EX-99.(A)(5)(CC) 4 a2105006zex-99_a5cc.txt EXHIBIT 99(A)(5)(CC) A602 EXHIBIT (a)(5)(CC) [SEAL] PROJECT NOVA GOLDMAN SACHS VALUE ADDED TALKING POINTS ADVISING THE FAMILY - Issue: Should GS be advising the Family or the Company? - GS Advice: The Family needs its own advisor. At some point, the Family's interests and the public's Interests (i.e., the Company) will diverge. - Result: GS can approach all issues from the vantage point of protecting the Family's interests. - Other advisors (AEW and MSDW) have sought concessions from the Family at various points in time. - GS (with Wachtell) has been able to counter these positions to protect the Family's substantial and ongoing economic interest in NOVA. OVERALL APPROACH - Issue: Family and Company too generous in separation and trusting of Fund's intentions; too eager to placate. - GS Advice: View transaction as a separation/divorce, not an asset sale; treat separation as negotiated transaction; presume that Fund is gaming every step of the way; take positions to protect Family's interests, remain firm on positions taken and become confrontational if necessary. - Results: - Family's preferred structure (negotiated separation) ultimately implemented. - Public shareholder vote avoided. - Fund ultimately agreed to allocate liabilities in way which avoids FFO dilution. - Company can announce binding, non-contingent deal. - Substantial improvement in Family's governance rights. - Transaction is FFO-neutral in 1999. IPO OF DEVCO - Issue: Divisive Saleco/Devco structure proposed by MSDW included IPO of Devco. - GS Advice: Don't do IPO due to timing, completion and value risks. - Result: IPO concept ultimately abandoned. CONTINUED [GOLDMAN SACHS LOGO] RESTRICTED CONFIDENTIAL GS00868 A603 PROJECT NOVA GOLDMAN SACHS VALUE ADDED TALKING POINTS INCENTIVE FOR DEVCO SHAREHOLDERS - Issue: In divisive Saleco/Devco structure, Bobby proposed offering cash put or entry price discount to incentivize shareholders to elect into Devco. - GS Advice: Don't make the offer - risk playing hand too early. - Result: Saleco/Devco structure abandoned before Family needed to make concession on incentives. SEPARATION STRUCTURE - Issue: Preferred structure (Family and Fund negotiate asset division; shareholders' absolute interest remains unchanged) rejected early on by MSDW/S&S and Independent Directors. - Family and Company believe revival of our structure is hopeless. - Miro says repeatedly that our structure "will not work" and "cannot be done". - GS Advice (with Wachtell): - Point out that no structure satisfies all objectives. - Push our preferred structure as satisfying more goals than other structures. - Portray as simpler structure with less interloper risk. - Emphasize that public shareholders' interest is unaffected, so no shareholder vote is required. - Result: Our preferred structure ultimately implemented. SHAREHOLDER VOTE - Issue: MSDW and Independent Directors have always insisted that a REIT shareholder vote is necessary; MSDW opined that vote would not increase interloper risk. - Bobby believes we have "no chance of avoiding a shareholder vote". - Miro and Larson: "We will lose the shareholder vote issue". - GS Advice (w/Wachtell): Public shareholder vote not required and greatly increases interloper risk; Bobby should remain firm that Family will vigorously oppose any proposal which includes a shareholder vote. - Results: - Bobby about to concede shareholder vote issue (6/24/98). - Parker suggests exchanging units for assets without shareholder vote. - MSDW and S&S become convinced that shareholder vote is not required. - Transaction goes forward on basis that no vote is required. CONTINUED [GOLDMAN SACHS LOGO] RESTRICTED CONFIDENTIAL GS00869 A604 PROJECT NOVA GOLDMAN SACHS VALUE ADDED TALKING POINTS THE ALLEN REED CARD - Issue: Can Bobby Influence Allen to push his team of advisors? Miro and Bobby don't believe it is worth trying; Lisa and Cordell are adamant that "there is no Allen Reed card". - GS Advice: 7/13/98 -- GS begins suggesting Bobby call Allen. - Results: - 7/20/98 - Bobby calls Allen, who commits to a non-contingent deal; Allen gets Ron Pastore and Joe Azrac on phone; they commit to 2-week completion. - 7/21/98 - Bobby tells GS he should have called Allen sooner. - 7/29/98 - Bobby inclined to cancel Board meeting date; Allen encourages him not to, and maintains commitment to pushing forward as quickly as possible. - 8/3/98 - Company and Fund reach agreement on state of exchange properties and begin intense negotiation of Separation Agreement. - 8/17/98 - Board approval and signing of Separation Agreement. - 8/18/98 - Transaction announced. PREFERRED STOCK - Issue: NOVA is keeping 100% of the preferred stock; GS pointed out early on that this will be dilutive to FFO and should be considered "expensive debt" for which NOVA should be compensated. - GS Advice: Debt allocation must force Fund to bear its pro rata share of the dilutive effect. - MSDW maintained that there was no basis for marking the preferred to a market debt rate. - Results: - Fund ultimately accepted approach of marking the preferred to market as debt. - Resulted in shifting more unsecured debt to Fund and distributing the dilutive effect pro rata. - Net benefit of more than a penny of 1999E FFO/share. DEBT TENDER - Issue: Should Company launch unsecured debt tender before broader transaction is announced? - Bobby and Lisa strongly in favor of launching. - GS Advice: Don't launch until deal announced; launching will focus spotlight on Company, potentially expose broader transaction and/or create duty to disclose. CONTINUED [GOLDMAN SACHS LOGO] RESTRICTED CONFIDENTIAL GS00870 A605 PROJECT NOVA GOLDMAN SACHS VALUE ADDED TALKING POINTS - Result: Debt tender put off until transaction can be announced. VALUE OF OPTIONS - Issue: How should the existence of options affect the division of equity? How should the options be valued (i.e., what share price should be assumed at time of exercise)? - MSDW saw no basis for a share price assumption higher than the current market price ($14), and would not push for a higher price. - GS Advice: - GS pointed out early on that Fund's primary ownership of 37.25% of Partnership does not reflect the dilutive effect of the options. - Division of equity must shift to Fund its pro rata share of the dilutive effect of the options. - A higher share price assumed for options valuation results in a greater dilutive effect, which means that Fund's equity share shrinks by a corresponding amount in the equity division analysis. - We should push for the highest share price possible for purposes of dividing equity. - Results: - Fund accepted our method of treating the options value as "debt" retained by NOVA. - Resulted in shifting more unsecured debt to Fund and distributing the dilutive effect pro rata. - Share price of $16 assumed for options valuation. - Net benefit of almost 1/2 penny of 1999E FFO/share (versus MSDW's proposal of $14 per share). JOINT VENTURES - Issue: The parties agreed to adjust the cap rate for each JV asset to reflect the lack of debt capacity. - GS Advice: Beyond individual asset cap rate adjustments, there must be a "look back" mechanism if one party ends up with a disproportionate number of JV assets. In such a case, the whole harm is greater than the sum of its parts due to cumulative, entity-wide restraints on debt capacity. - Results: - NOVA wound up with 9 out of 10 JV assets. - This will force NOVA to refinance Beverly, which has high-cost debt and a high prepayment penalty. - Parties agreed to mark this debt to market at its prepayment value; NOVA to refinance Beverly with lower-cost debt. - Resulted in shifting more unsecured debt to Fund and distributing the dilutive effect pro rata. CONTINUED [GOLDMAN SACHS LOGO] RESTRICTED CONFIDENTIAL GS00871 A606 PROJECT NOVA GOLDMAN SACHS VALUE ADDED TALKING POINTS - Net benefit of over 1 penny of 1999E FFO/share. FFO DILUTION - Issue: The slate of exchange properties proposed by NOVA was FFO-neutral, whereas the slate counter-proposed by Fund was approximately 4 cents dilutive to 1999E FFO/share. - Company and MSDW willing to live with dilution due to confidence in market's favorable reaction to smaller, faster-growing company focused on development. - GS Advice: We cannot do a dilutive deal. - Risk of appearance of "Greenmail". - The market will punish NOVA for doing a dilutive deal. - We must insist that Fund work with us to achieve break-even (at a minimum). If that means increasing the amount of unsecured debt allocated to Fund, so be it. - Results: - GS painstakingly convinces Company and MSDW that we can't do a dilutive deal. - MSDW ultimately argues to Fund that dilution will be a consideration in fairness opinion. - We convince Allen Reed and Fund that we can't do a dilutive deal. - Fund ultimately works with us to make its proposed slate break-even (e.g., in ways described above). GOVERNANCE - Issue: Family currently has no ability to block transactions at either REIT or OP level. - GS Advice (with Wachtell): - Take advantage of restructuring to implement governance package more favorable to Family. - Push envelope of "peer group" beyond regional mail REITs to broader group of UPREITs with significant insider or family ownership. - Because Family and public are essentially dividing up rights previously held by Fund, Family can improve its position without diminishing public's rights. - Results: Significantly better governance rights for Family than previously existed. - 4 out of 9 REIT Board seats. - "Flow-through" voting rights - voting power of units at REIT level. - 2/3 majority vote required for merger at REIT level (Family to own 29%, CIPs to own 9%). - Blocking rights at OP level for extraordinary transactions; 50% LP consent required. CONTINUED [GOLDMAN SACHS LOGO] RESTRICTED CONFIDENTIAL GS00872 A607 PROJECT NOVA GOLDMAN SACHS VALUE ADDED TALKING POINTS - Certain specified properties cannot be sold/encumbered without unitholder consent. REIT BOARD SEATS - Issue: During fishing trip in Iceland, Parker told Miro he prefers giving Family 4 seats on an 11-member Board instead of a 9-member Board. Miro inclined to concede. - GS Advice (with Wachtell): Stick with 9-member Board, or insist on number of seats which is one less than majority. - Result: Family ends up with 4 out of 9 Board seats. INTERLOPER RISK AVERSION - Issue: How can we best protect against the risk of interlopers lobbing in offers which potentially derall the negotiated transaction? - MSDW sells Bobby out by telling Board that shareholder vote does not materially increase risk of interlopers. - GS Advice (with Wachtell): - Shareholder vote must be avoided at all costs. - Deal must be fully binding and not contingent upon any due diligence. - Utilize two-step process in which due diligence takes place after deal signed and announced. - Results: - Shareholder vote avoided (see discussion above). - Two-step process adopted. - Deal is, by its terms, fully binding and non-contingent. [GOLDMAN SACHS LOGO] RESTRICTED CONFIDENTIAL GS00873