will not be taken into account in determining whether the Arrangement Resolution has been approved by the requisite majorities.
Limited Voting Shares represented by properly executed proxies will be voted in accordance with the instructions of the Shareholder on any ballot that may be called for and, if the Shareholder specifies a choice with respect to any matter to be acted upon at the Meeting, Limited Voting Shares represented by properly executed proxies will be voted accordingly. If no choice is specified with respect to such matter, the persons designated in the accompanying form of proxy will vote the Limited Voting Shares covered by such proxy FOR the Arrangement Resolution.
A Shareholder who has given a proxy may revoke a proxy by depositing an instrument in writing executed by the Shareholder or the Shareholder's attorney authorized in writing or by transmitting, by electronic or telephonic means, a revocation that is signed by electronic signature, in each case, that is received:
or in any other way permitted by law.
See "Information Concerning Voting at the Meeting — Voting by Registered Shareholders" in this Circular.
The Arrangement
The Arrangement effects a series of transactions as a result of which, among other things, the Purchaser will acquire all of the outstanding Limited Voting Shares for a price equal to US$82.00 in cash per share pursuant to the Arrangement, without interest and subject to applicable withholding taxes (other than the Limited Voting Shares held by the Foundation, which will be acquired by FSHI pursuant to the Arrangement and a separate agreement for identical consideration, and the Limited Voting Shares held by Kingdom and Cascade Subco). FSHI will file the Articles of Arrangement as soon as practicable after the conditions set out in the Acquisition Agreement have been satisfied or waived by the parties and upon obtaining the Final Order, at which time the Arrangement will become effective.
See "The Arrangement" in this Circular.
Recommendation of the Special Committee
Having undertaken a thorough review of, and carefully considered, the Arrangement, including consulting with independent financial and legal advisors, the Special Committee unanimously concluded that the Arrangement is fair to the Minority Shareholders and in the best interests of FSHI and unanimously recommended that the Board approve the Arrangement and recommend that Shareholders vote in favour of the Arrangement.
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See "Special Factors — Recommendation of the Special Committee" in this Circular.
Position of the Special Committee as to Fairness
In reaching its conclusion that the Arrangement is substantively fair to the Minority Shareholders, and that the Arrangement is in the best interests of FSHI, the Special Committee considered and relied upon a number of factors including the following:
The Special Committee believes that the Arrangement is procedurally fair to the Minority Shareholders for the following reasons:
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The Special Committee also considered a number of risks and potential negative factors relating to the Arrangement including:
See "Special Factors — Position of the Special Committee as to Fairness" in this Circular.
Recommendation of the Board
After careful consideration by the Board (with the interested Directors, being Isadore Sharp, Anthony Sharp, Charles Henry and Simon Turner, abstaining), the Board has unanimously concluded that the terms of the Arrangement are fair to Minority Shareholders and in the best interests of FSHI and authorized the submission of the Arrangement to Shareholders for their approval at the Meeting. The Board also has determined unanimously (with interested Directors abstaining) to recommend to Shareholders that they vote FOR the Arrangement Resolution. Each Director intends to vote his or her Limited Voting Shares FOR the Arrangement Resolution.
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In adopting the Special Committee's recommendations and concluding that the Arrangement is substantively and procedurally fair to the Minority Shareholders and that the Arrangement is in the best interests of FSHI, the Board considered and relied upon the same factors and considerations that the Special Committee relied upon, as described above and adopted the Special Committee's analyses in their entirety. In considering the best interests of FSHI, the Board also took into account the potential effects of the Arrangement on Four Seasons' business having regard to the implications for other stakeholders, including the employees and guests of Four Seasons and the owners of hotels and resorts under Four Seasons' management. The Board also considered the fact that certain of FSHI's officers and directors may have interests that differ from those of the Minority Shareholders.
For a description of the factors considered by the Board in reaching its conclusions, see "Special Factors — Reasons for the Arrangement from FSHI's Perspective", "Special Factors — Recommendation of the Special Committee" and "Special Factors — Recommendation of the Board" in this Circular.
Reasons for the Arrangement from FSHI's Perspective
In early 2006, Mr. Sharp advised the Board that he had determined that it would be desirable to assess the possibility of pursuing a transaction that could facilitate the orderly transition of ownership of Four Seasons from a publicly-held company to a privately-held company. The Board recognized that such an orderly transition, with the involvement of Mr. Sharp, could be beneficial to FSHI if it:
In this context, the independent Directors determined that it would be in the best interest of FSHI for management to explore the possibility of such a transaction. The Arrangement is the result of the process that ensued over the subsequent months. See "Special Factors — Background to the Proposal".
The Board considered, among other things, Mr. Sharp's advice to the Board that the transaction reflected in the Proposal was the only transaction that he was prepared to pursue, the recommendations of the Special Committee in respect of the fairness of the Arrangement to Minority Shareholders and the perspective of management of Four Seasons as to the implications of the Arrangement in the context of the last four of the objectives set out above, in concluding that the Arrangement is fair to the Minority Shareholders and in the best interests of FSHI.
See "Special Factors — Reasons for the Arrangement from FSHI's Perspective".
Reasons for the Arrangement from the Perspective of the Purchaser, Kingdom, Cascade, Triples and Mr. Sharp; Position of the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade Regarding Fairness of the Arrangement
Under SEC rules, the Purchaser, Kingdom, Cascade and Triples are deemed to be engaged in a "going private" transaction and may be required to express their reasons for entering into the Arrangement and may be required to provide certain information regarding their position as to the substantive and procedural fairness of the Arrangement to the Minority Shareholders. To comply with such SEC rules, Kingdom, Cascade, Triples and Mr. Sharp make certain statements in this Circular as to, among other matters, their reasons for the Arrangement and their belief as to the fairness of the Arrangement to the Minority Shareholders.
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See "Special Factors — Reasons for the Arrangement from the Perspective of Kingdom, Cascade, Triples and Mr. Sharp" and "Special Factors — Position of the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade Regarding Fairness of the Arrangement".
Independent Valuation and Fairness Opinion
Merrill Lynch, the independent financial advisor and valuator retained by the Special Committee in connection with its consideration of the Arrangement, prepared the valuation included in the Valuation and Fairness Opinion in accordance with Rule 61-501 and Regulation Q-27. Shareholders are urged to read the Valuation and Fairness Opinion, the full text of which is attached as Appendix C to this Circular, carefully and in its entirety. Based upon and subject to the analyses, assumptions, qualifications and limitations discussed in the Valuation and Fairness Opinion, Merrill Lynch advised the Special Committee that, in its opinion, as at February 5, 2007, the fair market value of a Limited Voting Share was in the range of US$68.00 to US$88.00 per share, and the consideration to be received under the Arrangement was fair, from a financial point of view, to the Minority Shareholders. See "Special Factors — Independent Valuation and Fairness Opinion" in this Circular.
Interests of Directors, Executive Officers and Others in the Arrangement
In considering the recommendations of the Special Committee and the Board with respect to the Arrangement, Shareholders should be aware that certain members of the Board and executive officers of FSHI have certain interests in the Arrangement that may present them with actual or potential conflicts of interest in connection with the Arrangement. The Special Committee and the Board are aware of these interests and considered them along with other matters described under "The Arrangement — Interests of Directors, Executive Officers and Others in the Arrangement" in this Circular.
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Directors, Executive Officers and Others in the Arrangement — Phantom Equity Agreements" in this Circular.
See "The Arrangement — Interests of Directors, Executive Officers and Others in the Arrangement — Change in Control Agreements" in this Circular.
The Acquisition Agreement
The Acquisition Agreement is described beginning at page 43 of this Circular and a copy is attached in its entirety as Appendix B to this Circular. You should read the Acquisition Agreement in its entirety because it contains important provisions governing the terms and conditions of the Arrangement.
Conditions to Completion of the Arrangement
The implementation of the Arrangement is subject to the satisfaction of a number of conditions, some of which may only be waived by both of FSHI and the Purchaser, at or before the Closing Date, including:
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See "The Acquisition Agreement — Conditions Precedent to the Arrangement" in this Circular.
Termination of the Acquisition Agreement
FSHI and the Purchaser may terminate the Acquisition Agreement by mutual written consent and abandon the Arrangement at any time prior to the Effective Time. In addition, either FSHI or the Purchaser (and, in certain circumstances, only one of these parties) may terminate the Acquisition Agreement and abandon the Arrangement any time prior to the Effective Time if certain specified events occur.
See "The Acquisition Agreement — Termination Rights" in this Circular.
Termination Fee Payable by FSHI
The Acquisition Agreement provides that FSHI will pay to the Purchaser Payment Parties a termination fee of US$75 million less any amounts actually paid or required to be paid by FSHI to the Purchaser for reimbursement of expenses (as described below) if the Acquisition Agreement is terminated in certain circumstances. Pursuant to the terms of the Funding and Cooperation Agreement, Mr. Sharp and Triples have relinquished all rights to receive any part of such termination fee.
See "The Acquisition Agreement — Termination Fee" in this Circular.
Termination Fee Payable by the Purchaser
The Acquisition Agreement provides that the Purchaser will pay to FSHI a termination fee of US$100 million if the Acquisition Agreement is terminated in certain circumstances. This obligation is guaranteed by Kingdom and Cascade pursuant to the Guaranty.
See "The Acquisition Agreement — Termination Fee" and "The Arrangement — Sources of Funds for the Arrangement — Guaranty" in this Circular.
Reimbursement of Expenses
The Acquisition Agreement also provides that FSHI will pay to the Purchaser reasonable documented expenses of the Purchaser and its Affiliates incurred in connection with the transactions contemplated by the Acquisition Agreement (up to a maximum of US$10 million) if the Acquisition Agreement is terminated in certain circumstances.
See "The Acquisition Agreement — Expense Reimbursement" in this Circular.
Court and Regulatory Approvals
Court Approval and Completion of the Arrangement
The Arrangement requires Court approval under the OBCA. The court proceeding necessary to obtain that approval was commenced on February 20, 2007 by Notice of Application in the Court. The Notice of Application is set forth in Appendix F to this Circular. On February 26, 2007, prior to the mailing of this Circular, the Interim Order was granted providing for the calling and holding of the Meeting and certain other procedural matters. A copy of the Interim Order is set forth in Appendix E to this Circular.
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Subject to the requisite approval of the Arrangement Resolution by the Shareholders, a hearing is expected to occur at 10:00 a.m. (Toronto time) on April 13, 2007 in the Court at 330 University Avenue, Toronto, Ontario. At that hearing, an application will be made to the Court for the Final Order. The Court, in hearing the motion for the Final Order, will consider, among other things, the fairness and reasonableness of the Arrangement.
See "Principal Legal Matters — Court Approval of the Arrangement and Completion of the Arrangement" in this Circular.
Assuming that the Final Order is granted, and that the other conditions set forth in the Acquisition Agreement are satisfied or waived, the Articles of Arrangement will be filed with the Director to give effect to the Arrangement and all other documents necessary to complete the Arrangement will be delivered as soon as reasonably practicable thereafter.
Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act")
The HSR Act provides that transactions such as the Arrangement may not be completed until certain information has been submitted to the U.S. Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice and certain waiting period requirements have been satisfied. On March 2, 2007, the Purchaser and FSHI filed their Notification and Report Forms pursuant to the HSR Act with the Antitrust Division and the U.S. Federal Trade Commission and requested early termination of the waiting period.
See "Principal Legal Matters — Principal Regulatory Matters" in this Circular.
Investment Canada Act and Competition Act
Under the Investment Canada Act, certain transactions involving the acquisition of control of a Canadian business by a non-Canadian that exceed prescribed monetary thresholds are subject to review and cannot be implemented unless the applicable Minister responsible for the Investment Canada Act is satisfied that the acquisition is likely to be of net benefit to Canada. As the controlling persons of the Purchaser are non-Canadian and the acquisition of control of FSHI contemplated by the Arrangement exceeds the relevant monetary thresholds, the transaction contemplated by the Arrangement is a Reviewable Transaction. The Arrangement is not subject to pre-merger notification under the Competition Act, although FSHI anticipates that the Commissioner likely will be consulted as part of the Investment Canada Act review and that the Commissioner likely will review the Arrangement to determine if it will likely lessen or prevent competition substantially.
See "Principal Legal Matters — Principal Regulatory Matters" in this Circular.
Convertible Notes
The Arrangement, if completed, would result in a "Fundamental Change" for the purposes of the Convertible Note Indenture. As a result, holders may convert Convertible Notes during the period from and after the tenth day prior to the anticipated Closing Date until and including the close of business on the later of the tenth day after the actual Closing Date and the thirtieth business day after notice of an offer to repurchase the Convertible Notes has been mailed, as described below. Upon such conversion, holders of Convertible Notes would be entitled to receive, subject to the right of FSHI to make a cash payment in lieu of some or all of the Limited Voting Shares that otherwise would be issued, the following:
If, for the purposes of the Convertible Note Indenture, the conversion date, the date of the Fundamental Change and the date on which FSHI provided notice of its election to deliver cash in lieu of Limited Voting Shares that otherwise would be issued on conversion of a Convertible Note were January 15, 2007, the amount
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of the cash payment referred to in the immediately preceding sentence for all of the Limited Voting Shares that otherwise would have been issued would have been equal to US$1,252.25 for each US$1,000 principal amount of Convertible Notes, plus accrued interest.
If the Arrangement is completed, FSHI will be required to make an offer to repurchase the Convertible Notes at a purchase price equal to the principal amount of the Convertible Notes plus a make whole premium (as described above), and an amount equal to any accrued and unpaid interest to, but not including, the date of repurchase. FSHI must make this offer by providing a notice to the trustee under the Convertible Note Indenture and the holders of Convertible Notes, as prescribed by the Convertible Note Indenture, within 30 days of the completion of the Arrangement.
FSHI has the right to satisfy the obligations in respect of conversion in the circumstances described above, and in respect of a repurchase of Convertible Notes as described above, with Limited Voting Shares (or other "Applicable Stock", as defined in the Convertible Note Indenture, in the case of a repurchase of Convertible Notes) or, at its option, in cash or a combination of Limited Voting Shares (or other "Applicable Stock," in case of a repurchase of Convertible Notes) and cash.
The Purchaser has informed FSHI that it currently is considering whether to commence an offer to purchase all of the outstanding Convertible Notes prior to the Effective Time. The terms of any such offer have not yet been finalized, and will be determined by the Purchaser in the event that it decides to proceed with the offer. If the Purchaser proceeds with the offer, the Convertible Notes owned on the Effective Date by the Purchaser and its subsidiaries will be transferred to FSHI for cancellation pursuant to the Arrangement.
Certain Canadian Federal Income Tax Considerations
Residents of Canada
Generally, a Resident Shareholder who holds Limited Voting Shares as capital property will realize a capital gain (or a capital loss) equal to the amount by which the cash received by the Resident Shareholder under the Arrangement exceeds (or is less than) the aggregate of the adjusted cost base of the Limited Voting Shares to the Resident Shareholder and any reasonable costs of disposition.
Non-Residents of Canada
Generally, a Non-Resident Shareholder whose Limited Voting Shares do not constitute "taxable Canadian property" for purposes of the Tax Act will not be subject to tax under the Tax Act on any capital gain realized on the disposition of Limited Voting Shares under the Arrangement.
The foregoing is a brief summary of Canadian federal income tax consequences only. Shareholders should read carefully the information in the Circular under the heading "Certain Tax Considerations for Shareholders — Certain Canadian Federal Income Tax Considerations", which qualifies the summary set forth above. Shareholders should consult their own tax advisors to determine the particular tax consequences to them of the Arrangement.
Certain United States Federal Income Tax Considerations
U.S. Holders
The receipt of cash under the Arrangement by a U.S. holder (as defined under the heading "Certain Tax Considerations for Shareholders — Certain United States Federal Income Tax Considerations") of Limited Voting Shares will be a taxable transaction for United States federal income tax purposes. As a result, a U.S. holder of Limited Voting Shares generally will recognize gain or loss in an amount equal to the difference between the holder's adjusted tax basis in the Limited Voting Shares transferred in the Arrangement and the amount of the cash received in the Arrangement. This gain or loss will generally be treated as a capital gain or loss if the U.S. holder held the Limited Voting Shares as a capital asset and will be long-term capital gain or loss if the U.S. holder held the Limited Voting Shares for more than one year as of the date of the Effective Time of the Arrangement.
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Non-U.S. Holders
A non-U.S. holder (as defined under the heading "Certain Tax Considerations for Shareholders — Certain United States Federal Income Tax Considerations") of Limited Voting Shares generally will not be subject to United States federal income tax on any gain recognized in respect of the Limited Voting Shares transferred in the Arrangement unless (a) the gain is effectively connected with the conduct of a trade or business in the United States by the non-U.S. holder (or, if certain income tax treaties apply, is attributable to a U.S. permanent establishment), or (b) the non-U.S. holder is an individual who has been present in the United States for 183 days or more in the taxable year of the Arrangement and certain other conditions are satisfied.
The foregoing is a brief summary of United States federal income tax consequences only. Shareholders should read carefully the information in this Circular under the heading "Certain Tax Considerations for Shareholders — Certain United States Federal Income Tax Considerations" below, which qualifies the summary set forth above. Shareholders should consult their own tax advisors to determine the particular tax consequences to them of the Arrangement.
Dissenting Shareholders' Rights
Holders of Limited Voting Shares who do not vote in favour of the Arrangement Resolution will be granted Dissent Rights and may seek appraisal of the fair value of their Limited Voting Shares if the Arrangement is completed, but only if they comply with the Dissent Procedures under the OBCA, as amended by the terms of the Plan of Arrangement and the Interim Order, which are summarized under the heading "Dissenting Shareholders' Rights". The appraisal amount that a Dissenting Shareholder could be entitled to receive following the exercise of its Dissent Rights could be more than, the same as, or less than the amount a holder of Limited Voting Shares is entitled to receive under the terms of the Arrangement. A Shareholder who wishes to exercise Dissent Rights must provide to FSHI (at 1165 Leslie Street, Toronto, ON M3C 2K8 Attention: Secretary), prior to 5:00 p.m. (Toronto time) on the Business Day immediately preceding the Meeting (or any postponement(s) or adjournment(s) of the Meeting), a written objection to the Arrangement Resolution and otherwise comply with the Dissent Procedures. A Shareholder's failure to follow exactly the Dissent Procedures specified under the OBCA, as amended by the Interim Order and the terms of the Plan of Arrangement, will result in the loss of Dissent Rights. Shareholders considering exercising Dissent Rights should seek the advice of their own legal counsel. See "Dissenting Shareholders' Rights" in this Circular.
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Background to the Proposal and the Arrangement
The provisions of the Acquisition Agreement are the result of negotiations conducted between representatives of FSHI, the Special Committee, the Purchaser, Kingdom, Cascade, Triples and Mr. Sharp, and their respective advisors. The following is a summary of the principal events leading up to the Proposal, the negotiation of the Acquisition Agreement and meetings, negotiations, discussions and actions between the parties that preceded the public announcement of the Proposal and execution of the Acquisition Agreement.
Background to the Proposal
In late-November 2005, an institutional investment advisor familiar with Four Seasons suggested to senior management of FSHI that there might be a small number of long-term, strategic investors interested in facilitating an orderly transition of ownership of Four Seasons from a publicly-held company to a privately-held company. Senior management of FSHI advised Mr. Sharp of this suggestion and, over the following months, Mr. Sharp considered this suggestion. Mr. Sharp determined that it would be desirable to assess the possibility of pursuing such a transaction with Kingdom (the then and current largest Shareholder) and a number of other potential long-term investors. Mr. Sharp believed that each of these investors would have a shared, long-term vision for Four Seasons and could assist in the transition of the long-term ownership of FSHI in a manner consistent with the interests of the Shareholders, the employees of Four Seasons and the owners of properties managed by Four Seasons. Management of FSHI believed that such a transaction could facilitate the orderly transition of ownership of FSHI in a manner consistent with the interests of FSHI and the Shareholders.
On March 1, 2006, Mr. Sharp met with HRH Prince Alwaleed in Paris, France to discuss this concept, who indicated that he was supportive of Mr. Sharp exploring the possibility of such a transaction. In that meeting, Mr. Sharp and HRH Prince Alwaleed discussed the possibility of such a transaction being pursued on a basis that would involve consideration of approximately Cdn.$100 for each Limited Voting Share and each Variable Multiple Voting Share.
Following his initial meeting with HRH Prince Alwaleed, Mr. Sharp, with the assistance of members of senior management of FSHI, began the preparation of an outline of a framework for a potential transaction and its possible principal terms.
On March 7, 2006, Mr. Sharp contacted the Lead Director and the Chairs of each of the Human Resources Committee and the Audit Committee of the Board to inform them of his discussion with HRH Prince Alwaleed and his belief that it was in the best interests of FSHI to assess the possibility of a transaction that might permit an orderly transition of ownership of FSHI. At a meeting of the Board held on March 8, 2006, Mr. Sharp advised the Board of his meeting with HRH Prince Alwaleed and his belief that a process should be undertaken to explore the possibility of such a transaction. At the meeting, Goodmans LLP, Canadian legal counsel to FSHI, provided advice to the Directors regarding the duties and responsibilities of the Board in connection with the proposed initiative. The independent Directors determined that it would be in the best interests of FSHI for management to explore the possibility of such a transaction (including the provision of information to potential investors, subject to appropriate confidentiality and standstill arrangements) with the assistance of FSHI's legal counsel and a financial advisor retained for that purpose. The independent Directors also determined that it would be premature to constitute a special committee in connection with the proposed initiative and that senior management should report to the Lead Director as management proceeded with the exploratory process and should seek input from the Board, through the Lead Director.
Following the March 8, 2006 meeting of the Board, senior management of FSHI updated, and consulted with, the Lead Director on an ongoing basis.
Also following such meeting, senior management of FSHI contacted Goldman Sachs about acting as financial advisor to FSHI in connection with this initiative.
Mr. Sharp and other members of senior management of FSHI, with assistance from FSHI's legal counsel and Goldman Sachs, prepared a confidential background information memorandum that could be used as a basis for discussions with possible long-term investors. A number of potential investors, who executed
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confidentiality and standstill agreements, received a copy of the confidential background information memorandum to facilitate discussions concerning their interest in pursuing the concept that was being developed.
At a meeting of the Board on March 31, 2006, Mr. Sharp and other members of senior management of FSHI provided the Board with an update as to the progress that management had been making, with the assistance of FSHI's legal counsel and Goldman Sachs, in developing a possible framework for a transaction and a process through which such an initiative might be pursued.
On April 5, 2006, Kathleen Taylor, President and Chief Operating Officer of FSHI, met with HRH Prince Alwaleed in Riyadh, Saudi Arabia to discuss the conceptual framework that Mr. Sharp and other members of senior management had been developing and that might be expected to form a basis on which FSHI, Mr. Sharp and potential long-term investors could pursue a transaction that would assist in the transition of the long-term ownership of FSHI and that elaborated on the basic concept that had been discussed by HRH Prince Alwaleed and Mr. Sharp in Paris in early March 2006. At that time, there was discussion of the transaction consideration being denominated in United States dollars (in part as a result of the relative volatility of the Canadian dollar) and the possibility of consideration of US$88.50 for each Limited Voting Share. During the following months, representatives of Kingdom periodically discussed the terms of a possible transaction with Mr. Sharp and members of senior management of FSHI.
On April 27, 2006, senior management of FSHI met with the institutional investment advisor who initially had approached them to discuss the possibility of a transition of long-term ownership of Four Seasons. They discussed the possible principal terms of such a transaction and the confidential background information memorandum. As senior management had discussed with the Lead Director, the purpose of this meeting was to obtain input to further refine the concept that had been developed.
At a meeting of the Board on May 4, 2006, Mr. Sharp and other members of senior management and legal counsel to FSHI provided an update on the process and discussed with the Board the current draft of the confidential background information memorandum, which included the principal terms on which a transaction might be pursued, including a proposed consideration of US$88.50 for each Limited Voting Share and each Variable Multiple Voting Share. At that meeting, the independent Directors met, without management present, and discussed the status of the initiative and the process that was being contemplated. Following that meeting, the Lead Director retained Osler, Hoskin & Harcourt LLP to provide advice to him in connection with the initiative.
On May 11, 2006, senior management of FSHI met with representatives of a potential investor, which was advised by the individual with whom management had met on April 27, 2006, to discuss the concept that had been formulated. That investor later advised senior management that, as a result of a change in its investment parameters, it had concluded that it could not participate in a transaction through which FSHI would be taken private.
On May 12, 2006, the independent Directors met, without management or counsel to FSHI present, to discuss the status of the exploratory process. At that meeting, counsel to the Lead Director provided advice to the independent Directors regarding the duties and responsibilities of the Board in connection with the proposed initiative. The independent Directors again discussed the possibility of forming a special committee and concluded that it was premature to constitute a special committee.
HRH Prince Alwaleed, after consultation with Mr. Sharp, approached two additional potential investors, one of which was Cascade. Of these potential investors, only Cascade expressed an interest in pursuing the possibility of a transaction.
On May 25, 2006, members of senior management of FSHI met with a representative of a fourth potential investor to engage in a preliminary discussion concerning the possibility of that investor participating in the process. That investor provided a preliminary indication of its interest in pursuing the concept that was being developed and subsequently participated in discussions with Kingdom and Cascade concerning a possible transaction, but ultimately did not participate in the Proposal.
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On June 9, 2006, members of senior management of FSHI met with representatives of Cascade in Seattle, Washington to present the concept that had been formulated.
On July 26, 2006, representatives of Kingdom and Cascade met with senior management of FSHI in Toronto, Ontario and discussed the transaction concept.
At a meeting of the Board on August 9, 2006, Mr. Sharp and other members of senior management of FSHI provided a further update on the process. Mr. Sharp and other members of senior management advised the Board that they understood from Kingdom that Kingdom and Cascade remained interested in pursuing the possibility of a transaction. At that meeting, the independent Directors met, without management or counsel to FSHI present, and discussed the status of the initiative and the process that would be followed if a proposal were to be made to FSHI.
On August 10, 2006, the independent Directors again met, without management or counsel to FSHI present, but with counsel to the Lead Director present, and the Lead Director provided a further update on the status of the process based on his discussions with members of senior management. The independent Directors were advised that Kingdom had indicated that Kingdom and Cascade remained interested in pursuing the possibility of a transaction and were expected to engage in discussions with Mr. Sharp in respect of a number of issues, including price and governance, to determine whether there was common ground on which a transaction might be pursued. The independent Directors determined that, in the circumstances, it still would be premature to constitute a special committee.
On August 16, 2006, representatives of Kingdom proposed to Mr. Sharp terms on which Kingdom would be prepared to participate in a transaction. Certain of those terms, including a proposed price of US$75.00 – US$80.00 per share, were unacceptable to Mr. Sharp.
On August 27, 2006, Mr. Sharp and Ms. Taylor met with HRH Prince Alwaleed in Paris, France to discuss the possible terms on which a transaction might be pursued. Again, HRH Prince Alwaleed and Mr. Sharp could not agree upon the possible terms of a transaction, including a proposed price of US$75.00 – US$80.00 for each Limited Voting Share.
Following the August 27, 2006 meeting and until the end of October 2006, Kingdom and senior management of FSHI had various discussions, and were from time to time in contact with Cascade, in respect of the possible terms of a transaction, other than the price to be paid for the Limited Voting Shares and Variable Multiple Voting Shares.
On October 28, 2006, at the invitation of HRH Prince Alwaleed, Mr. Sharp and Ms. Taylor again met with HRH Prince Alwaleed, this time in Riyadh, Saudi Arabia, to discuss the possible terms on which a transaction might be pursued. At that meeting, the principal terms on which a transaction might be pursued, including a price of US$82.00 for each Limited Voting Share and Variable Multiple Voting Share, were agreed upon in principle by HRH Prince Alwaleed and Mr. Sharp (but only if Cascade also was prepared to pursue a transaction on those terms).
On October 29, 2006, the independent Directors met, without management or counsel to FSHI present, but with counsel to the Lead Director present, and were advised by the Lead Director that, based on his discussions with members of senior management of FSHI, he understood that HRH Prince Alwaleed and Mr. Sharp had agreed in principle on the principal terms on which a transaction might be pursued (including a price of US$82.00 per Limited Voting Share) if, but only if, Cascade also was prepared to pursue a transaction on those terms. The Lead Director advised the independent Directors that Cascade would, among other things, need to complete a due diligence process before deciding whether it would be prepared to pursue any transaction on such terms. The independent Directors discussed the economics of the transaction that was being discussed, including the payment that would be required to be made to Mr. Sharp under the Long-Term Incentive Plan. The independent Directors also discussed the possible process going forward, including the possible composition of a special committee and the process through which such a committee would be constituted if a formal proposal was received by the Board. The independent Directors determined that it was appropriate to authorize FSHI to provide confidential information to Cascade to permit Cascade to conduct its due diligence.
During the week of October 29, 2006, representatives of Cascade began conducting due diligence.
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On the evening of November 3, 2006, Mr. Sharp received a proposal from Kingdom and Cascade that Kingdom, Cascade, Triples and Mr. Sharp pursue the Proposal, and Kingdom, Cascade, Triples and Mr. Sharp entered into the Funding and Cooperation Agreement. Later that evening, the Board received the Proposal from Mr. Sharp, Triples, Kingdom and Cascade.
On Sunday, November 5, 2006, the Board met with senior management and legal and financial advisors to FSHI and reviewed the Proposal and its terms and conditions, as well as the Funding and Cooperation Agreement. At the meeting, Goldman Sachs made a presentation to the Board, which included an analysis of the premium implied by a proposed purchase price of US$82.00 per share and premiums paid and multiples implied in selected acquisition transactions in the hospitality sector. Also at that meeting, Mr. Sharp advised the Board that the proposed transaction with Kingdom and Cascade was the only transaction he was prepared to pursue. The Board, upon the recommendation of its Corporate Governance Committee, authorized the formation of the Special Committee, comprising Messrs. William D. Anderson, Brent Belzberg and Ronald W. Osborne. The mandate of the Special Committee was to review and consider the Proposal and the structure and terms and conditions of the proposed transaction, to supervise the conduct of, and engage in negotiations or discussions on behalf of FSHI with respect to, the proposed transaction, to make recommendations to the Board regarding the proposed transaction and the process related thereto and to supervise the preparation of a formal valuation in connection with the proposed transaction. The Special Committee was authorized to retain its own advisors, including legal and financial advisors, to assist it in carrying out its mandate and in the performance of its duties.
The Special Committee held its initial meeting immediately following the Board meeting on November 5, 2006 and, at that meeting, appointed Mr. Osborne as Chairman of the Special Committee and engaged Osler, Hoskin & Harcourt LLP as its independent legal advisor. With the assistance and advice of Osler, Hoskin & Harcourt LLP, the Special Committee concluded that each of its members was independent of Kingdom, Cascade, Triples and Mr. Sharp as well as FSHI management. During the initial meeting, Osler, Hoskin & Harcourt LLP advised the members of the Special Committee of their duties and responsibilities in evaluating the proposed transaction and the Special Committee discussed the process to be undertaken to select an independent financial advisor.
The Proposal was publicly announced by way of a news release that was issued on the morning of November 6, 2006, prior to the opening of trading on the TSX and the NYSE.
Background to the Arrangement
On November 7, 2006, the Special Committee held a meeting with counsel to the Special Committee by telephone to further consider and discuss the process for selecting an independent financial advisor, the scope of the financial advisor's engagement and the expertise required of the financial advisor to assist the Special Committee in fulfilling its mandate.
On November 8, 2006, the Special Committee, together with counsel to the Special Committee, conducted meetings with representatives from each of four prospective financial advisory firms. After follow-up discussions with representatives from two prospective firms, the Special Committee ultimately decided to retain Merrill Lynch as its independent financial advisor to prepare a formal valuation of the Limited Voting Shares, to provide an opinion as to the fairness, from a financial point of view, of the consideration to be received by the Minority Shareholders under the Arrangement and to provide other financial advisory services. Merrill Lynch was advised by the Special Committee that it had been selected as financial advisor late in the evening of November 8, 2006. The Special Committee selected Merrill Lynch based principally on its institutional strength, expertise and experience, and concluded that Merrill Lynch was qualified and independent of FSHI, Kingdom, Cascade, Triples and Mr. Sharp.
On November 9, 2006, FSHI issued a news release announcing that the Special Committee had retained Merrill Lynch as its financial advisor and Osler, Hoskin & Harcourt LLP as its legal advisor. On November 10, 2006, Mr. Osborne met with a representative of Merrill Lynch to further discuss the role of Merrill Lynch as financial advisor to the Special Committee. On November 21, 2006, the Special Committee approved and entered into a formal engagement letter with Merrill Lynch dated and having effect as of November 8, 2006.
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In the course of its review and evaluation of the proposed Arrangement, the Special Committee held formal meetings on 13 occasions, and conducted informal consultations with FSHI management, Merrill Lynch and counsel to the Special Committee on numerous other occasions.
On November 13, 2006, representatives of Marsico, an investment advisor whose holdings on behalf of its clients make it the largest Minority Shareholder, advised counsel to the Special Committee by telephone that it would be delivering a formal submission to the Special Committee. On November 16, 2006, each of the members of the Special Committee, Merrill Lynch and counsel to the Special Committee received a letter from Marsico expressing its views as to value of FSHI and its belief that the US$82.00 offer price per Limited Voting Share substantially undervalues FSHI's longer-term stock price potential. Marsico also expressed its interest in meeting with the Special Committee to discuss the issues raised in the letter.
The Special Committee met again on November 21, 2006 together with Merrill Lynch and counsel to the Special Committee. Members of the Special Committee were briefed on, and discussed, the status and terms of the proposed transaction and Merrill Lynch's ongoing valuation work. At that meeting, the Special Committee also discussed the letter from Marsico with its legal and financial advisors and it was determined that Mr. Osborne, together with representatives from Merrill Lynch and counsel to the Special Committee, would meet with representatives of Marsico by way of teleconference without exchanging any material non-public information. The Special Committee also considered and discussed the terms and structure of the Proposal as it relates to Triples and Mr. Sharp and, specifically, with regard to the continuing investment in FSHI by Triples, the employment and governance arrangements proposed to be entered into by FSHI with Mr. Sharp and the approximately US$289 million cash payment proposed to be made to Mr. Sharp by Four Seasons under the terms of the Long-Term Incentive Plan. Counsel to the Special Committee advised the Special Committee that it had undertaken an ongoing legal analysis of the Proposal and the Long-Term Incentive Plan and, based on its preliminary analysis, it expected to be in a position to provide an opinion to the Special Committee that the proposed transaction would trigger the Long-Term Incentive Plan payment obligation to Mr. Sharp; however a formal opinion could not be delivered until a definitive transaction structure and definitive documents were settled by the parties.
On November 28, 2006, Merrill Lynch presented a preliminary report on its ongoing valuation analysis to the Special Committee. At that meeting, members of the Special Committee had extensive discussions with Merrill Lynch regarding further due diligence to be performed by Merrill Lynch, the approaches being taken by Merrill Lynch to value the Limited Voting Shares and arrive at an opinion as to the fairness, from a financial point of view, of the consideration to be received by the Minority Shareholders under the Arrangement, the assumptions upon which Merrill Lynch's valuation work was based, including forecasts of the expected future performance of FSHI provided by FSHI management, and the terms of the Proposal, including the proposed governance, financing and ownership structure of FSHI. In response to a question asked by a member of the Special Committee, Merrill Lynch expressed an informal view that, based on its preliminary work to date, it expected the US$82.00 offer price per Limited Voting Share would likely be in the top half of its valuation range. At this meeting, counsel to the Special Committee briefed the Special Committee on the status of the proposed transaction and members of the Special Committee raised and discussed a number of legal issues relating to the proposed transaction with counsel to the Special Committee, including the potential treatment of holders of Options (vested and unvested) and Convertible Notes. The Special Committee also considered and approved the release of confidential information to potential lenders to the Purchaser in connection with the financing of the proposed transaction, subject to the execution and delivery of confidentiality agreements acceptable to counsel to the Special Committee.
On December 7, 2006, Mr. Osborne, together with advisors from Merrill Lynch and counsel to the Special Committee, met telephonically with representatives of Marsico. The representatives of Marsico made an oral presentation concerning the key factors it believed were relevant in valuing FSHI and expressed the view that the US$82.00 per Limited Voting Share offer was inadequate. At that meeting, Mr. Osborne advised that Merrill Lynch would consider the issues raised by Marsico in the context of its ongoing valuation analysis. In addition, a representative of Marsico advised Mr. Osborne that Marsico, on behalf of its clients, would be interested in remaining a passive investor of FSHI, together with the Purchaser, following the completion of the proposed transaction and asked that the Purchaser be informed of its investment interest. Mr. Osborne subsequently
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communicated that message to the Purchaser. No confidential information was shared with Marsico and there was no discussion concerning Merrill Lynch's valuation work or the Special Committee's process.
The Special Committee met again on December 8, 2006, at which meeting Merrill Lynch provided a progress report with respect to its ongoing valuation work and confirmed that it had considered the factors that had been raised previously by Marsico. In addition, counsel to the Special Committee briefed the Special Committee as to the material terms of the draft definitive transaction documents that had been provided to counsel to the Special Committee by counsel to Kingdom and Cascade and reported on the ongoing negotiations of these terms among counsel to FSHI, the Special Committee, Kingdom, Cascade, Triples and Mr. Sharp.
On December 13, 2006, the Special Committee met twice, the first time in person to receive a presentation by counsel to the Special Committee with respect to an update on the status of negotiations of the material terms of the draft definitive documents. At the second meeting, conducted telephonically, the members of the Special Committee discussed at length, and gave instructions to its counsel regarding its negotiating position as to the terms and conditions of the proposed transaction, including the key financial terms being price, termination fee, expense reimbursement and the terms of the sponsor guarantees proposed to be entered into by Kingdom and Cascade in favour of FSHI.
On December 20, 2006, the Special Committee held a telephonic meeting with counsel to the Special Committee and Merrill Lynch at which representatives of counsel to the Special Committee reported on its ongoing negotiations on behalf of the Special Committee and the negotiations of FSHI with Kingdom and Cascade. At that meeting, the Special Committee was advised that a telephonic meeting had been scheduled to address outstanding terms, including financial terms, of the proposed transaction that had not been settled between the legal advisors to the Special Committee, FSHI, Kingdom and Cascade. Following an extensive discussion of the outstanding financial terms by the Special Committee and its advisors, it was agreed that Mr. Osborne and representatives from counsel to the Special Committee would speak to representatives of Kingdom and Cascade to discuss with them the Special Committee's position on the financial terms.
On December 21, 2006, Mr. Osborne and representatives from counsel to the Special Committee met telephonically with senior business representatives of Kingdom and Cascade to discuss the financial terms of the proposed transaction. At that meeting, Mr. Osborne sought an increase to the proposed US$82.00 per Limited Voting Share offer price, an increase to the proposed US$75 million termination fee payable by the Purchaser to FSHI in certain circumstances, an increase to the proposed US$75 million of aggregate sponsor guarantees and the continuation of FSHI's ability to pay a semi-annual cash dividend until the completion of the proposed transaction. Mr. Osborne also discussed the Special Committee's position as to the circumstances in which FSHI would be required to pay a termination fee and the reciprocal covenants regarding the reimbursement of expenses in certain circumstances.
At that meeting, the representatives of Kingdom and Cascade stated unequivocally that the US$82.00 per Limited Voting Share offer represented the highest price at which the Purchaser was willing to proceed with the proposed transaction, but indicated that there may be some flexibility with respect to the amount of the sponsor guarantees, the circumstances in which a termination fee would be payable by FSHI, the terms of the reciprocal covenants regarding expense reimbursement and the payment by FSHI of semi-annual cash dividends consistent with past practice.
On January 5, 2007, counsel to FSHI provided the Board with detailed materials, including a comprehensive update with respect to the status and timing of the proposed transaction and the definitive transaction documents, all in anticipation of a meeting of the Board that was scheduled to be held on January 12, 2007. The meeting, however, was cancelled on January 11, 2007, as it was determined that certain issues had not been resolved and negotiations had not been sufficiently advanced to allow for consideration by the Board of the proposed transaction.
On each of January 10, 12 and 30, 2007, the Special Committee held a telephonic meeting with Merrill Lynch and counsel to the Special Committee to receive an update with respect to the status and timing of the proposed transaction, the revised definitive transaction documents and other legal matters relating to the proposed transaction.
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Between December 22, 2006 and February 5, 2007, the legal advisors to Kingdom, Cascade, Triples, Mr. Sharp, FSHI and the Special Committee continued their negotiations to settle the definitive transaction documents, including the Acquisition Agreement, the Plan of Arrangement, the Share Acquisition Agreement, the Guaranty, the Voting Agreement, the Shareholders Agreement, the Employment Agreement, the Financing Commitment Letter and the Funding and Cooperation Agreement. During this period, the Funding and Cooperation Agreement was amended by the Purchaser Parties on three occasions (December 27, 2006, January 19, 2007 and February 2, 2007) to extend the termination date of that agreement to permit the outstanding issues to be settled. The Special Committee and its counsel apprised the Lead Director on a regular basis as to the status of the Special Committee's review of the transaction who, in turn, updated the other members of the Board.
On February 2, 2007, the Board held a telephonic meeting with members of senior management and counsel to FSHI at which Mr. Sharp and Ms. Taylor provided the Board with an update with respect to the status and timing of the proposed transaction. The Board was advised that there was no certainty that the terms of the proposed transaction would be negotiated by the end of the day and that, unless amended, the Funding and Cooperation Agreement would expire in accordance with its terms. Following the meeting, senior management of FSHI and the Board were advised by representatives of the Purchaser that the Funding and Cooperation Agreement had been amended to provide for an extension to the termination date to February 12, 2007.
On February 5, 2007, counsel to the Special Committee, on behalf and on the instructions of the Special Committee, had further discussions with counsel to Kingdom and Cascade in respect of the financial issues raised by Mr. Osborne at the December 21, 2006 meeting that remained outstanding. Counsel to Kingdom and Cascade advised counsel to the Special Committee that Kingdom and Cascade would be prepared to proceed on the basis that the price per Limited Voting Share would be US$82.00, the termination fee payable by FSHI to the Purchaser in certain circumstances would be US$75 million, the reverse termination fee payable by the Purchaser to FSHI in certain circumstances and the aggregate amount payable under the Guaranty would be increased from US$75 million to US$100 million, and FSHI would be permitted to pay regularly scheduled semi-annual cash dividends, consistent with past practice. Counsel to the Special Committee advised that they believed such terms would be acceptable to the Special Committee.
On February 5, 2007, the Special Committee met with Merrill Lynch and counsel to the Special Committee to receive the Valuation and Fairness Opinion, the full text of which is attached as Appendix C to this Circular. Merrill Lynch presented to the Special Committee its valuation and delivered its fairness opinion to the Special Committee that, based upon and subject to the analyses, assumptions, qualifications and limitations discussed in the Valuation and Fairness Opinion, Merrill Lynch was of the opinion that, as at February 5, 2007, the fair market value of the Limited Voting Shares was in the range of US$68.00 to US$88.00 per Limited Voting Share, and the US$82.00 per Limited Voting Share consideration to be received under the Arrangement was fair, from a financial point of view, to Minority Shareholders. Merrill Lynch was also asked by the Special Committee to assess the market value of the Preferred Shares that Mr. Sharp will be entitled to receive upon the Amalgamation of the Purchaser and FSHI immediately following the Arrangement in exchange for the Class D Non-Voting Shares issuable to him under the terms of the Arrangement. Merrill Lynch reviewed the terms of the Preferred Shares to assess the proposed 9.9% dividend rate relative to a market-based rate for comparable preferred shares, taking into consideration the proposed capital structure of FSHI after giving effect to the Arrangement. Merrill Lynch determined that, as of the November 6, 2006 announcement date of the Proposal, the dividend rate on the Preferred Shares fell within a range of market rates and, therefore, the face value of the Preferred Shares approximated the market value for such shares on such date. The face value of the Preferred Shares is US$82.00 per share. The value of the Preferred Shares has fluctuated, and will continue to fluctuate, with changes in the market.
Following the Merrill Lynch presentation, counsel to the Special Committee presented the material terms of the definitive documentation, discussed the directors' fiduciary duties and delivered its opinion to the Special Committee that, based upon and subject to the analyses, assumptions, qualifications and limitations discussed in its opinion, the Arrangement will trigger Four Seasons' payment obligation to Mr. Sharp pursuant to the terms and conditions of the Long-Term Incentive Plan.
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The Arrangement provides that vested Options to acquire Limited Voting Shares will be "cash settled"; that is, the holders of such Options will not be required to exercise their Options to acquire the underlying Limited Voting Shares in order to participate in the Arrangement. In considering the Long-Term Incentive Plan payment to be made to Mr. Sharp, the Special Committee determined that a payment based on the number of Limited Voting Shares and Variable Multiple Voting Shares, which assumes the exercise of all such "in-the-money" Options to acquire Limited Voting Shares, would be appropriate and consistent with the Long-Term Incentive Plan, notwithstanding such Options are proposed to be "cash settled" pursuant to the Arrangement. The Special Committee was advised that the mathematical accuracy of the final calculation of the amount of that payment will be reviewed by KPMG LLP prior to its payment.
Following the presentations from Merrill Lynch and counsel to the Special Committee and after discussion, the Special Committee unanimously determined that the Arrangement was fair to the Minority Shareholders and in the best interests of FSHI and recommended that the Board approve the Arrangement.
On February 7, 2007, counsel to FSHI provided the Board with detailed materials, including a comprehensive update with respect to the status and timing of the proposed transaction and the definitive transaction documents, with an emphasis on the changes that had occurred since the materials provided on January 5, 2007. In addition, the independent Directors of the Board were provided with the written report of the Special Committee, which included a copy of the Valuation and Fairness Opinion of Merrill Lynch.
On February 9, 2007, the Board met with Merrill Lynch, senior management, counsel to FSHI and counsel to the Special Committee. Immediately prior to the meeting, the interested directors (being Messrs. Isadore Sharp, Anthony Sharp, Charles Henry and Simon Turner) were provided with the written report of the Special Committee. The meeting commenced with an in camera session of the independent Directors, counsel to the Special Committee and Merrill Lynch at which Mr. Osborne presented to the independent Directors the report of the Special Committee and Merrill Lynch discussed the Valuation and Fairness Opinion previously delivered to the Special Committee. Following the in camera session, the full Board convened and the Lead Director updated the interested directors as to what had occurred during the in camera session. Mr. Osborne provided the interested Directors with a summary of the report of the Special Committee and Merrill Lynch discussed the Valuation and Fairness Opinion previously delivered to the Special Committee for the benefit of the interested directors. Following these presentations, the interested directors were provided with an opportunity to comment and ask any questions.
Following these presentations, the Board discussed the Long-Term Incentive Plan payment to be made to Mr. Sharp. Pursuant to the Long-Term Incentive Plan, the Board may make adjustments if the Board determines that it would be equitable to do so in the event that FSHI takes any action affecting the Limited Voting Shares and/or the Variable Multiple Voting Shares. The Board determined after considering, among other things, the views of the Special Committee, that as a result of FSHI taking the actions affecting the Limited Voting Shares as contemplated by the Acquisition Agreement and pursuant to the Arrangement, the rights of Mr. Sharp under the Long-Term Incentive Plan would be materially affected as no Limited Voting Shares would be issued in respect of any unexercised "in-the-money" Options. The Board further determined that making adjustments would be equitable in the circumstances and consistent with the intention and the purpose of the Long-Term Incentive Plan.
The Board (with Messrs. Isadore Sharp, Anthony Sharp, Charles Henry and Simon Turner declaring their interests and abstaining from voting) then unanimously adopted resolutions approving the Arrangement, determining that the Arrangement is fair to Minority Shareholders and in the best interests of FSHI and recommending that Shareholders vote in favour of the Arrangement.
Following the meeting of the Board, FSHI and the Purchaser entered into the Acquisition Agreement and other related documents and, prior to market opening on February 12, 2007, FSHI issued a news release announcing the transaction.
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Position of the Special Committee as to Fairness
In reaching its conclusion that the Arrangement is substantively fair to the Minority Shareholders, and that the Arrangement is in the best interests of FSHI, the Special Committee considered and relied upon a number of factors, including the following:
The Special Committee believes the Arrangement is procedurally fair to the Minority Shareholders for the following reasons:
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The Special Committee also considered a number of risks and potential negative factors relating to the Arrangement including:
Recommendation of the Special Committee
Having undertaken a thorough review of, and carefully considered, the Arrangement, as described above, including consulting with independent financial and legal advisors, the Special Committee unanimously concluded that the Arrangement is fair to the Minority Shareholders and in the best interests of FSHI and unanimously recommended that the Board approve the Arrangement and recommend that Shareholders vote in favour of the Arrangement.
Recommendation of the Board
After careful consideration by the Board (with the interested Directors, being Isadore Sharp, Anthony Sharp, Charles Henry and Simon Turner, abstaining), the Board has unanimously concluded that the terms of the Arrangement are fair to the Minority Shareholders and in the best interests of FSHI and authorized the submission of the Arrangement to Shareholders for their approval at the Meeting. The Board also has determined unanimously (with interested Directors abstaining) to recommend to Shareholders that they vote FOR the Arrangement Resolution. Each Director intends to vote his or her Limited Voting Shares FOR the Arrangement Resolution.
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In adopting the Special Committee's recommendations and concluding that the Arrangement is substantively and procedurally fair to the Minority Shareholders and that the Arrangement is in the best interests of FSHI, the Board considered and relied upon the same factors and considerations that the Special Committee relied upon, as described above, and adopted the Special Committee's analyses in their entirety. In considering the best interests of FSHI, the Board also took into account the potential effects of the Arrangement on Four Seasons' business having regard to the implications for other stakeholders, including the employees and guests of Four Seasons and the owners of hotels and resorts under Four Seasons' management.
Reasons for the Arrangement from FSHI's Perspective
In early 2006, Mr. Sharp advised the Board that he had determined that it would be desirable to assess the possibility of pursuing a transaction with a small number of long-term, strategic investors that could facilitate the orderly transition of ownership of Four Seasons from a publicly-held company to a privately-held company. The Board recognized that such an orderly transition, with the involvement of Mr. Sharp, could be beneficial to Four Seasons and its various stakeholders if it:
In this context, the independent Directors determined that it would be in the best interest of FSHI for management to explore the possibility of such a transaction. The Arrangement is the result of the process that ensued over the subsequent months. See "Special Factors — Background to the Proposal".
The Board considered, among other things, Mr. Sharp's advice to the Board that the transaction reflected in the Proposal was the only transaction that he was prepared to pursue, the recommendations of the Special Committee in respect of the fairness of the Arrangement to Minority Shareholders and the perspective of management of Four Seasons as to the implications of the Arrangement in the context of the last four of the objectives set out above, in concluding that the Arrangement is fair to the Minority Shareholders and in the best interests of FSHI. The Board also considered the fact that certain of FSHI's officers and Directors may have interests that differ from those of the Minority Shareholders.
The above discussion of the information and factors considered by the Special Committee and the Board is not intended to be exhaustive but is believed by the Special Committee and the Board to include the material factors considered by each of the Special Committee and the Board in its assessment of the Arrangement. In view of the wide variety of factors considered by the Special Committee and the Board in connection with its assessment of the Arrangement, and the complexity of such matters, the Special Committee and the Board did not consider it practical, nor did either of them attempt, to quantify, rank or otherwise assign relative weights to the foregoing factors that it considered in reaching its decision. In addition, in considering the factors described above, individual members of the Special Committee and the Board may have given different weights to various factors and may have applied different analyses to each of the material factors considered by the Special Committee and the Board. Each of the Special Committee and the Board recommended the Arrangement based upon the totality of the information presented to and considered by it.
Reasons for the Arrangement from the Perspective of the Purchaser, Kingdom, Cascade, Triples and Mr. Sharp
Under SEC rules, the Purchaser, Kingdom, Cascade and Triples are deemed to be engaged in a "going private" transaction and may be required to express their reasons for entering into the Arrangement to the Minority Shareholders. The aforementioned persons are making the statements included in this section solely
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for the purposes of complying with the requirements of these rules. None of the Purchaser, Kingdom, Cascade or Triples believes that it has or has had any fiduciary duty to FSHI or its Shareholders, including with respect to the Arrangement.
Kingdom, Cascade, Triples and Mr. Sharp caused the Purchaser to enter into the Acquisition Agreement in order to acquire all of the outstanding Limited Voting Shares and Variable Multiple Voting Shares. They believe such acquisition is an attractive investment opportunity. In addition, as a privately held entity, Four Seasons will have the flexibility to focus on continuing improvements to its business without the constraints and distractions caused by the public equity market's valuation of Four Seasons. Kingdom and Cascade believe that Four Seasons' future business prospects can be improved through their participation in the strategic direction of Four Seasons and their access to capital sources. In particular, they believe that the public equity markets do not adequately reward investments by hotel management companies in the real estate that they manage. Although the Four Seasons brand has been used to successfully enhance the value of various real estate developments, historically, as a public company focused on management of hotel and resort properties, Four Seasons has captured only a relatively small percentage of the value created by such brand association through its hotel and resort management fees and royalties on real estate sales of Four Seasons branded residences or fractional ownership products. As a private entity, the Purchaser, Kingdom, Cascade, Triples and Mr. Sharp believe that Four Seasons and its owners would be better positioned to participate in a greater share of real estate development opportunities by allowing FSHI to invest opportunistically as an equity partner. This form of investment also may increase the number of real estate development opportunities potentially available to FSHI.
Although the Purchaser, Kingdom, Cascade, Triples and Mr. Sharp also believe that there will be significant opportunities associated with their investment in Four Seasons, they realize that there also are substantial risks that such opportunities may not ever be fully realized.
The Purchaser, Kingdom, Cascade, Triples and Mr. Sharp believe that structuring the transaction as a "going private" arrangement transaction is preferable to other transaction structures because it will enable the Purchaser to acquire all of the outstanding Limited Voting Shares of FSHI at the same time, and it represents an opportunity for Minority Shareholders to receive fair value for their Limited Voting Shares while also allowing Kingdom and Cascade to increase their common equity investment in FSHI and Triples to maintain a portion of its common equity investment in FSHI, all of which factors they believe offer both prospects of further growth and a high degree of certainty that the Arrangement could be completed in an acceptable timeframe.
The following are Kingdom's additional purposes and reasons for entering into the Arrangement at this time:
For Mr. Sharp and Triples, an important additional purpose of the Arrangement is to facilitate the orderly transition of FSHI from a publicly-held company to a privately-held company. In the view of Mr. Sharp and Triples, the Arrangement also allows FSHI to privatize in a manner that provides fair value to Minority Shareholders, as well as continuity and stability for Four Seasons hotel owners, guests and employees for the long term. Further, Mr. Sharp and Triples believe that partnering with Kingdom and Cascade, both long-time shareholders of FSHI, is the best way to preserve and expand upon the long-term strategy, vision and core values of FSHI. Mr. Sharp will also benefit from the approximately US$289 million payment under the Long-Term Incentive Plan that will be triggered upon completion of the Arrangement.
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Position of the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade Regarding Fairness of the Arrangement
Under SEC rules, the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade may be required to provide certain information regarding their position as to the substantive and procedural fairness of the Arrangement to the Minority Shareholders. The Purchaser, Mr. Sharp, Triples, Kingdom and Cascade are making the statements included in this section solely for purposes of complying with such requirements. Their views as to the fairness of the Arrangement should not be construed as a recommendation to any Shareholder as to how that Shareholder should vote on the proposal to approve the Arrangement.
The Purchaser attempted to negotiate the terms of a transaction that would be most favourable to it, and not the Minority Shareholders and, accordingly, did not negotiate the Acquisition Agreement with the goal of obtaining terms that were fair to the Minority Shareholders. The Purchaser, Mr. Sharp, Triples, Kingdom and Cascade did not undertake a formal evaluation of the fairness of the Arrangement, nor did they engage a financial advisor to perform any valuation analysis for the purposes of assessing the fairness of the Arrangement.
The Purchaser, Mr. Sharp, Triples, Kingdom and Cascade believe that the Arrangement, including the consideration to be received pursuant to the Arrangement by the Minority Shareholders, is reasonable and fair to the Minority Shareholders. The Purchaser, Mr. Sharp, Triples, Kingdom and Cascade base their belief as to the reasonableness and fairness of the Arrangement on the following factors:
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the Acquisition Agreement and the Arrangement. See "The Arrangement — Interests of Directors, Executive Officers and Others in the Arrangement" and "Special Factors — Recommendation of the Board" in this Circular.
The Purchaser, Mr. Sharp, Triples, Kingdom and Cascade considered whether the Acquisition Price is reasonable and fair with reference to current and historical market prices. However, in light of the evolution of the business and market environment in which FSHI operates, the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade limited their consideration of historical market prices to the six-month period before the announcement of the Proposal and considered historical market prices prior to this period not to be material or relevant to their determination of whether the Acquisition Price is reasonable and fair.
The Purchaser, Mr. Sharp, Triples, Kingdom and Cascade did not consider the net book value of FSHI's business as reflected in FSHI's financial statements to be material or relevant to their determination whether the Acquisition Price is reasonable and fair. Specifically, the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade believe that such net book value is an accounting concept based on specific accounting methodologies that is historical in nature and therefore not forward-looking. Notwithstanding this belief, the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade nevertheless note that the consideration per Limited Voting Share of US$82.00 exceeds the net book value per Limited Voting Share as reflected in FSHI's financial statements.
Likewise, the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade did not consider liquidation value in determining the reasonableness and fairness of the Arrangement to the Minority Shareholders because the Purchaser expects to continue to operate FSHI's business as a going concern.
The foregoing discussion of the information and factors considered and given weight by the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade is not intended to be exhaustive but is believed by the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade to include all material factors considered by the Purchaser, Mr. Sharp, Triples, Kingdom and Cascade in connection with the reasonableness and fairness of the Arrangement to the Minority Shareholders. The Purchaser, Mr. Sharp, Triples, Kingdom and Cascade did not find it practicable to assign, nor did they assign, relative weights to the individual factors considered in reaching their conclusion as to reasonableness and fairness. The Purchaser, Mr. Sharp, Triples, Kingdom and Cascade believe that the foregoing factors provide a reasonable basis for their belief that the terms of the Arrangement are fair to the Minority Shareholders.
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Certain Effects of the Arrangement
If the Arrangement is approved by the Shareholders and certain other conditions to the closing under the Acquisition Agreement are either satisfied or waived, FSHI will file the Articles of Arrangement as soon as practicable thereafter giving effect to the Arrangement and FSHI will become a wholly-owned subsidiary of the Purchaser. Thereafter, FSHI will be continued under the BCBCA and the Purchaser and FSHI will effect the Amalgamation, with the amalgamated corporation being known as Four Seasons Hotels Inc.
Upon consummation of the Arrangement, among other things:
Following consummation of the Arrangement and the Amalgamation, the amalgamated corporation will be wholly-owned by Triples, Kingdom and Cascade. Upon the consummation of the Amalgamation, the directors of the Purchaser will become the directors of the amalgamated corporation, and the current officers of FSHI will become the officers of the amalgamated corporation. If the Arrangement is completed, Triples, Kingdom and Cascade will be the sole beneficiaries of FSHI's future earnings and growth, if any, and will be entitled to vote on corporate matters affecting FSHI. In addition, each of Triples, Kingdom and Cascade will have the right to appoint a certain number of directors to FSHI's board of directors pursuant to the Shareholders Agreement. Similar to being the sole beneficiaries of FSHI's future earnings and growth, Triples, Kingdom and Cascade will also bear the risks of ongoing operations, including the risks of any decrease in FSHI's value after the Arrangement and the operational and other risks related to the incurrence by FSHI of additional debt as described below under "The Arrangement — Sources of Funds for the Arrangement". Another consequence to Triples, Kingdom and Cascade of the Arrangement is that FSHI will not be a reporting issuer in any province or territory of Canada and their new common shares and Preferred Shares of FSHI will not initially be registered under U.S. federal securities laws. Accordingly, such shares will be relatively illiquid without an active public trading market for such securities. Such common shares and Preferred Shares of FSHI will also be subject to the Shareholders Agreement, which will restrict the ability of Triples, Kingdom and Cascade to sell such shares.
If the Arrangement is completed, the Minority Shareholders will have no continuing interest in FSHI's net book value or net earnings. The table below sets forth the direct and indirect interests in FSHI's net book value and net earnings of each of Triples, Kingdom and Cascade prior to, and immediately after, the consummation of
27
the Arrangement and Amalgamation based upon the net book value of FSHI at September 30, 2006 and net income of FSHI for the nine months ended September 30, 2006 based on GAAP.
|
Ownership Prior to the Arrangement(1) |
Ownership After the Arrangement and Amalgamation(2) |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Net Book Value |
Net Earnings |
Net Book Value |
Net Earnings |
|||||||||||||
Name |
US$ (in thousands) |
% |
US$ (in thousands) |
% |
US$ (in thousands) |
% |
US$ (in thousands) |
% |
|||||||||
Triples Holdings Limited | |||||||||||||||||
Preferred Shares | — | — | — | — | US$176,847 | 29.13% | US$13,131 | 39.30% | |||||||||
Common Equity(3) | US$61,444 | 10.12% | US$3,381 | 10.12% | US$21,506 | 3.54% | US$1,014 | 3.03% | |||||||||
Kingdom Hotels International(4) | US$121,863 | 20.08% | US$6,708 | 20.08% | US$204,311 | 33.66% | US$9,632 | 28.83% | |||||||||
Cascade Investment, L.L.C.(5) | US$11,806 | 1.95% | US$650 | 1.95% | US$204,311 | 33.66% | US$9,632 | 28.83% |
Notes:
FSHI is currently a reporting issuer in each of the provinces of Canada. Its Limited Voting Shares are currently registered under U.S. federal securities laws and are listed on the TSX under the symbol "FSH" and on the NYSE under the symbol "FS." As a result of the consummation of the Arrangement, FSHI will be a privately-held corporation, and there will be no public market for its shares. After consummation of the Arrangement, the Limited Voting Shares will cease to be listed on the TSX and the NYSE, and trading of the Limited Voting Shares in the public market will no longer be possible. In addition, FSHI will make an application to terminate its status as a reporting issuer under Canadian provincial securities laws, and FSHI will deregister the Limited Voting Shares under U.S. securities laws and will cease to be required to file reports with the SEC or continuous disclosure documents with Canadian securities regulatory authorities.
Consummation of the Arrangement may result in tax consequences to certain Shareholders. Shareholders should read carefully the information in the Circular under the heading "Certain Tax Considerations for Shareholders — Certain Canadian Federal Income Tax Considerations" and "Certain Tax Considerations for Shareholders — Certain United States Federal Income Tax Considerations." Shareholders should consult their own tax advisors to determine the particular tax consequences to them of the Arrangement.
Effects on FSHI if the Arrangement is Not Completed
If the Arrangement is not approved by the Shareholders or if the Arrangement is not completed for any other reason, the Minority Shareholders will not receive any payment for their Limited Voting Shares in connection with the Arrangement. Instead, FSHI will remain an independent public company and the Limited Voting Shares will continue to be listed and traded on the TSX and the NYSE. If the Arrangement is not completed, it is expected that FSHI's management will operate the business in a manner similar to that in which it is being operated today and that Shareholders will continue to be subject to the same risks and opportunities currently facing FSHI, including, among other things, the nature of the luxury hotel and resort management
28
business and the lodging industry generally, on which Four Seasons' business largely depends, and general industry, economic, regulatory and market conditions. See "Risk Factors — Risks Relating to Four Seasons". Accordingly, if the Arrangement is not consummated, there can be no assurance as to the effect of these risks and opportunities on the future market price or value of the Limited Voting Shares. The Board will continue to evaluate and review, among other things, the business operations, properties, dividend policy and capitalization of FSHI and make such changes as are deemed appropriate. In addition, FSHI will be required to pay the Purchaser a termination fee of US$75 million if the Acquisition Agreement is terminated in certain circumstances.
Independent Valuation and Fairness Opinion
The following constitutes a summary only of the Valuation and Fairness Opinion. The Valuation and Fairness Opinion have been provided for the use of the Special Committee and the Board and for inclusion in this Circular. Merrill Lynch's Fairness Opinion does not address the merits of the underlying decision by FSHI to engage in the Arrangement and does not constitute a recommendation to any Shareholder as to how such Shareholder should vote on the Arrangement or any matter related thereto. The following summary is qualified in its entirety by the full text of the Valuation and Fairness Opinion attached as Appendix C to this Circular. Shareholders are encouraged to read the full text of the Valuation and Fairness Opinion attached as Appendix C to this Circular.
Engagement of Merrill Lynch by the Special Committee
The Special Committee initially contacted Merrill Lynch on November 6, 2006 regarding a potential advisory assignment and Merrill Lynch was formally engaged by the Special Committee to provide the Valuation and Fairness Opinion in connection with the Arrangement pursuant to an agreement (the "Engagement") dated as of November 8, 2006. Under the terms of the Engagement, Merrill Lynch will receive a fee of US$2,000,000 for its services and is also entitled to be reimbursed for reasonable expenses. Merrill Lynch may receive an additional fee of up to US$500,000, payable in the sole discretion of the Special Committee, if the extent of the services provided to the Special Committee exceeds the initial expectations of the Special Committee or in the event the Engagement extends beyond March 31, 2007. FSHI has agreed to indemnify Merrill Lynch and its affiliates, subject to certain limitations, against certain expenses, losses, claims, damages and liabilities arising out of the Engagement. Fees payable to Merrill Lynch pursuant to the Engagement are not contingent in whole or in part on, and there is no agreement, arrangement or understanding that gives Merrill Lynch a financial incentive in respect of, the success of the Arrangement or on the conclusions reached in the Valuation or Fairness Opinion.
Credentials of Merrill Lynch
Merrill Lynch, together with its affiliates, is one of the world's largest investment banking firms providing full service brokerage, investment banking, research, trading and financial advisory services to corporations, governments, institutions and individuals. In Canada, Merrill Lynch is a leading investment banking firm providing full service brokerage, investment banking, research, trading and financial advisory services to corporations, governments and institutions.
Independence of Merrill Lynch
Merrill Lynch has represented to the Special Committee that it is independent and qualified for the purposes of Rule 61-501 and Regulation Q-27. Based upon the Special Committee's own investigation, including its assessment of information provided by Merrill Lynch as to its qualifications and independence, the Special Committee is satisfied that Merrill Lynch is independent and qualified to provide the Valuation and Fairness Opinion.
Neither Merrill Lynch nor any of its affiliated entities (as such term is defined for the purposes of Rule 61-501 and Regulation Q-27) (a) is an associated or affiliated entity or issuer insider (as such terms are defined for the purposes of Rule 61-501 and Regulation Q-27) of FSHI, the Purchaser, Mr. Sharp, Kingdom,
29
Cascade or any of their respective associates or affiliates, (b) is an advisor to the Purchaser, Mr. Sharp, Kingdom, Cascade or any of their respective associates or affiliates in connection with the Arrangement, (c) is a manager or co-manager of a soliciting dealer group for the Arrangement (or a member of the soliciting dealer group for the Arrangement providing services beyond the customary soliciting dealer's functions or receiving more than the per security or per security holder fees payable to the other members of the group), or (d) has a material financial interest in the completion of the Arrangement. Merrill Lynch has not been engaged to provide any financial advisory services nor has it participated in any underwriting involving FSHI, the Purchaser, Mr. Sharp, Kingdom, Cascade or any of their respective associates or affiliates during the past 24-month period preceding the date Merrill Lynch was first contacted in respect of the Valuation and Fairness Opinion.
No understandings, agreements or commitments exist between Merrill Lynch and any of FSHI, the Purchaser, Mr. Sharp, Kingdom, Cascade or any of their respective associates or affiliates with respect to any future financial advisory or investment banking business. Merrill Lynch will not be participating in any lending syndicate providing financing to the Purchaser in respect of the Arrangement. Merrill Lynch may, in the future, in the ordinary course of its business, perform financial advisory or investment banking services for FSHI, the Purchaser, Mr. Sharp, Kingdom, Cascade or any of their respective associates or affiliates.
Merrill Lynch, together with its affiliates, is a full service securities firm engaged, either directly or through its affiliates, in various activities including securities trading, investment management, financing and brokerage activities and financial advisory services for companies, governments and individuals. In the ordinary course of these activities, Merrill Lynch and its affiliates may actively trade the debt and equity securities or other financial instruments (or related derivative instruments) of FSHI, the Purchaser, Mr. Sharp, Kingdom, Cascade or any of their respective associates or affiliates and, from time to time, may have executed or may execute transactions on behalf of clients or on behalf of FSHI, the Purchaser, Mr. Sharp, Kingdom, Cascade or associated or affiliated entities or related persons for which it received or may receive compensation. In addition, as an investment dealer, Merrill Lynch conducts research on securities and may, in the ordinary course of its business, provide research reports and investment advice to its clients on investment matters, including with respect to FSHI, the Purchaser, Mr. Sharp, Kingdom, Cascade or the Arrangement.
Scope of Review
In connection with the Valuation and Fairness Opinion, Merrill Lynch obtained information from publicly available sources and from FSHI. In addition, Merrill Lynch reviewed and relied upon (without independently verifying the completeness and accuracy thereof) or carried out, among other things, FSHI's preliminary draft 2007 budget and projected financial information for FSHI prepared by management for each of the years ending December 31, 2007 through December 31, 2016, as well as such other corporate, industry and financial market information, investigations and analyses as Merrill Lynch deemed necessary or appropriate in the circumstances. Merrill Lynch also held discussions with senior management of FSHI and senior representatives of the Purchaser.
Key Assumptions and Limitations
Merrill Lynch has, in accordance with the terms of the Engagement, relied upon and assumed the completeness, accuracy and fair presentation of all of the financial and other information, data, advice, opinions or representations supplied or otherwise made available to Merrill Lynch from publicly available sources, senior management of FSHI or FSHI's advisors, or discussed with or reviewed by or for Merrill Lynch (collectively the "Information"). With respect to any financial forecast information (including cost savings and synergies) furnished to or discussed with Merrill Lynch by FSHI, Merrill Lynch has assumed that this information has been reasonably prepared and reflects the best then currently available estimates and judgment of FSHI's management. The Valuation and Fairness Opinion assume, and are conditional upon, such completeness, accuracy and fair presentation of such Information. Merrill Lynch has not independently verified the completeness, accuracy or fair presentation of any of the Information.
In preparing the Valuation and Fairness Opinion, Merrill Lynch has made several assumptions, including that all of the conditions required to implement the Arrangement will be met and that the disclosure provided or
30
incorporated by reference in the Circular with respect to FSHI, the Purchaser, Mr. Sharp, Triples, Kingdom, Cascade and their respective affiliates and the Arrangement is accurate in all material respects.
The Valuation and Fairness Opinion are rendered on the basis of securities markets, economic and general business and financial conditions prevailing as at February 5, 2007 and the condition and prospects, financial or otherwise, of FSHI and its subsidiaries and affiliates as they were reflected in the Information and documents reviewed by Merrill Lynch as presented to it and as represented to Merrill Lynch in its discussions with management of FSHI. In its analyses and in preparing the Valuation and Fairness Opinion, Merrill Lynch has made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Merrill Lynch or any party involved in the Arrangement. Although Merrill Lynch believes that the assumptions used in its analyses and in preparing the Valuation and Fairness Opinion are appropriate in the circumstances, some or all of them may nevertheless prove to be incorrect.
In connection with the preparation of the Valuation and Fairness Opinion, Merrill Lynch has not been authorized by the Special Committee to solicit, nor has Merrill Lynch solicited, third-party indications of interest for the acquisition of all or any part of FSHI. Merrill Lynch has not undertaken an independent evaluation, appraisal or physical inspection of any assets or liabilities of FSHI, the Purchaser, Triples, Mr. Sharp, Kingdom or Cascade. Merrill Lynch is not an expert on, and did not render advice to the Special Committee regarding, legal, accounting, regulatory or tax matters.
Merrill Lynch believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all factors and analyses together, could create a misleading view of the processes underlying the Valuation or Fairness Opinion. The preparation of a valuation or fairness opinion is a complex process and it is not appropriate to extract partial analyses or make summary descriptions. Any attempt to do so could lead to undue emphasis on any particular factor or analysis.
Definition of Fair Market Value
For the purposes of the valuation (the "Valuation"), fair market value means the monetary consideration that, in an open and unrestricted market, a prudent and informed buyer would pay to a prudent and informed seller, each acting at arm's length with the other and under no compulsion to act. Merrill Lynch has not made any downward adjustment to reflect the liquidity of the Limited Voting Shares, the effect of the Arrangement on the Limited Voting Shares or the fact that the Limited Voting Shares held by Shareholders (other than Kingdom, Cascade, Mr. Sharp and Triples and their respective Affiliates) do not form part of a controlling interest.
Valuation of the Limited Voting Shares
Merrill Lynch approached the Valuation by valuing the Limited Voting Shares on a going-concern basis using a discounted cash flow ("DCF") analysis. Merrill Lynch relied primarily upon a DCF analysis to value FSHI on an "en bloc" basis. Merrill Lynch also reviewed precedent lodging transactions; however, given that no precedent transaction was considered sufficiently comparable to the proposed Arrangement, Merrill Lynch considered but did not rely on precedent transactions in determining the value of the Limited Voting Shares. Merrill Lynch also reviewed trading multiples of public companies involved in the lodging sector from the perspective of whether a public-market analysis might exceed DCF or precedent transaction values for the Limited Voting Shares. Merrill Lynch observed that public company multiples implied values that were lower than the DCF and precedent transaction values. Because public company values generally reflect minority discount values rather than "en bloc" values, Merrill Lynch did not rely on this methodology in determining the value of the Limited Voting Shares.
The DCF approach takes into account the amount, timing and relative certainty of future unlevered free cash flows expected to be generated by FSHI. The DCF approach requires that certain assumptions be made regarding, among other things, future cash flows, discount rates and terminal values. The possibility that some of the assumptions will prove to be inaccurate is one factor involved in the determination of the discount rates to be used in establishing the range of values. The DCF analysis involved discounting to a present value FSHI's
31
projected unlevered free cash flows from January 1, 2007 through December 31, 2016, including terminal values determined as at December 31, 2016. Merrill Lynch included in the value of the Limited Voting Shares, FSHI's cash position, investments in hotel partnerships and investments in long-term receivables. Merrill Lynch has also included the mark-to-market value of the currency and interest rate swap arrangement entered into in April 2005 in respect of the Convertible Notes. To the extent the resulting DCF range exceeded the conversion price of US$71.64 (based on a conversion ratio of 13.9581 Limited Voting Shares per US$1,000 principal amount) on the Convertible Notes, Merrill Lynch assumed conversion and included the resulting Limited Voting Shares issued upon conversion in the outstanding share count. Similarly, in-the-money outstanding options were assumed exercised and included in the share count based on the treasury stock method. Merrill Lynch also included in the DCF analysis the payment of a make-whole premium on the Convertible Notes, the amount of which was determined pursuant to the terms of the Convertible Notes as described in the prospectus supplement for the Convertible Notes, dated June 14, 2004.
The Special Committee has advised Merrill Lynch that Mr. Sharp will be entitled to receive a payment on completion of the Arrangement pursuant to the Long-Term Incentive Plan agreement approved in 1989 (the "Sharp Payment"). The Special Committee also advised Merrill Lynch that it had determined that a payment based on the number of Limited Voting Shares and Variable Multiple Voting Shares that assumes the exercise of in-the-money options to acquire Limited Voting Shares was appropriate. Accordingly, Merrill Lynch has included the Sharp Payment as a liability of FSHI and therefore has deducted the payment in determining the value of the Limited Voting Shares. For this purpose, the first portion of this amount was determined based on an amount equal to 5% of the product of (a) the total number of Variable Multiple Voting Shares and Limited Voting Shares outstanding (assuming the exercise of in-the-money options to acquire Limited Voting Shares), and (b) the resulting DCF value minus Cdn.$6.30. Similarly, the second portion of this amount was determined based on an amount equal to 5% of the product of (a) the total number of Variable Multiple Voting Shares and Limited Voting Shares outstanding (assuming the exercise of in-the-money options to acquire Limited Voting Shares), and (b) the resulting DCF value minus Cdn.$20.84, provided the DCF value was above a value calculated as 125% of the weighted average price of the Limited Voting Shares on the TSX for five months ending one month prior to announcement of the Arrangement on November 6, 2006.
Valuation Conclusion
Based upon and subject to the analyses, assumptions, qualifications and limitations set out in the Valuation and Fairness Opinion (the full text of which is attached as Appendix C to this Circular), Merrill Lynch was of the opinion that, as of February 5, 2007, the fair market value of the Limited Voting Shares was in the range of US$68.00 to US$88.00 per Limited Voting Share.
Fairness Opinion
In considering the fairness of the consideration to be received under the Arrangement from a financial point of view, to Shareholders (other than Kingdom, Cascade, Mr. Sharp and Triples and their respective Affiliates), Merrill Lynch principally considered and relied upon (a) a comparison of the consideration under the Arrangement to the range of fair market values of the Limited Voting Shares under the Valuation, (b) a comparison of the multiples implied under the Arrangement to the range of multiples observed on precedent transactions and trading multiples of public companies in the lodging sector, and (c) a comparison of the range of premiums offered under the Arrangement to premiums paid in recent North American transactions of a similar size, selected comparable transactions in the lodging sector and recent Canadian going-private transactions.
Fairness Opinion Conclusion
On the basis of and subject to the analyses, assumptions, qualifications and limitations set out in the Valuation and Fairness Opinion (the full text of which is attached as Appendix C to this Circular) Merrill Lynch was of the opinion that, as of February 5, 2007, the consideration to be received under the Arrangement was fair, from a financial point of view, to the Minority Shareholders.
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Prior Valuation
To the knowledge of the Board, after reasonable inquiry, there are no "prior valuations", as defined in Rule 61-501 or Regulation Q-27, of FSHI or of its material assets or securities made within the 24 month period preceding February 23, 2007.
THE ARRANGEMENT
Required Shareholder Approval
At the Meeting, Shareholders will be asked to vote to approve the Arrangement Resolution. The approval of the Arrangement Resolution will require the affirmative vote of:
The Arrangement Resolution must be approved by the requisite majorities in order for FSHI to seek the Final Order and implement the Arrangement on the Closing Date in accordance with the Final Order. Notwithstanding the approval by Shareholders and the holders of the Variable Multiple Voting Shares of the Arrangement Resolution, FSHI reserves the right not to proceed with the Arrangement in accordance with the terms of the Acquisition Agreement and the Plan of Arrangement.
Pursuant to the Voting Agreement, each of Kingdom and Cascade has agreed to vote the Limited Voting Shares owned by it in favour of the Arrangement Resolution and Triples has agreed to vote all of the Variable Multiple Voting Shares owned by it in favour of the Arrangement Resolution, subject in each case to the terms and conditions contained in the Voting Agreement.
Arrangement Mechanics
The following description is qualified in its entirety by reference to the full text of the Plan of Arrangement, which is attached as Appendix D to this Circular. Upon the Arrangement becoming effective, the following transactions, among others, will occur and will be deemed to occur in the order and at the times set out in the Plan of Arrangement:
33
34
Following the completion of the Arrangement, FSHI will be continued under the BCBCA and the Amalgamation will be effected, pursuant to which, among other things, Triples will receive the Preferred Shares.
Letter of Transmittal
If you are a Registered Shareholder, you will have received with this Circular a Letter of Transmittal printed on yellow paper. In order to receive your portion of the Acquisition Price for your Limited Voting Shares, Registered Shareholders must complete and sign the Letter of Transmittal enclosed with this Circular and deliver it and the other documents required by it to the Depositary in accordance with the instructions contained in the Letter of Transmittal. You can request additional copies of the Letter of Transmittal by contacting the Depositary. The Letter of Transmittal is also available at the website maintained by CDS at www.sedar.com and at the website maintained by the SEC at www.sec.gov.
The Letter of Transmittal contains procedural information relating to the Arrangement and should be reviewed carefully. If you are a Non-Registered Shareholder, you should carefully follow the instructions from the Intermediary that holds Limited Voting Shares on your behalf in order to submit your Limited Voting Shares.
Delivery of Consideration
At the Effective Time, the Purchaser will deliver the Acquisition Price to the Depositary.
As soon as practicable after the Effective Time but in any event within three Business Days, upon surrender to the Depositary for cancellation of certificate(s) that immediately prior to the Effective Time represented one or more Limited Voting Shares, together with the Letter of Transmittal and other documents required by the Letter of Transmittal, the holder of such surrendered certificate(s) shall be entitled to receive in exchange therefor, and the Depositary shall deliver to such holder, a cheque issued by the Depositary representing that amount of cash that such holder has the right to receive, and the certificate(s) so surrendered shall forthwith be cancelled. On and after the Effective Time, all certificates that represented Limited Voting Shares immediately prior to the Effective Time will cease to represent any rights with respect to Limited Voting Shares and will only represent the right to receive the applicable portion of the Acquisition Price payable pursuant to the Plan of Arrangement.
Any use of mail to transmit certificate(s) for Limited Voting Shares and/or Letters of Transmittal is at the risk of the relevant Shareholder. If these documents are mailed, it is recommended that registered mail, with return receipt requested, and with proper insurance, be used.
35
In the event of a transfer of ownership of Limited Voting Shares prior to the Effective Time that is not registered in the transfer records of FSHI, a cheque representing the proper amount of cash may be delivered to the transferee if the certificate representing such Limited Voting Shares is presented to the Depositary, accompanied by all documents required to evidence and effect such transfer prior to the Effective Time as specified in more detail in the Letter of Transmittal.
Under no circumstances will interest on the consideration payable in connection with the Arrangement accrue or be paid by FSHI, the Purchaser or the Depositary to persons depositing Limited Voting Shares in connection with the Arrangement, regardless of any delay in making such payment.
The Depositary will act as the agent of persons who have deposited Limited Voting Shares in connection with the Arrangement for the purpose of receiving payment from the Purchaser and transmitting payment from the Purchaser to such persons, and receipt of payment by the Depositary will be deemed to constitute receipt of payment by persons depositing Limited Voting Shares.
Unless otherwise directed in the Letter of Transmittal, the cheque to be issued pursuant to the Arrangement will be issued in the name of the Registered Shareholder of the Limited Voting Shares so deposited. Unless the person who deposits the certificate(s) representing the Limited Voting Shares instructs the Depositary to hold the cheque for pick up by checking the appropriate box in the Letter of Transmittal, a cheque payable in U.S. funds will be forwarded by first class mail to the address supplied in the Letter of Transmittal. If no address is provided, a cheque will be forwarded to the address of the Shareholder as shown on the register of the Transfer Agent.
If any Shareholder fails for any reason to surrender to the Depositary for cancellation the certificate(s) formerly representing Limited Voting Shares, together with such other documents or instruments required to entitle the holder to receive the cash payment described above, on or before the sixth anniversary of the Closing Date, such certificate(s) shall cease to represent a claim by or interest of any former Shareholder of any kind or nature. On such anniversary date, all certificates representing Limited Voting Shares and cash to which such former holder was entitled, together with any entitlements to dividends, distributions and interest thereon, shall be deemed to have been donated and forfeited to the Purchaser.
FSHI, the Purchaser and the Depositary will be entitled to deduct and withhold from any consideration otherwise payable to a Shareholder such amounts as FSHI, the Purchaser, or the Depositary is required or permitted to deduct and withhold with respect to such payment under applicable laws.
The Depositary will receive reasonable and customary compensation for its services in connection with the Arrangement, will be reimbursed for certain out-of-pocket expenses and will be indemnified by FSHI against certain liabilities under applicable securities laws and expenses in connection therewith.
Interests of Directors, Executive Officers and Others in the Arrangement
In considering the recommendations of the Special Committee and the Board with respect to the Arrangement, Shareholders should be aware that certain members of the Board and executive officers of FSHI have certain interests in connection with the Arrangement that may present them with actual or potential conflicts of interest in the Arrangement. The Special Committee and the Board are aware of these interests and considered them along with other matters described below.
Capital Stock and Options
The Directors and executive officers of FSHI beneficially own, directly or indirectly, or exercise control or direction over, in the aggregate, 194,810 Limited Voting Shares, representing approximately 0.578% of the Limited Voting Shares outstanding as of the close of business on February 23, 2007. All of the Limited Voting Shares held by the Directors and executive officers of FSHI will be treated identically and in the same manner under the Arrangement as Limited Voting Shares held by any other Minority Shareholder. Each Director and executive officer of FSHI intends to vote his or her Limited Voting Shares in favour of the Arrangement Resolution.
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As of February 23, 2007, there were 3,644,879 Limited Voting Shares subject to Options. The Directors and executive officers of FSHI beneficially own, directly or indirectly, or exercise control or direction over, in the aggregate, 993,610 Options, which, on a fully diluted basis, represent approximately 2.95% of the Limited Voting Shares outstanding as of the close of business on February 23, 2007. Pursuant to change in control arrangements entered into with certain officers of Four Seasons, the vesting of Options held by these officers would be accelerated upon completion of the Arrangement. See "— Change in Control Agreements". On February 9, 2007, the vesting of all 616,980 unvested Options (other than those Options outstanding with an unsatisfied performance condition), including 136,440 unvested Options held by Directors and executive officers of FSHI, was accelerated for the purpose of allowing these holders to participate in the Arrangement in respect of such Options. If the Arrangement is not completed, the vesting of the 616,980 Options will not be accelerated and they will continue to vest in accordance with their terms.
As of February 23, 2007, Triples owns 3,725,698 Variable Multiple Voting Shares of FSHI, representing all of the outstanding Variable Multiple Voting Shares. Triples has agreed with FSHI, Kingdom and Cascade that it will vote all of its Variable Multiple Voting Shares FOR the Arrangement Resolution. Pursuant to the Arrangement and the Amalgamation, Triples will contribute its Variable Multiple Voting Shares to the Purchaser in exchange for shares of the Purchaser representing 5% of the outstanding common equity interests of the Purchaser, as well as an investment in Preferred Shares with an aggregate liquidation preference equal to US$82.00 multiplied by the number of Variable Multiple Voting Shares that have not been exchanged for this 5% common equity interest. See "— Interests in the Arrangement".
The following table sets out the names and positions of all Directors and executive officers of FSHI and, as of February 23, 2007, the number and designation of outstanding securities of FSHI beneficially owned or over which control or direction is exercised by each such Director or executive officer and, where known after reasonable enquiry, by their respective associates, as well as the weighted average exercise price of the Options held by each such Director or executive officer.
Name |
Position |
No. of Variable Multiple Voting Shares |
No. of Limited Voting Shares |
No. of Limited Voting Shares Underlying Vested/Unvested Options(1) |
Weighted Average Exercise Price of Options (US$)(2) |
|||||
---|---|---|---|---|---|---|---|---|---|---|
Directors: | ||||||||||
William D. Anderson(3)(5) | Director | — | 500 | — | — | |||||
Brent Belzberg(3) |
Director |
— |
1,900 |
18,000/12,000 |
33.59 |
|||||
Nan-B De Gaspe Beaubien |
Director |
— |
4,000 |
— |
— |
|||||
H. Roger Garland |
Director |
— |
81,418 |
112,000/18,000 |
45.68 |
|||||
Charles S. Henry |
Director |
— |
2,500 |
30,000/0 |
47.22 |
|||||
Heather Munroe-Blum |
Director |
— |
1,250 |
16,750/12,000 |
33.59 |
|||||
Ronald W. Osborne(3) |
Director |
— |
1,000 |
18,000/12,000 |
39.33 |
|||||
J. Robert S. Prichard |
Lead Director |
— |
5,000 |
15,000/0 |
27.44 |
|||||
Lionel H. Schipper |
Director |
— |
52,953 |
30,000/0 |
42.21 |
|||||
Anthony Sharp |
Director |
—(4) |
26,927 |
100,000/0 |
33.13 |
|||||
Isadore Sharp |
Chairman and Chief Executive Officer |
3,725,698 |
(4) |
— |
— |
— |
||||
Simon M. Turner |
Director |
— |
2,500 |
29,300/0 |
47.22 |
|||||
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Executive Officers: |
||||||||||
Sarah Cohen |
Senior Vice President, Corporate Counsel & Assistant Secretary |
— |
— |
20,120/1,440 |
69.00 |
|||||
John Davison(6) |
Executive Vice President and Chief Financial Officer |
— |
1,700 |
32,000/12,000 |
48.31 |
|||||
Craig O. Reith |
Vice President Finance & Treasurer |
— |
11,331 |
— |
— |
|||||
Kathleen Taylor |
President and Chief Operating Officer |
— |
2,041 |
290,000/50,000 |
46.54 |
|||||
Randolph Weisz |
Executive Vice President, Business Administration, General Counsel & Secretary |
— |
— |
146,000/19,000 |
52.70 |
Note:
Interests in the Arrangement
Charles Henry and Simon Turner, two of the members of the Board, are nominees of Kingdom pursuant to a shareholders agreement entered into between Triples, Mr. Sharp and Kingdom Investments, Inc. in 1994. Under the terms of that agreement, Triples and Mr. Sharp have agreed to support the election of two nominees of Kingdom to the Board. Mr. Henry and Mr. Turner are also principals in a hotel advisory firm that will be entitled to receive certain compensation from Kingdom if the Arrangement is completed.
Mr. Sharp, the Chairman and Chief Executive Officer of FSHI, together with members of his immediate family, including Anthony Sharp, a member of the Board, beneficially own all of the outstanding shares of Triples. Triples is party to the Proposal and will, pursuant to the Plan of Arrangement and the Amalgamation, contribute its Variable Multiple Voting Shares to the Purchaser in exchange for shares of the Purchaser representing 5% of the outstanding common equity interests of the Purchaser, as well as an investment in Preferred Shares with an aggregate liquidation preference equal to US$82.00 multiplied by the number of Variable Multiple Voting Shares that have not been exchanged for this 5% common equity interest. Additionally, upon closing of the Arrangement, Mr. Sharp will receive a payment of approximately US$289 million to which he is contractually entitled under the Long-Term Incentive Plan that was approved by Shareholders in 1989 and entered into 1990. See "— Long-Term Incentive Plan". Immediately following the closing of the Arrangement of Kingdom and Cascade, Triples and Mr. Sharp will enter into a shareholders agreement (the "Shareholders
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Agreement") that will set out the intentions of the parties respecting a variety of matters relating to FSHI, including governance, management oversight and reporting and voting and disposition of shares and the Purchaser will enter into a new employment agreement (the "Employment Agreement") with Mr. Sharp regarding his continuing roles as Chairman and Chief Executive Officer of FSHI. The following is a summary of certain provisions of the proposed Shareholders Agreement and the proposed Employment Agreement.
Pursuant to the terms of the Shareholders Agreement, until the occurrence of certain specified events ("Governance Transition Events") (including Mr. Sharp being neither Chief Executive Officer nor Chairman (other than as a result of a breach of an agreement relating to Mr. Sharp's tenure in these positions by another party), the completion of an initial public offering (or the fifth anniversary of the execution of the Shareholders Agreement if the initial public offering preceded that date) or, beginning on the fifth anniversary of the Shareholders Agreement, certain financial targets not being met), Mr. Sharp, among other things:
Following the occurrence of any of the Governance Transition Events, the Board will, among other things, have full power and authority to supervise the management of the business and affairs of Four Seasons in accordance with certain governance standards described in the Shareholders Agreement, including the right to terminate the employment of Mr. Sharp as Chief Executive Officer consistent with such standards. From that time, Mr. Sharp also will cease to have any special approval rights in respect of any material decisions, other than a decision relating to the relocation of the worldwide head office of Four Seasons.
Any disposition of shares of FSHI by Triples, Kingdom and Cascade Subco will be subject to a right of first offer in favour of the other shareholders and, with respect to certain of its shares, Triples and other shareholders will have a "tag-along" right upon the disposition of shares by any of the other shareholders.
The Employment Agreement will have an initial term of five years. Pursuant to the Employment Agreement, Mr. Sharp will continue to serve as Chief Executive Officer of FSHI for a minimum of three years and as Chairman while he is Chief Executive Officer and, at his option, after he ceases to be Chief Executive Officer. Mr. Sharp's tenure as Chairman and Chief Executive Officer may be terminated in accordance with the terms of the Employment Agreement as a result of Mr. Sharp's death, disability or resignation, or for Cause. Mr. Sharp's tenure as Chief Executive Officer also may be terminated following the occurrence of a Governance Transition Event under the Shareholders Agreement (as described above). His tenure as Chairman also may be terminated at the request of the Board if he, Triples and related entities hold less than 50% of Triples' equity interest in FSHI upon completion of the Arrangement (other than as a result of certain pro rata distributions). Mr. Sharp will be required to advise the board of directors by June 30, 2011 whether he is willing to continue his employment as Chief Executive Officer and his service as Chairman following the initial five-year term of the Employment Agreement.
The Employment Agreement will provide for compensation for the initial five-year term during which Mr. Sharp is the Chief Executive Officer and/or Chairman of (a) an annual base salary of Cdn.$1,987,527 (to be increased annually to reflect inflation), (b) an annual incentive bonus with a target of 75% (up to a maximum of 150%) of base salary based on the measurements currently employed by FSHI for annual incentive
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measurements, and (c) a long-term incentive (granted annually) with a target of 100% (up to a maximum of 200%) of base salary based on an assessment of the performance of Mr. Sharp and FSHI using factors based on the "People and Product" measure currently employed by FSHI and a "Profit" factor that layers onto the measure currently used by FSHI a test that assesses achieved three-year rolling average earnings before income, taxes, depreciation and amortization ("EBITDA") against targeted three-year rolling average EBITDA. Mr. Sharp also will continue to be entitled to all vacation, health, welfare and retirement benefits and to the use of a corporate airplane and car and driver that he currently enjoys. The payments under the annual incentive bonus and the long-term incentive are limited so that the present value of the cumulative incremental payments (as defined in the Employment Agreement) in excess of amounts to which Mr. Sharp is currently entitled, will not exceed US$13 million. Mr. Sharp's compensation after the initial five-year term will be mutually determined by Mr. Sharp and the board of directors, consistent with the then prevailing standards for executives holding similar positions in similar companies.
Long-Term Incentive Plan
At a special meeting held on December 19, 1989, the shareholders of FSHI approved the Long-Term Incentive Plan, pursuant to which Mr. Sharp surrendered (a) an option that had been granted to him on December 6, 1985, to acquire 500,000 Limited Voting Shares at an exercise price of Cdn. $12.60 per share (which, as a result of a share "split" in 1990, would have entitled Mr. Sharp to acquire 1,000,000 Limited Voting Shares at an exercise price of Cdn. $6.30 per share) and (b) the right to receive additional Options in subsequent years, and, in exchange, FSHI and its principal operating subsidiary, Four Seasons Hotels Limited, agreed that Four Seasons Hotels Limited would make a payment to Mr. Sharp upon an arm's-length sale of control of FSHI.
The Long-Term Incentive Plan contemplates that this payment will be comprised of two components, the first component will be equal to the product of (a) the excess of the per share consideration paid in respect of the sale-of-control transaction (the "Transaction Consideration") over Cdn. $6.30, and (b) the number (the "Share Number") that is 5% of the aggregate number of Variable Multiple Voting Shares and Limited Voting Shares issued and outstanding on the date of the sale-of-control transaction. The second component will be equal to the product of (x) the excess of the Transaction Consideration over Cdn. $20.84, and (y) the Share Number, provided that the second component will be payable only if the Transaction Consideration is equal to or greater than 125% of the weighted average trading price of all board lots of Limited Voting Shares traded on the TSX during the period beginning six months and ending one month before the first public announcement of the sale-of-control transaction. The US$82.00 acquisition price in the Arrangement exceeds such weighted average price.
Pursuant to the Long-Term Incentive Plan, the Board may make adjustments if the Board determines that it would be equitable to do so in the event that FSHI takes any action affecting the Limited Voting Shares and/or the Variable Multiple Voting Shares. The Board determined after considering, among other things, the views of the Special Committee, that as a result of FSHI taking the actions affecting the Limited Voting Shares as contemplated by the Acquisition Agreement and pursuant to the Arrangement, the rights of Mr. Sharp under the Long-Term Incentive Plan would be materially affected as no Limited Voting Shares would be issued in respect of any unexercised "in-the-money" Options. The Board further determined that making adjustments would be equitable in the circumstances and consistent with the intention and the purpose of the Long-Term Incentive Plan.
Pursuant to the Plan of Arrangement, Mr. Sharp will receive the amount payable to him calculated in accordance with the Long-Term Incentive Plan in full satisfaction of all obligations to him under the Long-Term Incentive Plan. Based on an acquisition price of US$82.00 for each Limited Voting Share and Variable Multiple Voting Share, and using the noon rate of exchange as quoted by the Bank of Canada for the conversion of United States dollars into Canadian dollars on February 23, 2007, Mr Sharp would receive approximately Cdn.$334,806,500 or approximately US$289 million in satisfaction of the obligations to him under the Long-Term Incentive Plan.
Phantom Equity Agreements
Mr. William Anderson, a Director, was granted an aggregate of 1,402 share units in respect of his annual retainer pursuant to two phantom equity agreements. The share units are exercisable at such time that
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Mr. Anderson, for any reason, ceases to be a Director. Upon exercise, Mr. Anderson would be entitled to the market value of one Limited Voting Share on the date of receipt of the notice of exercise multiplied by the number of share units exercised pursuant to that notice. It is anticipated that Mr. Anderson will cease to be a Director upon the completion of the Arrangement and will be able to exercise his share units at that time for aggregate proceeds of US$114,964.
Messrs. John Davison and Scott Woroch, officers of Four Seasons, were granted 106,000 and 25,000 share appreciation rights, respectively pursuant to phantom equity agreements. These grants were made in lieu of options following the determination by FSHI that it would no longer grant options pursuant to the Four Seasons Stock Option Plan. Upon the occurrence of a "change in control", as defined in the phantom equity agreements, all unexercisable share appreciation rights will immediately become exercisable and entitle the holder to an amount determined by multiplying (a) the amount by which the consideration received by Shareholders for each Limited Voting Share in that change in control transaction exceeds US$50.67 by (b) the number of share appreciation rights in respect of which such amount is being determined. As the Arrangement would constitute a change in control for purposes of these agreements, these officers would be entitled to payment in respect of their share appreciation rights following completion of the Arrangement. In particular, Mr. Davison would receive US$3,320,980 (plus an additional gross-up amount to ensure that Mr. Davison will receive the same after-tax consideration as he would have received had he exercised options) and Mr. Woroch would receive US$783,250 upon the exercise of their respective share appreciation rights.
Change in Control Agreements
Four Seasons has change in control arrangements with the President and Chief Operating Officer, President Worldwide Hotel Operations, Executive Vice President and Chief Financial Officer, Executive Vice President, Business Administration and General Counsel and certain other senior officers that were implemented with the intention of assisting in the retention of an experienced group of senior managers, who in the event of a change in control, could bring stability during an important transitional period, as well as to continue to direct Four Seasons' growth and development. These arrangements are triggered by the termination of employment of the officers within two years following the loss by Mr. Sharp and/or related parties of Mr. Sharp of voting control sufficient to elect a majority of the members of the Board. In these circumstances, each of the officers to whom these arrangements apply would be paid a lump sum equal to up to three years of salary and bonus entitlement and also would be entitled to continuation of medical, disability and life insurance coverage for a period of up to three years. Each of these officers (other than Ms. Talbott) also would be entitled to payment of an incremental benefit under the long-term defined contribution retirement plan equal to the amount of the last annual company contribution to the plan multiplied by the greater of three and a number determined by subtracting the age of the officer from 60 (and, in the case of Mr. Corinthios, an amount equal to 2.2% of his "final average salary" multiplied by 25 years of "credited service", as such terms are defined in the applicable retirement plan). In addition, these arrangements would result in the accelerated vesting of outstanding Options held by these officers upon such a change in control (independent of any acceleration of vesting of outstanding Options pursuant to the Acquisition Agreement), even if their employment is not terminated following a change in control event. Completion of the Arrangement would result in the loss by Mr. Sharp of voting control sufficient to elect a majority of the members of the Board and, as such, termination of these officers' employment within the specified time following the completion of the Arrangement would trigger these arrangements.
Indemnification and Insurance
On November 5, 2006, FSHI entered into indemnity agreements with each of its executive officers and members of the Board. Pursuant to the agreements, if FSHI consummates an "acquisition transaction" (as defined in the agreements), which would include the Arrangement, FSHI is required to purchase, maintain and administer for a period of six years after the transaction insurance for the benefit of the Director or officer on a "run-off" basis on the same terms as FSHI then maintains in existence for its Directors and officers, to the fullest extent permitted by law. FSHI is not, however, required by such indemnity agreements to expend an amount for the run-off insurance in excess of 200% of the annual amount paid by FSHI at the time of the transaction.
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Pursuant to the Acquisition Agreement, each of Kingdom and Triples will provide a release to each of the Directors on the Closing Date in respect of certain claims (or potential claims) relating to the period prior to the Closing Date.
The Acquisition Agreement also provides that the Purchaser will, or will cause Four Seasons to, maintain in effect without any reduction in amount or scope for six years from the Effective Time customary policies of directors' and officers' liability insurance providing protection comparable to the protection provided by the policies maintained by Four Seasons which are in effect immediately prior to the Effective Time and providing protection in respect of claims arising from facts or events which occurred on or prior to the Effective Time; provided, however, that Four Seasons will not be required, in order to maintain such directors' and officers' liability insurance policy, to pay an annual premium in excess of 250% of the cost of the existing policies; and provided further that, if equivalent coverage cannot be obtained or can only be obtained by paying an annual premium in excess of 250% of such amount, Four Seasons shall only be required to obtain as much coverage as can be obtained by paying an annual premium equal to 250% of such amount. Prior to the Effective Time, Four Seasons may, in the alternative, purchase run off directors' and officers' liability insurance for a period of up to six years from the Effective Time provided that the premiums will not exceed 250% of the premiums currently charged to Four Seasons for directors' and officer's liability insurance.
Intentions of FSHI Directors and Senior Officers
The Directors and senior officers of FSHI, who beneficially own, directly or indirectly, or exercise control or direction over, in the aggregate, 194,810 Limited Voting Shares as at February 23, 2007, which represent approximately 0.58% of the outstanding Limited Voting Shares, have indicated that they intend to vote in favour of the Arrangement Resolution. Pursuant to the Voting Agreement, Triples has agreed to vote all of the Variable Multiple Voting Shares owned by it in favour of the Arrangement Resolution, subject to the terms and conditions contained in the Voting Agreement.
Sources of Funds for the Arrangement
Under the Arrangement, an aggregate amount of approximately US$3.83 billion will be required to fund the transactions under the Arrangement. This aggregate amount will be funded from the proceeds of US$750 million of acquisition debt financing, approximately US$2.75 billion of equity contributions consisting of FSHI shares and cash, and the available cash of Four Seasons. The following arrangements are intended to provide the necessary funding for the Arrangement.
Debt Financing
The Purchaser has received the Debt Commitment Letter from Citigroup and JP Morgan pursuant to which Citigroup and JP Morgan have committed to provide the Purchaser an aggregate US$750,000,000 term loan facility and a US$200,000,000 revolving credit facility, each to be secured by certain assets of the Purchaser, including the Purchaser's equity interests in certain material first-tier subsidiaries of FSHI. The term loan facility and the revolving credit facility will be unconditionally guaranteed by certain material first-tier subsidiaries of FSHI, subject to certain limitations. The term loan facility will be used to provide financing for the transactions pursuant to the Arrangement, and the revolving credit facility will be used to provide working capital and for general corporate purposes after the Closing Date. At the Purchaser's option, interest on the term loan facility and any advance under revolving credit facility will accrue at either a "Base Rate" equal to Citibank, N.A.'s Base Rate plus the "Applicable Margin", or at an "Alternative Rate" equal to LIBOR (for U.S. dollars), EURIBOR (for Euros) or the equivalent thereof (for currencies other than U.S. dollars and Euros), plus the "Applicable Margin". The "Applicable Margin" means, with respect to the Base Rate, 0 basis points, and with respect to the Alternative Rate, 125 basis points. The Purchaser may make voluntary prepayments of the term loan facility and the revolving credit facility at any time, subject to minimum amount requirements. In addition, the term loan facility is required to be prepaid in certain circumstances, including with certain percentages of the net cash proceeds of debt issuances, equity issuances and certain asset sales, subject in each case to certain exceptions. The term loan amount, together with the equity financing described below, is sufficient to fund the transactions pursuant to the Arrangement. Citigroup will have the option of, in consultation with JP Morgan, arranging to have other financial institutions reasonably acceptable to the Purchaser provide portions of these credit
42
facilities. The term loan facility matures, and the lenders' commitments under the revolving credit facility terminate and all advances thereunder must be repaid, five years and one day after the Closing Date.
The obligation of the Arrangers to provide the debt financing on the terms outlined in the Debt Commitment Letter is subject to the following conditions, among others:
Notwithstanding the foregoing commitment, the Purchaser may elect to pursue alternative means of financing. The obligations of the Purchaser under the Acquisition Agreement are not conditional on its obtaining financing. The documentation governing the term loan facility and the revolving credit facility has not been finalized and, accordingly, the actual terms thereof may differ from those described in this Circular. Except as described herein, there is no current plan or arrangement to finance or repay the term loan facility and the revolving credit facility.
Equity Financing
The Purchaser, Kingdom, Cascade, Mr. Sharp and Triples have entered into the Funding and Cooperation Agreement pursuant to which Kingdom and Cascade have agreed, severally, and not jointly, to provide, or cause to be provided, equity financing to the Purchaser. Specifically, Triples has agreed to contribute all 3,725,698 Variable Multiple Voting Shares beneficially owned by it to the Purchaser, Kingdom has agreed to contribute all 7,392,182 Limited Voting Shares owned by it to the Purchaser and Cascade has agreed to contribute all 715,850 Limited Voting Shares owned by it to the Purchaser. In addition, Kingdom and Cascade have agreed to contribute up to an aggregate amount of approximately US$1.8 billion in cash as a source of funds required to consummate the Arrangement. The obligations of Kingdom, Cascade and Triples pursuant to the Funding and Cooperation Agreement are subject to the satisfaction of the conditions precedent set forth in the Acquisition Agreement. See "The Acquisition Agreement — Conditions Precedent to the Arrangement" in this Circular. The obligations of the Purchaser under the Acquisition Agreement are not conditional on its obtaining equity financing.
Guaranty
Pursuant to the Guaranty, each of Kingdom and Cascade, severally, and not jointly, have unconditionally and irrevocably guaranteed the prompt and complete payment when due of the payment obligations of the Purchaser (if any) in favour of FSHI that arise under or in connection with certain sections of the Acquisition Agreement, up to an amount of US$50,000,000 for Kingdom and US$50,000,000 for Cascade. The Guaranty terminates after the earliest to occur of (a) the Effective Time and payment of all obligations due by Purchaser under the Acquisition Agreement at such time; (b) termination of the Acquisition Agreement under certain circumstances that do not give rise to any payment obligation of the Purchaser; provided that FSHI has not contested or disputed such termination of the Acquisition Agreement; (c) 365 days after any other termination of the Acquisition Agreement unless FSHI has made a claim against the Purchaser and/or one or both of Kingdom or Cascade under the Guaranty, and (d) receipt in full by FSHI of all amounts payable by the Purchaser under the Acquisition Agreement.
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THE ACQUISITION AGREEMENT
The following is a summary only of certain material terms of the Acquisition Agreement, a copy of which is attached to this Circular as Appendix B. This summary and certain capitalized terms referred to in the summary do not contain all of the information about the Acquisition Agreement. Therefore, Shareholders should read the Acquisition Agreement carefully and in its entirety, as the rights and obligations of the parties are governed by the express terms of the Acquisition Agreement and not by this summary or any other information contained in this Circular.
The Acquisition Agreement contains representations and warranties made by the parties thereto. These representations and warranties, which are set forth in the Acquisition Agreement, were made by and to the parties thereto for the purposes of the Acquisition Agreement and are subject to qualifications and limitations agreed by the parties in connection with negotiating and entering into the Acquisition Agreement. In addition, these representations and warranties were made as of specified dates, may be subject to a contractual standard of materiality different from what may be viewed as material to Shareholders, or may have been used for the purpose of allocating risk between the parties instead of establishing such matters as facts. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this Circular, may have changed since the date of the Acquisition Agreement.
On February 9, 2007, FSHI and the Purchaser entered into the Acquisition Agreement, under which it was agreed that, subject to the terms and conditions set forth in the Acquisition Agreement, the Purchaser would acquire all of the issued and outstanding Limited Voting Shares for a price equal to US$82.00 in cash per share pursuant to the Arrangement, without interest and subject to applicable withholding taxes (other than Limited Voting Shares held by the Foundation, which will be acquired by FSHI pursuant to the Arrangement and a separate agreement for identical consideration, and Limited Voting Shares held by Kingdom and Cascade Subco).
Conditions Precedent to the Arrangement
Mutual Conditions Precedent
The Acquisition Agreement provides that the obligations of the parties to complete the transactions contemplated by the Acquisition Agreement are subject to the fulfillment, on or before the Effective Time, of each of the following conditions precedent, each of which may only be waived by the mutual consent of the parties:
Additional Conditions Precedent to the Obligations of the Purchaser
The Acquisition Agreement provides that the obligations of the Purchaser to complete the transactions contemplated by the Acquisition Agreement are also subject to the fulfillment of each of the following conditions precedent, each of which may be waived by the Purchaser:
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Additional Conditions Precedent to the Obligations of FSHI
The obligations of FSHI to complete the transactions contemplated by the Acquisition Agreement are also subject to the following conditions precedent, each of which may be waived by FSHI:
Representations and Warranties
The Acquisition Agreement contains customary representations and warranties on the part of FSHI relating to the following matters, among others: board and special committee approval; organization and qualification; authority relative to the Acquisition Agreement; no violations; capitalization; reporting status and securities laws matters; ownership of subsidiaries; public disclosure record; financial statements; books, records and disclosure controls; absence of certain changes; litigation; taxes; property; personal property; contracts; permits; pension and employee benefits; compliance with Laws; intellectual property; insurance; environment; employment agreements and collective agreements; vote required; and brokers.
The Acquisition Agreement also contains customary representations and warranties of the Purchaser relating to matters that include: authority relative to the Acquisition Agreement; no violations; financing and sponsor guarantees; and Investment Canada Act.
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Conduct of FSHI's Business
In the Acquisition Agreement, FSHI agreed to certain customary negative and affirmative covenants relating to the operation of its business between the date of execution of the Acquisition Agreement and the Closing Date, including that the business of Four Seasons shall be conducted only, and Four Seasons shall not take any action except, in the ordinary course of business consistent with past practice, and FSHI shall use commercially reasonable efforts to maintain and preserve its and its subsidiaries business organization, assets, properties, employees, goodwill and business relationships, including with any hotel and resort property owner. Shareholders should refer to the Acquisition Agreement for details regarding the additional negative and affirmative covenants given by FSHI in relation to the operation of its business prior to the Closing Date.
Other Covenants of FSHI
In addition, FSHI agreed that it shall do all such acts and things as may be necessary or desirable in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated in the Acquisition Agreement, including:
Covenants of the Purchaser
In the Acquisition Agreement, the Purchaser agreed to do all such acts and things as may be necessary or desirable in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated in the Acquisition Agreement, including:
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Covenants of FSHI Regarding Non-Solicitation
FSHI has agreed, except as otherwise permitted by the Acquisition Agreement, not to, directly or indirectly, through any officer, director, employee, representative (including any financial or other advisor) or agent of FSHI:
Consideration of Alternative Transactions
Notwithstanding any provision of the Acquisition Agreement, the Board shall be permitted to:
FSHI must promptly (and in any event within 72 hours of receipt by FSHI) notify the Purchaser, at first orally and thereafter in writing, of any proposal, inquiry, offer (or any amendment thereto) or request relating to or constituting an Acquisition Proposal, in each case received after February 9, 2007, of which any of its directors, officers, representatives or agents are or become aware, or any amendments to the foregoing, any request for discussions or negotiations, or any request for non-public information relating to Four Seasons in
47
connection with an Acquisition Proposal or for access to the books or records of Four Seasons by any person that informs Four Seasons that it is considering making, or has made, an Acquisition Proposal, and any amendment thereto, and FSHI shall promptly provide to the Purchaser a description of the material terms and conditions of any such Acquisition Proposal or proposal, inquiry, offer or request. FSHI must keep the Purchaser informed of any material change to the material terms of any such Acquisition Proposal or proposal, inquiry, offer or request.
Nothing contained in the non-solicitation provisions prohibits the Board from making any disclosure to Four Seasons Shareholders prior to the Effective Time if, in the good faith judgment of the Board, after consultation with outside legal counsel, such disclosure is necessary for the Board to act in a manner consistent with its fiduciary duties or is otherwise required under applicable law.
Nothing contained in the non-solicitation provisions shall limit in any way the obligation of FSHI to convene and hold the Meeting in accordance with the terms of the Acquisition Agreement unless the Acquisition Agreement is terminated in accordance with its terms.
Termination Rights
By Consent
The Acquisition Agreement may be terminated at any time prior to the Effective Time by mutual written consent of the Purchaser and FSHI.
By FSHI
Subject to the notice and cure provisions of the Acquisition Agreement, the Acquisition Agreement may be terminated by FSHI at any time prior to the Effective Time if FSHI is not in material breach of its obligations under the Acquisition Agreement and the Purchaser breaches any of its representations, warranties, covenants or agreements contained in the Acquisition Agreement that would give rise to the failure of the closing conditions relating thereto.
By Purchaser
The Acquisition Agreement may be terminated by the Purchaser at any time prior to the Effective Time if:
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By Either FSHI or Purchaser
The Acquisition Agreement may be terminated by either FSHI or the Purchaser at any time prior to the Effective Time if:
Disclosure of Material Information upon Termination
If the Acquisition Agreement is terminated prior to the Effective Time (other than if terminated by FSHI upon a breach by the Purchaser), FSHI is required, within five Business Days of such termination, to disclose all material information (being all material and non-public information concerning Four Seasons that has been furnished to the Purchaser or any of it affiliates in connection with the Acquisition Agreement, the contemplated transactions or the due diligence therefor) to the public generally by means of a material change report and a filing on Form 8-K or other periodic report required or permitted to be filed under applicable laws.
Termination Fee
The Acquisition Agreement provides that FSHI will pay to the Purchaser Payment Parties in such proportions as the Purchaser Payment Parties may advise Four Seasons jointly in writing an amount equal to US$75 million less any amounts actually paid or required to be paid by FSHI to the Purchaser for reimbursement of expenses (as described below under "Expense Reimbursement") if:
The Acquisition Agreements provides that the Purchaser will pay to FSHI an amount equal to US$100 million if the Acquisition Agreement is terminated by FSHI: (a) pursuant to clause (a) of "Termination Rights — By Either FSHI or Purchaser" above provided that the reason that the Effective Time did not occur prior to the Outside Date was the failure of the Purchaser to complete the transactions contemplated by the
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Acquisition Agreement when required to do so; or (b) as described above under "Termination Rights — By FSHI". Pursuant to the terms of the Funding and Cooperation Agreement, Mr. Sharp and Triples have agreed to relinquish all rights to receive any part of such termination fee.
Expense Reimbursement
The Acquisition Agreement also provides that FSHI shall pay, or cause to be paid, to the Purchaser the reasonable documented expenses of the Purchaser and its Affiliates incurred in connection with the transactions contemplated by the Acquisition Agreement (other than any expenses related to a broker, finder or investment banker) not to exceed US$10 million if:
In no event will FSHI be required to pay in respect of the termination fee and reimbursement of expenses, in the aggregate, an amount in excess of US$75 million.
Pre-Acquisition Reorganization
FSHI agreed in the Acquisition Agreement that, upon request by the Purchaser, FSHI shall, and shall cause its subsidiaries to, at the expense of the Purchaser, use its commercially reasonable efforts to (a) effect such reorganizations of its business, operations and assets and the integration of other affiliated businesses as the Purchaser may request, acting reasonably (each a "Pre-Acquisition Reorganization") and (b) cooperate with the Purchaser and its advisors to determine the nature of the Pre-Acquisition Reorganizations that might be undertaken and the manner in which they may be undertaken most effectively, subject to certain conditions, including that the Pre-Acquisition Reorganizations shall (i) not impede, delay or prevent consummation of the Arrangement (including by giving rise to litigation by third parties); (ii) be such that in the opinion of FSHI, acting reasonably, would not prejudice the Shareholders or the holders of Options; (iii) not require FSHI to obtain the approval of the Shareholders; or (iv) not be considered in determining whether a representation, warranty, or covenant of FSHI under the Acquisition Agreement has been breached, it being acknowledged by the Purchaser that these actions could require the consent of third parties under applicable Contracts and Governmental Entities.
The Acquisition Agreement provides that the Purchaser shall provide written notice to FSHI of any proposed Pre-Acquisition Reorganization at least twenty days prior to the anticipated Effective Time. No Pre-Acquisition Reorganization will be made effective prior to the Closing Date unless:
If the Arrangement is not completed, the Purchaser must reimburse FSHI for all reasonable fees and expenses (including any professional fees and expenses) incurred by Four Seasons in considering and effecting a Pre-Acquisition Reorganization and shall be responsible for any costs of Four Seasons in reversing or unwinding any Pre-Acquisition Reorganization that was effected prior to termination of the Acquisition Agreement at the Purchaser's request. The completion of the Pre-Acquisition Reorganization shall not be a condition to completion of the Arrangement.
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Voting Agreement
On February 9, 2007, the Purchaser, Kingdom, Cascade, Triples and FSHI entered into the Voting Agreement, pursuant to which each of Kingdom, Cascade and Triples has agreed, at any meeting of the Shareholders or any consent or approval, to vote its Limited Voting Shares or Variable Multiple Voting Shares (as the case may be), among other things, (a) in favour of the approval of the Arrangement and related matters, and (b) (i) against any merger, consolidation, sale of assets, amalgamation or other similar transaction (except for the Arrangement), (ii) against any amendment to FSHI's charter documents that would delay, impede, frustrate, prevent or nullify the Arrangement or related matters, and (iii) against any action, transaction, agreement or proposal that would result in a breach by FSHI of any representation, warranty, covenant, agreement or other obligation contained in the Acquisition Agreement. The Voting Agreement also prohibits each of Kingdom, Cascade and Triples from transferring its Limited Voting Shares or Variable Multiple Voting Shares, as applicable, (except to affiliates who become subject to similar voting and transfer restrictions) or granting proxies or entering into other voting arrangements with respect to its Limited Voting Shares or Variable Multiple Voting Shares, as applicable. The Voting Agreement will terminate upon the earlier of (a) the Effective Time, and (b) the termination of the Acquisition Agreement in accordance with the terms thereof.
PRINCIPAL LEGAL MATTERS
Court Approval of the Arrangement and Completion of the Arrangement
An arrangement under the OBCA requires Court approval. Prior to the mailing of this Circular, FSHI obtained the Interim Order, which provides for the calling and holding of the Meeting, the Dissent Rights and other procedural matters. A copy of the Interim Order is attached as Appendix E to this Circular.
Subject to the requisite approval of the Arrangement Resolution by Shareholders at the Meeting and receipt of the Arrangement Declaration from Triples, the hearing in respect of the Final Order is currently scheduled to take place on April 13, 2007 at 10:00 a.m. (Toronto time) in the Court at 330 University Avenue, Toronto, Ontario. Any Shareholder who wishes to appear, or to be represented, and to present evidence or arguments must serve and file a notice of appearance (a "Notice of Appearance") as set out in the Notice of Application for the Final Order and satisfy any other requirements of the Court. The Court will consider, among other things, the fairness and reasonableness of the Arrangement. The Court may approve the Arrangement in any manner the Court may direct, subject to compliance with any terms and conditions, if any, as the Court deems fit. In the event that the hearing is postponed, adjourned or rescheduled then, subject to further order of the Court, only those persons having previously served a Notice of Appearance in compliance with the Notice of Application and the Interim Order will be given notice of the postponement, adjournment or rescheduled date. A copy of the Notice of Application for the Final Order is attached as Appendix F to this Circular.
Assuming the Final Order is granted and the other conditions to closing contained in the Acquisition Agreement are satisfied or waived to the extent legally permissible, then Articles of Arrangement will be filed with the Director to give effect to the Arrangement.
Principal Regulatory Matters
The Arrangement is conditional upon the filing of all required notifications, the receipt of all approvals under applicable antitrust laws and the satisfaction of other regulatory requirements, or the expiration of applicable waiting periods under such laws, including under the HSR Act and other applicable competition or antitrust laws. The Arrangement is also conditional upon approval under the Investment Canada Act.
HSR Act
Under the HSR Act, the Arrangement may not be completed until the required HSR notifications have been filed with the Antitrust Division of the U.S. Department of Justice ("DOJ") and the U.S. Federal Trade Commission ("FTC"), and the required waiting period has expired. The initial waiting period is thirty (30) days after both parties have filed notification forms, but this period may be shortened if the reviewing agencies grant "early termination" of the waiting period, or it may be lengthened if the reviewing agency determines that an in-depth investigation is required and issues a formal request for additional information and documentary
51
material (referred to as a "Second Request"), in which case the waiting period will expire thirty (30) days after both parties have substantially complied with the Second Request. On March 2, 2007, the Purchaser and FSHI filed Notification and Report Forms under the HSR Act with the DOJ and the FTC and requested early termination of the waiting period.
Investment Canada Act and Competition Act
Under the Investment Canada Act, certain transactions involving the acquisition of control of a Canadian business by a non-Canadian that exceed prescribed monetary thresholds are subject to review and cannot be implemented unless the applicable Minister responsible for the Investment Canada Act is satisfied that the acquisition is likely to be of net benefit to Canada. The Minister of Canadian Heritage (for cultural activities) and the Minister of Industry (for all other activities) are the two Ministers that are responsible for reviewing transactions. Where a transaction is subject to the review requirement (a "Reviewable Transaction"), an application for review must be filed with the applicable Director of Investments appointed by the responsible Minister prior to the implementation of the Reviewable Transaction. The responsible Minister is then required to determine whether the Reviewable Transaction is likely to be of net benefit to Canada.
The prescribed factors of assessment to be considered by the responsible Minister include, among other things, the effect of the investment on the level and nature of economic activity in Canada (including the effect on employment, resource processing, utilization of Canadian products and services and exports), the degree and significance of participation by Canadians in the acquired business, the effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada, the effect of the investment on competition within any industry in Canada, the compatibility of the investment with national industrial, economic and cultural policies (taking into consideration corresponding provincial policies) and the contribution of the investment to Canada's ability to compete in world markets.
The Investment Canada Act contemplates an initial review period of 45 days after filing; however, if the responsible Minister has not completed the review by that date, the responsible Minister may unilaterally extend the review period by up to 30 days (or such longer period as the Minister and the applicant may agree) to permit completion of the review. In determining whether a Reviewable Transaction is of net benefit to Canada, the responsible Minister can take into account, among other things, the previously noted factors specified in the Investment Canada Act, as well as any written undertakings that may be given by the applicant. If a notice that a Reviewable Transaction is determined not to be of net benefit to Canada is sent to the applicant, the Reviewable Transaction may not be implemented (although the applicant would have an additional 30 days to make representations and submit undertakings in an effort to secure approval). If no notice is sent to the applicant by the responsible Minister within the 45 day period or the extended period, as the case may be, the Arrangement is deemed to be approved.
The acquisition of control of FSHI contemplated by the Arrangement involves the acquisition of a Canadian business by an entity the controlling persons of which are non-Canadian and exceeds the relevant monetary thresholds and is therefore a Reviewable Transaction. In accordance with the requirements of the Investment Canada Act, an application for review has been filed with the Director of Investments appointed by the Minister of Industry.
It is expected that the Commissioner will be consulted as part of the Investment Canada Act review. While the Arrangement is not subject to pre-merger notification under the Competition Act, the Commissioner retains the jurisdiction to review the competitive effects of any merger, even if the merger is not subject to pre-merger notification. FSHI believes that the Commissioner is likely to review the Arrangement to determine if it will likely lessen or prevent competition substantially.
It is possible that one or more of the government entities with which filings are made may seek various regulatory concessions as conditions for granting approval of the Arrangement. There can be no assurance that FSHI will obtain all of the regulatory approvals necessary to complete the Arrangement or that the granting of these approvals will not involve the imposition of conditions on completion of the Arrangement or require changes to the terms of the Arrangement. These conditions or changes could result in conditions to the Arrangement not being satisfied. See "The Acquisition Agreement — Conditions Precedent to the Arrangement".
52
Canadian Securities Law Matters
Each of Rule 61-501 and Regulation Q-27 is intended to regulate certain transactions to ensure the protection and fair treatment of minority securityholders.
The Arrangement is a "business combination" under Rule 61-501 and a "going private transaction" under Regulation Q-27 because it involves a transaction that would result in Kingdom, Cascade and Triples, through the Purchaser, owning all the equity securities of FSHI. Rule 61-501 and Regulation Q-27 provide that, unless exempted, a corporation proposing to carry out a business combination or a going private transaction, respectively, is required to obtain a formal valuation of the affected securities from a qualified and independent valuator and to provide the holders of the affected securities with a summary of such valuation. See "Special Factors — Independent Valuation and Fairness Opinion" in this Circular and see Appendix C to this Circular for a copy of the Valuation and Fairness Opinion.
Rule 61-501 and Regulation Q-27 also require that, in addition to any other required securityholder approval, in order to complete a business combination or a going private transaction, respectively, the approval of a simple majority of the votes cast by "minority" shareholders of each class of affected securities, voting separately as a class, must be obtained. In relation to the Arrangement and for purposes of this Circular, the "Minority Shareholders" of FSHI are all Shareholders other than:
Judicial Developments
Prior to the adoption of Rule 61-501 and Regulation Q-27, Canadian courts had, in few instances, granted preliminary injunctions to prohibit transactions that constituted going private transactions or business combinations within the meaning of Rule 61-501 and Regulation Q-27. The trend both in legislation, including the OBCA, and in Canadian judicial decisions has been towards permitting going private transactions and business combinations to proceed subject to compliance with requirements designed to ensure procedural and substantive fairness to the minority shareholders. Shareholders should consult their legal advisors for a determination of their legal rights.
Convertible Notes
The following is a summary of certain rights associated with the Convertible Notes and is qualified in its entirety by the terms and conditions of the Convertible Note Indenture.
Conversion Rights
The Convertible Notes are convertible into Limited Voting Shares (although at FSHI's option, it may make a cash payment in lieu of all or some of those Limited Voting Shares) in certain circumstances, including upon the occurrence of a "Fundamental Change", as defined in the Convertible Note Indenture. The Arrangement, if completed, would result in a "Fundamental Change" under the Convertible Note Indenture. As a result, holders may convert Convertible Notes during the period from and after the tenth day prior to the anticipated Closing Date until and including the close of business on the later of the tenth day after the actual Closing Date and the thirtieth business day after the notice of the offer to repurchase the Convertible Notes has been mailed, as described below. Upon such conversion, holders of Convertible Notes would be entitled to receive, subject to the right of FSHI to make a cash payment in lieu of some or all of the Limited Voting Shares that otherwise would be issued, the following:
53
If, for the purposes of the Convertible Note Indenture, the conversion date, the date of the Fundamental Change and the date on which FSHI provided notice of its election to deliver cash in lieu of Limited Voting Shares that otherwise would be issued on conversion of a Convertible Note were January 15, 2007, the amount of the cash payment referred to in the immediately preceding sentence for all of the Limited Voting Shares that otherwise would have been issued would have been equal to US$1,252.25 for each US$1,000 principal amount of Convertible Notes, plus accrued interest.
If Convertible Notes are surrendered for conversion and the Arrangement is not completed, no Convertible Notes surrendered for conversion will be converted.
Offer to Repurchase
If the Arrangement is completed, FSHI would be required to make an offer to repurchase the Convertible Notes at a purchase price equal to the principal amount of the Convertible Notes plus a make whole premium (as described above), and an amount equal to any accrued and unpaid interest to, but not including, the date of repurchase. FSHI must make this offer by providing a notice to the trustee under the Convertible Note Indenture and holders of Convertible Notes, as prescribed by the Convertible Note Indenture, within 30 days of the completion of the Arrangement.
FSHI has the right to satisfy the obligations in respect of conversion in the circumstances described above, and in respect of a repurchase of Convertible Notes as described above, with Limited Voting Shares (or other "Applicable Stock", as defined in the Convertible Note Indenture, in the case of a repurchase of Convertible Notes) or, at its option, in cash or a combination of Limited Voting Shares (or other "Applicable Stock," in the case of a repurchase of Convertible Notes) and cash.
The Purchaser has informed FSHI that it currently is considering whether to commence an offer to purchase all of the outstanding Convertible Notes prior to the Effective Time. The terms of any such offer have not yet been finalized, and will be determined by the Purchaser in the event that it decides to proceed with the offer. If the Purchaser proceeds with the offer, the Convertible Notes owned by the Purchaser and its subsidiaries will be transferred to FSHI for cancellation pursuant to the Arrangement.
Stock Exchange De-Listing and Reporting Issuer Status
The Limited Voting Shares are expected to be de-listed from the TSX and NYSE soon after the Arrangement is completed. FSHI will also seek to be deemed to have ceased to be a reporting issuer under the securities legislation of each of the provinces and territories in Canada under which it is currently a reporting issuer (or equivalent) and, following completion of the Arrangement, the Limited Voting Shares will become eligible for termination of registration under the 1934 Act and FSHI's obligation to file reports under section 15(d) of the 1934 Act will be suspended immediately upon the filing of a Form 15 with the SEC.
INFORMATION CONCERNING FSHI
FSHI is a corporation existing under the laws of the Province of Ontario, with its registered and principal office located at 1165 Leslie Street, Toronto, Ontario Canada M3C 2K8. Four Seasons is one of the world's leading managers of luxury hotels and resorts. Four Seasons has a portfolio of 74 luxury hotel and resort properties (containing approximately 18,090 guest rooms), several of which include a residential component. These properties are operated primarily under the Four Seasons brand name in principal cities and resort destinations in 31 countries in North America, the Caribbean, Europe, Asia, Australia, the Middle East and South America. In addition, 30 properties are under construction or development in a further 13 countries around the world. Of these, 20 new properties are to include a residential component.
54
Principal Shareholders
To the knowledge of the Directors and senior officers of FSHI, after reasonable enquiry, as of February 23, 2007, the only persons that own, of record or beneficially (directly or indirectly) or exercise control or direction over securities of FSHI carrying more than 10% of any class of equity securities of FSHI are as follows:
|
|
|
As at February 23, 2007 |
|||||
---|---|---|---|---|---|---|---|---|
Name and Address |
Designation of Class |
Type of Ownership |
No. of Securities |
Percentage of Class |
||||
Triples Holdings Limited(1) Toronto, Ontario |
Variable Multiple Voting Shares | beneficial and of record | 3,725,698 | 100% | ||||
Kingdom Investments, Inc. .(2) Bridgetown, Barbados |
Limited Voting Shares | beneficial | 7,389,182 | 21.9% | ||||
Kingdom Hotel Investments(2) Grand Cayman, Cayman Islands |
Limited Voting Shares | beneficial | 179,322 | 0.5% | ||||
Marsico Capital Management, LLC Denver, Colorado |
Limited Voting Shares | — (3) |
5,909,934 | 17.5% | ||||
Baron Capital Group, Inc. New York, New York |
Limited Voting Shares | — (4) |
3,605,599 | 10.7% |
Notes:
Pursuant to the Voting Agreement, each of Kingdom and Cascade has agreed to vote the Limited Voting Shares owned by it in favour of the Arrangement Resolution, and Triples has agreed to vote all of the Variable Multiple Voting Shares owned by it in favour of the Arrangement Resolution, subject in each case to the terms and conditions contained in the Voting Agreement. To the knowledge of the Directors and senior officers of FSHI, after reasonable enquiry, (a) each of Kingdom Investments, Inc. and Kingdom Hotel Investments has indicated that it intends to vote all of the Limited Voting Shares that it owns or over which it exercises voting power in favour of the Arrangement Resolution, and (b) Marsico has indicated that it currently intends to vote the Limited Voting Shares in respect of which it has voting power against the Arrangement Resolution.
Auditors
KPMG LLP is the auditor of FSHI.
Description of Share Capital
FSHI's authorized share capital consists of an unlimited number of First Preference Shares, issuable in series, an unlimited number of Second Preference Shares, issuable in series, 3,725,698 Variable Multiple Voting Shares and an unlimited number of Limited Voting Shares. At February 23, 2007, 3,725,698 Variable Multiple Voting Shares, 33,681,238 Limited Voting Shares and Options to purchase 3,644,879 Limited Voting Shares were outstanding. Also, as of September 30, 2006, an aggregate of up to 3,489,525 Limited Voting Shares are issuable upon the conversion of the Convertible Notes on certain conditions.
The following is a summary of the material attributes of our Variable Multiple Voting Shares and Limited Voting Shares:
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The dividends declared and paid on the Variable Multiple Voting Shares will be in amounts per share equal to 50% of the dividends declared and paid on the Limited Voting Shares, regardless of whether the number of votes attaching to the Variable Multiple Voting Shares is further increased.
Rights on Dissolution
In the event of the liquidation, dissolution or winding up of FSHI, the holders of Limited Voting Shares and Variable Multiple Voting Shares will be entitled, share for share, to receive, on a pro rata basis, all of the assets of FSHI remaining after payment of all of its liabilities, subject to the preferential rights of any shares ranking prior to the Limited Voting Shares and Variable Multiple Voting Shares.
Voting Rights
The holders of Limited Voting Shares and Variable Multiple Voting Shares will be entitled to receive notice of any meeting of FSHI's shareholders and to attend and vote at that meeting, except those meetings where only the holders of shares of another class or of a particular series are entitled to vote. Each Limited Voting Share will entitle the holder to one vote. Each Variable Multiple Voting Share currently entitles the holder to that number of votes that results in the aggregate votes attaching to all of the Variable Multiple Voting Shares representing approximately 64.55% of the votes attaching to the Variable Multiple Voting Shares and the Limited Voting Shares, in the aggregate. The number of votes attaching to the Variable Multiple Voting Shares adjusts concurrently with the issue of additional Limited Voting Shares in order to maintain this voting level. Holders of Limited Voting Shares are entitled, voting separately as a class, to elect two members of FSHI's Board annually.
Under the provisions attaching to the Variable Multiple Voting Shares, beginning with the annual meeting held in 2000 and every three years thereafter, the continued application of this adjusting mechanism is subject to ratification by the holders of our Limited Voting Shares. The adjusting mechanism was last ratified by shareholders at the annual and special meeting of shareholders in 2006. If the maintenance of the adjustment mechanism is not confirmed by a simple majority of the votes cast by the holders of Limited Voting Shares (other than "prescribed holders" of Limited Voting Shares), any issue of Limited Voting Shares after that time (other than the issue of Limited Voting Shares pursuant to a right, option or similar obligation granted prior to that time) will not result in a further adjustment in the number of votes attaching to the Variable Multiple Voting Shares. Additionally, the continued application of the adjustment mechanism will be subject to ratification after any transfer of Variable Multiple Voting Shares that results in a person other than a member of the Sharp Family (as defined in the articles of FSHI) holding Variable Multiple Voting Shares or after Mr. Sharp ceases to be the Chief Executive Officer.
For these purposes, the "prescribed holders" of Limited Voting Shares are: (a) any person or company that beneficially owns, directly or indirectly, Variable Multiple Voting Shares; (b) any person or company that beneficially owns, directly or indirectly, securities carrying more than 20% of the votes attaching to all of our outstanding voting securities; (c) any associate, insider or Affiliate of any person or company referred to in (b); (d) any of FSHI's Affiliates; (e) any person or company that, alone or in concert with others, effectively controls FSHI; and (f) if all of (b), (d) and (e) are inapplicable, all Directors and officers of FSHI and their associates (as defined in the Securities Act). To the knowledge of the Directors and senior officers of FSHI, the prescribed holders are Triples, Mr. Sharp and Rosalie Sharp.
Take-Over Bid Protection
Variable Multiple Voting Shares will be converted automatically into Limited Voting Shares upon any transfer of these shares, except (a) a transfer within the immediate family of Mr. Sharp (so long as the family beneficially owns a majority of the outstanding Variable Multiple Voting Shares) or (b) a transfer of a majority of the outstanding Variable Multiple Voting Shares to a purchaser who has offered to purchase all outstanding Variable Multiple Voting Shares and will, as a result, have acquired a majority of the outstanding Variable Multiple Voting Shares and who offers to purchase all outstanding Limited Voting Shares for a per share consideration equal to that offered for the Variable Multiple Voting Shares.
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Triples, which owns all of the outstanding Variable Multiple Voting Shares, has entered into an agreement with Montreal Trust Company of Canada, as trustee for the benefit of the holders of the Limited Voting Shares, that has the effect of preventing transactions that otherwise would deprive the holders of Limited Voting Shares of rights under applicable provincial take-over bid legislation to which they would have been entitled if the Variable Multiple Voting Shares had been Limited Voting Shares.
Dividend Policy
It is FSHI's policy to pay a semi-annual dividend to holders of the Limited Voting Shares and Variable Multiple Voting Shares. In each of the years 2004, 2005 and 2006 FSHI paid semi-annual cash dividends of Cdn.$0.055 per Limited Voting Share and Cdn.$0.0275 per Variable Multiple Voting Share. There are no restrictions currently that prevent FSHI from continuing to pay dividends on this basis. FSHI does not expect to change its dividend policy until the closing of the Arrangement. Pursuant to the Acquisition Agreement, FSHI agreed not to declare, set aside or pay any dividend or other distribution or payment (whether in cash, shares or property) in respect of the Limited Voting Shares or Variable Multiple Voting Shares owned by any person other than regularly scheduled semi-annual cash dividends, consistent with past practice.
Previous Distributions of Securities
During the five years preceding the date of this Circular, FSHI has not distributed any Limited Voting Shares other than as follows:
Date |
Purpose of Distribution |
Number of Limited Voting Shares |
Aggregate Proceeds |
||||
---|---|---|---|---|---|---|---|
Fiscal 2002 | Exercise of Options | 225,465 | Cdn. $ | 5,653,127 | |||
Conversion of Variable Multiple Voting Shares |
4,700 |
N/A |
|||||
Fiscal 2003 |
Exercise of Options |
366,250 |
Cdn. $ |
7,673,353 |
|||
Conversion of Variable Multiple Voting Shares |
150,000 |
N/A |
|||||
Fiscal 2004 |
Exercise of Options |
1,367,054 |
Cdn. $ |
49,693,320 |
|||
Conversion of Variable Multiple Voting Shares |
106,474 |
N/A |
|||||
Fiscal 2005 |
Exercise of Options |
32,380 |
Cdn. $ |
1,787,976 |
|||
Fiscal 2006 |
Exercise of Options |
746,310 |
Cdn. $ |
41,317,971 |
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FSHI Market Price and Trading Volume Data
The Limited Voting Shares are listed and trade on the NYSE under the symbol "FS" and on the TSX under the symbol "FSH". The following table summarizes the high and low prices and volumes of trading of the Limited Voting Shares on the TSX for each of the periods indicated:
|
Price Range Cdn.$ |
|
||||
---|---|---|---|---|---|---|
|
High |
Low |
Volume |
|||
2007 | ||||||
February 1 to 23 | Cdn.$99.27 | Cdn.$93.36 | 497,159 | |||
January | 98.65 | 94.42 | 492,620 | |||
2006 |
||||||
December | 95.71 | 92.17 | 371,275 | |||
November | 95.35 | 71.45 | 2,159,040 | |||
October | 73.79 | 67.50 | 693,089 | |||
September | 73.16 | 68.80 | 471,735 | |||
August | 70.93 | 60.50 | 1,344,889 | |||
July | 69.12 | 59.83 | 353,684 | |||
June | 71.57 | 66.00 | 344,952 | |||
May | 75.11 | 58.87 | 836,465 | |||
April | 62.04 | 58.05 | 543,800 | |||
March | 64.95 | 58.40 | 463,879 | |||
February | 68.56 | 64.22 | 456,534 | |||
January | 67.73 | 57.69 | 534,073 | |||
2005 |
||||||
December | 59.29 | 54.21 | 546,511 | |||
November | 67.79 | 57.92 | 584,004 | |||
October | 69.93 | 60.80 | 352,596 | |||
September | 72.07 | 63.88 | 671,598 | |||
August | 81.40 | 69.14 | 650,755 | |||
July | 84.88 | 80.30 | 421,881 | |||
June | 94.00 | 80.92 | 438,263 | |||
May | 92.50 | 77.50 | 678,335 | |||
April | 90.15 | 79.05 | 680,736 | |||
March | 89.50 | 81.63 | 956,188 | |||
February | 101.90 | 87.36 | 749,941 | |||
January | 99.63 | 92.15 | 986,458 |
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The following table summarizes the high and low price and volumes of trading of the Limited Voting Shares on the NYSE for each of the periods indicated:
|
Price Range US$ |
|
||||
---|---|---|---|---|---|---|
|
High |
Low |
Volume |
|||
2007 | ||||||
February 1 to 23 | US$84.25 | US$81.12 | 3,482,300 | |||
January | 83.65 | 81.37 | 4,353,200 | |||
2006 |
||||||
December | 82.36 | 80.51 | 2,797,000 | |||
November | 84.25 | 63.32 | 16,738,500 | |||
October | 64.97 | 60.19 | 4,118,500 | |||
September | 65.40 | 61.98 | 3,533,400 | |||
August | 63.60 | 53.46 | 6,374,300 | |||
July | 61.76 | 52.51 | 3,888,100 | |||
June | 64.80 | 58.98 | 5,527,700 | |||
May | 67.80 | 53.03 | 9,930,400 | |||
April | 55.02 | 49.80 | 3,613,100 | |||
March | 57.35 | 50.40 | 4,991,900 | |||
February | 59.55 | 56.02 | 2,913,500 | |||
January | 59.13 | 49.86 | 5,627,400 | |||
2005 |
||||||
December | 50.66 | 46.85 | 5,138,600 | |||
November | 57.19 | 49.26 | 8,072,400 | |||
October | 59.08 | 51.75 | 4,550,200 | |||
September | 60.65 | 54.66 | 5,612,200 | |||
August | 67.20 | 58.25 | 10,555,500 | |||
July | 69.60 | 65.20 | 3,883,000 | |||
June | 75.22 | 66.10 | 6,109,900 | |||
May | 72.47 | 61.81 | 6,275,100 | |||
April | 72.79 | 62.93 | 5,156,600 | |||
March | 72.14 | 68.10 | 6,640,400 | |||
February | 82.20 | 71.00 | 6,637,000 | |||
January | 82.15 | 75.16 | 5,334,200 |
The US$82.00 price per Limited Voting Share that is to be paid under the Arrangement represents a premium of approximately 28.4% over the closing trading prices of the Limited Voting Shares on the NYSE and on the TSX, in each case on November 3, 2006, the last trading day on the NYSE and the TSX prior to the public announcement of the Proposal.
Material Changes in the Affairs of FSHI
Except as disclosed elsewhere in this Circular or as publicly disclosed, FSHI has no plans or proposals for a material change in its affairs.
Previous Purchases and Sales
During the twelve months prior to the date hereof, FSHI has not purchased or sold any of its own securities (excluding securities purchased or sold pursuant to the exercise of Options).
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Historical Selected Financial Data
Financial Statements and Reconciliation of Interim Statements to U.S. Generally Accepted Accounting Principles
The audited financial statements (and the Notes thereto, including the related supplemental note entitled "Reconciliation to United States Generally Accepted Accounting Principles — Years ended December 31, 2005 and 2004") set forth in FSHI's Annual Report on Form 40-F for the years ended December 31, 2005 and 2004 and the unaudited financial statements (and the Notes thereto) set forth in FSHI's quarterly reports filed on Form 6-K for the quarterly periods ended March 31, 2006 and 2005, June 30, 2006 and 2005 and September 30, 2006 and 2005 are incorporated by reference in this Circular. These financial statements should be read in conjunction with the relevant Annual Information Form filed therewith for the annual reports and the relevant Management's Discussion and Analysis filed therewith for the annual and the quarterly reports. These documents and copies thereof may be obtained from the locations set forth in the section of the Circular entitled "Additional Information". The audited Financial Statements for the year ended December 31, 2005 and 2004 and the unaudited interim consolidated financial statements of FSHI for the nine months ended September 30, 2006 have been prepared in accordance with GAAP. In certain respects, generally accepted accounting principles as applied in the United States differ from those applied in Canada. Appendix H contains an unaudited interim reconciliation to U.S. Generally Accepted Accounting Principles for those interim consolidated financial statements of FSHI for the nine-month period ended September 30, 2006.
All documents of the type referred to above, including the audited financial statements set forth in FSHI's Annual Report on Form 40-F for the year ended December 31, 2006 that are filed by FSHI with a securities commission or any similar authority in the United States or Canada after the date of this Circular and prior to the Meeting, will be deemed to be incorporated by reference into this Circular.
Any statement contained in this Circular or in a document incorporated or deemed to be incorporated by reference herein will be deemed to be modified or superseded for the purposes of this Circular to the extent that a statement contained herein, or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein, modified or supersedes such statement. The modifying or superseding statement need not state that it has modified or superseded a prior statement or include any other information set forth in the document that it modified or supersedes. The making of a modifying or superseding statement will not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation, an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which it was made. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Circular.
Ratio of Earnings (Loss) to Fixed Charges and Book Value Per Share
The following table contains the computation of ratio of earnings (loss) to fixed charges and book value per share of FSHI, under GAAP, for the periods indicated.
|
|
Years Ended December 31, |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Nine Months Ended September 30, 2006 |
|||||||||
|
2005 |
2004 |
||||||||
|
(US$000's) |
(US$000's) |
||||||||
Ratio of Earnings (Loss) to Fixed Charges: | ||||||||||
Earnings (loss): | ||||||||||
Earnings (loss) before income taxes | $ | 48,481 | $ | (39,064 | ) | $ | 38,271 | |||
Fixed charges | 11,359 | 11,545 | 10,461 | |||||||
$ | 59,840 | $ | (27,519 | ) | $ | 48,732 | ||||
Fixed charges: | ||||||||||
Interest expense | $ | 11,359 | $ | 11,545 | $ | 10,461 | ||||
Ratio of earnings (loss) to fixed charges(1) | 5.3x | (2.4)x | 4.7x | |||||||
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|
As at September 30, 2006 |
||
---|---|---|---|
|
(US$000's, except per share amount) |
||
Book Value Per Share: | |||
Book value of equity | $ | 606,975 | |
Outstanding shares | 36,804,116 | ||
Book value per share | $ | 16.49 | |
The following table contains the computation of ratio of earnings (loss) to fixed charges and book value per share of FSHI, under US generally accepted accounting principles, for the periods indicated.
|
|
Years Ended December 31, |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Nine Months Ended September 30, 2006 |
|||||||||
|
2005 |
2004 |
||||||||
|
(US$000's) |
(US$000's) |
||||||||
Ratio of Earnings (Loss) to Fixed Charges: |
||||||||||
Earnings (loss): | ||||||||||
Earnings (loss) before income taxes | $ | 54,032 | $ | (35,091 | ) | $ | 36,880 | |||
Fixed charges | 6,143 | 7,739 | 11,610 | |||||||
Distributed income of equity investees | 0 | 132 | 293 | |||||||
$ | 60,175 | $ | (27,220 | ) | $ | 48,783 | ||||
Fixed charges: | ||||||||||
Interest expense | $ | 6,143 | $ | 7,739 | $ | 11,610 | ||||
Ratio of earnings (loss) to fixed charges(1) | 9.8x | (3.5)x | 4.2x | |||||||
|
As at September 30, 2006 |
||
---|---|---|---|
|
(US$000's, except per share amount) |
||
Book Value Per Share: | |||
Book value of equity | $ | 521,395 | |
Outstanding shares | 36,804,116 | ||
Book value per share | $ | 14.17 | |
INFORMATION CONCERNING THE PURCHASER, KINGDOM, CASCADE, TRIPLES AND MR. SHARP
The following information about the Purchaser, Kingdom, Cascade, Triples and Mr. Sharp is a general summary only and is not intended to be comprehensive.
Purchaser
The Purchaser is a company existing under the laws of the Province of British Columbia. The Purchaser is owned by Triples, Kingdom and Cascade Subco. The Purchaser has no subsidiaries and was organized solely for
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the purpose of entering into the Acquisition Agreement and consummating the Arrangement contemplated thereby. The Purchaser has not carried on any activities to date other than activities incident to its formation and in connection with the Arrangement.
Kingdom Hotels International
Kingdom Hotels International, a Cayman Islands company, is owned by a trust created by HRH Prince Alwaleed for the benefit of HRH Prince Alwaleed and his family. HRH Prince Alwaleed and related trusts and other entities have made substantial investments in multiple sectors including banking, hotels, media, telecommunications, technology, construction and real estate, entertainment, and upscale fashion, among others. Significant hotel-related investments include various Four Seasons, Fairmont and Mövenpick hotel properties and interests in FSHI, Fairmont Raffles Holdings International and Mövenpick Hotels & Resorts, covering the ownership, management and/or development of more than 200 hotels throughout North America, Europe, the Middle East, Asia and Africa. Significant investments in other sectors include interests in Citigroup, News Corp., Time Warner, Motorola, Apple Inc., Ballast Nedam, Canary Wharf, Disneyland Paris, Saks Inc. and Kingdom Center.
Kingdom has advised FSHI that, as of February 23, 2007, it beneficially owns or controls 7,389,182 Limited Voting Shares, representing approximately 22% of the outstanding Limited Voting Shares. In addition, HRH Prince Alwaleed may also be deemed to be the beneficial owner of an additional 179,322 Limited Voting Shares, in which he shares voting and dispositive powers. These 179,322 Limited Voting Shares are not subject to the Proposal and will receive the same consideration of US$82.00 per share as the Minority Shareholders. Upon completion of the Arrangement and the exchange of its Limited Voting Shares for an interest in the Purchaser, Kingdom will own an approximate 47.5% common equity interest in FSHI.
Cascade Investment, L.L.C.
Cascade Investment, L.L.C. is a limited liability company organized under the laws of the State of Washington. The sole member of Cascade is William H. Gates III. Cascade is a private investment entity.
Cascade has advised FSHI that, as of February 23, 2007, it beneficially owns or controls 715,850 Limited Voting Shares, representing approximately 2% of the outstanding Limited Voting Shares. Upon completion of the Arrangement and the exchange of its Limited Voting Shares for an interest in the Purchaser, Cascade Subco will own an approximate 47.5% common equity interest in FSHI.
Mr. Gates and his wife are the co-trustees of the Foundation, which, as of February 23, 2007, beneficially owns or controls 1,984,150 Limited Voting Shares, representing approximately 6.0% of the outstanding Limited Voting Shares. The Foundation is not a party to the Acquisition Agreement. However, the Foundation has entered into an agreement to sell all of its Limited Voting Shares to FSHI for a cash payment of US$82.00 per share pursuant to the Arrangement. FSHI will acquire and cancel all of the Foundation's Limited Voting Shares.
Triples Holdings Limited and Mr. Sharp
Triples Holdings Limited is a corporation existing under the laws of the Province of Ontario, with its principal office located at 1165 Leslie Street, Toronto, Ontario, Canada M3C 2K8. All of the shares of Triples are beneficially owned by Mr. Sharp, the Chairman and Chief Executive Officer of FSHI, and members of his immediate family. As of February 23, 2007, Triples owns 3,725,698 Variable Multiple Voting Shares of FSHI, representing all of the outstanding Variable Multiple Voting Shares. As a result of the exchange of its Variable Multiple Voting Shares for an interest in the Purchaser pursuant to the Arrangement and the Amalgamation, Triples will own a 5% common equity interest in FSHI, as well as an investment in Preferred Shares that will be issued in exchange for Variable Multiple Voting Shares owned by Triples that have not been ultimately exchanged for this 5% common equity interest.
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CERTAIN TAX CONSIDERATIONS FOR SHAREHOLDERS
Certain Canadian Federal Income Tax Considerations
In the opinion of Goodmans LLP, Canadian counsel to FSHI, the following summary describes the principal Canadian federal income tax considerations generally applicable to a Shareholder who, for the purposes of the Tax Act and at all relevant times, holds its Limited Voting Shares as capital property, deals at arm's length with FSHI and the Purchaser, and is not affiliated with FSHI or the Purchaser. Generally, Limited Voting Shares will be capital property to a Shareholder unless the Limited Voting Shares are held or were acquired in the course of carrying on a business of buying and selling securities or as part of an adventure or concern in the nature of trade. Certain Shareholders who are residents of Canada for purposes of the Tax Act and whose Limited Voting Shares might not otherwise be capital property may, in some circumstances, be entitled to make an irrevocable election in accordance with subsection 39(4) of the Tax Act to have such Limited Voting Shares and every other "Canadian security" (as defined in the Tax Act) owned by them deemed to be capital property in the taxation year of the election and in all subsequent taxation years. Such Shareholders should consult their own tax advisors for advice with respect to whether an election under subsection 39(4) of the Tax Act is available or advisable in their particular circumstances.
This summary is based upon the current provisions of the Tax Act, the regulations thereunder (the "Regulations") and counsel's understanding of the current administrative policies and assessing practices published in writing by the CRA prior to the date hereof. This summary also takes into account all specific proposals to amend the Tax Act and the Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the "Proposed Amendments") and assumes that all Proposed Amendments will be enacted in the form proposed. However, no assurances can be given that the Proposed Amendments will be enacted as proposed, or at all. This summary does not otherwise take into account or anticipate any changes in law or administrative policies or assessing practices, whether by legislative, regulatory, administrative or judicial action or decision, nor does it take into account provincial, territorial or foreign tax legislation or considerations, which may be different from those discussed in this summary. This summary assumes that the Limited Voting Shares will be listed on the TSX and the NYSE at the time that the Limited Voting Shares are acquired by the Purchaser pursuant to the Arrangement (the "Acquisition Time").
This summary is not applicable to a Shareholder (a) that is, for the purposes of certain rules in the Tax Act applicable to securities held by financial institutions, a "financial institution" (as defined in the Tax Act), (b) who acquired its Limited Voting Shares upon the exercise of an Option or conversion of a Convertible Note, (c) that is a "specified financial institution" (as defined in the Tax Act), or (d) that is a Shareholder an interest in which is a "tax shelter investment" (as defined in the Tax Act). Each holder of Options and Convertible Notes should consult its tax advisors concerning the tax consequences of the Arrangement for holders of Options or arising as a result of the Arrangement for holders of Convertible Notes. This summary is only applicable to a Shareholder that transfers shares to the Purchaser for consideration that consists solely of cash.
This summary is not, and is not intended to be, legal or tax advice to any particular Shareholder. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, Shareholders should consult their own tax advisors with respect to the Canadian federal income tax consequences of the Arrangement having regard to their own particular circumstances.
Currency Translation
In general, amounts relevant to the computation of income under the Tax Act are reported in Canadian dollars. Any amount that is expressed or denominated in a currency other than Canadian dollars, including adjusted cost base and proceeds of disposition, must be converted into Canadian dollars based on the exchange rate prevailing on the date each such amount arises.
Shareholders Resident in Canada
The following portion of this summary is generally applicable to a Shareholder who is a Resident Shareholder.
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Disposition of Limited Voting Shares
Generally, a Resident Shareholder who disposes of Limited Voting Shares under the Arrangement will realize a capital gain (or capital loss) equal to the amount by which the cash received by the Resident Shareholder under the Arrangement exceeds (or is less than) the aggregate of the adjusted cost base of the Limited Voting Shares to the Resident Shareholder and any reasonable costs of disposition.
Generally, a Resident Shareholder is required to include in computing its income for a taxation year one-half of the amount of any capital gain (a "taxable capital gain") realized by the Resident Shareholder in the year. A Resident Shareholder is required to deduct one-half of the amount of any capital loss (an "allowable capital loss") realized in a taxation year from taxable capital gains realized in the year, and allowable capital losses in excess of taxable capital gains may be carried back and deducted in any of the three (3) preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized by the Resident Shareholder in such years, to the extent and in the circumstances prescribed by the Tax Act.
The amount of any capital loss realized by a Resident Shareholder that is a corporation on the disposition of a Limited Voting Share may be reduced by the amount of any dividends received (or deemed to be received) by it on such Limited Voting Share to the extent and under the circumstances prescribed by the Tax Act. Similar rules may apply where a Limited Voting Share is owned by a partnership or trust of which a corporation, trust or partnership is a member or beneficiary. Resident Shareholders to whom these rules may should consult their own tax advisors.
A Resident Shareholder that is throughout the year a "Canadian-controlled private corporation" (as defined in the Tax Act) may be liable for a refundable tax of 62/3% on its "aggregate investment income", which is defined to include an amount in respect of taxable capital gains.
Capital gains realized by an individual or a trust, other than certain trusts, may give rise to alternative minimum tax under the Tax Act. Resident Shareholders should consult their own advisors with respect to alternative minimum tax provisions.
Dissenting Shareholders
A Resident Shareholder who exercises Dissent Rights (a "Resident Dissenting Shareholder") will be deemed to transfer such holder's Limited Voting Shares to the Purchaser in exchange for payment by the Purchaser of the fair value of such Limited Voting Shares. In general, a Resident Dissenting Shareholder will realize a capital gain (or capital loss) equal to the amount by which the cash received in respect of the fair value of the holder's Limited Voting Shares (other than in respect of interest awarded by a court) exceeds (or is less than) the adjusted cost base of such Limited Voting Shares and any reasonable costs of disposition. See "Disposition of Limited Voting Shares" above. Interest awarded by a court to a Resident Dissenting Shareholder will be included in the Shareholder's income for the purposes of the Tax Act. Resident Dissenting Shareholders should consult their own tax advisors.
Shareholders Not Resident in Canada
The following portion of this summary is applicable to a Shareholder who is a Non-Resident Shareholder. Special rules, which are not discussed in this summary, may apply to a Non-Resident Shareholder that is either an insurer carrying on business in Canada and elsewhere or an "authorized foreign bank" (as defined in the Tax Act). Such Non-Resident Shareholders should consult their own tax advisors.
Disposition of Limited Voting Shares
A Non-Resident Shareholder will not be subject to tax under the Tax Act on any capital gain realized on the disposition of Limited Voting Shares under the Arrangement unless the Limited Voting Shares are "taxable Canadian property" (within the meaning of the Tax Act) to the Non-Resident Shareholder at the Acquisition Time and such gain is not otherwise exempt from tax under the Tax Act pursuant to the provisions of an applicable income tax treaty.
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Generally, Limited Voting Shares will not be taxable Canadian property to a Non-Resident Shareholder at the Acquisition Time provided that:
Notwithstanding the foregoing, Limited Voting Shares may be deemed to be taxable Canadian property in certain circumstances specified in the Tax Act.
Even if Limited Voting Shares are considered to be taxable Canadian property of a Non-Resident Shareholder, the Non-Resident Shareholder may be exempt from tax under the Tax Act on any gain on the disposition of Limited Voting Shares pursuant to the terms of an applicable income tax treaty. Non-Resident Shareholders should consult their own tax advisors with respect to the availability of any relief under the terms of any applicable income tax treaty in their particular circumstances.
In the event that the Limited Voting Shares constitute taxable Canadian property to a Non-Resident Shareholder and any capital gain realized by the Non-Resident Shareholder on the disposition of Limited Voting Shares under the Arrangement is not exempt from tax under the Tax Act by virtue of an applicable income tax treaty, then the tax consequences described above under the heading "Shareholders Resident in Canada — Disposition of Limited Voting Shares" will generally apply. Non-Resident Shareholders should consult their own tax advisors regarding any Canadian reporting requirement arising from this transaction.
Dissenting Shareholders
A Non-Resident Shareholder who exercises Dissent Rights (a "Non-Resident Dissenting Shareholder") will transfer such holder's Limited Voting Shares to the Purchaser in exchange for payment by the Purchaser of the fair value of such Limited Voting Shares. In general, the tax treatment of a Non-Resident Dissenting Shareholder will be similar to that of a Non-Resident Shareholder who participates in the Arrangement. See "Disposition of Limited Voting Shares" above.
The amount of any interest awarded by a court to a Non-Resident Dissenting Shareholder will be subject to Canadian withholding tax at a rate of 25% unless the rate is reduced under the provisions of an applicable income tax treaty. Non-Resident Dissenting Shareholders should consult their own tax advisors with respect to the availability of any relief under the terms of an applicable income tax treaty in their particular circumstances.
Certain United States Federal Income Tax Considerations
The following is a summary of certain material U.S. federal income tax consequences of the Arrangement to holders of Limited Voting Shares. This discussion is based on current provisions of the U.S. Internal Revenue Code of 1986, as amended, current and proposed Treasury Regulations, Internal Revenue Service rulings and pronouncements and judicial decisions now in effect, all of which are subject to change at any time, possibly with retroactive effect. The discussion applies only to Shareholders who hold Limited Voting Shares as a capital asset within the meaning of Section 1221 of the Internal Revenue Code. This discussion does not address all aspects of United States federal income taxation that may be relevant to Shareholders in light of their particular circumstances, or that may apply to Shareholders subject to special treatment under United States federal income tax laws (such as insurance companies, tax-exempt organizations, financial institutions, dealers in securities, traders in securities that elect mark-to-market treatment, U.S. expatriates, persons who acquired Limited Voting Shares pursuant to the exercise of an employee stock option or right or otherwise as compensation, persons who hold Limited Voting Shares as part of a straddle, hedge, constructive sale or conversion transaction, and Shareholders whose functional currency is not the U.S. dollar). This discussion does not address any aspect of state, local, non-U.S. or other tax laws, estate or gift tax considerations, or the alternative minimum tax. Further, this summary does not address the U.S. federal income tax consequences of
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the Arrangement to any person that will own, actually or constructively, shares of FSHI (or any successor corporation) following the Arrangement or to any Shareholder who validly exercises the Dissent Right.
For purposes of this discussion, a person is a "U.S. holder" if such person is the beneficial owner of Limited Voting Shares and is:
For purposes of this discussion, a person is a "non-U.S. holder" if such person is the beneficial owner of Limited Voting Shares and is not a U.S. holder (other than an entity or arrangement treated as a partnership for U.S. federal income tax purposes).
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Limited Voting Shares, the tax treatment of a person treated as a partner in such entity generally will depend upon the status of the partner and the activities of the partnership. A person treated as a partner in a partnership that is a beneficial owner of Limited Voting Shares should consult its own tax advisor.
THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE ARRANGEMENT. SHAREHOLDERS SHOULD CONSULT WITH THEIR TAX ADVISOR REGARDING THE APPLICABILITY OF THE RULES DISCUSSED BELOW TO THEM AND THE PARTICULAR TAX EFFECTS TO THEM OF THE ARRANGEMENT, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS.
TO ENSURE COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, SHAREHOLDERS ARE HEREBY NOTIFIED THAT:
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Federal Income Tax Considerations for U.S. Holders of Limited Voting Shares
The receipt of cash by a U.S. holder for Limited Voting Shares transferred pursuant to the Arrangement will be a taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder who surrenders Limited Voting Shares for cash pursuant to the Arrangement will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received and the U.S. holder's adjusted tax basis in the shares surrendered. Gain or loss will be determined separately for each block of shares (i.e., shares acquired at the same cost in a single transaction). If the holding period in Limited Voting Shares surrendered pursuant to the Arrangement is greater than one year as of the date of the Effective Time of the Arrangement, the gain or loss will be long-term capital gain or loss. The deductibility of capital losses is subject to limitations under the U.S. Internal Revenue Code.
Federal Income Tax Considerations for Non-U.S. Holders of Limited Voting Shares
Any gain recognized by a non-U.S. holder in respect of Limited Voting Shares transferred pursuant to the Arrangement generally will not be subject to United States federal income tax, unless:
Information Reporting and Backup Withholding
Payments of cash made to a holder of Limited Voting Shares pursuant to the Arrangement, under certain circumstances, may be subject to information reporting and backup withholding at a rate of 28%, unless the holder provides proof of an applicable exemption, or furnishes its U.S. taxpayer identification number and otherwise complies with all applicable requirements of the backup withholding rules. In this regard, a non-U.S. holder may be required to provide IRS Form W8-BEN certifying, under penalties of perjury, as to its non-U.S. status. Backup withholding is not an additional tax and any amounts withheld under the backup withholding rules will be refunded or allowed as a credit against the holder's United States federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service in a timely manner.
DISSENTING SHAREHOLDERS' RIGHTS
The following is only a summary of the Dissenting Shareholder provisions of the OBCA, as amended by the Plan of Arrangement and the Interim Order, which are technical and complex. A copy of the Plan of Arrangement is attached as Appendix D to this Circular, a copy of the Interim Order is attached as Appendix E to this Circular and a copy of section 185 of the OBCA is attached as Appendix G to this Circular. It is recommended that any Shareholder wishing to exercise a Dissent Right seek legal advice as the failure to comply strictly with the provisions of the OBCA (as amended by the Plan of Arrangement and the Interim Order) may result in the loss or unavailability of the Dissent Right.
Pursuant to the Interim Order, Registered Shareholders have the right to dissent from the Arrangement Resolution in the manner provided in section 185 of the OBCA, as modified by the Interim Order. The following summary is qualified in its entirety by the Interim Order and the provisions of section 185 of the OBCA, as modified by the Interim Order and the Plan of Arrangement.
A Dissenting Shareholder will be entitled, in the event the Arrangement becomes effective, to be paid by FSHI the fair value of the Limited Voting Shares held by such Dissenting Shareholder determined as at the close of business on the day before the Arrangement Resolution is adopted. There can be no assurance that such fair value will be greater than or equivalent to the consideration being offered to Shareholders under the Arrangement.
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A Shareholder may only exercise the Dissent Right in respect of the Limited Voting Shares registered in that Shareholder's name. In addition, a Shareholder may only exercise the Dissent Right with respect to all Limited Voting Shares held by that Shareholder on behalf of any one beneficial owner. In many cases, the Limited Voting Shares beneficially owned by a Non-Registered Holder are registered either:
Accordingly, a Non-Registered Holder will not be entitled to exercise the Dissent Right directly (unless the Limited Voting Shares are re-registered in the Non-Registered Holder's name). A Non-Registered Holder who wishes to exercise the Dissent Right should immediately contact the Intermediary with whom the Non-Registered Holder deals in respect of its Limited Voting Shares and either:
A Registered Shareholder who wishes to exercise the Dissent Right in respect of the Arrangement Resolution must provide a written objection to the Arrangement Resolution (a "Dissent Notice") to Four Seasons Hotels Inc., 1165 Leslie Street, Toronto, ON M3C 2K4, Attention: Secretary, facsimile number (416) 441-4349 prior to 5:00 p.m. (Toronto time) on the Business Day immediately preceding the Meeting or any adjournment or postponement of the Meeting. The filing of a Dissent Notice does not deprive a Registered Shareholder of the right to vote at the Meeting; however, a Registered Shareholder who has submitted a Dissent Notice and who votes in favour of the Arrangement Resolution will no longer be considered a Dissenting Shareholder with respect to the Limited Voting Shares voted in favour of the Arrangement Resolution. A vote against the Arrangement Resolution or an abstention will not constitute a Dissent Notice, but a Registered Shareholder need not vote its Limited Voting Shares against the Arrangement Resolution in order to dissent.
Similarly, the revocation of a proxy conferring authority on the proxy holder to vote in favour of the Arrangement Resolution does not constitute a Dissent Notice; however, any proxy granted by a Registered Shareholder who intends to dissent, other than a proxy that instructs the proxy holder to vote against the Arrangement Resolution, should be validly revoked in order to prevent the proxy holder from voting such Limited Voting Shares in favour of the Arrangement Resolution and thereby causing the Registered Shareholder to forfeit such Shareholder's right to dissent.
FSHI is required, within ten days after the adoption of the Arrangement Resolution, to notify each Dissenting Shareholder that the Arrangement Resolution has been adopted, but such notice is not required to be sent to any Shareholder who voted for the Arrangement Resolution or who has withdrawn such Shareholder's Dissent Notice.
A Shareholder who wishes to exercise the Dissent Right must, within 20 days after receipt of notice that the Arrangement Resolution has been adopted or, if such Shareholder does not receive such notice, within 20 days after the Shareholder learns that the Arrangement Resolution has been adopted, send to FSHI a written notice (a "Payment Demand") containing the Shareholder's name and address, the number of Limited Voting Shares in respect of which the Shareholder dissented, and a demand for payment of the fair value of such Limited Voting Shares. Within 30 days after a Payment Demand, the Shareholder must send to FSHI's Transfer Agent, Computershare Trust Company of Canada, 9th Floor, 100 University Avenue, Toronto, Ontario, Canada M5J 2Y1, Attention: Client Services, Stock Transfer Department, the share certificates representing the Limited Voting Shares in respect of which the Shareholder has dissented. A Shareholder who fails to send the share certificates representing the Limited Voting Shares in respect of which the Shareholder has dissented forfeits such Shareholder's Dissent Right for such Shareholder's Limited Voting Shares. FSHI or its Transfer Agent will
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endorse on share certificates received from a Shareholder exercising a Dissent Right a notice that the Shareholder is a Dissenting Shareholder and will forthwith return the share certificates to the Dissenting Shareholder.
Upon filing a Dissent Notice that is not withdrawn prior to the termination of the Meeting, provided that the Final Order is granted and not appealed or, if appealed, the appeal is withdrawn or denied, and the Arrangement becomes effective, a Dissenting Shareholder will cease to have any rights as a Shareholder, other than the right to be paid the fair value of its Limited Voting Shares, unless:
in all of which cases the Dissenting Shareholder's rights as a Shareholder will be reinstated and, if the Arrangement becomes effective, such Dissenting Shareholder's Limited Voting Shares will be subject to the Arrangement.
In addition, pursuant to the Plan of Arrangement, Registered Shareholders who duly exercise their Dissent Right and who: (a) are ultimately determined to be entitled to be paid fair value for their Limited Voting Shares will be deemed to have transferred their Limited Voting Shares to FSHI as at the Effective Time of the Arrangement; or (b) are ultimately determined not to be entitled, for any reason, to be paid fair value for their Limited Voting Shares, will be deemed to have participated in the Arrangement on the same basis as any non-Dissenting Shareholder as at and from the Closing Date.
FSHI is required, not later than seven days after the later of the Closing Date or the date on which FSHI received the Payment Demand of a Dissenting Shareholder, to send to each Dissenting Shareholder who has sent a Payment Demand to it an Offer to Pay for its Limited Voting Shares in an amount considered by the Board to be the fair value of the shares, accompanied by a statement showing the manner in which the fair value was determined. Every Offer to Pay must be on the same terms. The amount specified in the Offer to Pay which has been accepted by a Dissenting Shareholder will be paid by FSHI within ten days after the acceptance by the Dissenting Shareholder of the Offer to Pay, but any such Offer to Pay lapses if FSHI does not receive an acceptance thereof within 30 days after the Offer to Pay has been made.
If FSHI fails to make an Offer to Pay or if a Dissenting Shareholder fails to accept an offer that has been made, FSHI may, within 50 days after the Closing Date or within such further period as the Court may allow, apply to the Court to fix a fair value for the Limited Voting Shares of Dissenting Shareholders. If FSHI fails to apply to the Court, a Dissenting Shareholder may apply to the Court for the same purpose within a further period of 20 days or within such further period as the Court may allow. A Dissenting Shareholder is not required to give security for costs in such an application.
Upon an application to the Court, all Dissenting Shareholders whose Limited Voting Shares have not been paid for by FSHI will be joined as parties and bound by the decision of the Court, and FSHI will be required to notify each affected Dissenting Shareholder of the date, place and consequences of the application and of the Dissenting Shareholder's right to appear and be heard in person or by counsel. Upon any such application to the Court, the Court may determine whether any person is a Dissenting Shareholder who should be joined as a party, and the Court will then fix a fair value for the Limited Voting Shares of all Dissenting Shareholders. The final order of a Court will be rendered against FSHI in favour of each Dissenting Shareholder and for the amount of the fair value of such Dissenting Shareholder's Limited Voting Shares as fixed by the Court. The Court may, in its discretion, allow a reasonable rate of interest on the amount payable to each Dissenting Shareholder from the Closing Date until the date of payment.
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RISK FACTORS
The following risk factors should be carefully considered by Shareholders in evaluating whether to approve the Arrangement Resolution.
Risks Relating to the Arrangement
There can be no certainty that all conditions precedent to the Arrangement will be satisfied or waived, or the timing of their satisfaction or waiver. Failure to complete the Arrangement could negatively impact the price of the Limited Voting Shares.
The completion of the Arrangement is subject to a number of conditions precedent, some of which are outside the control of FSHI, including receipt of the Final Order, regulatory approvals and Shareholder approval. There can be no certainty, nor can FSHI provide any assurance, that these conditions will be satisfied or, if satisfied, when they will be satisfied. If the Arrangement is not completed, the market price of the Limited Voting Shares may be adversely affected.
The Acquisition Agreement may be terminated by the Purchaser or FSHI in certain circumstances.
Each of the Purchaser and FSHI has the right, in certain circumstances, to terminate the Acquisition Agreement. Accordingly, there can be no certainty, nor can FSHI provide any assurance, that the Acquisition Agreement will not be terminated by either of the Purchaser or FSHI prior to the completion of the Arrangement. For example, the Purchaser has the right, in certain circumstances, to terminate the Acquisition Agreement in the event of a change that has a Material Adverse Effect in respect of FSHI. Although a Material Adverse Effect excludes certain events that are beyond the control of FSHI, such as general changes in economic conditions in the United Shares or Canada or changes generally affecting the hospitality business and not having a materially disproportionate effect on Four Seasons, there can be no assurance that a change having a Material Adverse Effect on FSHI will not occur prior to the Effective Date of the Arrangement, in which case the Purchaser could elect to terminate the Acquisition Agreement and the Arrangement would not proceed. If, for any reason, the Acquisition Agreement is terminated, the market price of the Limited Voting Shares may be adversely affected.
If FSHI is unable to complete the Arrangement or if completion of the Arrangement is delayed, there could be an adverse effect on FSHI's business, financial condition, operating results and the price of its Limited Voting Shares.
The completion of the Arrangement is subject to the satisfaction of numerous closing conditions, including the approval by the Shareholders and the receipt of Regulatory Approvals. A substantial delay in obtaining satisfactory approvals and/or the imposition of unfavourable terms or conditions in the approvals to be obtained could have an adverse effect on the business, financial condition or results of operations of FSHI or could result in the termination of the Acquisition Agreement. If (a) Shareholders choose not to approve the Arrangement, (b) FSHI otherwise fails to satisfy, or fails to obtain a waiver of the satisfaction of, the closing conditions to the transaction and the Arrangement is not completed, (c) a Material Adverse Effect has occurred that results in the termination of the Acquisition Agreement, or (d) any legal proceeding results in enjoining the transactions contemplated by the Arrangement, FSHI could be subject to various adverse consequences, including that FSHI would remain liable for significant costs relating to the Arrangement, including, among others, legal, accounting, financial advisory and financial printing expenses and could be liable for termination fees and expenses.
Risks Relating to Four Seasons
Whether or not the Arrangement is completed, Four Seasons will continue to face many of the risks that it currently faces with respect to its business and affairs. A description of the risk factors applicable to Four Seasons is contained under the heading "Operating Risks" in FSHI's Annual Information Form dated March 9, 2006, which section is specifically incorporated by reference into this Circular. FSHI's Annual Information Form has been filed on SEDAR at www.sedar.com and, as part of its Form 40-F, on EDGAR at www.sec.gov and, upon request to Four Season's Corporate Secretary, a Shareholder will be provided with a copy of this document free of charge.
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PAST TRANSACTIONS AND AGREEMENTS
Pursuant to management agreements entered into in the ordinary course of business from time to time, Four Seasons manages hotels owned by each of Kingdom and Cascade and receives fees under these agreements. In addition, Four Seasons and Kingdom recently entered into an agreement with a third party pursuant to which each of Four Seasons and Kingdom sold its indirect equity interest in the Four Seasons Hotel London to the third party. Four Seasons continues to manage the Four Seasons Hotel London on behalf of the third party.
PURCHASER'S PLANS FOR FSHI
Upon completion of the Arrangement, the Purchaser anticipates that FSHI will continue to conduct operations substantially as they are currently being conducted, except that it will cease to have publicly-traded equity securities and will instead be owned by Kingdom, Cascade and Triples. The Purchaser, Kingdom, Cascade and Triples have informed FSHI that they have no current plans or proposals or negotiations which relate to or would result in an extraordinary corporate transaction involving FSHI's corporate structure, 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 except as described in this Circular and except for the contemplated Amalgamation. The Purchaser, Kingdom, Cascade and Triples have also informed FSHI that, following the Arrangement, FSHI's management and new owners will continuously evaluate and review FSHI's business and operations and may propose or develop new plans and proposals which they consider to be in the best interest of FSHI and its owners in light of such evaluation and review or in light of future developments.
EXPENSES OF THE ARRANGEMENT
FSHI estimates that expenses in the aggregate amount of approximately US$16.0 million will be incurred by FSHI in connection with the Arrangement, including legal, financial advisory, accounting, filing and printing costs, the cost of preparing and mailing this Circular and fees in respect of the Valuation and Fairness Opinion. The fees, costs and expenses in connection with the Arrangement are set forth in the table below:
Legal, Accounting and Filing Fees | US$6,250,000 | |
Financial Advisory Fees | US$9,000,000 | |
Special Committee Fees | US$100,000 | |
Printing, Proxy Solicitation and Mailing Costs | US$450,000 | |
Miscellaneous | US$200,000 | |
Total | US$16,000,000 | |
Pursuant to the Acquisition Agreement, all costs and expenses of the parties in connection with the Arrangement are to be paid by the party incurring such expenses.
BENEFITS FROM THE ARRANGEMENT
Other than as disclosed elsewhere in this Circular, none of the Directors or senior officers of FSHI, nor, to the knowledge of the Directors and senior officers of FSHI after reasonable enquiry, any associate of any Director or senior officer of FSHI, any person or company holding more than 10% of any class of equity securities of FSHI or any person or company acting jointly or in concert with FSHI, will receive any direct or indirect benefit from voting for or against the Arrangement, other than the consideration available to any Shareholder who deposits Limited Voting Shares under the Arrangement.
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COMMITMENTS TO ACQUIRE SHARES
Other than as disclosed elsewhere in this Circular, neither FSHI nor any of the Directors or senior officers of FSHI, nor, to the knowledge of the Directors and senior officers of FSHI after reasonable enquiry, any associate of any Director or senior officer of FSHI, any person or company holding more than 10% of any class of equity securities of FSHI or any person or company acting jointly or in concert with FSHI, has entered into any commitments to acquire any securities of FSHI.
OTHER INFORMATION AND MATTERS
There is no information or matter not disclosed in this Circular but known to FSHI that would reasonably be expected to affect the decision of Shareholders to vote for or against the Arrangement Resolution.
PROXY SOLICITATION AND DEPOSITARY
Georgeson is acting as FSHI's proxy solicitation agent, for which it will be paid a fee of approximately Cdn.$70,000 plus out-of-pocket expenses plus a "per call" fee for each telephone call made by Shareholders to Georgeson or by Georgeson to Shareholders in connection with the solicitation.
FSHI has engaged Computershare Investor Services Inc. to act as depositary for the receipt of certificates in respect of Limited Voting Shares and related Letters of Transmittal deposited pursuant to the Arrangement. The Depositary will receive reasonable and customary compensation for its services in connection with the Arrangement, will be reimbursed for certain out of pocket expenses and will be indemnified by FSHI against certain liabilities under applicable securities laws and expenses in connection therewith.
No fee or commission is payable by any Shareholder who transmits its Limited Voting Shares directly to the Depositary. Except as set forth above or elsewhere in this Circular, FSHI will not pay any fees or commissions to any broker or dealer or any other person for soliciting deposits of Limited Voting Shares pursuant to the Arrangement.
LEGAL MATTERS
Certain legal matters in connection with the Arrangement will be passed upon by Goodmans LLP on behalf of FSHI and by Osler, Hoskin & Harcourt LLP on behalf of the Special Committee. As at the date of this Circular, partners and associates of each of Goodmans LLP and Osler, Hoskin & Harcourt LLP own beneficially, directly or indirectly, less than 1% of the outstanding securities of FSHI and its associates and Affiliates.
INFORMATION CONCERNING VOTING AT THE MEETING
Who Can Vote
February 28, 2007 is the record date to determine Shareholders who are entitled to receive notice of and to vote at the Meeting. Registered Shareholders and the registered holders of Variable Multiple Voting Shares at the close of business on that date will be entitled to vote at the Meeting, except to the extent that they have transferred any of their Limited Voting Shares after that date and the new holder produces properly endorsed certificates evidencing those shares (or otherwise establishes proper ownership) and demands at any time before the Meeting to be included in the list of Shareholders eligible to vote at the Meeting. Holders of Limited Voting Shares and the holders of Variable Multiple Voting Shares are entitled to vote on all matters that come before the Meeting.
As at February 23, 2007, 33,681,238 Limited Voting Shares and 3,725,698 Variable Multiple Voting Shares were outstanding. Each Limited Voting Share entitles the holder to one vote on each matter that may be presented at the Meeting. Triples, a corporation owned by Mr. Sharp and members of his immediate family, is the registered owner of all of the outstanding Variable Multiple Voting Shares. Pursuant to the Voting Agreement, each of Kingdom and Cascade has agreed to vote the Limited Voting Shares owned by it in favour of the Arrangement Resolution, and Triples has agreed to vote all of the Variable Multiple Voting Shares owned
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by it in favour of the Arrangement Resolution, subject in each case to the terms and conditions contained in the Voting Agreement.
Voting By Registered Shareholders
The following instructions are for Registered Shareholders only. If you are a Non-Registered Shareholder, please see "Voting by Non-Registered Shareholders" below and follow your Intermediary's instructions on how to vote your Limited Voting Shares.
Voting in Person
Registered Shareholders who attend the Meeting may vote the Limited Voting Shares registered in their names on resolutions put before the Meeting. To ensure your vote is counted, complete and return the enclosed form of proxy as soon as possible even if you attend the Meeting in person. Even if you return a proxy, you can attend the Meeting and your vote can be taken and counted at the Meeting. Please register your attendance with the scrutineer, Computershare Trust Company of Canada, upon your arrival at the Meeting.
Voting by Proxy
If you are a Registered Shareholder but do not plan to attend the Meeting, you may vote by using a proxy to appoint someone to attend the Meeting as your proxyholder.
What Is a Proxy?
A proxy is a document that authorizes another person to attend the Meeting and cast votes at the Meeting on behalf of a Registered Shareholder. If you are a Registered Shareholder, you can use the accompanying proxy form. You may also use any other legal form of proxy.
How do I Appoint a Proxyholder?
Your proxyholder is the person you appoint to cast your votes for you at the Meeting. The persons named in the enclosed form of proxy are senior officers of FSHI. You may choose those individuals or any other person to be your proxyholder. Your proxyholder does not have to be a Shareholder. If you want to authorize a senior officer of FSHI as your proxyholder, please leave the line near the top of the proxy form blank, as their names are pre-printed on the form. If you want to authorize another person as your proxyholder, fill in that person's name in the blank space located near the top of the enclosed proxy form.
Your proxy authorizes the proxyholder to vote and otherwise act for you at the Meeting, including any continuation of the Meeting that may occur if the Meeting is adjourned.
How Will a Proxyholder Vote?
If you mark on the proxy how you want to vote on a particular issue (by checking FOR or AGAINST), your proxyholder must vote your Limited Voting Shares as instructed.
If you do NOT mark on the proxy how you want to vote on a particular matter, your proxyholder is entitled to vote your Limited Voting Shares as he or she sees fit. If your proxy does not specify how to vote on any particular matter, and if you have authorized a senior officer of FSHI to act as your proxyholder, your Limited Voting Shares will be voted at the Meeting FOR the Arrangement Resolution.
If any amendments are proposed to the Arrangement Resolution, or if any other matters properly arise at the Meeting, your proxyholder can vote your Limited Voting Shares as he or she sees fit. The notice of the Meeting sets out all the matters to be presented at the Meeting that are known to management as of February 23, 2007.
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How Do I Deposit a Proxy?
To be valid, the proxy must be filled out, correctly signed (exactly as your name appears on the proxy form) and returned to the Toronto office of our transfer agent, Computershare Trust Company of Canada, by delivering it to:
100 University Avenue
9th Floor
Toronto, Ontario
M5J 2Y1
Fax: (416) 263-9524 or 1-866-249-7775 (toll-free in Canada and the United States)
by 5:00 p.m. (Toronto time) on April 3, 2007 (or not less than 48 hours (excluding Saturdays, Sundays and holidays) before any reconvened meeting if the Meeting is adjourned or postponed) or by presenting it to the chair of the Meeting before commencement of the Meeting (or before the reconvened meeting if the Meeting is adjourned).
How Do I Revoke My Proxy?
If you want to revoke your proxy after you have delivered it, another properly executed proxy bearing a later date should be delivered by you as set out above under "How Do I Deposit a Proxy?" or you can deposit an instrument in writing executed by you or your attorney authorized in writing or by transmitting, by electronic or telephonic means, a revocation that is signed by electronic signature, in each case, that is received:
or in any other way permitted by law.
If you revoke your proxy and do not replace it with another proxy that is properly deposited, you may still vote Limited Voting Shares registered in your name in person at the Meeting.
Voting By Non-Registered Shareholders
You may be a Non-Registered Shareholder (as opposed to a Registered Shareholder) if your Limited Voting Shares are held on your behalf, or for your account, by an Intermediary, such as a broker, an investment dealer, a bank or a trust company. In accordance with Canadian securities law, FSHI has distributed copies of the Meeting Materials to CDS and Intermediaries for onward distribution to Non-Registered Shareholders. Intermediaries are required to forward the Meeting Materials to Non-Registered Shareholders unless a Non-Registered Shareholder has waived the right to receive them. Typically, Intermediaries will use a service company to forward the Meeting Materials to Non-Registered Shareholders.
Non-Registered Shareholders will receive either a voting instruction form or, less frequently, a form of proxy. The purpose of these forms is to permit Non-Registered Shareholders to direct the voting of the Limited Voting Shares they beneficially own. Non-Registered Shareholders should follow the procedures set out below, depending on which type of form they receive.
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directions provided, and a proxy, giving the right to attend and vote, will be forwarded to the Non-Registered Shareholder.
or
100 University Avenue
9th Floor
Toronto, Ontario
M5J 2Y1
Fax: (416) 263-9524 or 1-866-249-7775 (toll-free in Canada and the United States)
as described above under the subheading, "How do I Deposit a Proxy?".
If a Non-Registered Shareholder wishes to attend and vote at the Meeting in person (or have another person attend and vote on the holder's behalf), the Non-Registered Shareholder must strike out the names of the persons named in the proxy and insert the Non-Registered Shareholder's (or such other person's) name in the blank space provided and return the proxy in accordance with the instructions provided by the Intermediary.
Non-Registered Shareholders should follow the instructions on the forms they receive and contact their Intermediaries promptly if they need assistance.
Please Complete Your Proxy
Whether or not you plan to attend the Meeting, the management of FSHI, with the support of the Board, requests that you fill out your proxy to ensure your votes are cast at the Meeting. This solicitation of your proxy (your vote) is made on behalf of management. FSHI will pay the cost of proxy solicitation. Georgeson is acting as FSHI's proxy solicitation agent, for which it will be paid a fee of approximately Cdn.$70,000 plus out-of-pocket expenses plus a "per call" fee for each telephone call made by Shareholders to Georgeson or by Georgeson to Shareholders in connection with the solicitation. The total cost of the solicitation will be borne by FSHI.
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FREQUENTLY ASKED QUESTIONS ABOUT THE ARRANGEMENT
Q: | What am I voting on? | |
A: |
You are being asked to vote FOR the Arrangement Resolution approving the Arrangement, which, among other things, will result in the acquisition by the Purchaser of all of the outstanding Limited Voting Shares for a price equal to US$82.00 in cash per share pursuant to the Arrangement, without interest and subject to applicable withholding taxes (other than Limited Voting Shares held by the Foundation, which will be acquired by FSHI pursuant to the Arrangement and a separate agreement for identical consideration, and Limited Voting Shares held by Kingdom and Cascade Subco). You also are being asked to approve the transaction of any other business that may properly come before the Meeting or any adjournments or postponements of the Meeting. |
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Q: |
When and where is the Meeting? |
|
A: |
The Meeting will take place on April 5, 2007 at 10:00 a.m. (Toronto time), at Four Seasons Hotel Toronto (Tudor Room), 21 Avenue Road, Toronto, Ontario. |
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Q: |
Who is soliciting my proxy? |
|
A: |
Your proxy is being solicited by management of FSHI. This Circular is furnished in connection with that solicitation. It is expected that the solicitation will be made primarily by mail, but proxies may also be solicited personally or by telephone or other communication by Directors, officers and employees of FSHI without special compensation. Georgeson is acting as FSHI's proxy solicitation agent, for which it will be paid a fee of approximately Cdn.$70,000 plus out-of-pocket expenses plus a "per call" fee for each telephone call made by Shareholders to Georgeson or by Georgeson to Shareholders in connection with the solicitation. The total cost of the solicitation will be borne by FSHI. |
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Q: |
Who can attend and vote at the Meeting and what is the quorum for the Meeting? |
|
A: |
Shareholders (including the holders of the Variable Multiple Voting Shares) of record as of the close of business on February 28, 2007, the record date for the Meeting, are entitled to receive notice of and to attend and vote at the Meeting, or any adjournments or postponements of the Meeting, except to the extent that they have transferred any of their shares after the record date and the new holder produces properly endorsed certificates evidencing those shares (or otherwise establishes proper ownership) and demands at any time before the Meeting to be included in the list of Shareholders eligible to vote at the Meeting. |
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The Meeting Materials are being sent to both Registered Shareholders and Non-Registered Shareholders. Only Registered Shareholders or the persons they appoint as their proxyholders are permitted to vote at the Meeting. However, in accordance with applicable securities laws, FSHI is also distributing copies of the Meeting Materials to certain Intermediaries for onward distribution to Non-Registered Shareholders. Non-Registered Shareholders can direct their Intermediaries to vote the Limited Voting Shares beneficially owned by them in accordance with their instructions. If you are a Non-Registered Shareholder and your Limited Voting Shares are held on your behalf in the name of an Intermediary, please see "Information Concerning Voting at the Meeting — Voting by Non-Registered Shareholders" in this Circular. |
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The presence, in person or represented by proxy, of at least two persons entitled to vote at the Meeting is necessary for a quorum at the Meeting. |
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Q: |
How many shares are entitled to vote? |
|
A: |
As of February 23, 2007, there were 33,681,238 Limited Voting Shares and 3,725,698 Variable Multiple Voting Shares outstanding and entitled to vote at the Meeting. |
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Q: |
What will I receive in the Arrangement? |
|
A: |
If the Arrangement is completed, you will be entitled to receive US$82.00 in cash for each outstanding Limited Voting Share that you own as of the Effective Time of the Arrangement, without interest and subject to applicable withholding taxes. The cash payment is payable in U.S. dollars only. |
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Q: |
I hold Options. What will I receive in the Arrangement? |
|
A: |
All unvested Options (other than those Options outstanding with an unsatisfied performance condition) have been vested for the purpose of allowing you to participate in the Arrangement. If the Arrangement is not completed, the vesting of these Options will not be accelerated and they will continue to vest in accordance with their terms. If you do not exercise your Options prior to the Effective Time, your vested Options will be transferred to FSHI pursuant to the Arrangement in exchange for a cash amount (subject to applicable withholding taxes) equal to the excess, if any, of (a) the product of the number of Limited Voting Shares underlying your Options and US$82.00, over (b) the sum of the exercise prices for each Limited Voting Share underlying the Options held by you (converted at the Exchange Rate for United States dollars). |
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Q: |
How does the US$82.00 per share consideration for Limited Voting Shares compare to the market price of the Limited Voting Shares before the Arrangement was announced? |
|
A: |
The US$82.00 per share consideration represents an approximate 28.4% premium over the closing prices of the Limited Voting Shares on the NYSE and on the TSX on November 3, 2006 (being the last trading day immediately prior to the announcement of the Proposal), an approximate 33.1% premium over the volume-weighted average closing price for the Limited Voting Shares on the NYSE, and an approximate 35.7% premium over the volume-weighted average closing price for the Limited Voting Shares on the TSX, for the six months prior to November 3, 2006. |
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Q: |
What vote is required at the Meeting to approve the Arrangement Resolution? |
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A: |
The Arrangement Resolution must be passed by the affirmative vote of: |
• |
at least 662/3% of the votes cast at the Meeting by holders of Limited Voting Shares present in person or represented by proxy and entitled to vote at the Meeting, voting separately as a class; |
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• |
at least a simple majority of the votes cast by Minority Shareholders present in person or represented by proxy at the Meeting; and |
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• |
the holder of Variable Multiple Voting Shares, voting separately as a class, by way of a written declaration. |
Pursuant to the Voting Agreement, each of Kingdom and Cascade has agreed to vote the Limited Voting Shares owned by it in favour of the Arrangement Resolution, and Triples has agreed to vote all of the Variable Multiple Voting Shares owned by it in favour of the Arrangement Resolution, subject in each case to the terms and conditions contained in the Voting Agreement. |
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Q: |
What are the recommendations of the Special Committee and the Board? |
|
A: |
The Special Committee unanimously recommended that the Board approve the Arrangement and recommend that Shareholders vote in favour of the Arrangement and the Board unanimously (with the interested Directors abstaining) recommends that Shareholders vote FOR the Arrangement Resolution to approve the Arrangement. |
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Q: |
Why are the Special Committee and the Board making this recommendation? |
|
A: |
In reaching their conclusion that the Arrangement is substantively and procedurally fair to the Minority Shareholders, and that the Arrangement is in the best interests of FSHI, the Special Committee and the Board considered and relied upon a number of factors, including those described under the headings "Special Factors — Position of the Special Committee as to Fairness", "Special Factors — Recommendation of the Board" and "Special Factors — Reasons for the Arrangement from FSHI's Perspective". |
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Q: |
In addition to the approval of Shareholders, are there any other approvals required for the Arrangement? |
|
A: |
Yes, the Arrangement requires the approval of the Court and also is subject to the receipt of certain anti-trust and foreign investment approvals in the United States and Canada. See "Principal Legal Matters — Principal Regulatory Matters" in this Circular. |
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Q: |
Do any executive officers and Directors of FSHI have any interest in the Arrangement that are different from, or in addition to, those of Shareholders? |
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A: |
Yes. Certain executive officers and Directors of FSHI have interests in the Arrangement that are different from, or in addition to, those of Shareholders, including an approximate US$289 million payment that Mr. Sharp would receive under the Long-Term Incentive Plan and the consideration that Directors and executive officers would receive in connection with the Arrangement with respect to their Options. Further, two officers of Four Seasons and one of the Directors are entitled to payments under phantom equity agreements. Additionally, Four Seasons has change in control arrangements with certain of its officers that will be triggered by the termination of employment of these officers within two years following the completion of the Arrangement, entitling them to severance payments and benefits. Anthony Sharp, a Director, and Mr. Sharp each own an interest in Triples. Each of Charles Henry and Simon Turner, Directors of FSHI, are Kingdom's nominees to the Board and an entity in which they are principals will be entitled to receive certain compensation from Kingdom if the Arrangement is completed. See "The Arrangement — Interests of Directors, Executive Officers and Others in the Arrangement" in this Circular. |
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Q: |
Will the Limited Voting Shares continue to be listed on the NYSE and the TSX after the Arrangement? |
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A: |
No. The Limited Voting Shares will be de-listed from the NYSE and the TSX soon after the Arrangement is completed. |
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Q: |
Should I send my share certificates now? |
|
A: |
You are not required to send your certificates representing Limited Voting Shares to validly cast your vote in respect of the Arrangement Resolution. However, after the Arrangement is approved and completed, you will be required to send your share certificates together with the Letter of Transmittal accompanying this Circular in order to receive consideration for your Limited Voting Shares. |
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Q: |
When can I expect to receive consideration for my Limited Voting Shares? |
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A: |
As soon as practicable after the completion of the Arrangement and the receipt by the Depositary from you of a properly completed Letter of Transmittal together with your certificates representing Limited Voting Shares and all other required documents, the Depositary will make a payment to you in the amount of your portion of the Acquisition Price. If you hold your Limited Voting Shares through an Intermediary, that Intermediary will need to be instructed to surrender your Limited Voting Shares in exchange for your consideration following completion of the Arrangement. See "Arrangement Mechanics — Letter of Transmittal" in this Circular. |
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Q: |
How will the votes be counted? |
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A: |
Computershare Trust Company of Canada, FSHI's Transfer Agent, counts and tabulates the proxies. |
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Q: |
When will the Arrangement be implemented? |
|
A: |
FSHI and the Purchaser will implement the Arrangement when all of the conditions to closing have been satisfied or waived (where permitted). The closing is currently expected to occur in the second quarter of 2007. Because the Arrangement is subject to a number of conditions, some of which are beyond FSHI's and the Purchaser's control, the exact timing of implementation of the Arrangement cannot be predicted. |
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Q: |
What are the tax consequences of the Arrangement to me? |
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A: |
Your receipt of the consideration under the Arrangement in exchange for your Limited Voting Shares will be a taxable transaction for Canadian and United States federal income tax purposes (and may also be a taxable transaction under other applicable tax laws). For further information on certain tax consequences of the Arrangement, see "Certain Tax Considerations for Shareholders" in this Circular. Your tax consequences will depend on your particular situation. You should consult your own tax advisor for a full understanding of the applicable Canadian federal, United States federal, provincial, state, local, foreign and other tax consequences to you resulting from the Arrangement. |
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Q: |
Am I entitled to Dissent Rights? |
|
A: |
Pursuant to the Interim Order, Registered Shareholders have a right to dissent in respect of the Arrangement Resolution. Registered Shareholders who properly exercise their Dissent Rights will be entitled to be paid the fair value of their Limited Voting Shares. This amount may be the same as, more than or less than the US$82.00 offered under the Arrangement. If you are a Registered Shareholder and wish to dissent, you must provide written notice to FSHI at or before 5:00 p.m. (Toronto time) on April 4, 2007 (or on the Business Day immediately preceding any adjourned or postponed Meeting) in the manner described under the heading "Dissenting Shareholders' Rights" in this Circular. A Registered Shareholder's failure to strictly comply with the Dissent Procedures specified under the OBCA, as amended by the Interim Order and the terms of the Plan of Arrangement, will result in the loss of Dissent Rights. Only Registered Shareholders may exercise Dissent Rights. |
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Q: |
Will I receive any regular semi-annual dividends with respect to the Limited Voting Shares that I own for the period prior to the closing of the Arrangement? |
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A: |
Shareholders were paid the regular semi-annual dividend in respect of the second half of 2006 on January 17, 2007. In the event that the Arrangement is not completed in the second quarter of 2007, FSHI intends to continue to pay its regular semi-annual dividends consistent with past practice. |
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Q: |
What will happen to the Limited Voting Shares that I currently own after completion of the Arrangement? |
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A: |
Upon completion of the Arrangement, the certificates representing your Limited Voting Shares will represent only the right to receive US$82.00 per Limited Voting Share. Trading in Limited Voting Shares on the TSX and on the NYSE will cease and FSHI will make an application to terminate its status as a reporting issuer under Canadian securities laws. FSHI will deregister the Limited Voting Shares under U.S. securities laws and will cease to be required to file reports with the SEC. |
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Q: |
Who can I contact if I have questions? |
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A: |
Shareholders who have additional questions about the Arrangement, including the procedures for voting, should contact Georgeson, toll-free, at 1-866-568-7442. Shareholders who have questions about deciding how to vote should contact their professional advisors. |
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ADDITIONAL INFORMATION
Information contained in this Circular is given as of February 23, 2007, except as otherwise noted. If any matters which are not now known should properly come before the Meeting, the accompanying form of proxy will be voted on such matters in accordance with the best judgment of the person voting it.
Additional information relating to Four Seasons, including FSHI's most current Annual Information Form, the comparative consolidated financial statements of FSHI for the financial year ended December 31, 2005, together with the report of the auditors thereon, management's discussion and analysis of FSHI's financial condition and results of operations for fiscal 2005, which provide financial information concerning FSHI, and the Schedule 13E-3 and exhibits thereto filed with the SEC can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov. Copies of those documents, as well as any additional copies of this Circular, are available upon written request to the Corporate Secretary, upon payment of a reasonable charge where applicable.
QUESTIONS AND FURTHER ASSISTANCE
If you have any questions about the information contained in this Circular or require assistance in completing your proxy form, please contact Georgeson, FSHI's proxy solicitation agent, at:
North American Toll Free Number: 1-866-568-7442
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The contents and mailing to Shareholders of this Circular have been approved by the Board.
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Toronto, Ontario March 5, 2007 |
Randolph Weisz Executive Vice President, Business Administration, General Counsel and Secretary |
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CONSENT OF MERRILL LYNCH CANADA INC.
We refer to the valuation and fairness opinion dated February 5, 2007 (the "Valuation and Fairness Opinion"), which we prepared for the Special Committee of Four Seasons Hotels Inc.'s Board of Directors for the Arrangement (as defined in Four Seasons' Management Information Circular dated March 5, 2007). We consent to the filing of the Valuation and Fairness Opinion with the securities commissions (and other applicable securities regulatory authorities) in each of the Provinces of Canada and the inclusion of the Valuation and Fairness Opinion, and all references thereto, in this Circular.
Dated March 5, 2007 | ||
(Signed) MERRILL LYNCH CANADA INC. |
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CONSENT OF GOODMANS LLP
We hereby consent to the reference to our opinion contained under "Certain Canadian Federal Income Tax Considerations" in the management information circular of Four Seasons Hotels Inc. dated March 5, 2007 (the "Circular") and to the inclusion of the foregoing opinion in the Circular.
Dated March 5, 2007 | ||
(Signed) GOODMANS LLP |
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The following glossary of terms used in this Circular, including the Summary, but not including the Appendices, is provided for ease of reference:
"1934 Act" means the U.S. Securities Exchange Act of 1934, as amended.
"Acquisition Agreement" means the Acquisition Agreement dated February 9, 2007 between the Purchaser and FSHI and any amendment thereto made in accordance with such agreement.
"Acquisition Price" means the aggregate consideration payable to holders of Limited Voting Shares pursuant to the Plan of Arrangement.
"Acquisition Proposal" means, any proposal or offer (written or oral) relating to any merger, consolidation, amalgamation, take-over bid, tender offer, exchange offer, arrangement, recapitalization, liquidation, dissolution, share exchange, sale of assets representing 20% or more of the net income, revenues or assets of FSHI and its subsidiaries, taken as a whole (or any lease, long-term supply agreement or other arrangement having the same economic effect as a sale of assets representing 20% or more of the net income, revenues or assets of FSHI and its subsidiaries, taken as a whole), purchase or sale of shares or other securities of FSHI or any of its subsidiaries or rights or interests therein or thereto representing 20% or more of the voting power of the capital of FSHI (in terms of number of shares or voting power) or any of its subsidiaries representing 20% or more of the net income, revenues or assets of FSHI and its subsidiaries, taken as a whole, or similar transactions involving FSHI and/or such subsidiaries, excluding the Arrangement and the transactions contemplated by the Acquisition Agreement.
"Acquisition Time" has the meaning ascribed to it under "Certain Tax Considerations for Shareholders — Certain Canadian Federal Income Tax Considerations".
"Affiliate" has the meaning ascribed to it in the Securities Act.
"allowable capital loss" has the meaning ascribed to it under "Certain Canadian Federal Income Tax Considerations — Shareholders Resident in Canada — Disposition of Limited Voting Shares".
"Amalgamation" means the amalgamation of FSHI and the Purchaser under the BCBCA to be consummated following the Effective Time.
"Arrangement" means an arrangement under Section 182 of the OBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations thereto made in accordance with the Acquisition Agreement or the Plan of Arrangement or made at the direction of the Court in the Final Order.
"Arrangement Declaration" means the written declaration executed by Triples, as the sole holder of Variable Multiple Voting Shares, approving the Plan of Arrangement.
"Arrangement Resolution" means the special resolution of Shareholders approving the Plan of Arrangement to be considered at the Meeting and set out in Appendix A to this Circular.
"Arrangers" means Citigroup Global Markets Inc., J.P. Morgan Securities Inc. and JPMorgan Chase Bank, N.A.
"Articles of Arrangement" means the articles of arrangement of FSHI in respect of the Arrangement, to be filed with the Director after the Final Order is made.
"BCBCA" means the Business Corporations Act (British Columbia).
"Board" means the Board of Directors of FSHI.
"Business Day" means any day, other than a Saturday, a Sunday and a statutory holiday in Toronto, Ontario, Canada, Seattle, Washington or New York, New York, United States of America.
"Cascade" means Cascade Investment, L.L.C., a Washington limited liability company. For purposes of the sections of this Circular entitled "Reasons for the Arrangement from the Perspective of the Purchaser, Kingdom, Cascade, Triples and Mr. Sharp" and "Position of the Purchaser, Mr. Sharp, Triples, Kingdom and
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Cascade Regarding Fairness of the Arrangement", references to Cascade shall also be deemed to refer to its sole member, William H. Gates III, to the extent appropriate.
"Cascade Subco" means FS Washington Acquisition Corp, a corporation organized under the laws of the state of Washington.
"CDS" means CDS Clearing and Depositary Services Inc.
"Certificate of Arrangement" means the certificate of arrangement giving effect to the Arrangement, issued pursuant to subsection 183(2) of the OBCA after the Articles of Arrangement have been filed with the Director.
"Circular" means this management information circular of FSHI, including the Notice of Meeting and all schedules, appendices and exhibits and all documents incorporated by reference in this circular.
"Citigroup" means Citigroup Global Markets Inc., on behalf of Citigroup Global Markets Inc., Citibank, N.A., Citicorp USA, Inc., Citicorp North America, Inc.
"Closing Date" means the date of the Certificate of Arrangement giving effect to the Arrangement.
"Commissioner" means the Commissioner of Competition appointed pursuant to the Competition Act.
"Competition Act" means the Competition Act (Canada).
"Convertible Note Indenture" means the Indenture dated June 18, 2004 (as supplemented and amended in accordance with the terms thereof, including pursuant to a First Supplemental Indenture, dated June 18, 2004) between The Bank of Nova Scotia Trust Company of New York, as trustee, and FSHI.
"Convertible Notes" means the US$250 million aggregate principal amount of 1.875% convertible senior notes of FSHI due June 18, 2024, issued pursuant to the Convertible Note Indenture.
"Court" means the Superior Court of Justice (Ontario).
"CRA" means the Canada Revenue Agency.
"Debt Commitment Letter" means the commitment of the Arrangers dated February 5, 2007, to provide certain debt financing to the Purchaser.
"Depositary" means Computershare Investor Services Inc. or such other person as is appointed to act as depositary for the purposes of the Arrangement by FSHI, acting reasonably.
"Director" means a director of FSHI appointed pursuant to section 278 of the OBCA.
"Dissent Notice" has the meaning ascribed to it under "Dissenting Shareholders' Rights".
"Dissent Procedures" means the dissent procedures, as described under the heading "Dissenting Shareholders' Rights".
"Dissent Rights" means the rights of dissent of a Registered Shareholder in respect of the Arrangement Resolution described in the Plan of Arrangement.
"Dissenting Shareholder" has the meaning ascribed to it in the Plan of Arrangement.
"EDGAR" means the Electronic Data Gathering, Analysis and Retrieval System.
"Effective Date" means the date shown on the Certificate of Arrangement, provided that such date occurs on or prior to the Outside Date.
"Effective Time" means the time on the Effective Date as specified in writing by FSHI.
"Exchange Rate" means the Bank of Canada's published rate of exchange of Canadian dollars for United States dollars at noon on the day prior to the Effective Date.
"Final Order" means the final order of the Court approving the Arrangement, as that order may be amended by the Court (with the consent of FSHI and the Purchaser, each acting reasonably) at any time prior to the Closing Date or, if appealed (unless such appeal is withdrawn or denied), as affirmed or amended on appeal.
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"Foundation" means the Bill & Melinda Gates Foundation Trust.
"Four Seasons" means FSHI and its subsidiaries.
"Four Seasons Stock Option Plan" means the FSHI Restated Director, Executive and Employee Stock Option Plan, as amended through February 26, 2004.
"FSHI" means, prior to the Effective Time, Four Seasons Hotels Inc., a corporation existing under the laws of the Province of Ontario and, after the Effective Time, Four Seasons Hotels Inc. as continued under the BCBCA and as the entity resulting from the Amalgamation, as the context requires.
"Funding and Cooperation Agreement" means the Amended and Restated Funding and Cooperation Agreement dated February 8, 2007, by and among Kingdom, Cascade, Triples and Mr. Sharp, as amended by Amendment No. 1 and Joinder to Amended and Restated Funding and Cooperation Agreement dated as of February 9, 2007.
"GAAP" means Canadian generally accepted accounting principles.
"Georgeson" means Georgeson Shareholder Communications Canada Inc.
"Goldman Sachs" means Goldman, Sachs & Co.
"Governmental Entity" means (a) any multinational, federal, provincial, state, regional, municipal, local or other government, governmental or public department, ministry, central bank, court, tribunal, arbitral body, commission, commissioner, board, bureau or agency, domestic or foreign, (b) any subdivision, agent or authority of any of the foregoing or (c) any quasi-governmental or private body, including any tribunal, commission, regulatory agency or self-regulatory organization, exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing.
"Guaranty" means the limited guaranty of the Purchaser obligations under the Acquisition Agreement dated February 9, 2007 given by Kingdom and Cascade in favour of FSHI.
"HRH Prince Alwaleed" means HRH Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud.
"HSR Act" means the U.S. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
"interested party" has the meaning ascribed to it in Rule 61-501.
"Interim Order" means the interim order of the Court, as that order may be amended by the Court (with the consent of FSHI and the Purchaser, each acting reasonably), containing, among other things, a declaration and directions in respect of the notice to be given in respect of and the conduct of the Meeting with respect to the Arrangement.
"Intermediary" means an intermediary with which a Non-Registered Shareholder may deal, including banks, trust companies, securities dealers or brokers and trustees or administrators of self-directed trusts governed by registered retirement savings plans, registered retirement income funds, registered education savings plans (collectively, as defined in the Tax Act) and similar plans, and their nominees.
"JP Morgan" means J.P. Morgan Securities Inc., on behalf of JPMorgan Chase Bank, N.A.
"Kingdom" means Kingdom Hotels International, a company existing under the laws of the Cayman Islands, either separately or together with its subsidiaries and HRH Prince Alwaleed, as the context may require.
"Law" or "Laws" means all laws (including common law), by-laws, statutes, rules, regulations, principles of law and equity, orders, rulings, ordinances, judgments, injunctions, determinations, awards, decrees or other requirements, whether domestic or foreign, and the terms and conditions of any grant of approval, permission, authority or license of any Governmental Entity or self-regulatory authority (including either of the Exchanges), and the term "applicable" with respect to such Laws (including Environmental Laws) and in a context that refers to one or more Parties, means such Laws as are applicable to such Party or its business, undertaking, property or securities and emanate from a person having jurisdiction over the Party or Parties or its or their business, undertaking, property or securities.
"Lead Director" means J. Robert S. Prichard.
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"Letter of Transmittal" means the letter of transmittal printed on yellow paper for use by Shareholders in connection with the Arrangement.
"Limited Voting Shares" means the issued and outstanding Limited Voting Shares in the capital of FSHI.
"Long-Term Incentive Plan" means the agreement among FSHI, Four Seasons Hotels Limited and Mr. Sharp dated January 11, 1990 and pursuant to which Mr. Sharp is entitled to a payment upon a "Sale Transaction" as defined in that agreement.
"Marsico" means Marsico Capital Management, LLC.
"Material Adverse Effect" means, when used in connection with FSHI, any fact, circumstance, change, effect, matter, action, condition, event or occurrence that, individually or in the aggregate with all other facts, circumstances, changes, effects, matters, actions, conditions, events or occurrences, (a) is material and adverse to the business, affairs, assets, operations, results of operations, or financial condition of FSHI and its subsidiaries, taken as a whole, or (b) would materially impair or delay the consummation of the transactions contemplated by the Acquisition Agreement by FSHI beyond the Outside Date or materially impair or delay the ability of FSHI to perform its obligations thereunder provided that the pendency of any litigation seeking to restrain, enjoin or otherwise prohibit the consummation of the Arrangement shall be disregarded for the purpose of this clause (b), other than, in the case of either clause (a) or (b) above, any fact, circumstance, change, effect, matter, action, condition, event or occurrence resulting from (i) the announcement of the execution of the Acquisition Agreement or the transactions contemplated thereby or the performance of any obligation thereunder, (ii) changes in the U.S. or Canadian economies or securities or currency markets in general, (iii) changes generally affecting the hospitality business in one or more countries or geographic markets where FSHI and its subsidiaries operate or conduct business, (iv) any change in applicable Laws, regulations or Canadian generally accepted accounting principles, (v) any natural disaster, or (vi) any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, except in the case of clauses (iii), (iv), (v) and (vi) to the extent any such fact, circumstance, change, effect, matter, action, condition, event or occurrence has had a materially disproportionate effect on FSHI and its subsidiaries taken as a whole compared to other persons in the five-star hospitality management business in one or more countries or geographic markets so affected; provided that (x) a failure to meet any earnings estimates previously made public by FSHI, or (y) any decrease in the market price or any decline in the trading volume of the Limited Voting Shares on either of the TSX or NYSE shall not, in and of itself, constitute a Material Adverse Effect; provided, however, that any fact, circumstance, change, effect, matter, action, condition, event or occurrence underlying any such decrease in market price or decline in trading volume that is not excluded pursuant to clause (i) through (vi) may be considered in determining whether there has been a Material Adverse Effect.
"Meeting" means the special meeting of Shareholders and the holders of the Variable Multiple Voting Shares, and all adjournments and postponements of such meeting, called and held to, among other things, consider and approve the Arrangement Resolution.
"Meeting Materials" means this Circular, together with the Notice of Meeting, form of proxy printed on blue paper accompanying this Circular and Letter of Transmittal.
"Merrill Lynch" means Merrill Lynch Canada Inc.
"Minority Shareholders" has the meaning ascribed to it under "Principal Legal Matters — Canadian Securities Law Matters".
"Non-Registered Shareholder" means a non-registered, beneficial holder of Limited Voting Shares whose shares are held through an Intermediary.
"Non-Resident Dissenting Shareholder" means a Non-Resident Shareholder who exercises Dissent Rights.
"Non-Resident Shareholder" means a Shareholder who, for the purposes of the Tax Act and at all relevant times,
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"Notice of Appearance" has the meaning ascribed thereto in "Principal Legal Matters — Court Approval of the Arrangement and Completion of the Arrangement".
"Notice of Meeting" means the Notice of Special Meeting of Shareholders accompanying this Circular.
"NYSE" means the New York Stock Exchange.
"OBCA" means the Business Corporations Act (Ontario) and the regulations made thereunder, as promulgated or amended from time to time.
"Offer to Pay" has the meaning ascribed thereto under "Dissenting Shareholders' Rights".
"Option" means an option to purchase Limited Voting Shares granted under the Four Seasons Stock Option Plan.
"Outside Date" means June 30, 2007, subject to the right of either FSHI or the Purchaser to postpone the Outside Date for up to an additional 90 days (in 30-day increments) if the Regulatory Approvals have not been obtained and have not been denied by a non-appealable decision of a Governmental Entity, by giving written notice to the other party to such effect no later than 5:00 p.m. (Eastern time) on the date that is not less than 15 days prior to the original Outside Date (and any subsequent Outside Date), or such later date as may be agreed to in writing by FSHI and the Purchaser; provided that notwithstanding the foregoing, a party to the Acquisition Agreement shall not be permitted to postpone the Outside Date if the failure to obtain a Regulatory Approval is materially the result of such party's failure to cooperate in accordance with the terms of the Acquisition Agreement in obtaining such Regulatory Approval.
"Payment Demand" has the meaning ascribed to it under "Dissenting Shareholders' Rights".
"Plan of Arrangement" means the plan of arrangement substantially in the form of Appendix D of this Circular, as amended or varied pursuant to the terms of the Acquisition Agreement and the plan of arrangement.
"Pre-Acquisition Reorganization" has the meaning ascribed to it under "The Acquisition Agreement — Pre-Acquisition Reorganization".
"Preferred Shares" means the preferred shares in the capital of FSHI that Triples will receive under the Amalgamation in exchange for the Class D non-voting shares in the capital of the Purchaser that Triples will have received under the Arrangement in exchange for certain of its Variable Multiple Voting Shares.
"Proposal" means the letter dated November 3, 2006 received by the Board from Mr. Sharp, Triples, Kingdom and Cascade, pursuant to which such parties have proposed to take FSHI private.
"Proposed Amendments" means all specific proposals to amend the Tax Act and the Regulations publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof
"Purchaser" means FS Acquisition Corp., a company incorporated under the laws of the Province of British Columbia and any successor corporations thereto.
"Purchaser Parties" means, collectively, Triples, Kingdom, and Cascade.
"Purchaser Payment Parties" means collectively, Purchaser, Kingdom Investments, I (TSF) Sarl and Triples.
"Record Date" means February 28, 2007.
"Registered Shareholder" means a registered holder of Limited Voting Shares as recorded in the FSHI shareholders' register maintained by the Transfer Agent.
"Regulation Q-27" means the Autorité des marchés financiers du Quebec Regulation Q-27 — Respecting Protection of Minority Securityholders in the Course of Certain Transactions.
"Regulations" means the regulations under the Tax Act.
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"Regulatory Approvals" means (a) those sanctions, rulings, consents, orders, exemptions, permits and other approvals (including the lapse, without objection, of a prescribed time under a statute or regulation that states that a transaction may be implemented if a prescribed time lapses following the giving of notice without an objection being made) of Governmental Entities set forth in Schedule C to the Acquisition Agreement, and (b) such other sanctions, rulings, consents, orders, exemptions, permits and other approvals (including the lapse, without objection, of a prescribed time under any Law that states that a transaction may be implemented if a prescribed time lapses following the giving of notice without an objection being made) of Governmental Entities required to consummate the Plan of Arrangement, except, in the case of (b) only, for those sanctions, rulings, consents, orders, exemptions, permits and other approvals, the failure of which to obtain individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect or a Purchaser Material Adverse Effect, and for greater certainty, except, in the case of (a) and (b), for such sanctions, rulings, consents, orders, exemptions, permits and other approvals required solely in connection with any Pre-Acquisition Reorganization or the Debt Financing (as defined in the Acquisition Agreement).
"related party" has the meaning ascribed to it in Rule 61-501.
"Required Vote" means the affirmative vote of (a) at least 662/3% of the votes cast on the Arrangement Resolution by Shareholders and of the votes cast on the Arrangement Resolution by the holder(s) of the Variable Multiple Voting Shares (including by way of the Arrangement Declaration), each voting separately as a class, present in person or represented by proxy at the Meeting and entitled to vote at the Meeting, and (b) a simple majority of the votes cast on the Arrangement Resolution by the Minority Shareholders, present in person or represented by proxy at the Meeting and entitled to vote at the Meeting.
"Resident Dissenting Shareholder" means a Resident Shareholder who exercises Dissent Rights.
"Resident Shareholder" means a Shareholder who, for purposes of the Tax Act and any applicable income tax treaty, at all relevant times, is or is deemed to be resident in Canada.
"Reviewable Transaction" has the meaning ascribed to it under "Principal Legal Matters — Investment Canada Act".
"Rule 61-501" means the Ontario Securities Commission Rule 61-501 — Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act (Ontario), as amended.
"SEDAR" means the System for Electronic Document Analysis and Retrieval of the Canadian Securities Administrators.
"Shareholders" means the Registered Shareholders and Non-Registered Shareholders of FSHI and "Shareholder" means either a Registered Shareholder or a Non-Registered Shareholder of FSHI.
"Shareholders Agreement" has the meaning ascribed to it under "The Arrangement — Interests of Directors, Executive Officers and Others in the Arrangement — Interests in the Arrangement".
"Special Committee" means the special committee of independent members of the Board formed to, among other things, consider and make recommendations to the Board in respect of the Proposal.
"Superior Proposal" means any unsolicited bona fide written Acquisition Proposal (a) that relates to not less than 50.1% of the outstanding Limited Voting Shares or assets of FSHI or any of its subsidiaries representing not less than 50.1% of the assets of Four Seasons taken as a whole, (b) that is reasonably capable of being completed without undue delay, taking into account to the extent considered appropriate by the Board, all financial, legal, regulatory and other aspects of such proposal and the person making such proposal, (c) which the Board determines, in its good faith judgment, after receiving the advice of its legal and financial advisors and after taking into account all the terms and conditions of the Acquisition Proposal, is on terms and conditions more favourable from a financial point of view to the Shareholders (other than Interested Shareholders (as defined in the Acquisition Agreement), provided that the terms and conditions of such Acquisition Proposal
89
apply equally to all Shareholders) than those contemplated by the Acquisition Agreement, and (d) for which financing, to the extent required, is then committed.
"Tax Act" means the Income Tax Act (Canada), as amended.
"taxable capital gain" has the meaning ascribed to it under "Certain Canadian Federal Income Tax Considerations — Shareholders Resident in Canada — Disposition of Limited Voting Shares".
"Transfer Agent" means Computershare Trust Company of Canada.
"Triples" means Triples Holdings Limited, a corporation existing under the laws of Ontario.
"TSX" means the Toronto Stock Exchange.
"Valuation and Fairness Opinion" means the independent formal valuation of the Limited Voting Shares prepared by Merrill Lynch for the Special Committee as required pursuant to Rule 61-501 and Regulation Q-27, and the opinion of Merrill Lynch to the Special Committee as to the fairness, from a financial point of view, of the consideration to be received by the Minority Shareholders under the Arrangement, a copy of which is attached as Appendix C to this Circular.
"Variable Multiple Voting Shares" means the issued and outstanding Variable Multiple Voting Shares in the capital of FSHI.
"Voting Agreement" means the Voting Agreement dated February 9, 2007 between Kingdom, Cascade and Triples and FSHI.
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SPECIAL RESOLUTION OF THE FSHI SHAREHOLDERS
BE IT RESOLVED THAT:
A-1
ACQUISITION AGREEMENT
TABLE OF CONTENTS
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Page |
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ARTICLE I INTERPRETATION | B-3 | ||||
1.1 | Definitions | B-3 | |||
1.2 | Interpretation Not Affected by Headings | B-11 | |||
1.3 | Interpretation | B-11 | |||
1.4 | Date for Any Action | B-11 | |||
1.5 | Statutory References | B-11 | |||
1.6 | Currency | B-11 | |||
1.7 | Accounting Principles | B-11 | |||
1.8 | Knowledge | B-11 | |||
1.9 | Schedules | B-11 | |||
ARTICLE II THE ACQUISITION | B-12 | ||||
2.1 | Implementation Steps by Four Seasons | B-12 | |||
2.2 | Interim Order | B-12 | |||
2.3 | Articles of Arrangement; Closing | B-12 | |||
2.4 | Circular | B-13 | |||
2.5 | Preparation of Filings | B-13 | |||
2.6 | Court Proceedings | B-14 | |||
2.7 | Public Communications | B-15 | |||
ARTICLE III REPRESENTATIONS AND WARRANTIES OF FOUR SEASONS | B-15 | ||||
3.1 | Representations and Warranties | B-15 | |||
3.2 | Survival of Representations and Warranties | B-27 | |||
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER | B-28 | ||||
4.1 | Representations and Warranties of the Purchaser | B-28 | |||
4.2 | Survival of Representations and Warranties | B-29 | |||
ARTICLE V COVENANTS OF THE PARTIES | B-29 | ||||
5.1 | Covenants of Four Seasons Regarding the Conduct of Business | B-29 | |||
5.2 | Pre-Acquisition Reorganizations | B-32 | |||
5.3 | Covenants of Four Seasons Regarding the Arrangement | B-32 | |||
5.4 | Covenants of the Purchaser Regarding the Performance of Obligations | B-33 | |||
5.5 | Mutual Covenants | B-34 | |||
5.6 | Stock Options | B-34 | |||
5.7 | Disclosure of Material Information upon Termination | B-35 | |||
ARTICLE VI CONDITIONS | B-35 | ||||
6.1 | Mutual Condition Precedents | B-35 | |||
6.2 | Additional Conditions Precedent to the Obligations of the Purchaser | B-35 | |||
B-1
6.3 | Additional Conditions Precedent to the Obligations of Four Seasons | B-36 | |||
ARTICLE VII ADDITIONAL AGREEMENTS | B-36 | ||||
7.1 | Notice and Cure Provisions | B-36 | |||
7.2 | Non-Solicitation | B-37 | |||
7.3 | Agreement as to Damages | B-38 | |||
7.4 | Fees and Expenses | B-39 | |||
7.5 | Liquidated Damages, Injunctive Relief and No Liability of Others | B-40 | |||
7.6 | Access to Information; Confidentiality | B-40 | |||
7.7 | Insurance and Indemnification | B-40 | |||
7.8 | Exchange De-Listing | B-41 | |||
7.9 | Take-over Statutes | B-41 | |||
7.10 | Tax Matters | B-41 | |||
7.11 | Debt Financing | B-41 | |||
7.12 | Resignations | B-42 | |||
7.13 | Convertible Notes Tender Offer | B-42 | |||
ARTICLE VIII TERM, TERMINATION, AMENDMENT AND WAIVER | B-43 | ||||
8.1 | Term | B-43 | |||
8.2 | Termination | B-43 | |||
8.3 | Amendment | B-44 | |||
8.4 | Waiver | B-44 | |||
ARTICLE IX GENERAL PROVISIONS | B-44 | ||||
9.1 | Notices | B-44 | |||
9.2 | Governing Law; Waiver of Jury Trial | B-47 | |||
9.3 | Injunctive Relief | B-47 | |||
9.4 | Time of Essence | B-47 | |||
9.5 | Entire Agreement, Binding Effect and Assignment | B-48 | |||
9.6 | Severability | B-48 | |||
9.7 | No Third Party Beneficiaries | B-48 | |||
9.8 | Rules of Construction | B-48 | |||
9.9 | Counterparts, Execution | B-48 |
B-2
ACQUISITION AGREEMENT
THIS AGREEMENT is made as of February 9, 2007,
B E T W E E N:
FS ACQUISITION CORP., a corporation incorporated under the laws of the Province of British Columbia (the "Purchaser")
- and -
FOUR SEASONS HOTELS INC., a corporation incorporated under the laws of the Province of Ontario ("Four Seasons").
NOW THEREFORE, in consideration of the covenants and agreements herein contained, the parties agree as follows:
ARTICLE I
INTERPRETATION
1.1 Definitions
In this Agreement, unless something in the subject matter or the context is inconsistent therewith:
"Acquisition Proposal" means, any proposal or offer (written or oral) relating to any merger, consolidation, amalgamation, take-over bid, tender offer, exchange offer, arrangement, recapitalization, liquidation, dissolution, share exchange, sale of assets representing 20% or more of the net income, revenues or assets of Four Seasons and its subsidiaries, taken as a whole (or any lease, long-term supply agreement or other arrangement having the same economic effect as a sale of assets representing 20% or more of the net income, revenues or assets of Four Seasons and its subsidiaries, taken as a whole), purchase or sale of shares or other securities of Four Seasons or any of its subsidiaries or rights or interests therein or thereto representing 20% or more of the voting power of the capital of Four Seasons (in terms of number of shares or voting power) or any of its subsidiaries representing 20% or more of the net income, revenues or assets of Four Seasons and its subsidiaries, taken as a whole, or similar transactions involving Four Seasons and/or such subsidiaries, excluding the Arrangement and the transactions contemplated by this Agreement;
"affiliate" has the meaning ascribed thereto in the Securities Act; and for purposes of this Agreement (other than Section 7.5), the Bill & Melinda Gates Foundation Trust shall not be considered an affiliate of Cascade or the Purchaser;
"Agreement" means this acquisition agreement as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof;
"Arrangement" means an arrangement under Section 182 of the OBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations thereto made in accordance with Section 8.3 hereof or Article 6 of the Plan of Arrangement or made at the direction of the Court in the Final Order;
"Arrangement Resolution" means the special resolution of the holders of Four Seasons Shares, to be substantially in the form and content of Schedule B;
"Articles of Arrangement" means the articles of arrangement of Four Seasons in respect of the Arrangement, required by the OBCA to be sent to the Director after the Final Order is made;
"Board" means the board of directors of Four Seasons;
"business day" means any day, other than a Saturday, a Sunday and a statutory holiday in Toronto, Ontario, Canada, Seattle, Washington, United States of America or New York, New York, United States of America;
B-3
"Cascade" means Cascade Investment, L.L.C.;
"Closing Date" has the meaning ascribed thereto in Section 2.3;
"commercially reasonable efforts" with respect to any Party means the agreement of such Party to cooperate and to use its reasonable efforts consistent with commercial practice on the part of a person desirous of achieving a result without (a) payment or incurrence of any liability or obligation, other than reasonable expenses, or (b) the requirement to initiate or commence litigation;
"Commitment Letters" has the meaning ascribed thereto in Section 4.1(c);
"Competition Act" means the Competition Act (Canada), as amended from time to time;
"Confidentiality Agreements" means (a) the letter agreement dated November 4, 2006, as amended, between Kingdom and Four Seasons pursuant to which Kingdom has been provided with access to confidential information of Four Seasons and (b) the letter agreement dated June 2, 2006, as amended, between Cascade and Four Seasons pursuant to which Cascade has been provided with access to confidential information of Four Seasons, in each case as may be further amended from time to time;
"Contract" means any contract, agreement, license, franchise, lease, arrangement, commitment, understanding or other right or obligation (written or oral) to which Four Seasons or any of its subsidiaries is a party or by which Four Seasons or any of its subsidiaries is bound or affected or to which any of their respective properties or assets is subject, other than, in each case, the Four Seasons Plans;
"Convertible Notes Tender Offer" has the meaning ascribed thereto in Section 7.13;
"Court" means the Ontario Superior Court of Justice;
"Data Room" means the data room established by Four Seasons at the offices of Goodmans LLP;
"Debt Financing" has the meaning ascribed thereto in Section 4.1(c);
"Director" means the Director appointed pursuant to Section 278 of the OBCA;
"Disclosure Letter" means the letter of disclosure dated as of the date of this Agreement and signed by one or more officers of Four Seasons (other than Isadore Sharp) and delivered to the Purchaser;
"Dissent Rights" means the rights of dissent in respect of the Arrangement described in Article 4 of the Plan of Arrangement;
"Effective Time" has the meaning ascribed thereto in the Plan of Arrangement;
"Environment" means the natural environment (including soil, land surface or subsurface strata), surface waters, groundwater, sediment, ambient air (including all layers of the atmosphere), organic and inorganic matter and living organisms, and any other environmental medium or natural resource and all sewer systems;
"Environmental Laws" means all applicable Laws (including in the United States, the Comprehensive Environmental Response, Compensation and Liability Act) relating to public health and safety, noise control, pollution or the protection of the Environment or to the generation, production, installation, use, storage, treatment, transportation, Release or threatened Release of Hazardous Substances, including civil responsibility for acts or omissions with respect to the Environment, and all Permits issued pursuant to such Laws;
"Equity Funding Letter" has the meaning ascribed thereto in Section 4.1(c);
"Exchange" or "Exchanges" means the Toronto Stock Exchange and/or the New York Stock Exchange, as applicable;
"Exchange Act" means the United States Securities Exchange Act of 1934, as amended;
"Final Order" means the final order of the Court approving the Arrangement, as such order may be amended or varied at any time prior to the Effective Time or, if appealed, then unless such appeal is withdrawn or denied, as affirmed or as amended on appeal;
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"Financial Advisor" has the meaning ascribed thereto in Section 3.1(a);
"Four Seasons Circular" means the notice of the Four Seasons Meeting and accompanying Four Seasons management information circular, including all schedules, appendices and exhibits thereto, to be sent to the shareholders of Four Seasons in connection with the Four Seasons Meeting, as amended, supplemented or otherwise modified;
"Four Seasons Convertible Notes" means the $250,000,000 aggregate amount of 1.875% convertible senior notes of Four Seasons maturing July 30, 2024;
"Four Seasons Current Public Disclosure" means the disclosure made by Four Seasons in its Form 40-F dated March 9, 2006 and its Forms 6-K dated May 5, 2006, August 10, 2006 and November 9, 2006 filed on the Electronic Document Gathering, Analysis and Retrieval System (EDGAR), excluding any documents incorporated by reference therein but including any exhibits attached thereto;
"Four Seasons Employees" means all employees of Four Seasons and its subsidiaries, other than those employees in respect of whom an owner of a hotel managed by Four Seasons or its subsidiaries is liable pursuant to a written and enforceable agreement to reimburse and/or indemnify Four Seasons or any of its subsidiaries for all costs and expenses of, and liabilities related to, such employees;
"Four Seasons Financial Statements" has the meaning ascribed thereto in Section 3.1(i);
"Four Seasons Meeting" means the special meeting of Four Seasons Shareholders, including any adjournment or postponement thereof, to be called and held in accordance with the Interim Order to consider the Arrangement;
"Four Seasons Option" means an option to purchase Limited Voting Shares granted under the Four Seasons Stock Option Plan;
"Four Seasons Organizational Documents" has the meaning ascribed thereto in Section 3.1(b);
"Four Seasons Plans" has the meaning ascribed thereto in Section 3.1(r)(i);
"Four Seasons' Public Disclosure Record" means all documents filed on the System for Electronic Document Analysis Retrieval (SEDAR) or the Electronic Document Gathering, Analysis and Retrieval System (EDGAR) after December 31, 2003;
"Four Seasons Shareholders" means the holders of Four Seasons Limited Voting Shares;
"Four Seasons Shares" means, collectively, the Limited Voting Shares and the Variable Multiple Voting Shares;
"Four Seasons Stock Option Plan" means the Four Seasons Restated Director, Executive and Employee Stock Option Plan, as amended through February 26, 2004;
"GAAP" means Canadian generally accepted accounting principles;
"Governmental Entity" means (a) any multinational, federal, provincial, state, regional, municipal, local or other government, governmental or public department, ministry, central bank, court, tribunal, arbitral body, commission, commissioner, board, bureau or agency, domestic or foreign, (b) any subdivision, agent or authority of any of the foregoing or (c) any quasi-governmental or private body, including any tribunal, commission, regulatory agency or self-regulatory organization, exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing;
"Hazardous Substances" means any waste or other substance that is prohibited, listed, defined, designated or classified as dangerous, hazardous, radioactive, explosive or toxic or a pollutant or a contaminant under or pursuant to any applicable Environmental Laws, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials or any substance which is deemed under Environmental Laws to be deleterious to natural resources or worker or public health and safety;
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"HSR Act" means the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended from time to time;
"immaterial subsidiary" means any subsidiary of Four Seasons that (a) is not a material subsidiary, (b) held assets with an aggregate book value not exceeding $5,000,000 as at the end of the subsidiary's most recently completed fiscal year, (c) generated revenues (other than any employee cost reimbursements from property owners, dividends from subsidiaries and revenues from food and beverage operations in connection with managed properties) not exceeding $5,000,000 in the subsidiary's most recently completed fiscal year (to be calculated on a pro rata basis in the event that such subsidiary was not in existence for the entire most recently completed fiscal year), and (d) is not a party to a Management Agreement;
"including" means including without limitation, and "include" and "includes" have a corresponding meaning;
"Indebtedness" means, with respect to any person, without duplication but excluding indebtedness between a person and its wholly-owned subsidiaries (a) indebtedness of such person for borrowed money, secured or unsecured, (b) every obligation of such person evidenced by bonds, debentures, notes or other similar instruments, (c) every obligation of such person under purchase money mortgages, conditional sale agreements or other similar instruments relating to purchased property or assets, (d) every capitalized lease obligation of such person, (e) every obligation of such person under interest rate cap, swap, collar or similar transactions or currency hedging transactions (valued at the termination value thereof), and (f) every obligation of the type referred to above of any other person, the payment of which such person has guaranteed or for which such person is otherwise responsible or liable;
"Indenture" has the meaning ascribed thereto in Section 3.1(e);
"Intellectual Property Rights" has the meaning ascribed thereto in Section 3.1(t);
"Interested Shareholders" means, collectively, (i) Isadore Sharp, Triples, the Purchaser, Kingdom, Cascade and their respective directors and senior officers, (ii) any other related party of Isadore Sharp, Triples, the Purchaser, Kingdom or Cascade within the meaning of Ontario Securities Commission Rule 61-501 and the Autorité des marchés financiers du Québec Regulation Q-27, subject to the exceptions set out therein, (iii) any interested party to the Arrangement within the meaning of Ontario Securities Commission Rule 61-501 and the Autorité des marchés financiers du Québec Regulation Q-27, and (iv) any person that is a joint actor with any of the foregoing for the purposes of Ontario Securities Commission Rule 61-501 and the Autorité des marchés financiers du Québec Regulation Q-27.
"Interim Order" means the interim order of the Court, as the same may be amended in respect of the Arrangement, as contemplated by Section 2.2;
"JV Interests" has the meaning ascribed thereto in Section 3.1(g);
"Kingdom" means Kingdom Hotels International;
"Law" or "Laws" means all laws (including common law), by-laws, statutes, rules, regulations, principles of law and equity, orders, rulings, ordinances, judgments, injunctions, determinations, awards, decrees or other requirements, whether domestic or foreign, and the terms and conditions of any grant of approval, permission, authority or license of any Governmental Entity or self-regulatory authority (including either of the Exchanges), and the term "applicable" with respect to such Laws (including Environmental Laws) and in a context that refers to one or more Parties, means such Laws as are applicable to such Party or its business, undertaking, property or securities and emanate from a person having jurisdiction over the Party or Parties or its or their business, undertaking, property or securities;
"Lease Documents" has the meaning ascribed thereto in Section 3.1(n)(ii);
"Leased Properties" has the meaning ascribed thereto in Section 3.1(n)(ii);
"Legal Actions" has the meaning ascribed thereto in Section 3.1(l);
"Lender" has the meaning ascribed thereto in Section 4.1(c);
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"Liens" means any hypothecations, mortgages, liens, charges, security interests, pledges, claims, encumbrances and adverse rights or claims;
"Limited Voting Shares" means the limited voting shares of Four Seasons;
"Management Agreements" has the meaning ascribed thereto in Section 3.1(p)(i)(H);
"Material Adverse Effect" means, when used in connection with Four Seasons, any fact, circumstance, change, effect, matter, action, condition, event or occurrence that, individually or in the aggregate with all other facts, circumstances, changes, effects, matters, actions, conditions, events or occurrences, (a) is material and adverse to the business, affairs, assets, operations, results of operations, or financial condition of Four Seasons and its subsidiaries, taken as a whole, or (b) would materially impair or delay the consummation of the transactions contemplated by this Agreement by Four Seasons beyond the Outside Date or materially impair or delay the ability of Four Seasons to perform its obligations hereunder provided that the pendency of any litigation seeking to restrain, enjoin or otherwise prohibit the consummation of the Arrangement shall be disregarded for the purpose of this clause (b), other than, in the case of either clause (a) or (b) above, any fact, circumstance, change, effect, matter, action, condition, event or occurrence resulting from (i) the announcement of the execution of this Agreement or the transactions contemplated hereby or the performance of any obligation hereunder, (ii) changes in the U.S. or Canadian economies or securities or currency markets in general, (iii) changes generally affecting the hospitality business in one or more countries or geographic markets where Four Seasons and its subsidiaries operate or conduct business, (iv) any change in applicable Laws, regulations or GAAP, (v) any natural disaster, or (vi) any outbreak or escalation of hostilities, declared or undeclared acts of war or terrorism, except in the case of clauses (iii), (iv), (v) and (vi) to the extent any such fact, circumstance, change, effect, matter, action, condition, event or occurrence has had a materially disproportionate effect on Four Seasons and its subsidiaries, taken as a whole, compared to other persons in the five-star hospitality management business in one or more countries or geographic markets so affected; provided that (x) a failure to meet any earnings estimates previously made public by Four Seasons, or (y) any decrease in the market price or any decline in the trading volume of the Limited Voting Shares on either of the Exchanges shall not, in and of itself, constitute a Material Adverse Effect; provided, however, that any fact, circumstance, change, effect, matter, action, condition, event or occurrence underlying any such decrease in market price or decline in trading volume that is not excluded pursuant to clause (i) through (vi) may be considered in determining whether there has been a Material Adverse Effect;
"Material Contracts" has the meaning ascribed thereto in Section 3.1(p)(i)(J);
"material fact" has the meaning ascribed thereto in the Securities Act;
"material subsidiaries" means those subsidiaries of Four Seasons which are listed in Section 3.1(b) of the Disclosure Letter;
"MD&A" has the meaning ascribed thereto in Section 3.1(i);
"OBCA" means the Business Corporations Act (Ontario) and the regulations made thereunder, as now in effect and as they may be promulgated or amended from time to time;
"Other Plan" has the meaning ascribed thereto in Section 3.1(r)(i);
"Outside Date" means June 30, 2007, subject to the right of either Party to postpone the Outside Date for up to an additional 90 days (in 30-day increments) if the Regulatory Approvals have not been obtained and have not been denied by a non-appealable decision of a Governmental Entity, by giving written notice to the other Party to such effect no later than 5:00 p.m. (Eastern time) on the date that is not less than 15 days prior to the original Outside Date (and any subsequent Outside Date), or such later date as may be agreed to in writing by the Parties; provided that notwithstanding the foregoing, a Party shall not be permitted to postpone the Outside Date if the failure to obtain a Regulatory Approval is materially the result of such Party's failure to cooperate in accordance with Section 5.5(a) in obtaining such Regulatory Approval;
"Owned Real Properties" has the meaning ascribed thereto in Section 3.1(n)(i);
"Parties" means, collectively, the Purchaser and Four Seasons, and "Party" means either of them;
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"Permit" means any license, permit, certificate, consent, order, grant, approval, classification, registration, flagging or other authorization of and from any Governmental Entity, including any liquor license;
"Permitted Liens" means, in respect of any property or asset of any person at any time, any one or more of the following:
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"person" includes an individual, limited or general partnership, limited liability company, limited liability partnership, trust, joint venture, association, body corporate, unincorporated organization, trustee, executor, administrator, legal representative, government (including any Governmental Entity) or any other entity, whether or not having legal status;
"Plan of Arrangement" means the plan of arrangement, substantially in the form of Schedule A hereto and any amendments or variations thereto made in accordance with Section 8.3 hereof or Article 6 of the Plan of Arrangement or made at the direction of the Court in the Final Order;
"Post-Signing Returns" has the meaning ascribed thereto in Section 7.10(1);
"Pre-Acquisition Reorganization" has the meaning ascribed thereto in Section 5.2;
"Properties" has the meaning ascribed thereto in Section 3.1(n)(ii);
"Purchaser Material Adverse Effect" means any fact, circumstance, change, effect, matter, action, condition, event or occurrence that, individually or in the aggregate with all other facts, circumstances, changes, effects, matters, actions, conditions, events or occurrences, would reasonably be expected to materially impair or delay the consummation of the transactions contemplated by this Agreement by the Purchaser beyond the Outside Date or materially impair or delay the ability of the Purchaser to perform its obligations hereunder;
"Purchaser Parties" means, collectively, Cascade, Kingdom and Triples;
"Purchaser Payment Parties" means collectively, FS Acquisition Corp., Kingdom Investments I (TSF) Sarl and Triples.
"Regulatory Approvals" means (i) those sanctions, rulings, consents, orders, exemptions, permits and other approvals (including the lapse, without objection, of a prescribed time under a statute or regulation that states that a transaction may be implemented if a prescribed time lapses following the giving of notice without an objection being made) of Governmental Entities set forth in Schedule C, and (ii) such other sanctions, rulings, consents, orders, exemptions, permits and other approvals (including the lapse, without objection, of a prescribed time under any Law that states that a transaction may be implemented if a prescribed time lapses following the giving of notice without an objection being made) of Governmental Entities required to consummate the Plan of Arrangement, except, in the case of (ii) only, for those sanctions, rulings, consents, orders, exemptions, permits and other approvals, the failure of which to obtain individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect or a Purchaser Material Adverse Effect, and for greater certainty, except, in the case of (i) and (ii), for such sanctions, rulings, consents, orders, exemptions, permits and other approvals required solely in connection with any Pre-Acquisition Reorganization or the Debt Financing;
"Release" has the meaning prescribed in any Environmental Law and includes any sudden, intermittent or gradual release, spill, leak, pumping, addition, pouring, emission, emptying, discharge, migration, injection, escape, leaching, disposal, dumping, deposit, spraying, burial, abandonment, incineration, seepage, placement or introduction of a Hazardous Substance, whether accidental or intentional, into the environment;
"Required Vote" has the meaning ascribed thereto in Section 2.2(b);
"Returns" means all reports, forms, elections, designations, schedules, statements, estimates, declarations of estimated tax, information statements and returns required to be filed with a Governmental Entity with respect to Taxes;
"Sarbanes-Oxley Act" means the United States Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated under such Act;
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"Schedule 13E-3" means the Rule 13e-3 transaction statement on Schedule 13E-3 under the Exchange Act to be filed by Four Seasons, Cascade, Kingdom, Triples and Isadore Sharp in connection with this Agreement and the Plan of Arrangement;
"Securities Act" means the Securities Act (Ontario) and the rules, regulations and published policies made thereunder, as now in effect and as they may be promulgated or amended from time to time;
"Securities Authorities" means the applicable securities commissions and other securities regulatory authorities in Canada and the United States;
"Securities Laws" means the Securities Act, all other applicable Canadian provincial and United States federal and state securities laws, rules and regulations and published policies thereunder;
"Special Committee" means the special committee of independent members of the Board formed in relation to the proposal to effect the transactions contemplated by this Agreement;
"Sponsor Guarantee" has the meaning ascribed thereto in Section 4.1(c);
"subsidiary" means, with respect to a specified person, any person of which at least 50% of the voting power ordinarily entitled to elect a majority of the board of directors thereof (whether or not shares of any other class or classes shall or might be entitled to vote upon the happening of any event or contingency) are at the time owned directly or indirectly by such specified person and shall include any person over which such specified person exercises direction or control or which is in a like relation to a subsidiary;
"Superior Proposal" shall mean any unsolicited bona fide written Acquisition Proposal (i) that relates to not less than 50.1% of the outstanding Limited Voting Shares or assets of Four Seasons or any of its subsidiaries representing not less than 50.1% of the assets of Four Seasons and its subsidiaries taken as a whole, (ii) that is reasonably capable of being completed without undue delay, taking into account to the extent considered appropriate by the Board, all financial, legal, regulatory and other aspects of such proposal and the person making such proposal, (iii) which the Board determines, in its good faith judgment, after receiving the advice of its outside legal and Financial Advisors and after taking into account all the terms and conditions of the Acquisition Proposal, is on terms and conditions more favourable from a financial point of view to the Four Seasons Shareholders (other than Interested Shareholders, provided that the terms and conditions of such Acquisition Proposal apply equally to all Four Seasons Shareholders) than those contemplated by this Agreement, and (iv) for which financing, to the extent required, is then committed.
"Tax Act" means the Income Tax Act (Canada) and the regulations made thereunder, as now in effect and as they may be promulgated or amended from time to time;
"Taxes" means any and all domestic and foreign federal, state, provincial, municipal and local taxes, assessments and other governmental charges, duties, impositions and liabilities imposed by any Governmental Entity, including Canada Pension Plan and Provincial pension plan contributions, installments, unemployment insurance contributions and employment insurance contributions, worker's compensation and deductions at source, including taxes based on or measured by gross receipts, income, profits, sales, capital, use, and occupation, and including goods and services, value added, ad valorem, transfer, franchise, withholding, customs, payroll, recapture, employment, excise and property duties and taxes, together with all interest, penalties, fines and additions imposed with respect to such amounts;
"Technology" has the meaning ascribed thereto in Section 3.1(t);
"Termination Fee" has the meaning ascribed thereto in Section 7.3;
"Triples" means Triples Holdings Limited;
"Valuation and Fairness Opinion" means the formal valuation of the Limited Voting Shares prepared by the Financial Advisor, as required pursuant to Ontario Securities Commission Rule 61-501 and the Autorité des marchés financiers du Québec Regulation Q-27, and the opinion of the Financial Advisor to the Special Committee as to the fairness, from a financial point of view, of the consideration being offered under the Arrangement to Four Seasons Shareholders, other than the Interested Shareholders; and
"Variable Multiple Voting Shares" means the variable multiple voting shares of Four Seasons.
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1.2 Interpretation Not Affected by Headings
The division of this Agreement into Articles and Sections and the insertion of a table of contents and headings are for convenience of reference only and do not affect the construction or interpretation of this Agreement. The terms "hereof", "hereunder" and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles, Sections and Schedules are to Articles and Sections of and Schedules to this Agreement.
1.3 Interpretation
In this Agreement words importing the singular number include the plural and vice versa, and words importing any gender include all genders. The term "third party" means any person other than Four Seasons, the Purchaser or any of the Purchaser Parties. The term "made available" means that (i) copies of the subject materials were included in the Data Room on or prior to February 7, 2007, (ii) copies of the subject materials were provided to the Purchaser, or (iii) the subject material was listed in the Disclosure Letter or referred to in the Data Room on or prior to February 7, 2007 and copies were provided to the Purchaser by Four Seasons if requested.
1.4 Date for Any Action
If the date on which any action is required to be taken hereunder by a Party is not a business day, such action shall be required to be taken on the next succeeding day which is a business day.
1.5 Statutory References
In this Agreement, unless something in the subject matter or context is inconsistent therewith or unless otherwise herein provided, a reference to any statute is to that statute as now enacted or as the same may from time to time be amended, re-enacted or replaced and includes any regulations made thereunder.
1.6 Currency
Unless otherwise stated, all references in this Agreement to sums of money are expressed in lawful money of the United States of America and "$" refers to United States dollars.
1.7 Accounting Principles
Wherever in this Agreement reference is made to a calculation to be made or an action to be taken in accordance with GAAP, such reference will be deemed to be to the GAAP from time to time approved by the Canadian Institute of Chartered Accountants, or any successor institute, applicable as at the date on which such calculation or action is made or taken or required to be made or taken.
1.8 Knowledge
In this Agreement (other than in Section 3.1(v)), references to "the knowledge of Four Seasons" means the actual knowledge, in their capacity as officers of Four Seasons and not in their personal capacity, of Sarah Cohen, John M. Davison, Craig O. Reith, Kathleen Taylor or Randolph Weisz, after reasonable inquiry within Four Seasons.
1.9 Schedules
The following Schedules are annexed to this Agreement and are incorporated by reference into this Agreement and form a part hereof:
Schedule A | — | Plan of Arrangement | ||
Schedule B | — | Special Resolution of the Four Seasons Shareholders | ||
Schedule C | — | Regulatory Approvals |
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ARTICLE II
THE ACQUISITION
2.1 Implementation Steps by Four Seasons
Four Seasons covenants in favour of the Purchaser that Four Seasons shall:
2.2 Interim Order
The notice of motion for the application referred to in Section 2.1(a) shall request that the Interim Order provide:
2.3 Articles of Arrangement; Closing
The Articles of Arrangement shall implement the Plan of Arrangement. On the second business day after the satisfaction or waiver (subject to applicable Laws) of the conditions (excluding conditions that, by their terms, cannot be satisfied until the Closing Date, but subject to the satisfaction or, where permitted, waiver of those conditions as of the Closing Date) set forth in Article VI but, in any event, not earlier than March 15, 2007, and unless another time or date is agreed to in writing by the parties hereto (the "Closing Date"), the
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Articles of Arrangement shall be filed with the Director. At the Effective Time, among other things, each Limited Voting Share outstanding immediately prior to the Effective Time will be exchanged as provided in the Plan of Arrangement, and the Arrangement will, from and after the Effective Time, have all of the effects provided by applicable Laws, including the OBCA. The closing of the transactions contemplated hereby and by the Arrangement will take place at the Toronto, Ontario offices of Goodmans LLP on the Closing Date.
2.4 Circular
Subject to compliance with Section 2.5, as promptly as reasonably practicable after the execution and delivery of this Agreement, Four Seasons shall prepare the Four Seasons Circular together with any other documents required by the Securities Laws or other applicable Laws in connection with the Four Seasons Meeting required to be filed or prepared by Four Seasons, and, subject to Section 2.5(2) as promptly as is reasonably practicable after the execution and delivery of this Agreement, Four Seasons shall, unless otherwise agreed by the Parties, cause the Four Seasons Circular and other documentation required in connection with the Four Seasons Meeting to be sent to Four Seasons Shareholders and filed as required by the Interim Order and applicable Laws. The Four Seasons Circular shall include the recommendation of the Board that Four Seasons Shareholders vote in favour of the Arrangement Resolution unless such recommendation has been withdrawn, modified or amended in accordance with the terms of this Agreement and will include a copy of the Valuation and Fairness Opinion.
2.5 Preparation of Filings
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2.6 Court Proceedings
Four Seasons will provide Purchaser and its legal counsel with reasonable opportunity to review and comment upon drafts of all material to be filed with the Court in connection with the Arrangement, including by providing on a timely basis a description of any information required to be supplied by the Purchaser for inclusion in such material, prior to the service and filing of that material, and will accept the reasonable comments of the Purchaser and its legal counsel with respect to any such information required to be supplied by the Purchaser and included in such material. Four Seasons will ensure that all material filed with the Court in connection with the Arrangement is consistent in all material respects with the terms of this Agreement and the Plan of Arrangement. In addition, Four Seasons will not object to legal counsel to the Purchaser making such submissions on the hearing of the motion for the Interim Order and the application for the Final Order as such counsel considers appropriate, provided that Four Seasons is advised of the nature of any submissions prior to the hearing and such submissions are consistent with this Agreement, the agreements that it contemplates and the Plan of Arrangement. Four Seasons will also provide legal counsel to the Purchaser on a timely basis with copies of any notice of appearance and evidence served on Four Seasons or its legal counsel in respect of the application for the Final Order or any appeal therefrom. Subject to applicable Laws, Four Seasons will not file any material with the Court in connection with the Arrangement or serve any such material, and will not agree to modify or amend materials so filed or served, except as contemplated hereby or with the Purchaser's prior written consent, such consent not to be unreasonably withheld or delayed; provided that nothing herein shall
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require the Purchaser to agree or consent to any increased purchase price or other consideration or other modification or amendment to such filed or served materials that expands or increases the Purchaser's obligations set forth in any such filed or served materials or under this Agreement.
2.7 Public Communications
The Parties agree to co-operate in the preparation of presentations, if any, to Four Seasons Shareholders regarding the Arrangement, and no Party shall issue any press release or otherwise make public statements with respect to the Arrangement or this Agreement, without the consent of the other Party (which consent shall not be unreasonably withheld or delayed); and Four Seasons shall not make any filing with any Governmental Entity or with any Exchange with respect to the Arrangement without prior consultation with the Purchaser, and the Purchaser shall not make any filing with any Governmental Entity or with any Exchange with respect to the Arrangement without prior consultation with Four Seasons; provided, however, that the foregoing shall be subject to each Party's overriding obligation to make any disclosure or filing required under applicable Laws, and the Party making any such disclosure shall use all commercially reasonable efforts to give prior oral or written notice to the other Party and reasonable opportunity for the other Party to review or comment on the disclosure or filing (other than with respect to confidential information contained in such disclosure or filing), and if such prior notice is not possible, to give such notice immediately following the making of any such disclosure or filing, and provided further, that, except as otherwise required by Section 7.2(4) of this Agreement, Four Seasons shall have no obligation to consult with the Purchaser prior to any disclosure by Four Seasons with regard to an Acquisition Proposal.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FOUR SEASONS
3.1 Representations and Warranties
Contemporaneously with the execution and delivery of this Agreement, Four Seasons is delivering to the Purchaser the Disclosure Letter required to be delivered pursuant to this Agreement, which is deemed to constitute an integral part of this Agreement and to modify the representations and warranties of Four Seasons contained in this Agreement; provided that no disclosures set forth in the Disclosure Letter will modify a particular representation and warranty of Four Seasons contained in this Agreement except for such disclosures, if any, as are set forth in the Disclosure Letter under a Section heading that corresponds to the Section of this Agreement containing the particular representation and warranty or an appropriate cross-reference. Four Seasons represents and warrants to and in favour of the Purchaser as follows and acknowledges that the Purchaser is relying upon such representations and warranties in connection with the entering into of this Agreement, provided, however, that each of the representations and warranties of Four Seasons set forth in Sections 3.1(b) to 3.1(y), inclusive, is qualified by and is made subject to (i) any actions that are permitted or contemplated pursuant to the terms of this Agreement, and (ii) other than with respect to the first three sentences of Section 3.1(e) and Section 3.1(k), the Four Seasons Current Public Disclosure:
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properties is subject to any outstanding judgment, order, writ, injunction or decree that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
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Real Properties, free and clear of all Liens, other than Permitted Liens and any failures of title that do not materially adversely affect the operations of the business as they are now being conducted or the ability to sell such property. To the knowledge of Four Seasons, none of the Owned Real Properties is subject to any governmental decree or order to be sold or is being condemned, expropriated or otherwise taken by any public authority with or without payment of compensation therefor, nor, to the knowledge of Four Seasons, has any such condemnation, expropriation or taking been proposed. To the knowledge of Four Seasons, none of Four Seasons or any of its subsidiaries is in violation of any covenants or not in compliance with any conditions, restrictions or Permitted Liens affecting any Owned Real Properties which violations or non-compliances would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
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Record (the Contracts described in clauses (A) through (J), together with all exhibits and schedules thereto being, the "Material Contracts").
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"Intellectual Property Rights"); (ii) all such Intellectual Property Rights are sufficient, in all material respects, for conducting the business, as presently conducted, of Four Seasons and its subsidiaries taken as a whole; (iii) to the knowledge of Four Seasons, all such Intellectual Property Rights are valid and enforceable (subject to the effects of bankruptcy, insolvency, reorganization, moratorium or laws relating to or affecting creditors' rights generally), and do not infringe in any material way upon any third parties' intellectual property and proprietary rights, and no event will occur as a result of the transactions contemplated hereby that would render invalid or unenforceable any such Intellectual Property Rights; (iv) to the knowledge of Four Seasons, no third party is infringing upon such Intellectual Property Rights in a manner that currently would reasonably be expected to adversely affect such Intellectual Property Rights in any material respect; (v) all computer hardware and their associated firmware and operating systems, application software, database engines and processed data, technology infrastructure and other computer systems used in connection with the conduct of the business, as presently conducted, of Four Seasons and its subsidiaries taken as a whole (collectively, the "Technology") are up-to-date and sufficient, in all material respects, for conducting the business, as presently conducted, of Four Seasons and its subsidiaries taken as a whole; (vi) Four Seasons and its subsidiaries own or have validly licensed (and are not in material breach of such licenses) such Technology and have commercially reasonable virus protection and security measures in place in relation to such Technology; and (vii) Four Seasons and its subsidiaries have reasonable back-up systems and audited procedures and disaster recovery strategies adequate to ensure the continuing availability of the functionality provided by the Technology, and have ownership of or a valid license to the Intellectual Property Rights necessary to allow them to continue to provide, in all material respects, the functionality provided by the Technology in the event of any malfunction of the Technology or other form of disaster affecting the Technology. Four Seasons owns all right, title and interest in and to the trademarks, trade names and service marks listed in Section 3.1(t) of the Disclosure Letter. Section 3.1(t) of the Disclosure Letter sets forth the Intellectual Property Rights that are licensed by Four Seasons to a third party (other than pursuant to any Management Agreement).
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any immaterial subsidiary) pending under any such policy that has been denied or disputed by the insurer, and (vii) all claims under such policies have been filed in a timely fashion.
The Parties agree that the representations and warranties contained in this Section 3.1(v) are the sole representations and warranties of Four Seasons relating to compliance with the Environmental Laws. For purposes of this Section 3.1(v) only, references to "the knowledge of Four Seasons" means the actual knowledge, in their capacity as officers of Four Seasons and not in their personal capacity, of Sarah Cohen and Randolph Weisz, without further inquiry.
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Four Seasons has made available to the Purchaser, complete copies (or descriptions, where applicable) of the Contracts referred to in clauses (i), (ii) or (iii) of this Section 3.1(w). There are no material labour disputes, strikes or lock-outs relating to or involving any employees of Four Seasons or any of its subsidiaries that would, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. There are no actual or, to the knowledge of Four Seasons, threatened applications for certification, voluntary recognition, related employer, successor employer or union bargaining rights in respect of Four Seasons or any of its subsidiaries.
3.2 Survival of Representations and Warranties
No investigation by or on behalf of, or knowledge of, the Purchaser, Triples or any of their respective affiliates, or Isadore Sharp, will mitigate, diminish or affect the representations or warranties made by Four Seasons in this Agreement or any certificate delivered by Four Seasons pursuant to this Agreement. Except for the representations and warranties contained in this Article III, neither Four Seasons nor any other persons on behalf of Four Seasons makes any express or implied representation or warranty with respect to Four Seasons or with respect to any other information provided or otherwise made available to the Purchaser in connection with the transactions contemplated hereby. The representations and warranties of Four Seasons contained in this Agreement shall not survive the completion of the Arrangement and shall expire and be terminated on the earlier of the Effective Time and the date on which this Agreement is terminated in accordance with its terms. This Section 3.2 shall not limit any covenant or agreement of Four Seasons or any of its subsidiaries which, by its terms, contemplates performance after the Effective Time or date on which this Agreement is terminated, as the case may be.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 Representations and Warranties of the Purchaser
The Purchaser hereby represents and warrants to and in favour of Four Seasons as follows and acknowledges that Four Seasons is relying upon such representations and warranties in connection with the entering into of this Agreement:
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hereunder (the "Sponsor Guarantee"). The Equity Funding Letter and the Sponsor Guarantee, in the form so delivered, is a legal, valid and binding obligation of the parties thereto and, solely in the case of the Sponsor Guarantee, enforceable by Four Seasons in accordance with its terms, and is in full force and effect as of the date hereof. The Purchaser has fully paid any and all commitment fees or other fees required by the Commitment Letter or as otherwise required pursuant to the Debt Financing that have come due. As of the date hereof, the Commitment Letter is in full force and effect and is a legal, valid and binding obligation of the Purchaser, and to the knowledge of the Purchaser, the other parties thereto. No event has occurred which, with or without notice, lapse of time or both, would constitute a default on the part of the Purchaser under the Equity Funding Letter, the Commitment Letter or the Sponsor Guarantee. The Purchaser has no reason to believe that it will be unable to satisfy on a timely basis any term or condition of closing to be satisfied by it contained in the Equity Funding Letter or the Commitment Letter. The Purchaser shall have at the Closing Date and at the Effective Time proceeds in connection with equity financing as contemplated by the Equity Funding Letter and the Debt Financing sufficient to consummate the Arrangement and the transactions contemplated thereby upon the terms contemplated by this Agreement.
4.2 Survival of Representations and Warranties
The representations and warranties of the Purchaser contained in this Agreement shall expire and be terminated on the earlier of the Effective Time and the date on which this Agreement is terminated in accordance with its terms. This Section 4.2 shall not limit any covenant or agreement of the Purchaser which, by its terms, contemplates performance after the Effective Time or date on which this Agreement is terminated, as the case may be.
ARTICLE V
COVENANTS OF THE PARTIES
5.1 Covenants of Four Seasons Regarding the Conduct of Business
Four Seasons covenants and agrees that, during the period from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its terms, unless the Purchaser shall otherwise agree in writing (to the extent that such consent is permitted by applicable Law), such agreement not to be unreasonably withheld or delayed (except as otherwise provided herein), or except as is otherwise expressly permitted or contemplated by this Agreement, or the Plan of Arrangement or contemplated by the reforecasted fiscal 2006 budget contained in the indicative fiscal 2007 budget or by the indicative fiscal 2007 budget (all as set forth in Section 5.1 of the Disclosure Letter), or as is contemplated by Section 5.1 of the Disclosure Letter or as is otherwise required by applicable Law:
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Seasons in respect of shares of Four Seasons, permit a Lien (other than Permitted Liens) to be created on, or agree to issue, grant, sell or cause or, except in the case of Four Seasons in respect of shares of Four Seasons, permit a Lien (other than Permitted Liens) to be created on any shares of Four Seasons or its subsidiaries, or securities convertible into or exchangeable or exercisable for, or otherwise evidencing a right to acquire, shares of Four Seasons or any of its subsidiaries, other than (A) the issuance of Limited Voting Shares issuable pursuant to the terms of the outstanding Four Seasons Options and the Four Seasons Convertible Notes, and (B) transactions between two or more Four Seasons wholly-owned subsidiaries or between Four Seasons and a Four Seasons wholly-owned subsidiary; (v) redeem, purchase or otherwise acquire or subject to a Lien any of its outstanding securities or securities convertible or exchangeable into or exercisable for any such securities, unless otherwise required by the terms of such securities and other than in transactions between two or more Four Seasons wholly-owned subsidiaries or between Four Seasons and a Four Seasons wholly-owned subsidiary; (vi) with respect to Four Seasons and its material subsidiaries only, amend or modify the terms of any of its securities; (vii) adopt a plan of liquidation or resolution providing for the liquidation or dissolution of Four Seasons or any of its subsidiaries; (viii) amend its accounting policies or adopt new accounting policies, in each case except as required in accordance with GAAP; (ix) make any material Tax election or settle or compromise any material Tax liability; or (x) authorize or propose any of the foregoing, or enter into, modify or terminate any Contract with respect to any of the foregoing;
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5.2 Pre-Acquisition Reorganizations
Subject to the following sentences, Four Seasons agrees that, upon request by the Purchaser, Four Seasons shall, and shall cause its subsidiaries to, at the expense of Purchaser, use its commercially reasonable efforts to (i) effect such reorganizations of its business, operations and assets and the integration of other affiliated businesses as the Purchaser may request, acting reasonably (each a "Pre-Acquisition Reorganization") and (ii) cooperate with the Purchaser and its advisors to determine the nature of the Pre-Acquisition Reorganizations that might be undertaken and the manner in which they may most effectively be undertaken. The Purchaser acknowledges and agrees that the Pre-Acquisition Reorganizations shall (A) not impede, delay or prevent consummation of the Arrangement (including by giving rise to litigation by third parties); (B) be such that, in the opinion of Four Seasons, acting reasonably, would not prejudice the Four Seasons Shareholders or the holders of Four Seasons Options; (C) not require Four Seasons to obtain the approval of Four Seasons Shareholders; or (D) not be considered in determining whether a representation, warranty or covenant of Four Seasons hereunder has been breached, it being acknowledged by the Purchaser that these actions could require the consent of third parties under applicable Contracts and Governmental Entities. The Purchaser shall provide written notice to Four Seasons of any proposed Pre-Acquisition Reorganization at least twenty days prior to the anticipated Effective Time. Upon receipt of such notice, the Purchaser and Four Seasons shall, at the expense of the Purchaser, work cooperatively and use commercially reasonable efforts to prepare prior to the Effective Time all documentation necessary and do such other acts and things as are necessary to give effect to any Pre-Acquisition Reorganizations. The Parties shall seek to have any such Pre-Acquisition Reorganization made effective as of the last moment of the day ending immediately prior to the Closing Date (but after the Purchaser shall have waived or confirmed that all conditions to Closing have been satisfied), provided that no such Pre-Acquisition Reorganization will be made effective unless (i) it is reasonably certain, after consulting with Four Seasons, that the Arrangement will become effective; (ii) such Pre-Acquisition Reorganization can be reversed or unwound without adversely affecting Four Seasons or its subsidiaries in the event the Arrangement does not become effective and this Agreement is terminated; or (iii) Four Seasons otherwise reasonably agrees. If the Arrangement is not completed, the Purchaser will forthwith reimburse Four Seasons for all reasonable fees and expenses (including any professional fees and expenses) incurred by Four Seasons and its subsidiaries in considering and effecting a Pre-Acquisition Reorganization and shall be responsible for any costs of Four Seasons and its subsidiaries in reversing or unwinding any Pre-Acquisition Reorganization that was effected prior to termination of the Agreement at the Purchaser's request. The obligation of the Purchaser to reimburse Four Seasons for fees and expenses and be responsible for costs as set out in this Section will be in addition to any other payment the Purchaser may be obligated to make hereunder and will survive termination of this Agreement. The completion of the Pre-Acquisition Reorganization shall not be a condition to completion of the Arrangement.
5.3 Covenants of Four Seasons Regarding the Arrangement
Four Seasons shall perform, and shall cause its subsidiaries to perform, all obligations required or desirable to be performed by Four Seasons or any of its subsidiaries under this Agreement, co-operate with the Purchaser in connection therewith, and do all such other acts and things as may be necessary or desirable in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated in this Agreement and, without limiting the generality of the foregoing, Four Seasons shall and, where appropriate, shall cause its subsidiaries to:
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5.4 Covenants of the Purchaser Regarding the Performance of Obligations
Except as contemplated in this Agreement, the Purchaser shall perform all obligations required or desirable to be performed by it under this Agreement, co-operate with Four Seasons in connection therewith, and do all such other acts and things as may be necessary or desirable in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated in this Agreement and, without limiting the generality of the foregoing, the Purchaser shall:
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Party, Four Seasons or any of their respective significant affiliates as conducted on the date hereof in any material respect;
5.5 Mutual Covenants
Each of the Parties covenants and agrees that, except as contemplated in this Agreement, during the period from the date of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its terms:
5.6 Stock Options
Purchaser acknowledges that, subject to receipt of all appropriate approvals and consents from any Governmental Entity, and pursuant to the provisions of the Four Seasons Stock Option Plan, Four Seasons shall facilitate the acceleration of the vesting of any unvested Four Seasons Options as may be necessary or desirable to allow all persons holding Four Seasons Options to exercise such Options for the purpose of participating in the Arrangement. Pursuant to the Arrangement, any Four Seasons Options that have not been exercised prior to the Effective Time will be transferred by each holder thereof to Four Seasons without any act or formality on its or their part in exchange for a cash amount equal to the excess, if any, of (i) the product of the number of Four Seasons Shares underlying the Four Seasons Options held by such holder and $82.00, over (ii) the aggregate exercise price for all Four Seasons Shares underlying the Four Seasons Options held by such holder (converted at the Bank of Canada's published rate of exchange for United States dollars at noon on the day prior to the Closing Date). Pursuant to the Plan of Arrangement, Four Seasons will be entitled to deduct and withhold from any consideration otherwise payable to any holder of Four Seasons Options such amounts as Four Seasons is required to deduct and withhold with respect to such payment under the Tax Act, the United States Internal Revenue Code of 1986 or any provision of provincial, state, local or foreign tax law, in each case, as amended or succeeded and subject to the provisions of any applicable income tax treaty between Canada and the country where the holder is resident.
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5.7 Disclosure of Material Information upon Termination
If this Agreement is terminated prior to the Effective Time (other than pursuant to Section 8.2(4)), Four Seasons shall, within 5 Business Days of such termination, disclose all Material Information to the public generally by means of a material change report and a filing on Form 8-K or other periodic report required or permitted to be filed under applicable laws. For purposes of this Section 5.7, "Material Information" shall mean all material and non-public information concerning Four Seasons or any of its subsidiaries that has been furnished to the Purchaser or any of it affiliates, in written, electronic or other form, in connection with this Agreement, the contemplated transactions or the due diligence therefor.
ARTICLE VI
CONDITIONS
6.1 Mutual Condition Precedents
The obligations of the Parties to complete the transactions contemplated by this Agreement are subject to the fulfillment, on or before the Effective Time, of each of the following conditions precedent, each of which may only be waived by the mutual consent of the Parties:
6.2 Additional Conditions Precedent to the Obligations of the Purchaser
The obligations of the Purchaser to complete the transactions contemplated by this Agreement shall also be subject to the fulfillment of each of the following conditions precedent (each of which is for the exclusive benefit of the Purchaser and may be waived by Purchaser):
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Four Seasons by two senior executive officers of Four Seasons (on Four Seasons' behalf and without personal liability), confirming the above as at the Effective Time;
6.3 Additional Conditions Precedent to the Obligations of Four Seasons
The obligations of Four Seasons to complete the transactions contemplated by this Agreement shall also be subject to the following conditions precedent (each of which is for the exclusive benefit of Four Seasons and may be waived by Four Seasons):
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Notice and Cure Provisions
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7.2 Non-Solicitation
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7.3 Agreement as to Damages
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Fee") less any amounts actually paid or required to be paid by Four Seasons to the Purchaser pursuant to Section 7.3(2), if:
such payment to be made within two business days of any such termination.
7.4 Fees and Expenses
Except as provided in Section 7.3, each Party shall pay all fees, costs and expenses incurred by such Party in connection with this Agreement and the Arrangement.
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7.5 Liquidated Damages, Injunctive Relief and No Liability of Others
The Parties acknowledge that all of the payment amounts set out in Section 7.3 are payments of liquidated damages which are a genuine pre-estimate of the damages a Party will suffer or incur as a result of the event giving rise to such payment and the resultant termination of this Agreement and are not penalties. Each Party irrevocably waives any right it may have to raise as a defense that any such liquidated damages are excessive or punitive. For greater certainty, the Parties agree that the right to receive payment of the amount determined pursuant to Section 7.3 in the manner provided therein is the sole and exclusive remedy of the Party entitled to such payment in respect of the event giving rise to such payment, other than the right to injunctive relief in accordance with Section 9.3 hereof to restrain any breach or threatened breach of the covenants or agreements set forth in this Agreement or the Confidentiality Agreements or otherwise to obtain specific performance of any of such acts, covenants or agreements, without the necessity of posting a bond or security in connection therewith. Other than amounts that may become payable pursuant to the Sponsor Guarantee, there shall be no liability of any shareholder, director, officer, employee, advisor or representative of the Purchaser, any Purchaser Party or any affiliate thereof, whether to Four Seasons, the Purchaser or any other person (including any shareholder, director, officer, employee, advisor or representative thereof) in connection with any liability or other obligation of the Purchaser, any Purchaser Party or any affiliate thereof, whether hereunder or otherwise in connection with the transactions contemplated hereby (including in connection with the Equity Funding Letter).
7.6 Access to Information; Confidentiality
From the date hereof until the earlier of the Effective Time and the termination of this Agreement, subject to compliance with applicable Law and the terms of any existing Contracts, Four Seasons shall, and shall cause its subsidiaries and their respective officers, directors, employees, independent auditors, accounting advisers and agents to, afford to the Purchaser and to its officers, employees, agents and representatives such access as the Purchaser may reasonably require at all reasonable times, including for the purpose of facilitating the ability to grant the collateral package required by the Lender in connection with the financing contemplated by the Commitment Letter and the definitive agreements contemplated therein, and facilitating integration business planning, to their officers, employees, agents, properties, books, records and Contracts, and shall make available to the Purchaser all data and information as the Purchaser may reasonably request. Without limiting the foregoing, the Purchaser and its representatives (including its financing sources) shall, upon reasonable prior notice, have the right to conduct appraisal and environmental and engineering inspections of each of the Owned Properties; provided, that no such inspections shall be conducted in a manner which disrupts in any material respect the normal course of business of Four Seasons at the applicable Property. The Purchaser and Four Seasons acknowledge and agree that information furnished pursuant to this Section shall be subject to the terms and conditions of the Confidentiality Agreements.
7.7 Insurance and Indemnification
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of the Purchaser, Four Seasons or any of its subsidiaries will have any further obligation under this Section 7.7(1).
7.8 Exchange De-Listing
Subject to applicable Laws, Purchaser and Four Seasons shall use their commercially reasonable efforts to cause the Four Seasons Shares to be de-listed from the Exchanges and de-registered under the Exchange Act promptly, with effect immediately following the acquisition by the Purchaser of the Four Seasons Shares pursuant to the Plan of Arrangement.
7.9 Take-over Statutes
If any take-over statute is or becomes applicable to this Agreement, the Arrangement or the other transactions contemplated by this Agreement, each of the Purchaser and Four Seasons and their respective boards of directors shall (a) take all necessary action to ensure that such transactions may be consummated as promptly as practicable upon the terms and subject to the conditions set forth in this Agreement and (b) otherwise act to eliminate or minimize the effects of such takeover statute.
7.10 Tax Matters
During the period from the date of this Agreement to the Effective Time, Four Seasons and its subsidiaries shall:
7.11 Debt Financing
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forth in Sections 6.1 and 6.2 of this Agreement and to the Purchaser's rights under Sections 8.2(2) and 8.2(3).
7.12 Resignations
Subject to confirmation that insurance coverage is maintained as contemplated by Section 7.7, and delivery by each of Kingdom and Triples of releases from all claims and potential claims in respect of the period prior to the Effective Time in favour of each of the directors of Four Seasons (other than claims or potential claims in respect of which Four Seasons is precluded by applicable Law from indemnifying a director), Four Seasons shall obtain and deliver to the Purchaser at the Effective Time evidence reasonably satisfactory to Purchaser of the resignation effective as of the Effective Time, of those directors of Four Seasons designated by the Purchaser to Four Seasons in writing at least five calendar days prior to the Effective Time.
7.13 Convertible Notes Tender Offer
The Purchaser currently expects to commence an offer to purchase and related consent solicitation with respect to all of the outstanding Four Seasons Convertible Notes on such terms and conditions as determined by the Purchaser (including the related consent solicitation, the "Convertible Notes Tender Offer"). Four Seasons shall, at the expense of Purchaser, provide all cooperation reasonably requested by the Purchaser in connection with the Convertible Notes Tender Offer. The closing of the Convertible Notes Tender Offer shall be conditioned on the occurrence of the Effective Time, and, unless otherwise specified by the Purchaser, the Parties shall use their commercially reasonable efforts to cause the Convertible Notes Tender Offer to close immediately prior to the Effective Time. The Convertible Notes Tender Offer and other actions taken in connection therewith shall be conducted in accordance with all applicable rules and resolutions of the Securities Authorities and other applicable Laws.
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ARTICLE VIII
TERM, TERMINATION, AMENDMENT AND WAIVER
8.1 Term
This Agreement shall be effective from the date hereof until the earlier of the Effective Time and the termination of this Agreement in accordance with its terms.
8.2 Termination
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8.3 Amendment
This Agreement and the Plan of Arrangement may, at any time and from time to time before or after the holding of the Four Seasons Meeting but not later than the Effective Time, be amended by mutual written agreement of the Parties, and any such amendment may, subject to the Interim Order and Final Order and applicable Laws, without limitation:
8.4 Waiver
Any Party may (i) extend the time for the performance of any of the obligations or acts of the other Party, (ii) waive compliance with any of the other Party's agreements or the fulfillment of any conditions to its own obligations contained herein, or (iii) waive inaccuracies in any of the other Party's representations or warranties contained herein or in any document delivered by the other Party; provided, however, that any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party and, unless otherwise provided in the written waiver, will be limited to the specific breach or condition waived.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices
All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered or sent if delivered personally or sent by facsimile or e-mail transmission, or as of the following business day if sent by prepaid overnight courier, to the Parties at the following addresses (or at such other addresses as shall be specified by either Party by notice to the other given in accordance with these provisions):
if to the Purchaser:
c/o
FS Washington Acquisition Corp.
2365 Carillon Point
Kirkland, Washington, U.S.A.
98033
Attention:
General Counsel
Facsimile: (425) 576-8078
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and to:
c/o
Kingdom Hotels International
P.O. Box 309GT
George Town, Grand Cayman
Cayman Islands
Attention:
President
Facsimile: (345) 949-8080
with a copy (which shall not constitute notice) to:
Cleary
Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, NY 10006
Attention:
Christopher Austin
Facsimile: (212) 225-3999
E-mail: caustin@cgsh.com
and to:
Isadore
Sharp
c/o Ogilvy Renault LLP
Suite 3800
Royal Bank Plaza, South Tower
200 Bay Street
P.O. Box 84
Toronto, Ontario, Canada
Attention: Norman Steinberg/Ava Yaskiel
Telephone:
(416) 216-4000
Facsimile: (416) 216-3930
E-mail:
nsteinberg@ogilvyrenault.com
ayaskiel@ogilvyrenault.com
and to:
Hogan &
Hartson LLP
555 13th Street, N.W.
Washington, D.C. 20004
USA
Attention: Bruce W. Gilchrist
Telephone:
(202) 637-5686
Facsimile: (866) 692-1475
E-mail: BWGilchrist@HHLaw.com
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and to:
Stikeman
Elliott LLP
Barristers & Solicitors
1155 René-Lévesque Boulevard
Suite 4000
Montreal, Quebec, Canada H3B 3V2
Attention: Pierre A. Raymond and Marc B. Barbeau
Telephone:
(514) 397-3000
Facsimile: (514) 397-3222
E-mail:
praymond@stikeman.com
mbarbeau@stikeman.com
and to:
McCarthy
Tétrault LLP
Suite 4700
Toronto Dominion Bank Tower
Toronto, Ontario, Canada M5K 1E6
Attention: Garth Girvan
Telephone:
(416) 362-1812
Facsimile: (416) 868-0673
E-mail: ggirvan@mccarthy.ca
and to:
Michael
R. Jensen
16 Quai General-Guisan, P.O. Box 3946
CH-1211
Geneva 3, Switzerland
Facsimile: +41-22-317-5571
and to:
PJ
Shoucair
Kingdom Holding Company
Kingdom Center — Floor # 66
P.O. Box 2
Riyadh 11321
Kingdom of Saudi Arabia
Facsimile: +966 (1) 211-1208
if to Four Seasons:
Four
Seasons Hotels Inc.
1165 Leslie Street
Toronto, Ontario M3C 2K8
Attention: Randolph
Weisz
Executive Vice President, Business Administration,
General Counsel and Secretary
Facsimile: (416) 441-4349
E-mail: randolph.weisz@fourseasons.com
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with a copy to (which shall not constitute notice):
Goodmans LLP
Suite 2400
250 Yonge Street
Toronto, Ontario, Canada M5B 2M6
Attention: Jonathan Lampe/Sheldon Freeman
Facsimile: (416) 979-2211
E-Mail:
jlampe@goodmans.ca
sfreeman@goodmans.ca
and to:
Wachtell,
Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-6150
Attention: David A. Katz
Facsimile: (212) 403-1000
E-Mail: dakatz@wlrk.com
and to:
Osler,
Hoskin & Harcourt LLP
100 King Street West, Suite 6100
Toronto, Ontario, Canada M5X 1B8
Attention: Jean M. Fraser
Facsimile: (416) 862-6666
E-Mail: jfraser@osler.com
9.2 Governing Law; Waiver of Jury Trial
This Agreement shall be governed, including as to validity, interpretation and effect, by the laws of the Province of Ontario and the laws of Canada applicable therein, and shall be construed and treated in all respects as an Ontario contract. Each of the Parties hereby irrevocably attorns to the non-exclusive jurisdiction of the Courts of the Province of Ontario in respect of all matters arising under and in relation to this Agreement and the Arrangement. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE PARTIES IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT.
9.3 Injunctive Relief
The Parties agree that irreparable harm would occur for which money damages would not be an adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to an injunction or injunctions and other equitable relief to prevent breaches of this Agreement, any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief hereby being waived.
9.4 Time of Essence
Time shall be of the essence in this Agreement.
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9.5 Entire Agreement, Binding Effect and Assignment
9.6 Severability
If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.
9.7 No Third Party Beneficiaries
Except as provided in Sections 7.3(1) and 7.7, and except for the rights of the Four Seasons Shareholders to receive the consideration for their Limited Voting Shares following the Effective Time pursuant to the Arrangement, which rights are hereby acknowledged and agreed by the Purchaser, this Agreement is not intended to confer any rights or remedies upon any person other than the Parties to this Agreement. Four Seasons appoints the Purchaser as the trustee for the Purchaser Payment Parties of the covenants of Four Seasons with respect to such Purchaser Payment Parties as specified in Section 7.3(1) of this Agreement and the Purchaser accepts such appointment. The Purchaser appoints Four Seasons as the trustee for the directors and officers of Four Seasons and its subsidiaries of the covenants of the Purchaser with respect to those individuals as specified in Section 7.7 of this Agreement and Four Seasons accepts such appointment.
9.8 Rules of Construction
The Parties to this Agreement have been represented by counsel during the negotiation and execution of this Agreement and waive the application of any Laws or rule of construction providing that ambiguities in any agreement or other document shall be construed against the party drafting such agreement or other document.
9.9 Counterparts, Execution
This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. The Parties shall be entitled to rely upon delivery of an executed facsimile or similar executed electronic copy of this Agreement, and such facsimile or similar executed electronic copy shall be legally effective to create a valid and binding agreement between the Parties.
[Signature Page Follows]
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IN WITNESS WHEREOF Purchaser and Four Seasons have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
FS ACQUISITION CORP. | |||
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FOUR SEASONS HOTELS INC. |
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SCHEDULE A
To the Acquisition Agreement
Plan of Arrangement
[The Plan of Arrangement, as originally attached to the Acquisition Agreement and as posted on SEDAR, has been amended effective February 27, 2007 and may be found at Appendix D to this Circular.]
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SCHEDULE B
To the Acquisition Agreement
Special Resolution of the Four Seasons Shareholders
BE IT RESOLVED THAT:
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SCHEDULE C
To the Acquisition Agreement
Regulatory Approvals
Part A — Canada
Part B — United States
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APPENDIX C
INDEPENDENT VALUATION AND FAIRNESS OPINION
Merrill Lynch Canada Inc. 181 Bay Street, Suite 400 Toronto, Ontario Canada M5J 2V8 Tel (416) 369-7400 |
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February 5, 2007
The
Special Committee of the Board of Directors
Four Seasons Hotels Inc.
1165 Leslie Street
Toronto, Ontario
M3C 2K8
To the Special Committee:
Merrill Lynch Canada Inc. ("Merrill Lynch") understands that Four Seasons Hotels Inc. ("FSHI" or the "Company") has received a proposal from its controlling shareholder, Triples Holdings Limited, and Isadore Sharp (collectively "Sharp"), Kingdom Hotels International ("Kingdom"), a company owned by a trust created by His Royal Highness Prince Alwaleed Bin Talal Abdulaziz Alsaud, and Cascade Investment, L.L.C. ("Cascade"), an entity owned by William H. Gates III, to acquire indirectly, by way of a plan of arrangement under Ontario law (the "Arrangement"), all of the issued and outstanding limited voting shares ("LVS") of the Company not already owned by Sharp, Kingdom and Cascade and their respective affiliates, for consideration of US$82.00 cash (the "Transaction Price") per LVS. Merrill Lynch understands that Sharp, Kingdom and Cascade will jointly establish a purchaser corporation, incorporated under the laws of the Province of British Columbia (the "Purchaser"), to acquire such LVS pursuant to the Arrangement, and that it is proposed that the Purchaser enter into an acquisition agreement (the "Acquisition Agreement") with FSHI in respect of the Arrangement.
Merrill Lynch understands that the terms of the Arrangement will be more fully described in a management information circular (the "Circular") to be mailed to the holders of the LVS in connection with the Arrangement. Merrill Lynch also understands that a special committee of independent directors (the "Special Committee") of the board of directors (the "Board") of FSHI has been constituted to, among other things, review and consider the Arrangement, supervise the conduct of, and if appropriate, negotiate on behalf of the Company with respect to the Arrangement and make recommendations to the Board with respect to the Arrangement. Merrill Lynch was instructed by the Special Committee that the Arrangement is a "business combination" within the meaning of Ontario Securities Commission Rule 61-501, including the companion policy thereto, and a "going private transaction" within the meaning of the Quebec Securities Commission Regulation Q-27, including the companion policy thereto (collectively the "Policies"). The Special Committee has retained Merrill Lynch to act as financial advisor to the Special Committee and to, among other things, prepare and deliver to the Special Committee a formal valuation of the LVS (the "Valuation") in accordance with the requirements of the Policies and an opinion (the "Fairness Opinion") as to the fairness of the consideration to be received under the Arrangement, from a financial point of view, to holders of the LVS other than (i) Sharp, the Purchaser, Kingdom, Cascade and their respective directors and senior officers, (ii) any other related party of Sharp, the Purchaser, Kingdom or Cascade within the meaning of the Policies, subject to the exceptions set out therein, (iii) any other interested party to the Arrangement within the meaning of the Policies, and (iv) any person that is a joint actor with any of the foregoing for the purposes of the Policies (the "LVS Minority"). The Valuation and Fairness Opinion have been prepared in accordance with the guidelines of the Investment Dealers Association of Canada.
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The Special Committee has also requested that Merrill Lynch assess the market value of certain preferred shares of FSHI to be issued to Sharp in connection with the amalgamation of the Purchaser and FSHI immediately following the Arrangement. This assessment is described under the section of this letter titled "Preferred Shares to be Issued to Sharp" and does not form a part of, and was not considered in connection with rendering, the Valuation and Fairness Opinion.
Engagement of Merrill Lynch by the Special Committee
The Special Committee initially contacted Merrill Lynch on November 6, 2006 regarding a potential advisory assignment and Merrill Lynch was formally engaged by the Special Committee to provide the Valuation and Fairness Opinion in connection with the Arrangement through an agreement (the "Engagement") dated as of November 8, 2006. Pursuant to the terms of the Engagement, Merrill Lynch will receive a fee of US$2,000,000 for its services and is also entitled to be reimbursed for reasonable expenses. Merrill Lynch may receive an additional fee of up to US$500,000, payable in the sole discretion of the Special Committee, if the extent of the services provided to the Special Committee exceeds the initial expectations of the Special Committee or in the event the Engagement extends beyond March 31, 2007. FSHI has agreed to indemnify Merrill Lynch and its affiliates, subject to certain limitations, against certain expenses, losses, claims, damages and liabilities arising out of the Engagement. Fees payable to Merrill Lynch pursuant to the Engagement are not contingent in whole or in part on, and there is no agreement, arrangement or understanding that gives Merrill Lynch a financial incentive in respect of, the success of the Arrangement or on the conclusions reached in the Valuation or Fairness Opinion.
Subject to the terms of the Engagement, Merrill Lynch consents to the inclusion of the Valuation and Fairness Opinion in their entirety in the Circular, with summaries thereof, in a form acceptable to Merrill Lynch, included in the Circular, and to the filing of the Valuation and Fairness Opinion by FSHI or the Purchaser, as necessary, with securities commissions or similar regulatory authorities in each province in Canada and in the United States.
Independence of Merrill Lynch
Neither Merrill Lynch nor any of its affiliated entities (as such term is defined for the purposes of the Policies) (i) is an associated or affiliated entity or issuer insider (as such terms are defined for the purposes of the Policies) of FSHI, the Purchaser, Sharp, Kingdom, Cascade or any of their respective associates or affiliates, (ii) is an advisor to the Purchaser, Sharp, Kingdom, Cascade or any of their respective associates or affiliates in connection with the Arrangement, (iii) is a manager or co-manager of a soliciting dealer group for the Arrangement (or a member of the soliciting dealer group for the Arrangement providing services beyond the customary soliciting dealer's functions or receiving more than the per security or per security holder fees payable to the other members of the group), or (iv) has a material financial interest in the completion of the Arrangement. Merrill Lynch has not been engaged to provide any financial advisory services nor has it participated in any underwriting involving FSHI, the Purchaser, Sharp, Kingdom, Cascade or any of their respective associates or affiliates during the past 24-month period preceding the date Merrill Lynch was first contacted in respect of the Valuation.
No understandings, agreements or commitments exist between Merrill Lynch and any of FSHI, the Purchaser, Sharp, Kingdom, Cascade or any of their respective associates or affiliates with respect to any future financial advisory or investment banking business. Merrill Lynch will not be participating in any lending syndicate providing financing to the Purchaser in respect of the Arrangement. Merrill Lynch may, in the future, in the ordinary course of its business, perform financial advisory or investment banking services for FSHI, the Purchaser, Sharp, Kingdom, Cascade or any of their respective associates or affiliates.
Merrill Lynch, together with its affiliates, is a full service securities firm engaged, either directly or through its affiliates, in various activities including securities trading, investment management, financing and brokerage activities and financial advisory services for companies, governments and individuals. In the ordinary course of
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these activities, Merrill Lynch and its affiliates may actively trade the debt and equity securities or other financial instruments (or related derivative instruments) of FSHI, the Purchaser, Sharp, Kingdom, Cascade or any of their respective associates or affiliates and, from time to time, may have executed or may execute transactions on behalf of clients or on behalf of FSHI, the Purchaser, Sharp, Kingdom, Cascade or associated or affiliated entities or related persons for which it received or may receive compensation. In addition, as an investment dealer, Merrill Lynch conducts research on securities and may, in the ordinary course of its business, provide research reports and investment advice to its clients on investment matters, including with respect to FSHI, the Purchaser, Sharp, Kingdom, Cascade or the Arrangement.
Credentials of Merrill Lynch
Merrill Lynch, together with its affiliates, is one of the world's largest investment banking firms providing full service brokerage, investment banking, research, trading and financial advisory services to corporations, governments, institutions and individuals. In Canada, Merrill Lynch is a leading investment banking firm providing full service brokerage, investment banking, research, trading and financial advisory services to corporations, governments and institutions. Merrill Lynch has been involved in a significant number of transactions involving fairness opinions and valuations of private and publicly traded Canadian companies.
The Valuation and Fairness Opinion expressed herein represent the opinion of Merrill Lynch as an entity. The form and content hereof has been reviewed and approved for release by a committee of Merrill Lynch senior investment banking professionals, each of whom is experienced in merger, acquisition, divestiture and valuation matters.
Scope of Review
In connection with the Valuation and Fairness Opinion, Merrill Lynch obtained information from publicly available sources and from FSHI. Merrill Lynch has reviewed and relied upon (without independently verifying the completeness and accuracy thereof) or carried out, among other things, the following:
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Merrill Lynch has taken into account the current state of the economies and the financial markets in which FSHI conducts its business activities. Merrill Lynch conducted such analyses, investigations, research and testing of valuation assumptions as were considered by it to be appropriate in the circumstances. Merrill Lynch has not, to the best of its knowledge, been denied access by the Company to any information requested by Merrill Lynch. The auditors of the Company declined to permit Merrill Lynch to rely upon information provided by them as part of any due diligence review. Merrill Lynch did not meet with the auditors of the Company and has assumed the fair presentation of, and relied upon, the audited consolidated financial statements of the Company and the reports of the auditors thereon.
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The Valuation and Fairness Opinion has been prepared in accordance with the Disclosure Standards for Formal Valuations and Fairness Opinions of the Investment Dealers Association of Canada, but the Association has not been involved in the preparation or review of the Valuation and Fairness Opinion.
Prior Valuations
The Company has represented to Merrill Lynch that there have not been any prior valuations, as defined in the Policies, of the Company or its material assets or its securities in the preceding 24-month period.
Key Assumptions and Limitations
Merrill Lynch has, in accordance with the terms of the Engagement, relied upon and assumed the completeness, accuracy and fair presentation of all of the financial and other information, data, advice, opinions or representations supplied or otherwise made available to us from publicly available sources, senior management of FSHI or FSHI's advisors, or discussed with or reviewed by or for us (collectively the "Information"). With respect to any financial forecast information (including cost savings and synergies) furnished to or discussed with Merrill Lynch by the Company, Merrill Lynch has assumed that this information has been reasonably prepared and reflects the best then currently available estimates and judgment of FSHI's management. The Valuation and Fairness Opinion assume, and are conditional upon, such completeness, accuracy and fair presentation of such Information. Merrill Lynch has not independently verified the completeness, accuracy or fair presentation of any of the Information.
Senior officers of FSHI have represented to Merrill Lynch in a representation letter delivered as of the date hereof, among other things, that (i) the Information (as defined above) provided orally by, or in the presence of, an officer or employee of FSHI or any of its subsidiaries or in writing by FSHI or any of its subsidiaries or their respective agents or representatives to Merrill Lynch for the purpose of preparing the Valuation or the Fairness Opinion was, at the date the Information was provided to Merrill Lynch, and is, complete, true and correct in all material respects, and did not, and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the Information not misleading in light of the circumstances under which the Information was provided; and that (ii) since the dates on which the Information was provided to Merrill Lynch, (except as publicly disclosed) there has been no material change, financial or otherwise, in the financial condition, assets, liabilities (contingent or otherwise), business, operations or prospects of FSHI or any of its subsidiaries and no material change has occurred in the Information or any part thereof which would have, or which could reasonably be expected to have, a material effect on the Valuation or Fairness Opinion.
In preparing the Valuation and Fairness Opinion, Merrill Lynch has made several assumptions, including that all of the conditions required to implement the Arrangement will be met and that the disclosure provided or incorporated by reference in the Draft Circular with respect to the Company, the Purchaser, Sharp, Kingdom, Cascade and their respective affiliates and the Arrangement is accurate in all material respects.
The Valuation and Fairness Opinion are rendered on the basis of securities markets, economic and general business and financial conditions prevailing as at the date hereof and the condition and prospects, financial or otherwise, of FSHI and its subsidiaries and affiliates as they were reflected in the Information and documents reviewed by Merrill Lynch as presented to it and as represented to Merrill Lynch in its discussions with management of FSHI. In its analyses and in preparing the Valuation and Fairness Opinion, Merrill Lynch has made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of Merrill Lynch or any party involved in the Arrangement. Although Merrill Lynch believes that the assumptions used in its analyses and in preparing the Valuation and Fairness Opinion are appropriate in the circumstances, some or all of them may nevertheless prove to be incorrect.
Merrill Lynch believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all factors and analyses together, could create a misleading view of the processes underlying the Valuation or Fairness Opinion. The preparation of a valuation
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or fairness opinion is a complex process and it is not appropriate to extract partial analyses or make summary descriptions. Any attempt to do so could lead to undue emphasis on any particular factor or analysis.
In connection with the preparation of the Valuation and Fairness Opinion, Merrill Lynch has not been authorized by the Special Committee to solicit, nor has Merrill Lynch solicited, third-party indications of interest for the acquisition of all or any part of FSHI. Merrill Lynch has not undertaken an independent evaluation, appraisal or physical inspection of any assets or liabilities of FHSI, the Purchaser, Sharp, Kingdom or Cascade. Merrill Lynch is not an expert on, and did not render advice to the Special Committee regarding, legal, accounting, regulatory or tax matters.
The Valuation and Fairness Opinion have been provided for the use of the Special Committee and the Board and may not be used by any other person or relied upon by any other person other than the Special Committee and the Board without the express prior written consent of Merrill Lynch. Merrill Lynch's Fairness Opinion does not address the merits of the underlying decision by FSHI to engage in the Arrangement and does not constitute a recommendation to any shareholder as to how such shareholder should vote on the Arrangement or any matter related thereto. In addition, you have not asked us to address, and this Fairness Opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of the Company, other than the LVS Minority. The Valuation and Fairness Opinion are given as of the date hereof and Merrill Lynch disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting the Valuation or Fairness Opinion which may come or be brought to Merrill Lynch's attention after the date hereof. Without limiting the foregoing, Merrill Lynch will be entitled, at any time prior to the completion of the Arrangement, to withdraw, change or supplement its Valuation or Fairness Opinion, if Merrill Lynch concludes that there has been a material change in the business and affairs of FSHI, a change in material fact, an omission to state a material fact, a material change in the factors upon which the Valuation and Fairness Opinion are based, or if Merrill Lynch becomes aware of any Information not previously known by Merrill Lynch, regardless of the source, which in its opinion would make misleading in any material respect such Valuation or Fairness Opinion.
The analyses summarized below include information presented in tabular format. To understand the analyses completed by Merrill Lynch, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the analyses. Considering the data described below without considering the full narrative description of the analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Merrill Lynch's analyses.
Unless otherwise stated herein, all dollar amounts are expressed in United States dollars.
Overview of FSHI
All information contained in this section (except where otherwise expressly indicated) is sourced directly from annual and interim reports of the Company and other Company disclosure documents.
Overview of FSHI's Business
FSHI is one of the world's leading managers of luxury hotels and resorts. The Company endeavours to offer business and leisure travelers the finest accommodations and experiences beyond compare in each destination in which it operates. FSHI currently has a portfolio of 73 luxury hotel and resort properties (containing approximately 17,985 guest rooms), several of which include a residential component. These properties are operated primarily under the Four Seasons brand name in principal cities and resort destinations in 31 countries in North America, the Caribbean, Europe, Asia, Australia, the Middle East and South America.
FSHI is principally a management company and earns income primarily from managing hotels and resorts on behalf of the property owners pursuant to separate management agreements for each property. Under the management agreements, FSHI oversees, as agent for the property owner, all aspects of the day-to-day operations of the hotels and resorts, including sales and marketing, advertising, reservations, accounting,
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purchasing, budgeting and the hiring, training and supervising of staff. In addition, FSHI provides owners advice with respect to information technology systems and development of certain database applications, as well as advice with respect to the design, construction and furnishing of new or renovated hotels, resorts and residences and assistance with the refurbishment of hotels and resorts. The Company also provides a centralized purchasing system for goods. For providing these services, FSHI receives a variety of fees, comprised of hotel management fees, including a base fee and an incentive fee, and other fees including purchasing and pre-opening fees, and is reimbursed for costs including a sales and marketing charge, an advertising charge and a reservation charge. The base fee usually is calculated as a percentage of the total revenues of the property. Incentive fees typically are based on the property's profitability.
Although the hotel and resort owners are generally responsible for financing and managing the development of the hotels and resorts, FSHI typically plays a significant pre-opening role. The Company provides advice with respect to the design, construction and fitting-out specifications of the hotels and resorts during the development stage to ensure that they meet Four Seasons' standards and FSHI earns fees for these pre-opening services. The Company may also assist owners in connection with the refurbishment of the hotels and resorts after opening in return for a refurbishing fee.
To further capitalize on the value of the Four Seasons brand name, the Company licenses and manages Four Seasons branded residential projects, including whole ownership and fractional ownership. FSHI receives royalty fees for the use of the Four Seasons name in association with the sale of Four Seasons branded real estate. These royalties are typically based on the sales proceeds of the residences sold. The Company also manages Four Seasons branded and serviced residential projects pursuant to management agreements under which FSHI oversees the management of the day-to-day operations of the completed projects in return for on-going management fees from the owners of these projects.
As part of the on-going business, FSHI may make investments in, or advances in respect of or to owners of, properties with a view to obtaining new management agreements or enhancing existing management agreements where the Company believes the overall returns will justify the investment or advance. FSHI generally seeks to limit the total long-term capital exposure to no more than 20% of the total equity required for a property and can typically choose to have its equity interest diluted if additional capital is required. The Company attempts to structure equity interests separately from its management interests to enable it to dispose of equity interests as opportunities arise, without affecting the management interests. FSHI also holds a 100% leasehold interest in the Four Seasons Hotel Vancouver that is a long-term leasehold interest that was established at an earlier stage in the Company's development. FSHI is continuing to review options in respect of Four Seasons Hotel Vancouver to determine what, if any, alternatives may be available to modify or restructure the operation of, or investment in, this hotel.
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Overview of FSHI's Operating Statistics
The following table summarizes FSHI's key operating measures for each of the fiscal years ended December 31, 1995 through December 31, 2006.
|
1995 |
1996 |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
CAGR '95-'06 |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Worldwide(1) | |||||||||||||||||||||||||||
Total Number of Properties | 38 | 37 | 39 | 42 | 47 | 48 | 53 | 57 | 60 | 63 | 68 | 73 | 6.1% | ||||||||||||||
Total Number of Rooms | 12,663 | 11,628 | 12,205 | 12,782 | 13,779 | 14,081 | 14,598 | 15,433 | 15,726 | 16,375 | 17,300 | 17,985 | 3.2% | ||||||||||||||
Occupancy |
71.7% |
74.9% |
73.7% |
70.4% |
69.8% |
72.6% |
65.0% |
64.6% |
61.9% |
66.8% |
68.2% |
69.0% |
NA |
||||||||||||||
ADR(2) | $203 | $232 | $245 | $253 | $272 | $281 | $287 | $289 | $299 | $307 | $329 | $372 | 5.7% | ||||||||||||||
% Change | 14.2% | 5.7% | 3.2% | 7.5% | 3.3% | 2.1% | 0.7% | 3.5% | 2.7% | 7.2% | 13.2% | ||||||||||||||||
RevPAR(2) | $146 | $174 | $181 | $178 | $190 | $204 | $187 | $187 | $185 | $205 | $224 | $257 | 5.3% | ||||||||||||||
% Change | 19.2% | 4.2% | (1.6% | ) | 6.7% | 7.4% | (8.3% | ) | 0.0% | (1.1% | ) | 10.8% | 9.3% | 14.7% |
Source: Annual and interim reports of the Company and other Company disclosure documents.
The following provides a summary of FSHI's hotel operating data for all managed hotels and a historical schedule of properties under construction or in advanced stages of development for each of the fiscal years ended December 31, 1998 through December 31, 2006.
|
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Schedule of Properties Under Management | ||||||||||||||||||
Beginning Number of Properties | 39 | 42 | 47 | 48 | 53 | 57 | 60 | 63 | 68 | |||||||||
Properties Opened | 3 | 5 | 1 | 6 | 4 | 4 | 5 | 7 | 5 | |||||||||
Properties Terminated | 0 | 0 | 0 | (1 | ) | 0 | (1 | ) | (2 | ) | (2 | ) | 0 | |||||
Ending Number of Properties | 42 | 47 | 48 | 53 | 57 | 60 | 63 | 68 | 73 |
|
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
Q3 2006 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Development Pipeline | ||||||||||||||||||
Development Opportunities Within 2 Years | 12 | 8 | 9 | 12 | 14 | 14 | 12 | 9 | 7 | |||||||||
Development Opportunities Beyond 2 Years | 6 | 13 | 10 | 10 | 5 | 8 | 12 | 18 | 26 | |||||||||
Total Pipeline | 18 | 21 | 19 | 22 | 19 | 22 | 24 | 27 | 33 |
Source: Annual and interim reports of the Company and other Company disclosure documents.
Overview of FSHI's Financial Position
For the fiscal year ended December 31, 2006, the Company, on a preliminary basis, had total revenues of approximately $174.0 million and earnings before interest, taxes, depreciation and amortization ("EBITDA") of approximately $80.7 million compared to total revenues of approximately $179.3 million and EBITDA of approximately $57.9 million for the fiscal year ended December 31, 2005. The following table summarizes FSHI's consolidated historical operating results for each of the fiscal years ended December 31, 1995 through December 31, 2006. Over this period, FSHI has experienced significant volatility in its results due in part to
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(i) general economic conditions; and (ii) ownership of a portfolio of hotels which has been substantially reduced over this period. The Company now operates only one owned property.
|
Fiscal Year Ended December 31,(1) |
|
||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
CAGR '95-'06 |
|||||||||||||||||||||||||||
|
1995 |
1996 |
1997 |
1998 |
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
2005 |
2006(2) |
||||||||||||||||
|
($ millions) |
|||||||||||||||||||||||||||
Consolidated Revenues(3) | $98.8 | $88.5 | $173.7 | $167.3 | $186.9 | $234.1 | $195.8 | $181.3 | $170.6 | $205.2 | $179.3 | $174.0 | 5.3% | |||||||||||||||
% Growth | (10.4% | ) | 96.2% | (3.7% | ) | 11.7% | 25.3% | (16.3% | ) | (7.4% | ) | (5.9% | ) | 20.3% | (12.6% | ) | (3.0% | ) | ||||||||||
Management Fee Revenues | $64.5 | $69.5 | $76.6 | $85.6 | $96.9 | $124.8 | $103.8 | $94.2 | $86.3 | $112.0 | $117.2 | $140.6 | 7.3% | |||||||||||||||
% Growth | 7.7% | 10.2% | 11.8% | 13.2% | 28.7% | (16.8% | ) | (9.3% | ) | (8.4% | ) | 29.8% | 4.6% | 20.0% | ||||||||||||||
EBITDA (Managed Properties) | $37.8 | $40.8 | $46.0 | $53.9 | $60.0 | $84.7 | $61.5 | $52.2 | $56.9 | $65.9 | $60.9 | $79.5 | 7.0% | |||||||||||||||
% Margin | 58.5% | 58.8% | 60.1% | 62.9% | 61.9% | 67.9% | 59.3% | 55.4% | 66.0% | 58.8% | 51.9% | 56.6% | ||||||||||||||||
Ownership Revenues | $31.0 | $12.9 | $97.8 | $84.5 | $89.1 | $108.5 | $95.3 | $90.0 | $88.2 | $97.4 | $65.3 | $33.4 | 0.7% | |||||||||||||||
% Growth | (58.2% | ) | NM | (13.6% | ) | 5.5% | 21.7% | (12.2% | ) | (5.6% | ) | (2.0% | ) | 10.5% | (32.9% | ) | (48.9% | ) | ||||||||||
EBITDA (Owned Properties) | $10.9 | $6.4 | $10.9 | $5.5 | $5.6 | $9.2 | ($6.6 | ) | ($12.5 | ) | ($21.5 | ) | ($5.0 | ) | ($2.9 | ) | $1.2 | (18.4% | ) | |||||||||
% Margin | 35.1% | 49.2% | 11.1% | 6.5% | 6.3% | 8.5% | NA | NA | NA | NA | NA | NA | ||||||||||||||||
Consolidated EBITDA | $48.6 | $47.2 | $56.9 | $59.4 | $65.6 | $93.9 | $54.9 | $39.7 | $35.4 | $60.9 | $57.9 | $80.7 | 4.7% | |||||||||||||||
% Margin | 49.2% | 53.3% | 32.7% | 35.5% | 35.1% | 40.1% | 28.1% | 21.9% | 20.8% | 29.7% | 32.3% | 46.4% | ||||||||||||||||
EBIT(4) | $36.3 | $36.9 | $45.5 | $49.2 | $57.2 | $84.4 | $44.4 | $30.3 | $24.7 | $49.1 | $46.7 | $65.6 | 5.5% | |||||||||||||||
% Growth | 1.8% | 23.2% | 8.1% | 16.4% | 47.6% | (47.4% | ) | (31.8% | ) | (18.6% | ) | 99.0% | (4.7% | ) | 40.4% | |||||||||||||
Net Income(4) | $14.7 | $21.7 | $37.9 | $45.6 | $55.8 | $63.6 | $36.0 | $28.1 | $22.3 | $37.6 | $36.4 | $54.0 | 12.5% | |||||||||||||||
% Growth | 47.2% | 74.9% | 20.4% | 22.3% | 13.9% | (43.3% | ) | (22.1% | ) | (20.5% | ) | 68.5% | (3.2% | ) | 48.3% |
Source: Annual and interim reports of the Company and other Company disclosure documents.
The following table summarizes FSHI's balance sheet as at December 31, 2004, December 31, 2005 and December 31, 2006.
|
December 31, 2006(1) |
December 31, 2005 |
December 31, 2004 |
||||||
---|---|---|---|---|---|---|---|---|---|
|
($ millions) |
||||||||
Cash and Cash Equivalents | $ | 358.9 | $ | 242.2 | $ | 226.4 | |||
Other Current Assets | 78.2 | 80.0 | 86.0 | ||||||
Long-Term Receivables | 152.0 | 175.4 | 179.1 | ||||||
Investments in Hotel Partnerships and Corporations | 68.5 | 99.9 | 131.3 | ||||||
Fixed Assets | 81.5 | 64.9 | 59.9 | ||||||
Investment in Management Contracts, Trademarks and Trade Names | 192.1 | 169.1 | 185.7 | ||||||
Future Income Tax Assets | 9.4 | 14.4 | 3.7 | ||||||
Other Assets | 57.3 | 34.3 | 30.1 | ||||||
Total Assets | $ | 998.0 | $ | 880.2 | $ | 902.1 | |||
Current Liabilities |
$ |
79.0 |
$ |
59.7 |
$ |
64.2 |
|||
Long-Term Obligations | 266.9 | 273.8 | 253.1 | ||||||
Shareholders' Equity | 652.1 | 546.7 | 584.9 | ||||||
Total Liabilities and Shareholders' Equity | $ | 998.0 | $ | 880.2 | $ | 902.1 | |||
Source: Annual and interim reports of the Company and other Company disclosure documents.
Note: Balance sheet as reported, numbers may not add due to rounding.
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Trading Range and Volumes
The LVS are listed and posted for trading on the Toronto Stock Exchange (the "TSX") under the symbol "FSH" and the New York Stock Exchange ("NYSE") under the symbol "FS". The following table sets forth, for the periods indicated, the high and low prices and volumes of sales of the LVS on both the TSX and NYSE.
|
Share Price US$(1) |
Volume |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
High |
Low |
TSX |
NYSE |
Total |
|||||
Fiscal 2007 | ||||||||||
January | 83.65 | 81.37 | 492,620 | 4,353,200 | 4,845,820 | |||||
Fiscal 2006 |
||||||||||
December | 82.36 | 80.51 | 371,275 | 2,797,000 | 3,168,275 | |||||
November | 84.25 | 63.32 | 2,159,040 | 16,738,500 | 18,897,540 | |||||
October | 64.97 | 60.19 | 693,089 | 4,118,500 | 4,811,589 | |||||
3rd Quarter | 65.40 | 52.51 | 2,170,308 | 13,795,800 | 15,966,108 | |||||
2nd Quarter | 67.80 | 49.80 | 1,725,217 | 19,071,200 | 20,796,417 | |||||
1st Quarter | 59.55 | 49.86 | 1,454,486 | 13,532,800 | 14,987,286 | |||||
Fiscal 2005 |
||||||||||
4th Quarter | 59.08 | 46.85 | 1,483,111 | 17,767,100 | 19,250,211 | |||||
3rd Quarter | 69.60 | 54.66 | 1,744,234 | 20,060,700 | 21,804,934 | |||||
2nd Quarter | 75.22 | 61.81 | 1,797,334 | 17,541,800 | 19,339,134 | |||||
1st Quarter | 82.20 | 68.10 | 2,692,587 | 18,624,900 | 21,317,487 | |||||
Fiscal 2004 |
||||||||||
4th Quarter | 84.50 | 64.08 | 2,705,759 | 15,012,300 | 17,718,059 | |||||
3rd Quarter | 64.31 | 55.33 | 1,909,365 | 15,321,600 | 17,230,965 | |||||
2nd Quarter | 60.85 | 51.42 | 1,672,277 | 14,653,500 | 16,325,777 | |||||
1st Quarter | 56.85 | 49.16 | 1,473,368 | 11,215,500 | 12,688,868 | |||||
Fiscal 2003 |
||||||||||
4th Quarter | 59.83 | 48.92 | 2,239,873 | 16,364,512 | 18,604,385 | |||||
3rd Quarter | 52.52 | 40.24 | 2,351,756 | 17,376,000 | 19,727,756 | |||||
2nd Quarter | 43.64 | 26.34 | 2,951,401 | 24,658,600 | 27,610,001 | |||||
1st Quarter | 31.90 | 24.99 | 2,389,878 | 24,967,100 | 27,356,978 |
Source: FactSet.
Definition of Fair Market Value
For the purposes of the Valuation, fair market value means the monetary consideration that, in an open and unrestricted market, a prudent and informed buyer would pay to a prudent and informed seller, each acting at arm's length with the other and under no compulsion to act. Merrill Lynch has not made any downward adjustment to reflect the liquidity of the LVS, the effect of the Arrangement on the LVS or the fact that the LVS held by the LVS Minority do not form part of a controlling interest.
Valuation of the LVS
Valuation Methodologies
Merrill Lynch approached the Valuation by valuing the LVS on a going-concern basis. In preparing the Valuation, Merrill Lynch considered valuation methodologies that would be appropriate in determining the fair
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market value of companies in the lodging sector. The methodologies considered most appropriate in the circumstances were:
Merrill Lynch relied primarily upon a DCF analysis to value FSHI on an "en bloc" basis. Merrill Lynch also reviewed precedent lodging transactions in which the observed multiples reflect the price a buyer would be willing to pay, plus a control premium and a premium for potential synergistic benefits. However, given that no precedent transaction was considered sufficiently comparable to the proposed Arrangement, Merrill Lynch considered but did not rely on precedent transactions in determining the value of the LVS. The primary difference is due to the fact that FSHI operates entirely as a management company (with the exception of the leasehold interest in Vancouver) and the precedent transactions all involved targets that owned real estate, thus changing the risk profile of the underlying business. Merrill Lynch also observed that the public market trading multiples of FSHI prior to announcement of the proposal on November 6, 2006 were above the range observed on selected precedent transactions and the implied multiple under the Arrangement is significantly above the range observed on selected precedent transactions. Given the above factors and the different growth profiles, timing, market conditions, risks and circumstances surrounding the specific transactions relative to the proposed Arrangement, Merrill Lynch did not place emphasis on the precedent transaction approach in determining the value of the LVS. Merrill Lynch also reviewed trading multiples of public companies involved in the lodging sector from the perspective of whether a public market analysis might exceed DCF or precedent transaction values for the LVS. Merrill Lynch observed that public company multiples implied values that were lower than the DCF and precedent transaction values. Because public company values generally reflect minority discount values rather than "en bloc" values, Merrill Lynch did not rely on this methodology in determining the value of the LVS.
Discounted Cash Flow Analysis
The DCF approach takes into account the amount, timing and relative certainty of future unlevered free cash flows expected to be generated by the Company. The DCF approach requires that certain assumptions be made regarding, among other things, future cash flows, discount rates and terminal values. The possibility that some of the assumptions will prove to be inaccurate is one factor involved in the determination of the discount rates to be used in establishing the range of values. The DCF analysis involved discounting to a present value FSHI's projected unlevered free cash flows from January 1, 2007 through December 31, 2016 under the Management Forecast, including terminal values determined as at December 31, 2016. Merrill Lynch included in the value of the LVS, FSHI's cash position, investments in hotel partnerships and investments in long-term receivables. Merrill Lynch has also included the mark-to-market value of the currency and interest rate swap arrangement entered into in April 2005 in respect of the Convertible Notes. To the extent the resulting DCF range exceeded the conversion price of $71.64 (based on a conversion ratio of 13.9581 LVS per $1,000 principal amount) on the Convertible Notes, Merrill Lynch assumed conversion and included the resulting LVS issued upon conversion in the outstanding share count. Similarly, in-the-money outstanding options were assumed exercised and included in the share count based on the treasury stock method. Merrill Lynch also included in the DCF analysis the payment of a make-whole on the Convertible Notes, the amount of which was determined pursuant to the terms of the Convertible Notes as described in the prospectus supplement for the Convertible Notes, dated April 6, 2004.
The Special Committee has advised Merrill Lynch that Mr. Isadore Sharp will be entitled to receive a payment on completion of the Arrangement pursuant to the agreement approved in 1989 (the "Sharp Payment"). The Special Committee also advised Merrill Lynch that it had determined that a payment based on the number of LVS and variable multiple voting shares ("VMVS") which assumes the exercise of in-the-money options to acquire LVS was appropriate. Accordingly, Merrill Lynch has included the Sharp Payment as a liability of the Company and therefore has deducted the payment in determining the value of the LVS. The first
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portion of the payment was based on an amount equal to 5% of the product of (i) the total number of VMVS and LVS outstanding (assuming the exercise of in-the-money options to acquire LVS), and (ii) the resulting DCF value minus C$6.30. The second portion of the payment was equal to 5% of the product of (i) the total number of VMVS and LVS outstanding (assuming the exercise of in-the-money options to acquire LVS), and (ii) the resulting DCF value minus C$20.84, provided the DCF value was above a value calculated as 125% of the weighted average price of the LVS on the TSX for five months ending one month prior to announcement of the Arrangement on November 6, 2006 or $75.04 per share.
FSHI Management Forecast
As the basis for projecting the future expected cash flows, Merrill Lynch reviewed the Management Forecast for each of the years ending December 31, 2007 through December 31, 2016. The Management Forecast incorporates existing management contracts and future contracts the Company expects to enter into as a result of the opening of properties either currently in the development pipeline or which FSHI management believes will be included in the development pipeline in the future. The Management Forecast also incorporates the termination of three contracts that expire during the period. In addition to properties either currently under construction or in advanced stages of development as disclosed by FSHI, this development pipeline (the "Development Pipeline") includes undisclosed properties that have been identified by FSHI management and are at various stages of development, some of which FSHI has executed letters of intent in respect of, and other unidentified properties either in regions where FSHI management would like to manage a hotel or opportunities that FSHI management believes will be made available to FSHI through either existing or new partners. The Management Forecast includes the underlying operational assumptions for number of rooms, occupancy and RevPAR and the resulting management fees and incentive fees expected to be paid to FSHI on a property by property basis for each of the properties currently under management. For properties in the Development Pipeline where the economic terms of the management contracts are either known or have been estimated, FSHI has developed a property model to reflect the future expected fees that FSHI anticipates it will receive as a result of the new contracts. Where the properties are in the earlier stages of development, that is, where the opening is expected in 2008 or beyond, FSHI has utilized a "generic hotel" model with the key assumptions for number of rooms, average daily revenue (ADR), occupancy and margins based on the performance of the average hotel in the particular region where the property is expected to be opened. FSHI then assumes a management and incentive fee structure to determine the base management and incentive fees that the Company would expect to receive for each such development property depending on the region.
The Management Forecast incorporates the Development Pipeline that is comprised of 90 properties, which are forecast to be opened during the 2007 through 2016 period. Of these properties, 4 are expected to be opened during fiscal 2007 with the remaining 86 properties expected to be opened over the 2008 to 2016 period. Of these 86 properties, 26 have been publicly disclosed as being either under construction or in advanced stages of development and the Company has either executed a letter of intent in respect of such property or is in advanced discussions and management believes that these will result in new management contracts. Of the remaining 60 development properties that have not been publicly disclosed, 32 have been identified and are at various stages of discussion, 7 of which FSHI has executed a letter of intent in respect of. The remaining 28 properties are in regions where the Company would like to manage a hotel or unidentified properties that management believes are opportunities that will be made available to FSHI through either existing or new partners. Of the 90 properties in the Development Pipeline, 86 are modeled based on the "generic hotel" model as described above. The Development Pipeline has the effect of changing the revenue mix from approximately 53.3% of total revenues being generated in North America in 2006 to 43.9% of total revenues in 2016, reflecting the economics and FSHI management's expectations for growth in properties under management outside of North America.
In addition, the Management Forecast assumes one new residence club per year is opened and that one in three properties in the Development Pipeline will have a private residential component associated with it and
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therefore FSHI management has included residential, technical service, design fees and capital procurement fees in the Management Forecast reflecting this assumption.
Merrill Lynch also utilized the capital expenditure projections in the Management Forecast, which reflects additional capital required to implement the projected Development Pipeline. Merrill Lynch projected working capital balances based on constant ratios to sales and costs, which is consistent with the Management Forecast. Merrill Lynch has utilized the Company's tax attributes, the effect of which is to apply an effective tax rate of 24% throughout the forecast period with the future tax portion of income tax payable at approximately 25% throughout the forecast period. The effective and cash tax rates take into account the utilization of certain non-capital loss balances of the Company for tax purposes as at December 31, 2005. Merrill Lynch has also included in the DCF analysis an additional tax benefit that FSHI management believes would be available as a result of the Sharp Payment.
The Management Forecast is summarized below and includes the key operating assumptions for number of properties, number of rooms, ADR, occupancy and RevPAR for the properties under management.
|
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
CAGR '07-'16 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Worldwide(1) | |||||||||||||||||||||||
Total Number of Properties | 77 | 84 | 92 | 101 | 110 | 120 | 130 | 140 | 150 | 160 | 8.5% | ||||||||||||
Total Number of Rooms | 18,108 | 19,566 | 21,031 | 22,933 | 24,208 | 26,238 | 28,243 | 30,233 | 32,288 | 34,378 | 7.4% | ||||||||||||
Occupancy |
70.8% |
72.5% |
73.4% |
74.6% |
75.5% |
75.6% |
75.5% |
75.5% |
75.5% |
75.5% |
NA |
||||||||||||
ADR | $391 | $414 | $433 | $453 | $478 | $491 | $506 | $523 | $545 | $568 | 4.2% | ||||||||||||
% Change | 2.9% | 6.0% | 4.6% | 4.6% | 5.5% | 2.7% | 3.0% | 3.3% | 4.3% | 4.2% | |||||||||||||
RevPAR | $277 | $300 | $318 | $338 | $361 | $371 | $382 | $395 | $411 | $429 | 5.0% | ||||||||||||
% Change | 7.6% | 8.5% | 5.9% | 6.4% | 6.7% | 2.9% | 2.9% | 3.3% | 4.3% | 4.2% |
|
2007 |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016 |
CAGR '07-'16 |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Consolidated Revenues(2) | $197.5 | $218.8 | $255.3 | $293.8 | $326.8 | $371.9 | $412.9 | $461.3 | $511.0 | $564.7 | 12.4% | ||||||||||||
% Growth | 13.5% | 10.8% | 16.7% | 15.1% | 11.3% | 13.8% | 11.0% | 11.7% | 10.8% | 10.5% | |||||||||||||
Management Fee Revenues | $152.0 | $180.9 | $214.1 | $249.0 | $280.9 | $322.7 | $363.7 | $410.6 | $458.8 | $510.9 | 14.4% | ||||||||||||
% Growth | 8.1% | 19.0% | 18.3% | 16.3% | 12.8% | 14.9% | 12.7% | 12.9% | 11.7% | 11.4% | |||||||||||||
EBITDA (Managed Properties) | $86.8 | $113.9 | $144.4 | $176.3 | $204.7 | $242.9 | $279.8 | $322.3 | $365.9 | $413.2 | 18.9% | ||||||||||||
% Margin | 57.1% | 63.0% | 67.5% | 70.8% | 72.9% | 75.3% | 76.9% | 78.5% | 79.8% | 80.9% | |||||||||||||
Ownership Revenues | $45.4 | $37.9 | $41.2 | $44.7 | $45.9 | $49.2 | $49.3 | $50.7 | $52.3 | $53.8 | 1.9% | ||||||||||||
% Growth | 36.1% | (16.5% | ) | 8.6% | 8.6% | 2.6% | 7.0% | 0.2% | 3.0% | 3.0% | 3.0% | ||||||||||||
EBITDA (Owned Properties) | $3.9 | $4.5 | $5.9 | $7.1 | $7.2 | $8.3 | $8.3 | $8.6 | $8.9 | $9.2 | 10.1% | ||||||||||||
% Margin | 8.5% | 11.8% | 14.2% | 15.9% | 15.7% | 16.9% | 16.9% | 16.9% | 17.0% | 17.0% | |||||||||||||
Consolidated EBITDA(3) | $90.6 | $118.4 | $150.2 | $183.4 | $211.9 | $251.2 | $288.1 | $330.9 | $374.8 | $422.3 | 18.6% | ||||||||||||
% Margin | 45.9% | 54.1% | 58.9% | 62.4% | 64.8% | 67.5% | 69.8% | 71.7% | 73.3% | 74.8% | |||||||||||||
EBITDA |
$90.6 |
$118.4 |
$150.2 |
$183.4 |
$211.9 |
$251.2 |
$288.1 |
$330.9 |
$374.8 |
$422.3 |
|||||||||||||
Add: Interest Income(4) | 7.7 | 7.8 | 8.2 | 8.9 | 9.2 | 9.4 | 9.8 | 10.0 | 10.1 | 10.8 | |||||||||||||
Less: Cash Taxes(5) | (16.3 | ) | (21.3 | ) | (27.0 | ) | (33.0 | ) | (38.1 | ) | (45.2 | ) | (51.9 | ) | (59.6 | ) | (67.5 | ) | (76.0 | ) | |||
Less: Change in Net Working Capital | (27.8 | ) | (7.7 | ) | (8.6 | ) | (9.0 | ) | (7.7 | ) | (10.8 | ) | (10.2 | ) | (11.8 | ) | (12.2 | ) | (12.8 | ) | |||
Less: Investments(6) | (99.3 | ) | (22.3 | ) | (36.5 | ) | (37.8 | ) | (35.9 | ) | (33.9 | ) | (45.8 | ) | (26.4 | ) | (44.2 | ) | (46.6 | ) | |||
Unlevered Free Cash Flow | ($45.1 | ) | $74.9 | $86.2 | $112.5 | $139.3 | $170.7 | $190.1 | $243.1 | $261.1 | $297.7 | N/A |
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Discount Rates
Merrill Lynch selected appropriate discount rates to apply to the projected unlevered free cash flows derived from the Management Forecast by utilizing the Capital Asset Pricing Model ("CAPM") approach to determine an appropriate weighted average cost of capital ("WACC"). For the purposes of calculating the WACC, Merrill Lynch assumed an optimal capital structure for FSHI of approximately 20% debt and 80% equity, taking into account the capital structures of comparable companies and FSHI's pre-announcement capital structure of approximately 10% debt to market value of equity. Merrill Lynch selected this optimal capital structure based upon a review of the capital structures of comparable companies and the risks faced by the Company, in particular, and the lodging industry, in general. The after-tax cost of long-term debt was determined based upon the risk-free rate of return plus an estimate of the borrowing spread, representing the credit risk premium on FSHI's debt. The CAPM approach calculates the cost of equity as a function of three variables, the risk-free rate of return on a long-term bond, the volatility ("beta") of equity prices in relationship to the overall volatility of the market and a premium for equity risk. For the purpose of calculating the beta for FSHI, Merrill Lynch reviewed a range of unlevered betas for FSHI and certain comparable companies considered by us to be relevant that have similar risks to FSHI. The selected unlevered beta was then relevered using the assumed optimal capital structure to calculate the cost of equity.
The assumptions used by Merrill Lynch in estimating the WACC for FSHI are provided below:
Cost of Debt | ||
Risk Free Rate(1) | 4.8% | |
Borrowing Spread | 200 bps | |
Pre-Tax Cost of Debt | 6.8% | |
Tax Rate | 24.0% | |
After Tax Cost of Debt | 5.2% | |
Cost of Equity |
||
Risk Free Rate | 4.8% | |
Equity Risk Premium | 7.1% | |
Unlevered Beta | 1.08 | |
Levered Beta | 1.29 | |
Cost of Equity | 13.9% | |
Optimal Capital Structure |
20.0% Debt / 80.0% Equity |
|
FSHI WACC | 12.2% |
Based upon the foregoing analysis, taking into account sensitivity analyses on each of the applicable variables, Merrill Lynch applied discount rates ranging from 11.5% to 12.5% to the free cash flows derived from the Management Forecast.
Terminal Value
The terminal value represents the expected value of FSHI at the end of the forecast period. Merrill Lynch determined terminal value using a growth rate into perpetuity of the terminal year free cash flow. Merrill Lynch also took into account implied multiples of EBITDA relative to comparable company trading multiples and multiples observed on precedent transactions.
The growth into perpetuity of free cash flow methodology capitalized terminal year free cash flow at the WACC less the assumed growth rate determined by reference to the expected free cash flow growth beyond the projection period of 6.0% to 7.0% per annum. In selecting this range of growth rates, Merrill Lynch considered
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the outlook for long-term inflation, the outlook for the lodging sector beyond the terminal year and the growth prospects for the Company beyond the terminal year. Merrill Lynch's selected range is based on the above factors with emphasis on FSHI's long-term growth prospects beyond 2016. Merrill Lynch adjusted the terminal free cash flow by reducing the 2016 forecast capital expenditures to reflect a normalized level commensurate with the forecast growth rate into perpetuity and also removed the contribution from the Four Seasons Hotel Vancouver, the lease for which expires in 2019 and, FSHI management assumes, will not be renewed. Merrill Lynch did include the free cash flows from Four Seasons Hotel Vancouver from 2017 through 2019 in the DCF analysis. Merrill Lynch notes that the Management Forecast projects higher growth in number of properties under management than that achieved historically by the Company and has taken this into account when determining the terminal value. Assuming RevPAR growth of 2.0% to 3.0%, the selected range of 6.0% to 7.0% free cash flow growth into perpetuity implies 3 to 4 new properties under management per year, for each year into perpetuity. The addition of 3 to 4 new properties under management per year is consistent with what FSHI has been able to achieve historically on average since 1995. In addition, the selected range of 6.0% to 7.0% growth into perpetuity implies multiples of EBITDA in the 12.5x to 18.5x range, which is consistent with or materially higher than public market trading multiples of comparable companies and precedent transaction multiples. Merrill Lynch notes that this range of implied multiples is lower than the historical trading multiples of FSHI but has determined that this is appropriate given the forecast growth in the Management Forecast reflects a large percentage of the capital market's expectations for the Company's growth opportunities, that FSHI's projected growth significantly declines in the last three to five years of the 2007 to 2016 forecast relative to growth expected in the next five years (2007 to 2011) and as a result a lower multiple would be placed on FSHI after achieving such growth.
Summary of Discounted Cash Flow Analysis
The following table summarizes the results of the DCF analysis under the growth rate into perpetuity approach assuming a discount rate range of 11.5% to 12.5% and a terminal growth rate into perpetuity of 6.0% to 7.0%:
|
Low |
High |
|||
---|---|---|---|---|---|
Assumptions | |||||
Terminal Value Growth Rate | 6.0% | 7.0% | |||
WACC | 12.5% | 11.5% | |||
DCF Analysis |
|||||
Enterprise Value(1) | $2,471.8 | $3,531.5 | |||
Add: Cash(2) | 358.9 | 358.9 | |||
Add: Current Investments in Hotel Partnerships(2) | 68.5 | 68.5 | |||
Add: Present Value of Investments in Partnerships in 2016(3) | 51.9 | 56.8 | |||
Add: Present Value of Long-Term Receivables Outstanding in 2016(1) | 60.3 | 65.9 | |||
Less: Convertible Notes(4) | (250.0 | ) | 0.0 | (6) | |
Less: Make-whole on Convertible Notes(5) | (25.6 | ) | (20.2 | ) | |
Less: Swap Wind-Down(7) | (27.4 | ) | (27.4 | ) | |
Less: Sharp Change-of-Control Payment(8) | (126.3 | ) | (315.4 | ) | |
Equity Value | $2,582.3 | $3,718.6 | |||
Fully Diluted Shares Outstanding(9) | 37.966 | 42.116 | (6) | ||
Equity Value per Share | $68.02 | $88.29 |
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Sensitivity to Discounted Cash Flow Analysis
In completing the DCF analysis, Merrill Lynch did not rely on any single series of projected cash flows but performed a variety of sensitivity analyses using the Management Forecast free cash flows. Merrill Lynch performed sensitivity analysis on certain key assumptions as outlined below:
Variable |
Sensitivity |
Impact on Value per Share ($) |
|||
---|---|---|---|---|---|
WACC | +0.5% | ($6.55 | ) | ||
WACC | -0.5% | $7.96 | |||
Growth Rate into Perpetuity | +0.5% | $5.41 | |||
Growth Rate into Perpetuity | -0.5% | ($4.41 | ) | ||
RevPAR Growth(1) | +1.5% | $4.68 | |||
RevPAR Growth(1) | -1.5% | ($4.23 | ) | ||
Change in Properties in Development Pipeline per Year(2) | +2 | $6.56 | |||
Change in Properties in Development Pipeline per Year(2) | -2 | ($6.59 | ) | ||
% of Development Properties with a Residential Component(3) | 0.0% | ($4.22 | ) | ||
% of Development Properties with a Residential Component(3) | 66.7% | $4.24 | |||
Incremental 2% on WACC for Cash Flows Related to Development Pipeline(4) | 13.5% to 14.5% | ($13.95 | ) |
Benefits of the Arrangement to the Purchaser
Merrill Lynch considered whether any distinctive material value would accrue to the Purchaser through acquiring all of the LVS held by the LVS Minority as contemplated by the Arrangement. Merrill Lynch specifically assessed whether there would be any material specific operational or financial benefits that would accrue to the Purchaser or any other buyer such as a larger development pipeline, higher RevPAR growth, higher management and incentive fees or any other operational or financial benefits. Merrill Lynch concluded that, except for the potential elimination of corporate overhead costs and the costs of being a public company estimated by FSHI management to be approximately $2.4 million per annum, any other synergies or benefits were not quantifiable. Merrill Lynch has included the estimated public company cost savings of approximately $2.4 million per annum in the Valuation.
Merrill Lynch also reviewed other potential areas for value creation, including increasing FSHI's investments in property development that would allow FSHI to capture greater value for the use of the Four Seasons brand. Merrill Lynch concluded that any benefits associated with changing the current and intended business plan of FSHI were not quantifiable given the relative uncertainty as to whether any buyer
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would ascribe value to this potential opportunity and given that this would involve material changes to the strategy of FSHI including, but not limited to, changes in the risk profile of FSHI resulting from, for example, capital investments required to participate in development projects. Merrill Lynch has been informed by the Purchaser that there are no planned changes to the business. Accordingly, Merrill Lynch has not included any value reflecting additional investment opportunities in the Valuation of the LVS.
Valuation Conclusion
Based upon and subject to the foregoing, Merrill Lynch is of the opinion that, as of the date hereof, the fair market value of the LVS is in the range of $68.00 to $88.00 per LVS.
Fairness Opinion
In considering the fairness of the consideration to be received under the Arrangement, from a financial point of view, to the LVS Minority, Merrill Lynch principally considered and relied upon the following:
Comparison of the Transaction Price per LVS to the Valuation
Merrill Lynch compared the Transaction Price per LVS under the Arrangement to the range of fair market values of the LVS under the Valuation. The Transaction Price is in the range of fair market values of the LVS under the Valuation.
Comparison to Precedent Transactions and Trading Multiples
Merrill Lynch reviewed the available public information with respect to recent precedent transactions in the lodging sector and determined that the selected transactions set forth in the table below are the most comparable to the Arrangement. In making this determination, Merrill Lynch considered the characteristics of the entities involved in the following transactions, including, among other things, size and profitability, whether
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the target operated primarily as a management company and whether it owned real estate. The primary multiple used in analyzing transactions in the lodging sector is a multiple of EBITDA.
Date Announced |
Target / Acquiror |
Transaction Value (US$ mm) |
Transaction Value/ LTM EBITDA(1) |
|||
---|---|---|---|---|---|---|
1/30/06 | Fairmont Hotels & Resorts Inc. Kingdom Hotels Int'l / Colony Capital |
3,890 | 17.3x | |||
11/9/05 | La Quinta Corporation Blackstone Real Estate Advisors |
3,400 | 13.1x | |||
6/14/05 | Wyndham International Blackstone Real Estate Advisors |
3,240 | 11.1x | |||
10/20/04 | Boca Resorts Blackstone Real Estate Advisors |
1,250 | 13.6x | |||
8/18/04 | Prime Hospitality Corporation Blackstone Real Estate Advisors |
790 | 12.8x | |||
3/5/04 | Extended Stay America Blackstone Real Estate Advisors |
3,130 | 13.8x | |||
2/12/04 | KSL Recreation Corporation CNL Hotels & Resorts, Inc. |
2,160 | 10.9x | |||
Mean | 13.2x | |||||
Median | 13.1x |
Source: Company filings and press releases.
Following the review of precedent transactions, Merrill Lynch noted that no transaction was considered sufficiently comparable to the proposed Arrangement. The primary difference is due to the fact that FSHI operates entirely as a management company (with the exception of the leasehold interest in Vancouver) and the precedent transactions all involved targets that owned real estate, thus changing the risk profile of the underlying business. Merrill Lynch also observed that the public market trading multiples of FSHI pre-announcement of the proposal on November 6, 2006 were above the range observed on selected precedent transactions and the implied multiple under the Arrangement at 47.1x LTM EBITDA is significantly above the range observed on selected precedent transactions.
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Merrill Lynch also reviewed trading multiples of public companies involved in the lodging sector. Merrill Lynch reviewed the selected companies set forth in the table below.
|
|
|
|
EV / EBITDA(2) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Share Price 2/2/2007 ($) |
Market Value ($ mm)(1) |
Enterprise Value ($ mm)(1) |
||||||||||
|
2006E |
2007E |
|||||||||||
Marriott International, Inc. | $ | 48.79 | $ | 20,902 | $ | 22,402 | 15.9x | 14.4x | |||||
Choice Hotels International, Inc. | 41.98 | 2,865 | 3,025 | 17.2x | 15.6x | ||||||||
Starwood Hotels & Resorts | 66.18 | 14,718 | 17,502 | 13.4x | 13.0x | ||||||||
Hilton Hotels Corp. | 36.93 | 15,600 | 22,419 | 12.9x | 12.4x | ||||||||
Orient-Express Hotels | 48.14 | 2,053 | 2,605 | 19.5x | 15.4x | ||||||||
Mean |
14.0x |
12.8x |
|||||||||||
Median | 14.2x | 12.9x |
Source: Actual financials are based on latest public filings, pro forma for applicable subsequent events. Estimated financials based on latest available Wall Street research reports.
Merrill Lynch noted that the trading multiples of public companies generally reflect minority discount values rather than "en bloc" values. Following the review of trading multiples of public companies involved in the lodging sector, Merrill Lynch observed that the range of trading multiples of public companies was lower than the historical trading multiples of FSHI and was significantly lower than the implied multiple under the Arrangement.
Transaction Premiums
Merrill Lynch reviewed the premiums paid in recent North American transactions with enterprise values between $1 billion and $10 billion, premiums paid in recent transactions in the lodging sector and selected going-private transactions in the Canadian equity market where controlling shareholders successfully acquired publicly traded minority interests. Success for the Canadian going-private transactions was defined as acquiring at least one-half of the minority shares outstanding at the time of the transaction. The premium is defined as the amount by which the value per share offered under the relevant transaction exceeded the closing price of the shares on the principal trading exchange on the day immediately prior to the announcement of the transaction. A summary of the premiums paid in such precedent transactions is set forth below.
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Observed Premiums |
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1-Day Prior |
1-Week Prior |
4-Weeks Prior |
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N.A. Deals with Enterprise Value Between $1 - $10 bn(1) | 22.7% | 24.7% | 27.2% | |||
N.A. Deals with Enterprise Value Between $3 - $4 bn(1) | 21.1% | 22.0% | 24.8% | |||
Lodging Transaction Premiums(2) | 29.3% | 32.4% | 30.2% | |||
Canadian Going-Private Transaction Premiums(3) | 24.2% | 27.7% | 32.1% |
The range of premiums paid in the above transactions is very wide and although comparison of any single transaction to the Arrangement is difficult given they each have their own particular circumstances, Merrill Lynch believes that the transactions reviewed, in the aggregate, provide a useful comparison benchmark.
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The Transaction Price per LVS under the Arrangement of $82.00 represents a premium of 28.4% to the $63.87 per share closing market price of the LVS on November 3, 2006, the last trading day prior to public announcement of the Arrangement. The Transaction Price also represents a 27.6% and 29.8% premium to the closing market prices 1-week and 4-weeks, respectively, prior to announcement. The premiums implied by the Arrangement are above or in-line with the average premiums paid in North American transactions with enterprise values in the range of $1 billion to $10 billion, selected transactions in the lodging sector and similar Canadian going-private transactions.
Fairness Opinion Conclusion
On the basis of and subject to the foregoing, Merrill Lynch is of the opinion that, as of the date hereof, the consideration to be received under the Arrangement is fair, from a financial point of view, to the LVS Minority.
Preferred Shares to be Issued to Sharp
Under the Arrangement, Sharp will receive, among other things, Class D Non-Voting Shares of the Purchaser. Upon the amalgamation of the Purchaser and FSHI following the implementation of the Arrangement, Class D Non-Voting Shares will be exchanged for preferred shares of FSHI ("Preferred Shares") on a 1:1 basis, having a face value equal to approximately $172 million and the Preferred Shares will entitle Sharp to receive cumulative compound dividends of 9.9% per annum, which will accrue from the completion of the Arrangement and be deferred for the first five years following completion of the Arrangement. One-third of the dividends accrued and compounded before the fifth anniversary will be payable at the end of each of the fifth, sixth and seventh years from closing of the Arrangement (with unpaid dividends continuing to compound to the date of such payment). The Preferred Shares will be redeemable for face value plus accrued but unpaid dividends at the option of Sharp or FSHI beginning on the fifth anniversary of closing of the Arrangement, provided that at the end of the sixth and seventh years no more than one-third and two-thirds, respectively, of the maximum number of Preferred Shares into which the Class D Non-Voting Shares are exchanged, shall have been redeemed.
Merrill Lynch has been asked by the Special Committee to assess the market value of the Preferred Shares. This assessment was based upon the information reviewed, and subject to the assumptions and limitations described in, the sections of this letter titled "Scope of Review" and "Key Assumptions and Limitations". This assessment does not form a part of, and was not considered in connection with rendering, the Valuation and Fairness Opinion. Merrill Lynch has reviewed the terms of the Preferred Shares to assess the proposed 9.9% dividend rate relative to a market based rate for comparable preferred shares. Merrill Lynch took into consideration the proposed capital structure of FSHI after giving effect to the Arrangement, with $750 million in senior debt and the potential for an additional $200 million in debt as a result of the revolving credit facility expected to be put in place, and the cash flow profile of FSHI to assess the credit rating for the pro forma debt. After such review, Merrill Lynch determined the rating would likely be in the mid single B range. Given that the Preferred Shares will rank junior to the $750 million in senior debt and the cash flow profile of FSHI under the Management Forecast, Merrill Lynch has determined the Preferred Shares would likely have a rating in the CCC range or Pfd-5 range on the DBRS scale. Merrill Lynch then reviewed comparably rated, publicly traded preferred shares in order to assess a market rate. Merrill Lynch considered the yields on such comparable preferred shares and as appropriate, adjusted the observed yields for comparability to reflect that the preferred shares are: (i) not publicly listed; (ii) provide for deferred and cumulative dividends for five years; and (iii) are denominated in U.S. dollars. After such review, Merrill Lynch has determined that, as of the November 6, 2006 announcement date, the 9.9% dividend rate on the Preferred Shares was within a range of market rates and
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therefore the face value of the Preferred Shares of approximately $172 million approximated market. The value of the preferred shares has and will continue to fluctuate with changes in the market.
Very
truly yours,
(Signed) MERRILL LYNCH CANADA INC.
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Execution Version
PLAN OF ARRANGEMENT
UNDER SECTION 182
OF THE BUSINESS CORPORATIONS ACT (ONTARIO)
ARTICLE 1
INTERPRETATION
1.1 Definitions
In this Plan of Arrangement, unless there is something in the subject matter or context inconsistent therewith, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:
"Acquisition Agreement" means the acquisition agreement dated February 9, 2007, between Purchaser and Four Seasons and any amendment thereto made in accordance with such agreement;
"affiliate" has the meaning ascribed thereto in the Securities Act (Ontario) and, for purposes of this Plan of Arrangement, the Foundation shall not be considered an affiliate of FS Washington or of the Purchaser;
"Arrangement" means an arrangement under Section 182 of the OBCA on the terms and subject to the conditions set out in this Plan of Arrangement, subject to any amendments or variations thereto made in accordance with Section 8.3 of the Acquisition Agreement or Article 6 hereof or made at the direction of the Court in the Final Order;
"Arrangement Resolution" means the special resolution of the shareholders of Four Seasons substantially in the form and content of Schedule B to the Acquisition Agreement;
"Articles of Arrangement" means the articles of arrangement of Four Seasons in respect of the Arrangement, to be sent to the Director after the Final Order is made, subject to the terms of the Acquisition Agreement;
"business day" means any day, other than a Saturday, a Sunday and a statutory holiday in Toronto, Canada, Seattle, Washington, United States of America, or New York, New York, United States of America;
"Certificate" means the certificate of arrangement giving effect to the Arrangement, issued pursuant to Subsection 183(2) of the OBCA after the Articles of Arrangement have been filed;
"Court" means the Ontario Superior Court of Justice;
"Depositary" means Computershare Investor Services Inc. or such other person as is appointed to act as depositary for the purposes of the Arrangement by Four Seasons, acting reasonably;
"Director" means the Director appointed pursuant to Section 278 of the OBCA;
"Dissent Rights" means the rights of dissent in respect of the Arrangement described in Article 4;
"Dissenting Shareholder" means a holder of Limited Voting Shares who properly dissents in respect of the Arrangement in strict compliance with the procedures for exercising Dissent Rights and does not withdraw such dissent prior to the Effective Time;
"Effective Date" means the date shown on the Certificate, provided that such date occurs on or prior to the Outside Date;
"Effective Time" means the time on the Effective Date as specified in writing by Four Seasons;
"Exchange Rate" means the Bank of Canada's published rate of exchange of Canadian dollars for United States dollars at noon on the day prior to the Effective Date;
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"Final Order" means the final order of the Court approving the Arrangement as such order may be amended or varied by the Court at any time prior to the Effective Date or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or as amended on appeal;
"Foundation" means the Bill and Melinda Gates Foundation Trust;
"Four Seasons" means Four Seasons Hotels Inc., a corporation existing under the laws of Ontario, Canada and any corporation formed on the amalgamation of Four Seasons with one or more of its wholly-owned subsidiaries;
"Four Seasons Circular" means the notice of the Four Seasons Meeting and accompanying Four Seasons management information circular, including all schedules, appendices and exhibits thereto, to be sent to shareholders of Four Seasons in connection with the Four Seasons Meeting, as amended, supplemented or otherwise modified;
"Four Seasons Convertible Note Indenture" means the indenture dated as of June 18, 2004 between Four Seasons and The Bank of Nova Scotia Trust Company of New York, as supplemented by the first supplemental indenture dated as of June 18, 2004 between those same parties;
"Four Seasons Convertible Notes" means the U.S.$250,000,000 aggregate principal amount of 1.875% convertible senior notes of Four Seasons maturing July 30, 2024 issued pursuant to the Four Seasons Convertible Note Indenture;
"Four Seasons Meeting" means the special meeting of holders of Limited Voting Shares and Variable Multiple Voting Shares, including any adjournment or postponement thereof, to be called and held in accordance with the Interim Order to consider the Arrangement;
"Four Seasons Option" means an option to purchase Limited Voting Shares granted under the Four Seasons Stock Option Plan;
"Four Seasons Stock Option Plan" means the Four Seasons Restated Director, Executive and Employee Stock Option Plan, as amended through February 26, 2004;
"FSHL" means Four Seasons Hotels Limited, a corporation existing under the laws of Ontario, Canada, a subsidiary of Four Seasons;
"FS Washington" means FS Washington Acquisition Corp, a corporation organized under the laws of the state of Washington;
"Governmental Entity" means any (a) multinational, federal, provincial, state, regional, municipal, local or other government, governmental or public department, ministry, central bank, court, tribunal, arbitral body, commission, board, bureau or agency, domestic or foreign, (b) any subdivision, agent or authority of any of the foregoing, or (c) any quasi-governmental or private body, including any tribunal, commission, commissioner, regulatory agency or self-regulatory organization, exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing;
"holders" means, (a) when used with reference to the Limited Voting Shares, the holders of Limited Voting Shares shown from time to time in the register maintained by or on behalf of Four Seasons in respect of the Limited Voting Shares and (b) when used with reference to the Four Seasons Options, the holders of Four Seasons Options shown from time to time in the register maintained by or on behalf of Four Seasons in respect of the Four Seasons Options;
"Interim Order" means the interim order of the Court, as the same may be amended in respect of the Arrangement, as contemplated by Section 2.2 of the Acquisition Agreement;
"Kingdom" means Kingdom Investments I (TSF) Sarl, a company organized under the laws of Luxembourg;
"Letter of Transmittal" means the letter of transmittal to be sent by Four Seasons to holders of Limited Voting Shares for use in connection with the Arrangement;
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"Liens" means any hypothecations, mortgages, liens, charges, security interests, pledges, claims, encumbrances and adverse rights or claims;
"Limited Voting Shares" means the limited voting shares in the capital of Four Seasons;
"Meeting Date" means the date of the Four Seasons Meeting;
"OBCA" means the Business Corporations Act (Ontario) and the regulations made thereunder, as now in effect and as they may be promulgated or amended from time to time;
"Outside Date" means June 30, 2007, subject to the right of any Party to postpone the Outside Date for up to an additional 90 days (in 30-day increments) if the Regulatory Approvals have not been obtained and have not been denied by a non-appealable decision of a Governmental Entity, by giving written notice to the other Party to such effect no later than 5:00 p.m. (Eastern time) on the date that is 15 days prior to the original Outside Date (and any subsequent Outside Date), or such later date as may be agreed to in writing by the Parties; provided that notwithstanding the foregoing, a Party shall not be permitted to postpone the Outside Date if the failure to obtain a Regulatory Approval is materially the result of such Party's failure to cooperate in accordance with Section 5.5(a) of the Acquisition Agreement in obtaining such Regulatory Approval;
"Parties" means the Purchaser and Four Seasons, and "Party" means either of them;
"person" includes an individual, limited or general partnership, limited liability company, limited liability partnership, trust, joint venture, association, body corporate, unincorporated organization, trustee, executor, administrator, legal representative, government (including any Governmental Entity) or any other entity, whether or not having legal status;
"Purchaser" means FS Acquisition Corp., a company existing under the laws of British Columbia, Canada and any successor corporation thereto;
"Purchaser Class A Non-Voting Shares" means the first class of Purchaser Non-Voting Shares;
"Purchaser Class B Non-Voting Shares" means the second class of Purchaser Non-Voting Shares;
"Purchaser Class C Non-Voting Shares" means the third class of Purchaser Non-Voting Shares;
"Purchaser Class D Non-Voting Shares" means the fourth class of Purchaser Non-Voting Shares;
"Purchaser Non-Voting Shares" means the four classes of non-voting shares in the capital of the Purchaser;
"Sale of Control Agreement" means the agreement entitled Long-Term Incentive Plan made January 11, 1990 among Four Seasons, FSHL and Sharp;
"Share Acquisition Agreement" means the agreement dated February 9, 2007 between Foundation and Four Seasons and any amendment thereto made in accordance with such agreement;
"Sharp" means Mr. Isadore Sharp;
"Tax Act" means the Income Tax Act (Canada) and the regulations made thereunder, as now in effect and as they may be promulgated or amended from time to time;
"Triples" means Triples Holdings Limited, a corporation existing under the laws of Ontario, Canada; and
"Variable Multiple Voting Shares" means the variable multiple voting shares in the capital of Four Seasons.
1.2 Sections and Headings
The division of this Plan of Arrangement into articles and sections and the insertion of headings are for convenience of reference only and shall not affect the construction or the interpretation of this Plan of Arrangement. Unless otherwise indicated, any reference in this Plan of Arrangement to articles or sections refers to the specified articles or sections of this Plan of Arrangement.
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1.3 Number, Gender and Persons
In this Plan of Arrangement, unless the context otherwise requires, words importing the singular number include the plural and vice versa and words importing any gender include all genders.
1.4 Date of Any Action
In the event that any date on which any action is required to be taken under this Plan of Arrangement is not a business day, such action shall be required to be taken on the next succeeding day which is a business day.
1.5 Time
Time shall be of the essence in this Plan of Arrangement.
ARTICLE 2
BINDING EFFECT
2.1 Binding Effect
This Plan of Arrangement, within the meaning of Section 182 of the OBCA, will become effective on, and be binding on and after, the Effective Date on (i) Four Seasons, (ii) Purchaser, (iii) all holders and all beneficial owners of Limited Voting Shares, (iv) all holders of Four Seasons Options, and (v) all holders and beneficial owners of Variable Multiple Voting Shares.
ARTICLE 3
ARRANGEMENT
3.1 Arrangement
Commencing at the Effective Time, the following shall occur and shall be deemed to occur in the following order without any further act or formality:
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holder and US$82.00 over (ii) the sum of the exercise prices for each Limited Voting Share underlying the Four Seasons Options held by such holder (converted at the Exchange Rate);
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3.2 Adjustments to Consideration
The consideration payable by Purchaser or Four Seasons with respect to each Limited Voting Share transferred pursuant to Sections 3.1(b), 3.1(g), 3.1(h) or 3.1(j), each Four Seasons Option transferred pursuant to Section 3.1(d) and each Variable Multiple Voting Share transferred pursuant to Section 3.1(l), shall be adjusted to reflect fully the effect of any stock split, reverse split, stock dividend (including any dividend or distribution of securities convertible into Limited Voting Shares or Variable Multiple Voting Shares other than stock dividends paid in lieu of ordinary course dividends), consolidation, reorganization, recapitalization or other like change with respect to Limited Voting Shares or Variable Multiple Voting Shares occurring after the date of the Acquisition Agreement and prior to the Effective Time.
ARTICLE 4
RIGHTS OF DISSENT
4.1 Rights of Dissent
Holders of Limited Voting Shares may exercise dissent rights ("Dissent Rights") in connection with the Arrangement in accordance with Section 185 of the OBCA, the Interim Order and this Section 4.1; provided that, notwithstanding Subsection 185(6) of the OBCA, the written objection to the Arrangement Resolution referred to in Subsection 185(6) of the OBCA must be received by Four Seasons not later than 5:00 p.m. (Toronto time) on the Business Day immediately preceding the date of the Four Seasons Meeting. Dissenting Shareholders shall be deemed to have transferred Limited Voting Shares held by them to Purchaser, as provided in Section 3.1(g), and if ultimately determined not to be entitled, for any reason, to be paid fair value for their Limited Voting Shares shall be deemed to have participated in the Arrangement on the same basis as a non-dissenting holder of Limited Voting Shares. In no case shall Purchaser, Four Seasons or any other person be required to recognize such holders as holders of Limited Voting Shares after the completion of the step contemplated by Section 3.1(g).
ARTICLE 5
PAYMENT AND CERTIFICATES
5.1 Payment of Cash Consideration
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or 3.1(h), together with a duly completed Letter of Transmittal and with such other documents and instruments as would have been required to effect the transfer of the shares formerly represented by such certificate under the OBCA and the by-laws of Four Seasons, and such additional documents and instruments as the Depositary may reasonably require, the holder of such surrendered certificate shall be entitled to receive in exchange therefor the cash payment (net of amounts required to be withheld pursuant to Section 5.4) which such holder is entitled to receive pursuant to Sections 3.1(b) or 3.1(h), as applicable, and the certificate so surrendered shall forthwith be cancelled.
a cheque representing the cash payment, if any, payable to such holder of Limited Voting Shares in accordance with the provisions hereof (net of amounts required to be withheld pursuant to Section 5.4).
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5.2 Lost Certificates
In the event any certificate which immediately prior to the Effective Time represented one or more outstanding Limited Voting Shares that were transferred pursuant to Sections 3.1(b) or Section 3.1(h) shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such certificate to be lost, stolen or destroyed, the Depositary will pay in exchange for such lost, stolen or destroyed certificate, the cash payment which such holder is entitled to receive pursuant to Sections 3.1(b) or 3.1(h) (net of amounts required to be withheld pursuant to Section 5.4). When authorizing such payment in exchange for any lost, stolen or destroyed certificate, the person to whom the payment is made shall, as a condition precedent to the delivery thereof, give a bond satisfactory to Four Seasons, Purchaser and the Depositary in such sum as Purchaser may direct or otherwise indemnify Purchaser in a manner satisfactory to Purchaser against any claim that may be made against Purchaser with respect to the certificate alleged to have been lost, stolen or destroyed.
5.3 Extinction of Rights
If any holder of Limited Voting Shares fails for any reason to deliver to the Depositary for cancellation the certificates formerly representing Limited Voting Shares (or an affidavit of loss and bond or other indemnity pursuant to Section 5.2), together with such other documents or instruments required for such holder to receive payment for Limited Voting Shares, on or before the sixth anniversary of the Effective Date, such holder shall be deemed to have donated and forfeited to Purchaser any cash (net of amounts required to be withheld pursuant to Section 5.4) held by the Depositary in trust for such holder to which such holder is entitled. At and after the Effective Time, any certificate formerly representing Limited Voting Shares shall represent only the right to receive the consideration provided in this Plan of Arrangement; provided that such certificates shall, on the sixth anniversary of the Effective Date, cease to represent a claim of any nature whatsoever and shall be deemed to have been surrendered to Purchaser and shall be cancelled.
5.4 Withholding Rights
Four Seasons, FSHL, Purchaser and the Depositary shall be entitled to deduct and withhold from any consideration otherwise payable to any holder of Limited Voting Shares, to any holder of Four Seasons Options or to Sharp under this Plan of Arrangement, such amounts as Four Seasons, FSHL, Purchaser, or the Depositary is required to deduct and withhold with respect to such payment under the Tax Act, the United States Internal Revenue Code of 1986 or any provision of provincial, state, local or foreign tax law, in each case, as amended or succeeded and subject to the provisions of any applicable income tax treaty between Canada and the country where the holder is resident. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes as having been paid to the holder of the Limited Voting Shares or Four Seasons Options, as the case may be, or to Sharp in respect of which such deduction and withholding was made, provided that such withheld amounts are actually remitted in accordance with applicable law to the appropriate taxing authority.
ARTICLE 6
AMENDMENTS
6.1 Amendments to Plan of Arrangement
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ARTICLE 7
FURTHER ASSURANCES
Notwithstanding that the transactions and events set out herein shall occur and be deemed to occur in the order set out in this Plan of Arrangement, within the meaning of Section 182 of the OBCA and, in particular, that the share exchanges, within the meaning of Subsection 182(1)(f) of the OBCA, shall become effective without any further act or formality, each of the Parties shall make, do and execute, or cause to be made, done and executed, all such further acts, deeds, agreements, transfers, assurances, instruments or documents as may reasonably be required by any of them in order further to document or evidence any of the transactions or events set out herein.
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INTERIM ORDER
Court File No. 07-CL-6887 | ||||
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ONTARIO SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST – |
THE HONOURABLE MADAM JUSTICE PEPALL |
MONDAY, THE 26TH DAY OF FEBRUARY, 2007 |
IN THE MATTER OF AN APPLICATION UNDER SECTION 182 OF THE BUSINESS CORPORATIONS ACT (ONTARIO), R.S.O. 1990, c. B.16, AS AMENDED, AND RULES 14.05(2) AND 14.05(3) OF THE RULES OF CIVIL PROCEDURE.
AND IN THE MATTER OF A PROPOSED PLAN OF ARRANGEMENT OF FOUR SEASONS HOTELS INC., CONCERNING THE ACQUISITION BY FS ACQUISITION CORP. OF ALL OF THE LIMITED VOTING SHARES OF FOUR SEASONS HOTELS INC. AND ALL OF THE VARIABLE MULTIPLE VOTING SHARES OF FOUR SEASONS HOTELS INC.
FOUR SEASONS HOTELS INC.
Applicant
ORDER
THIS MOTION made by the Applicant, Four Seasons Hotels Inc. ("FSHI"), pursuant to section 182(5) of the Business Corporations Act (Ontario), R.S.O. 1990, c. B.16, as amended (the "OBCA"), for an interim order for advice and directions in connection with the within application (the "Application"), was heard this day at 330 University Avenue, Toronto, Ontario.
ON READING the Notice of Application, Notice of Motion and the Affidavit of Randolph Weisz sworn February 22, 2007 (the "Weisz Affidavit"), and the exhibits thereto, and on hearing the submissions of counsel for FSHI and FS Acquisition Corp. (the "Purchaser").
Definitions
The Meeting
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attached as Appendix A to the draft Circular, to, among other things, authorize, approve and adopt the Arrangement and Plan of Arrangement.
Amendments to the Arrangement and Plan of Arrangement
Adjournments and Postponements
Notice of the Meeting
Solicitation of Proxies
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Method of Distribution of Meeting Materials and Court Materials
Voting
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Such votes, together with the affirmative vote in favour of the Arrangement Resolution by the holder of the Variable Multiple Voting Shares by way of written declaration, shall be sufficient to authorize and direct FSHI to do all such acts and things as may be necessary or desirable to give effect to the Arrangement and the Plan of Arrangement on a basis consistent with what is provided for in the Circular without the necessity of any further approval by the Shareholders or the holder of the Variable Multiple Voting Shares, subject only to final approval of the Arrangement by this Honourable Court.
Dissent Rights
but in no case shall the Purchaser, FSHI or any other person be required to recognize any Dissenting Shareholder as a holder of FSHI Limited Voting Shares after the Effective Time and the names of each Dissenting Shareholder shall be deleted from the register of holders of FSHI Limited Voting Shares at the Effective Time.
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Hearing of Application for Approval of the Arrangement
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FOUR SEASONS HOTELS INC. Applicant |
IN THE MATTER OF AN APPLICATION UNDER SECTION 182 OF THE BUSINESS CORPORATIONS ACT (ONTARIO) R.S.O. 1990. c. B.16, AS AMENDED |
Court File No: 07-CL-6887 |
ONTARIO SUPERIOR COURT OF JUSTICE — COMMERCIAL LIST — Proceeding commenced at Toronto |
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ORDER |
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GOODMANS LLP Barristers & Solicitors 250 Yonge Street, Suite 2400 Toronto, Canada M5B 2M6 |
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Tom Friedland LSUC #: 31848L Karen Murdock LSUC #: 52921U |
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Tel: (416) 979-2211 Fax: (416) 979-1234 |
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Solicitors for the Applicant, Four Seasons Hotels Inc. |
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NOTICE OF APPLICATION FOR THE FINAL ORDER
Court File No. 07-CL-6887
ONTARIO
SUPERIOR COURT OF JUSTICE
— COMMERCIAL LIST —
IN THE MATTER OF AN APPLICATION UNDER SECTION 182 OF THE BUSINESS CORPORATIONS ACT (ONTARIO), R.S.O. 1990, c. B.16, AS AMENDED, AND RULES 14.05(2) AND 14.05(3) OF THE RULES OF CIVIL PROCEDURE
AND IN THE MATTER OF A PROPOSED PLAN OF ARRANGEMENT OF FOUR SEASONS HOTELS INC., CONCERNING THE ACQUISITION BY FS ACQUISITION CORP. OF ALL OF THE LIMITED VOTING SHARES OF FOUR SEASONS HOTELS INC. AND ALL OF THE VARIABLE MULTIPLE VOTING SHARES OF FOUR SEASONS HOTELS INC.
FOUR SEASONS HOTELS INC.
Applicant
NOTICE OF APPLICATION
TO THE RESPONDENTS:
A LEGAL PROCEEDING HAS BEEN COMMENCED by the Applicant. The claim made by the applicant appears on the following page.
THIS APPLICATION will come on for a hearing before a Judge presiding over the Commercial List on Friday, April 13, 2007, at 10:00 a.m., or as soon after that time as the application may be heard, at 330 University Avenue, Toronto, Ontario.
IF YOU WISH TO OPPOSE THIS APPLICATION, to receive notice of any step in the application or to be served with any documents in the application, you or an Ontario lawyer acting for you must forthwith prepare a notice of appearance in Form 38A prescribed by the Rules of Civil Procedure, serve it on the applicant's lawyer or, where the applicant does not have a lawyer, serve it on the applicant, and file it, with proof of service, in this court office, and you or your lawyer must appear at the hearing.
IF YOU WISH TO PRESENT AFFIDAVIT OR OTHER DOCUMENTARY EVIDENCE TO THE COURT OR TO EXAMINE OR CROSS-EXAMINE WITNESSES ON THE APPLICATION, you or your lawyer must, in addition to serving your notice of appearance, serve a copy of the evidence on the applicant's lawyer or, where the applicant does not have a lawyer, serve it on the applicant, and file it, with proof of service, in the court office where the application is to be heard as soon as possible, but not later than 2 p.m. on the day before the hearing.
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IF YOU FAIL TO APPEAR AT THE HEARING, JUDGMENT MAY BE GIVEN IN YOUR ABSENCE AND WITHOUT FURTHER NOTICE TO YOU. IF YOU WISH TO OPPOSE THIS APPLICATION BUT ARE UNABLE TO PAY LEGAL FEES, LEGAL AID MAY BE AVAILABLE TO YOU BY CONTACTING A LOCAL LEGAL AID OFFICE.
Date: February 20, 2007 | Issued by
![]() Local Registrar |
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Address of Court Office |
393 University Avenue, 10th Floor Toronto, Ontario M5G 1E6 |
TO: | ALL HOLDERS OF LIMITED VOTING SHARES OF FOUR SEASONS HOTELS INC. AS AT FEBRUARY 28, 2007 | |
AND TO: |
THE HOLDER OF THE VARIABLE MULTIPLE VOTING SHARES OF FOUR SEASONS HOTELS INC. AS AT FEBRUARY 28, 2007 |
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AND TO: |
ALL HOLDERS OF OPTIONS OF FOUR SEASONS HOTELS INC. AS AT FEBRUARY 28, 2007 |
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AND TO: |
ALL DIRECTORS OF FOUR SEASONS HOTELS INC. AS AT FEBRUARY 28, 2007 |
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AND TO: |
KPMG LLP Suite 3300, Commerce Court West 199 Bay Street, P.O. Box 231 Station Commerce Court Toronto, Ontario M5I 1B2 |
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Tel. 416.777.8500 Fax: 416.777.8818 |
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Auditor to Four Seasons Hotels Inc. |
AND TO: |
MCCARTHY TÉTRAULT LLP Suite 4700 Toronto-Dominion Bank Tower Toronto, Canada M5K 1E6 |
STIKEMAN ELLIOT LLP 5300 Commerce Court West 199 Bay Street Toronto, Canada M5L 1B9 |
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Michael Barrack LSUC#: 21941 W |
Peter Howard LSUC#: 22056F |
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Tel: 416.601.7894 Fax: 416.868.0673 |
Tel: 416.869.5613 Fax: 416.947.0866 |
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Solicitors for FS Acquisition Corp. |
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APPLICATION
1. THE APPLICANT MAKES APPLICATION FOR:
2. THE GROUNDS FOR THE APPLICATION ARE:
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3. THE FOLLOWING DOCUMENTARY EVIDENCE WILL BE USED AT THE HEARING OF THE APPLICATION:
February 20, 2007 | GOODMANS LLP Barristers & Solicitors 250 Yonge Street, Suite 2400 Toronto, Canada M5B 2M6 |
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Tom Friedland LSUC#: 31848L Karen Murdock LSUC#: 52921U |
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Tel: (416) 979-2211 Fax: (416) 979-1234 |
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Solicitors for the Applicant, Four Seasons Hotels Inc. |
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FOUR SEASONS HOTELS INC. Applicant |
IN THE MATTER OF AN APPLICATION UNDER SECTION 182 OF THE BUSINESS CORPORATIONS ACT (ONTARIO) R.S.O. 1990. c. B.16, AS AMENDED |
Court File No: |
ONTARIO SUPERIOR COURT OF JUSTICE — COMMERCIAL LIST — Proceeding commenced at Toronto |
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NOTICE OF APPLICATION |
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(returnable April 13, 2007) | ||
GOODMANS LLP Barristers & Solicitors 250 Yonge Street, Suite 2400 Toronto, Canada M5B 2M6 |
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Tom Friedland LSUC #:31848L Karen Murdock LSUC #:52921U |
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Tel: (416) 979-2211 Fax: (416) 979-1234 |
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Solicitors for the Applicant, Four Seasons Hotels Inc. |
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SECTION 185 OF THE BUSINESS CORPORATIONS ACT (ONTARIO)
185. (1) Rights of dissenting shareholders — Subject to subsection (3) and to sections 186 and 248, if a corporation resolves to,
a holder of shares of any class or series entitled to vote on the resolution may dissent.
(2) Idem — If a corporation resolves to amend its articles in a manner referred to in subsection 170(1), a holder of shares of any class or series entitled to vote on the amendment under section 168 or 170 may dissent, except in respect of an amendment referred to in,
(3) Exception — A shareholder of a corporation incorporated before the 29th day of July, 1983 is not entitled to dissent under this section in respect of an amendment of the articles of the corporation to the extent that the amendment,
(4) Shareholder's right to be paid fair value — In addition to any other right the shareholder may have, but subject to subsection (30), a shareholder who complies with this section is entitled, when the action approved by the resolution from which the shareholder dissents becomes effective, to be paid by the corporation the fair value of the shares held by the shareholder in respect of which the shareholder dissents, determined as of the close of business on the day before the resolution was adopted.
(5) No partial dissent — A dissenting shareholder may only claim under this section with respect to all the shares of a class held by the dissenting shareholder on behalf of any one beneficial owner and registered in the name of the dissenting shareholder.
(6) Objection — A dissenting shareholder shall send to the corporation, at or before any meeting of shareholders at which a resolution referred to in subsection (1) or (2) is to be voted on, a written objection to the resolution, unless the corporation did not give notice to the shareholder of the purpose of the meeting or of the shareholder's right to dissent.
(7) Idem — The execution or exercise of a proxy does not constitute a written objection for purposes of subsection (6).
(8) Notice of adoption of resolution — The corporation shall, within ten days after the shareholders adopt the resolution, send to each shareholder who has filed the objection referred to in subsection (6) notice that the resolution has been adopted, but such notice is not required to be sent to any shareholder who voted for the resolution or who has withdrawn the objection.
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(9) Idem — A notice sent under subsection (8) shall set out the rights of the dissenting shareholder and the procedures to be followed to exercise those rights.
(10) Demand for payment of fair value — A dissenting shareholder entitled to receive notice under subsection (8) shall, within twenty days after receiving such notice, or, if the shareholder does not receive such notice, within twenty days after learning that the resolution has been adopted, send to the corporation a written notice containing,
(11) Certificates to be sent in — Not later than the thirtieth day after the sending of a notice under subsection (10) a dissenting shareholder shall send the certificates representing the shares in respect of which the shareholder dissents to the corporation or its transfer agent.
(12) Idem — A dissenting shareholder who fails to comply with subsections (6), (10) and (11) has no right to make a claim under this section.
(13) Endorsement on certificate — A corporation or its transfer agent shall endorse on any share certificate received under subsection (11) a notice that the holder is a dissenting shareholder under this section and shall return forthwith the share certificates to the dissenting shareholder.
(14) Rights of dissenting shareholder — On sending a notice under subsection (10), a dissenting shareholder ceases to have any rights as a shareholder other than the right to be paid the fair value of the shares as determined under this section except where,
in which case the dissenting shareholder's rights are reinstated as of the date the dissenting shareholder sent the notice referred to in subsection (10), and the dissenting shareholder is entitled, upon presentation and surrender to the corporation or its transfer agent of any certificate representing the shares that has been endorsed in accordance with subsection (13), to be issued a new certificate representing the same number of shares as the certificate so presented, without payment of any fee.
(15) Offer to pay — A corporation shall, not later than seven days after the later of the day on which the action approved by the resolution is effective or the day the corporation received the notice referred to in subsection (10), send to each dissenting shareholder who has sent such notice,
(16) Idem — Every offer made under subsection (15) for shares of the same class or series shall be on the same terms.
(17) Idem — Subject to subsection (30), a corporation shall pay for the shares of a dissenting shareholder within ten days after an offer made under subsection (15) has been accepted, but any such offer lapses if the corporation does not receive an acceptance thereof within thirty days after the offer has been made.
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(18) Application to court to fix fair value — Where a corporation fails to make an offer under subsection (15) or if a dissenting shareholder fails to accept an offer, the corporation may, within fifty days after the action approved by the resolution is effective or within such further period as the court may allow, apply to the court to fix a fair value for the shares of any dissenting shareholder.
(19) Idem — If a corporation fails to apply to the court under subsection (18), a dissenting shareholder may apply to the court for the same purpose within a further period of twenty days or within such further period as the court may allow.
(20) Idem — A dissenting shareholder is not required to give security for costs in an application made under subsection (18) or (19).
(21) Costs — If a corporation fails to comply with subsection (15), then the costs of a shareholder application under subsection (19) are to be borne by the corporation unless the court otherwise orders.
(22) Notice to shareholders — Before making application to the court under subsection (18) or not later than seven days after receiving notice of an application to the court under subsection (19), as the case may be, a corporation shall give notice to each dissenting shareholder who, at the date upon which the notice is given,
of the date, place and consequences of the application and of the dissenting shareholder's right to appear and be heard in person or by counsel, and a similar notice shall be given to each dissenting shareholder who, after the date of such first mentioned notice and before termination of the proceedings commenced by the application, satisfies the conditions set out in clauses (a) and (b) within three days after the dissenting shareholder satisfies such conditions.
(23) Parties joined — All dissenting shareholders who satisfy the conditions set out in clauses (22)(a) and (b) shall be deemed to be joined as parties to an application under subsection (18) or (19) on the later of the date upon which the application is brought and the date upon which they satisfy the conditions, and shall be bound by the decision rendered by the court in the proceedings commenced by the application.
(24) Idem — Upon an application to the court under subsection (18) or (19), the court may determine whether any other person is a dissenting shareholder who should be joined as a party, and the court shall fix a fair value for the shares of all dissenting shareholders.
(25) Appraisers — The court may in its discretion appoint one or more appraisers to assist the court to fix a fair value for the shares of the dissenting shareholders.
(26) Final order — The final order of the court in the proceedings commenced by an application under subsection (18) or (19) shall be rendered against the corporation and in favour of each dissenting shareholder who, whether before or after the date of the order, complies with the conditions set out in clauses (22)(a) and (b).
(27) Interest — The court may in its discretion allow a reasonable rate of interest on the amount payable to each dissenting shareholder from the date the action approved by the resolution is effective until the date of payment.
(28) Where corporation unable to pay — Where subsection (30) applies, the corporation shall, within ten days after the pronouncement of an order under subsection (26), notify each dissenting shareholder that it is unable lawfully to pay dissenting shareholders for their shares.
(29) Idem — Where subsection (30) applies, a dissenting shareholder, by written notice sent to the corporation within thirty days after receiving a notice under subsection (28), may,
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(30) Idem — A corporation shall not make a payment to a dissenting shareholder under this section if there are reasonable grounds for believing that,
(31) Court order — Upon application by a corporation that proposes to take any of the actions referred to in subsection (1) or (2), the court may, if satisfied that the proposed action is not in all the circumstances one that should give rise to the rights arising under subsection (4), by order declare that those rights will not arise upon the taking of the proposed action, and the order may be subject to compliance upon such terms and conditions as the court thinks fit and, if the corporation is an offering corporation, notice of any such application and a copy of any order made by the court upon such application shall be served upon the Commission.
(32) Commission may appear — The Commission may appoint counsel to assist the court upon the hearing of an application under subsection (31), if the corporation is an offering corporation.
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UNAUDITED INTERIM RECONCILIATION TO
UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
Unaudited Interim Reconciliation to United States Generally
Accepted Accounting Principles (In US dollars)
FOUR SEASONS HOTELS INC.
Nine months ended September 30, 2006
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FOUR SEASONS HOTELS INC.
Unaudited Interim Reconciliation to United States Generally Accepted Accounting Principles
Nine months ended September 30, 2006
(In thousands of US dollars except per share amounts)
The unaudited interim consolidated financial statements of Four Seasons Hotels Inc. ("FSHI") (the words, "we", "us", "our" and other similar words used are references to FSHI and its consolidated subsidiaries) for the nine months ended September 30, 2006 (the "September 30, 2006 Consolidated Financial Statements") have been prepared in accordance with generally accepted accounting principles as applied in Canada ("Canadian GAAP"). In certain respects, generally accepted accounting principles as applied in the United States ("US GAAP") differ from those applied in Canada.
This Unaudited Interim Reconciliation to United States Generally Accepted Accounting Principles does not include all disclosures required for an annual reconciliation to US GAAP and should be read in conjunction with our consolidated financial statements for the years ended December 31, 2005 and 2004 and the related supplemental note entitled "Reconciliation to United States Generally Accepted Accounting Principles — Years ended December 31, 2005 and 2004" as set forth in our annual report on Form 40-F for the year ended December 31, 2005, and with the September 30, 2006 Consolidated Financial Statements.
If US GAAP were employed, net earnings would be adjusted as follows:
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Nine months ended September 30, 2006 |
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Net earnings based on Canadian GAAP | $ | 33,408 | |||
Impact on net earnings of US GAAP adjustments: | |||||
Hotel partnerships and corporations | 869 | ||||
Future income taxes | (124 | ) | |||
Convertible notes | 5,216 | ||||
Deferred charges | 1,445 | ||||
Foreign exchange translation | 2,527 | ||||
Pension plan | (94 | ) | |||
Stock compensation expense (a(i)) | (4,137 | ) | |||
Net earnings based on US GAAP | $ | 39,110 | |||
Basic earnings per Limited Voting Share based on US GAAP | $ | 1.12 | |||
Basic earnings per Variable Multiple Voting Share based on US GAAP | $ | 0.56 | |||
Diluted earnings per share based on US GAAP | $ | 1.04 | |||
Weighted average shares — basic | 36,750,775 | ||||
Weighted average shares — diluted | 40,842,316 | ||||
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The impact of the US GAAP differences on our consolidated shareholders' equity is as follows:
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As at September 30, 2006 |
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Shareholders' equity based on Canadian GAAP | $ | 606,975 | |||
Impact on shareholders' equity of US GAAP adjustments: | |||||
Hotel partnerships and corporations | (72,981 | ) | |||
Hotel disposition program | 24,924 | ||||
Future income taxes | 11,192 | ||||
Convertible notes | (61,809 | ) | |||
Deferred charges | (28,335 | ) | |||
Foreign exchange translation | 39,558 | ||||
Pension plan | 1,871 | ||||
Shareholders' equity based on US GAAP | $ | 521,395 | |||
Effective January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("FAS 123R"), issued by the Financial Accounting Standards Board ("FASB"), using the modified prospective application, which is one of the transitional alternatives permitted under FAS 123R. Under the modified prospective application, FAS 123R applies to new stock options granted and stock options modified repurchased or cancelled on or after January 1, 2006, and the portion of stock options for which the requisite service has not been rendered that are outstanding as of January 1, 2006. Options granted, or modified, on or after January 1, 2006 are measured at the grant-date fair value and recognized as stock compensation expense over the option's requisite service period in accordance with the provisions of FAS 123R, with a corresponding increase to contributed surplus. When these stock options are exercised, the proceeds, together with the amount recorded in contributed surplus, are recorded in capital stock. Options for which the requisite service has not been rendered that are outstanding as of January 1, 2006 are measured at the grant-date fair value as previously determined under Statement of Financial Accounting Standards No. 123, as originally issued ("FAS 123"), adjusted for the estimated number of outstanding options for which the requisite service is not expected to be rendered. Under FAS 123, forfeitures were accounted for as they occur. Under the modified prospective application, prior periods are not restated.
FAS 123R eliminated an entity's ability to account for share-based compensation transactions using the intrinsic value method of accounting in APB Opinion No. 25, "Accounting for Stock Issued to Employees", which was permitted under FAS 123. Compared to the intrinsic value method, the modified prospective application of adopting FAS 123R effective January 1, 2006 resulted in an increase in stock compensation expense of $5,779, a decrease in net earnings of $5,779 and a decrease in basic and diluted earnings per share of $0.16 and $0.14, respectively, for the nine months ended September 30, 2006. Adoption of FAS 123R did not have any impact on cash provided by operating activities based on US GAAP or cash used in financing activities based on US GAAP for the nine months ended September 30, 2006.
Under Canadian GAAP, stock options granted or modified on or after January 1, 2003 are accounted for under The Canadian Institute of Chartered Accountants Handbook Section 3870, "Stock-Based Compensation and Other Stock-Based Payments", with prior option grants
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accounted for using the settlement method. As a result, additional stock compensation expense of $4,137 was recorded under US GAAP for the nine months ended September 30, 2006.
The FASB issued Statement of Financial Accounting Standards No. 152, "Accounting for Real Estate Time-Sharing Transactions: an Amendment of FASB Statements No. 66 and 67" ("FAS 152"), which amends FASB Statement No. 66, "Accounting for Sales of Real Estate", to reference accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position 04-02, "Accounting for Real Estate Time-Sharing Transactions" ("SOP 04-02"). FAS 152 also amends FASB Statement No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects" ("FAS 67"), so that the guidance in FAS 67 about incidental operations and costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The implementation of both FAS 152 and SOP 04-02 effective January 1, 2006 did not have any impact on this Unaudited Interim Reconciliation to United States Generally Accepted Accounting Principles.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R)" ("FAS 158"), which requires an entity to (i) recognize the overfunded or underfunded status of a defined benefit plan (other than a multiemployer plan), measured as the difference between the fair value of the plan assets and the benefit obligation, as an asset or liability; and recognize as a component of other comprehensive income, net of tax, the plan's actuarial and experience gains and losses and the prior service costs and credits (the "recognition provisions"); and (ii) measure the funded status of a defined benefit plan as of the year-end date (the "measurement provisions"). The recognition provisions of this standard will be effective for fiscal years ending after December 15, 2006. If we had adopted the recognition provisions of FAS 158 for the nine months ended September 30, 2006, we would have recorded, on a US GAAP basis, approximately $6,000 additional pension liability on the balance sheet and a $6,000 charge to accumulated other comprehensive income. The measurement provisions of FAS 158 will be effective for fiscal years ending after December 15, 2008. We have not yet determined the impact of adopting the measurement provisions of FAS 158.
In June 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes". FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The evaluation of a tax position in accordance with FIN 48 is a two-step process. The first step is recognition where the enterprise determines whether it is more likely than not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The second step is measurement where the tax position to be recognized is measured as the largest amount of benefit that is greater
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than 50 percent likely of being realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006. We have not yet determined the impact of the adoption of FIN 48.
In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" ("FAS 157"), which defines fair value, establishes a framework for measuring fair value in GAAP, and requires enhanced disclosures about fair value measurements. FAS 157 applies when other accounting pronouncements require or permit fair value measurements; it does not require new fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those years. The impact of the adoption of FAS 157 will depend upon the fair value measurements required at the time of adoption.
The FASB ratified a consensus reached by the Emerging Issues Task Force ("EITF") in EITF Issue No. 05-1, "Accounting for the Conversion of an Instrument That Became Convertible upon the Issuer's Exercise of a Call Option", in which the EITF reached a consensus that the issuance of equity securities to settle a debt instrument, which became convertible on the issuer's exercise of a call option, should be accounted for as a conversion if the debt instrument contained a substantive conversion feature as of its issuance date. Absent a substantive conversion feature, it should be accounted for as a debt extinguishment. The consensus is effective for periods beginning after June 28, 2006, with early application permitted in periods for which financial statements have not yet been issued. Retrospective application to previously issued financial statements is not permitted. We do not believe that the accounting for the conversion of our convertible senior notes as a result of the exercise of our call option would be different under Canadian and US GAAP.
In September 2006, the staff of the Securities and Exchange Commission issued Staff Accounting Bulleting No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB 108"), which addresses staff's views on how uncorrected errors in previous years should be considered when quantifying errors in current year financial statements. SAB 108 requires SEC registrants to consider the effect of all carryover and reversing effects of prior year misstatements when quantifying errors in current year financial statements. SAB 108 does not change the SEC staff's previous guidance on evaluating the materiality of errors. SEC registrants must adopt the dual method approach for quantifying errors in financial statements as of the beginning of the first fiscal year ending after November 15, 2006. We do not expect the adoption of SAB 108 to have any impact on our Reconciliation to United States Generally Accepted Accounting Principles for the year ending December 31, 2006.
In addition, the above adjustment to US GAAP earnings relating to deferred charges would also affect cash provided by operating activities and cash used in investing activities.
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As a result, cash provided by operating activities would be presented as follows on a US GAAP basis:
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Nine months ended September 30, 2006 |
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Net earnings based on US GAAP | $ | 39,110 | |||
Adjustments: | |||||
Stock compensation expense | 5,779 | ||||
Depreciation and amortization | 7,562 | ||||
Foreign exchange loss | 4,106 | ||||
Provision for loss | 362 | ||||
Equity in earnings from hotel investments | (869 | ) | |||
Future income taxes | 5,028 | ||||
Other | 58 | ||||
Change in non-cash working capital: | |||||
Accounts receivable | 322 | ||||
Inventory | (7,541 | ) | |||
Prepaid expenses | 12 | ||||
Accounts payable and accrued liabilities | 1,989 | ||||
Foreign currency translation effect on non-cash working capital | 745 | ||||
Cash provided by operating activities based on US GAAP | $ | 56,663 | |||
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Nine months ended September 30, 2006 |
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Cash provided by operating activities based on Canadian GAAP | $ | 57,531 | ||
Deferred charges | (868 | ) | ||
Cash provided by operating activities based on US GAAP | $ | 56,663 | ||
Cash used in financing activities based on Canadian and US GAAP | $ | (518 | ) | |
Cash used in investing activities based on Canadian GAAP | $ | (46,863 | ) | |
Deferred charges | 868 | |||
Cash used in investing activities based on US GAAP | $ | (45,995 | ) | |
Increase in cash based on US GAAP | $ | 10,150 | ||
Statement of Financial Accounting Standards No. 130 ("FAS 130") establishes standards under US GAAP for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. FAS 130 requires that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements.
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FAS 130 requires companies to (i) classify items of other comprehensive income by their nature in a financial statement, and (ii) display the accumulated balance of other comprehensive income separately from capital stock, contributed surplus and retained earnings in the shareholders' equity section of the balance sheet.
The statement of comprehensive income for the nine months ended September 30, 2006 would be presented as follows on a US GAAP basis:
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Nine months ended September 30, 2006 |
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Net earnings based on US GAAP | $ | 39,110 | ||
Other comprehensive gain, net of income taxes: | ||||
Foreign currency translation gain | 16,505 | |||
Comprehensive income based on US GAAP | $ | 55,615 | ||
The accumulated other comprehensive income balance as at September 30, 2006 would be presented as follows on a US GAAP basis: |
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Balance, December 31, 2005 |
$ |
60,648 |
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Foreign currency translation gain | 16,505 | |||
Balance, September 30, 2006 | $ | 77,153 | ||
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Please direct all inquiries to:
Questions and Further Assistance
If you have any questions about the information contained in this document or require assistance in completing your proxy form, please contact FSHI's proxy solicitation agent, at:
100 University Avenue
11th Floor, South Tower
Toronto, Ontario
M5J 2Y1
North American Toll Free Number: 1-866-568-7442
Banks and Brokers: 1-212-440-9800