<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
SCHEDULE 14A INFORMATION
PROXY SOLICITATION STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
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Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy solicitation statement [ ] Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy solicitation statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
CAREY DIVERSIFIED LLC
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Consent Solicitation Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies: Limited
Liability Company Interests of Carey Diversified LLC.
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(2) Aggregate number of securities to which transaction applies: up to
10,000,000 shares.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): Pursuant to
Rules 14a-6(i)(1) and 0-11(a)(4) and (c)(1) under the Exchange Act, the
average of the high and low prices reported in the consolidated
reporting system of Carey Diversified LLC as of December 22, 1999 was
$17.09375.
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(4) Proposed maximum aggregate value of transaction: $170,937,500.
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(5) Total fee paid: $34,187.50.
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[X] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by the Exchange
Act Rule 0-11(a)(2) and identify the filing fee for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date of
its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
[W. P. CAREY LOGO]
May 17, 2000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 28, 2000
Dear Carey Diversified Shareholder:
On Thursday, June 28, 2000, Carey Diversified LLC will hold its 2000 annual
meeting of the shareholders at The Waldorf-Astoria Hotel, 301 Park Avenue, New
York, New York. The meeting will begin at 9 a.m.
We are holding this meeting:
- To elect four (4) Class III directors, each to hold office for a three
year term and until their respective successors are elected and
qualified.
- To consider and vote upon a proposal to approve the acquisition of the
management business of W.P. Carey & Co., Inc. and its affiliates by Carey
Diversified LLC. As consideration for the acquisition, Carey Diversified
will issue up to 10,000,000 Listed Shares, all as more fully described in
the enclosed proxy statement.
- To consider and vote upon a proposal to approve an amendment to the 1997
Listed Share Incentive Plan to increase the number of shares eligible for
issuance from 700,000 to 2,600,000 shares.
- To transact such other business as may properly come before the meeting.
Only shareholders who owned stock at the close of business on March 31,
2000 are entitled to vote at the meeting. Carey Diversified mailed this proxy
statement, proxy and its Annual Report to shareholders on May 17, 2000.
By Order of the Board of Directors
[/s/ H. Augustus Carey]
H. Augustus Carey
Secretary
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE
MEETING, WHETHER OR NOT YOU ATTEND THE MEETING. YOU CAN VOTE YOUR
SHARES BY USING THE TELEPHONE OR THROUGH THE INTERNET. INSTRUCTIONS
FOR USING THESE SERVICES ARE SET FORTH ON THE ENCLOSED PROXY. YOU MAY
ALSO VOTE YOUR SHARES BY MARKING YOUR VOTES ON THE ENCLOSED PROXY,
SIGNING AND DATING IT AND MAILING IT IN THE BUSINESS REPLY ENVELOPE
PROVIDED. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND
VOTE IN PERSON.
<PAGE> 3
CAREY DIVERSIFIED LLC
50 ROCKEFELLER PLAZA
NEW YORK, NY 10020
MAY 17, 2000
Dear Fellow Shareholder,
The board of directors requests your approval of a proposal to acquire the
management businesses of W. P. Carey & Co., Inc. and its affiliates, which
consists primarily of the management business of our investment advisor, Carey
Management LLC, and the business of managing four real estate investments
trusts. If the transaction is completed, the combined entity, which will be
renamed W. P. Carey & Co. LLC, will be a fully integrated investment company and
one of the nation's premier net lease firms. Changing the company's name to W.
P. Carey & Co. LLC will capitalize on the strong corporate identity that W. P.
Carey has built among its clients and the investment community for over 25
years. The acquisition will be achieved through the merger of Carey Management
LLC and a wholly-owned subsidiary of Carey Diversified LLC. W. P. Carey & Co.,
Inc. (and certain of its affiliates) has transferred to Carey Management LLC all
of the assets used for the management of Carey Diversified and the four real
estate investment trusts. This merger is described in detail in the accompanying
proxy solicitation statement, which you are urged to read carefully.
Carey Diversified's board of directors voted unanimously in favor of this
transaction because it believes the proposed merger will provide many potential
benefits to shareholders, including an immediate increase in funds from
operations (FFO), increased access to capital, enhanced growth from the asset
management business, a strengthened credit profile and future growth potential.
A special committee consisting of three independent members of Carey
Diversified's board of directors carefully reviewed, considered and negotiated
the terms of the proposed merger. Based on its review, the special committee has
unanimously determined that the terms of the merger agreement, the related
agreements and the merger are fair to and in the best interests of Carey
Diversified and its public shareholders. In making this determination, the
special committee considered, among other things, an opinion received from
Robert A. Stanger & Co., Inc., the special committee's independent financial
advisor, as to the fairness, from a financial point of view, of the
consideration to be paid by Carey Diversified in the merger from the perspective
of Carey Diversified's public shareholders.
Taking into account the unanimous recommendation of the special committee,
the board of directors of Carey Diversified has unanimously determined (with two
directors affiliated with Carey Management, Messrs. Wm. Polk Carey and DuGan,
abstaining) that the merger agreement and the transactions contemplated by the
merger agreement, including the merger, are fair to and in the best interests of
Carey Diversified and its unaffiliated shareholders and has approved the merger
agreement and the transactions contemplated by the merger agreement.
The merger is expected to reduce Carey Diversified's operating expenses by
eliminating the management fees it currently pays to Carey Management and is
expected to provide Carey Diversified with an additional source of revenue
through fees for the management of four real estate investment trusts currently
managed by Carey Management. As of March 31, 2000 (the record date) these REITs
own 201 properties with a total of over 18 million square feet of space. These
additional management fees will be accretive during the first year of combined
operations.
In effect, we will be uniting the business functions that are integral to
the operation of the company. Carey Management personnel will become employees
of the merged entity and will be responsible for acquisitions, financing,
investment analysis, asset management, accounting and shareholder relations
functions. In addition, we believe the merger will eliminate any actual or
perceived conflicts of interest between Carey Diversified and Carey Management
in the management of Carey Diversified, and potentially improve the company's
valuation, as the investment community generally views internally managed
companies more favorably.
<PAGE> 4
In the merger, the shareholders of Carey Management, who are current
officers of Carey Diversified, will receive eight million shares ($133,000,000
at $16.625 per share, the closing price on the record date) of W. P. Carey & Co.
LLC. Carey Management shareholders may earn up to an additional two million
shares ($33,250,000) of W. P. Carey & Co. LLC over a period of four years, if W.
P. Carey & Co. LLC meets certain performance criteria.
While there can be no assurance that shareholders will ultimately benefit
from the merger, the board believes the transaction is in the best interest of
the shareholders. There are also potential conflicts of interests in the
operation of W. P. Carey & Co. LLC as a result of the contingent consideration.
W. P. Carey & Co. LLC will trade publicly on the New York Stock Exchange
and on the Pacific Stock Exchange under the symbol "WPC." There will be no
change in the total number of shares currently owned by each Carey Diversified
shareholder. Immediately after the merger, public shareholders of Carey
Diversified will own approximately 72% of the combined company. In general, the
merger will not be a taxable event for Carey Diversified shareholders; however
investors will have a lower tax basis than they had before the transaction. The
change in tax basis will only effect the tax treatment of distributions from W.
P. Carey & Co. LLC, and will not affect the gain or loss recognized on the sale
of shares.
You are also being asked to approve an amendment to the 1997 Listed Share
Incentive Plan to increase the number of shares eligible for issuance from
700,000 to 2,600,000 shares. This increase is necessary to allow for the
granting of awards under the plan to the new employees of W. P. Carey & Co. LLC
following the merger, to attract and retain executive officers and employees, to
provide for management continuity and to create incentives for management
performance and to align the interests of management and the shareholders.
In addition, you are also being asked to re-elect directors for the
three-year term expiring in 2003. The directors nominated for re-election are
Wm. Polk Carey, Dr. Lawrence R. Klein, Charles C. Townsend, Jr. and Donald E.
Nickelson.
We have been committed over the years to serving the best interests of our
shareholders. We believe that this new structure will insure our ability to
generate increasing growth and shareholder value.
YOUR BOARD URGES YOU TO EVALUATE CAREFULLY THE PROPOSED MERGER AND PLAN
AMENDMENT AND THE DIRECTORS NOMINATED FOR RE-ELECTION AND TO VOTE FOR THE
MERGER, THE PLAN AMENDMENT AND THE NOMINATED DIRECTORS.
PLEASE VOTE FOR THE PROPOSED MERGER AND PLAN AMENDMENT AND RETURN YOUR
ELECTION CARD TODAY OR VOTE BY PHONE OR ON THE INTERNET. We have attempted to
anticipate any questions you may have and to answer them in the pages that
follow. However, if you have any additional questions regarding this proxy
solicitation statement or the proposed merger, or if you need assistance with
completing the election card, please feel free to contact Shareholder
Communications Corporation, which has been retained to answer any questions you
may have, at 1-800-611-9976.
With best regards,
<TABLE>
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LOGO /s/ Francis J. Carey
Gordon F. DuGan Francis J. Carey
President Chairman and Chief Executive Officer
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<PAGE> 5
TABLE OF CONTENTS
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QUESTIONS AND ANSWERS....................................... 1
PROPOSAL ONE:
ELECTION OF DIRECTORS....................................... 3
Class III Directors to Serve Until the Year 2003.......... 3
Class I Directors Continuing to Serve Until the Year
2001................................................... 4
Class II Directors Continuing to Serve Until the Year
2002................................................... 5
Executive Officers of Carey Diversified................... 5
Security Ownership of Certain Beneficial Owners, Directors
and Management......................................... 6
Committee of the Board of Directors....................... 7
Compensation of the Board of Directors.................... 8
Executive Compensation.................................... 8
Performance Graph......................................... 10
Certain Transactions...................................... 10
Management Contract with Carey Management.............. 10
Amounts Paid to W.P. Carey & Co. ...................... 10
Amounts Paid/Payable to General Partners............... 10
Livho, Inc. Transaction................................ 11
FREDIP, S.A. Transactions.............................. 11
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 11
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 11
PROPOSAL TWO:
SUMMARY OF PROPOSAL TWO..................................... 12
The Merger................................................ 12
The Combined Company...................................... 12
Parties to the Merger..................................... 13
What Carey Diversified Will Receive in the Merger......... 13
Recommendation to Shareholders............................ 13
Record Date............................................... 14
Vote Required to Approve the Merger....................... 14
Share Ownership After the Merger.......................... 14
Dividend Policy Following the Merger...................... 14
Board of Directors and Management of Carey Diversified
Following the Merger................................... 14
Interests of Certain Persons in the Merger................ 14
Opinion of the Financial Advisor.......................... 15
Federal Tax Matters....................................... 15
Closing of the Merger; Conditions to Closing.............. 15
Termination of the Merger Agreement....................... 16
Risks of the Merger to Carey Diversified and its
Shareholders........................................... 16
Accounting Treatment...................................... 16
No Appraisal Rights....................................... 17
Special Note Regarding Forward-Looking Statements......... 17
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.... 18
THE MERGER.................................................. 23
Special Note Regarding Forward-Looking Statements......... 26
THE COMPANIES............................................... 27
The Combined Company -- W.P. Carey & Co. LLC.............. 27
Carey Diversified......................................... 27
Carey Management.......................................... 28
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DESCRIPTION OF THE MERGER AND MERGER AGREEMENT............................................................... 28
General.................................................................................................... 28
The Merger Agreement....................................................................................... 29
Total Return Target........................................................................................ 30
Lock-up Agreement.......................................................................................... 30
Registration Rights Agreement.............................................................................. 31
Non-Competition Agreement.................................................................................. 31
Use of W.P. Carey Name..................................................................................... 31
Closing.................................................................................................... 32
Conduct of Business Prior to Closing....................................................................... 32
Conditions to Closing...................................................................................... 32
Representations and Warranties............................................................................. 33
Expenses................................................................................................... 34
REASONS FOR AND BACKGROUND OF THE MERGER..................................................................... 34
Deliberations and Recommendation of the Special Committee.................................................. 35
The Recommendation of the Board of Directors............................................................... 39
OPINION OF THE FINANCIAL ADVISOR............................................................................. 39
Stanger Fairness Opinion................................................................................... 39
Experience of Stanger...................................................................................... 40
Reasons for Selection of Stanger........................................................................... 40
Summary of Materials Considered............................................................................ 40
Summary of Analysis........................................................................................ 41
Conclusions................................................................................................ 45
Assumptions................................................................................................ 45
Limitations and Qualifications of Fairness Opinion......................................................... 46
Compensation and Material Relationships.................................................................... 46
SERVICES PROVIDED BY CAREY MANAGEMENT........................................................................ 46
Management Services Provided by Carey Management to Carey Diversified...................................... 46
Services Provided to the CPA(R) REITs...................................................................... 48
Capital Raising Services................................................................................... 50
RISKS OF THE MERGER TO CAREY DIVERSIFIED AND ITS SHAREHOLDERS................................................ 50
The investment advisory business presents different risks.................................................. 50
Future sales of our stock by shareholders of W.P. Carey & Co. LLC may adversely affect the market price of
our stock............................................................................................... 50
The revenue streams from the investment advisory agreements are subject to limitation or cancellation...... 51
Carey Diversified directors and executive officers may have interests in the merger which differ from the
interests of Carey Diversified shareholders............................................................. 51
The fixed number of shares to be issued in the merger will not reflect any changes in the relative value of
each of the two companies after the date the merger agreement was signed................................ 51
After the merger, the officers and directors of W.P. Carey & Co. LLC may control the company............... 51
BENEFIT TO THE SHAREHOLDERS OF CAREY MANAGEMENT RESULTING FROM THE MERGER.................................... 51
SHARE OWNERSHIP AFTER THE MERGER............................................................................. 52
CONSEQUENCES OF FAILURE TO APPROVE THE MERGER................................................................ 53
MANAGEMENT OF W.P. CAREY & CO. LLC........................................................................... 53
Directors and Executive Officers of W.P. Carey & Co. LLC................................................... 53
Carey Asset Management Corp................................................................................ 53
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................................................... 54
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FINANCIAL, ACCOUNTING, TAX AND OTHER LEGAL INFORMATION
REGARDING THE MERGER...................................... 55
Financial Information..................................... 55
Accounting Treatment...................................... 55
Federal Tax Matters....................................... 55
No Appraisal Rights....................................... 56
Vote Required to Approve the Merger....................... 56
PROPOSAL THREE:
AMENDMENT TO 1997 LISTED SHARE INCENTIVE PLAN............... 57
WHERE YOU CAN FIND MORE INFORMATION......................... 59
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CAREY DIVERSIFIED LLC
------------------------
PROXY STATEMENT
MAY 16, 2000
------------------------
QUESTIONS & ANSWERS
Q. WHAT ARE THE PROPOSALS I AM BEING ASKED TO CONSIDER?
A. You are being asked to give your proxy to vote on three proposals. Proposal
One is to re-elect four directors to a three year term ending in 2003. The
nominees are Wm. Polk Carey, Dr. Lawrence R. Klein, Charles C. Townsend,
Jr., and Donald E. Nickelson. Proposal Two is to approve the acquisition of
the management business of W.P. Carey & Co., Inc. and its affiliates by
Carey Diversified. As consideration for the acquisition, Carey Diversified
will issue up to 10,000,000 Listed Shares. Proposal Three is to amend the
1997 Listed Share Incentive Plan to increase the number of shares eligible
for issuance from 700,000 to 2,600,000 shares. Each of these proposals are
more fully described in this proxy solicitation statement.
Q. WHO IS SOLICITING MY PROXY?
A. We, the directors of Carey Diversified, are sending you this proxy statement
and enclosed proxy.
Q. WHO IS ENTITLED TO VOTE?
A. Shareholders of Carey Diversified as of the close of business March 31, 2000
(the record date) are entitled to vote at the annual meeting.
Q. HOW MANY SHARES MAY VOTE?
A. At the close of business on the record date, March 31, 2000, Carey
Diversified had 25,979,383 shares outstanding and entitled to vote. Every
shareholder is entitled one vote for each share held.
Q. WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS?
A. Nominees for election of directors must receive the affirmative vote of a
majority of the votes cast at the meeting to be elected to the board. The
merger and the amendment to the Listed Share Incentive Plan must be approved
by the affirmative vote of shareholders owning a majority of all Carey
Diversified shares. If any material amendment to the terms of the merger is
made, we will re-solicit your consent to the merger.
Q. WHAT DO I NEED TO DO NOW?
A. You may register your vote by calling the number on your proxy card or you
may vote on the Internet at the web address on your proxy card. You may also
fill out and sign your proxy card and mail it to us in the enclosed return
envelope. If you fail to vote on the merger or the amendment to the
incentive plan, your inaction will have the same effect as a vote against
each proposal. If you sign and return your proxy without indicating your
vote, you will be treated as having voted for the nominees, the merger and
for the amendment of the incentive plan.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A. No. Your broker will vote your shares only if you provide instructions on
how to vote. You should instruct your broker to vote your shares by
following the directions provided by your broker. Without instructions, your
shares will not be voted and will have the same effect as a vote against the
merger and plan amendment.
1
<PAGE> 9
Q. MAY I REVOKE MY PROXY?
A. Yes, you may revoke your proxy as to any or all of the proposals at any time
before the meeting by voting in person, notifying Carey Diversified's
Secretary, or submitting a later-date proxy. The mailing address of Carey
Diversified is 50 Rockefeller Plaza, New York, New York 10020. You should
mail your notice of revocation of proxy to that address.
Q. WHAT IS A "QUORUM"?
A. A "quorum" is the presence, either in person or represented by proxy, of a
majority of the shares entitled to vote at the meeting. There must be a
quorum for the meeting to be held.
Q. HOW WILL VOTING ON SHAREHOLDER PROPOSALS BE CONDUCTED?
A. We do not know of other matters which are likely to be brought before the
meeting. However, in the event that any other matters properly come before
the annual meeting, your signed proxy gives authority to the persons named
in the enclosed proxy to vote your shares on such matters in accordance with
their best judgment.
Q. WHO WILL PAY THE COST FOR THIS PROXY SOLICITATION AND HOW MUCH WILL IT COST?
A. Carey Diversified will pay the cost of preparing, assembling and mailing
this proxy statement, the Notice of Meeting and the enclosed proxy. In
addition to the solicitation of proxies by mail, we may utilize some of the
officers and employees of Carey Management (who will receive no compensation
in addition to their regular salaries) to solicit proxies personally and by
telephone. We have retained Shareholder Communications Corp. to assist us in
the solicitation of proxies, for a fee estimated not to exceed $40,000, plus
out-of-pocket expenses. We may request banks, brokers and other custodians,
nominees and fiduciaries to forward copies of the proxy statement to their
principals and to request authority for the execution of proxies, and will
reimburse such persons for their expenses in so doing.
Q. WHEN ARE SHAREHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING DUE?
A. We must receive any proposal which a shareholder intends to present at Carey
Diversified's 2001 annual meeting of shareholders no later than December 15,
2000 in order to be included in Carey Diversified's Proxy Statement and form
of proxy relating to that meeting.
Q. WHO CAN HELP ANSWER MY QUESTIONS?
A. If you have more questions about the merger or if you need additional copies
of this proxy solicitation statement, please contact:
Carey Diversified LLC
50 Rockefeller Plaza
New York, NY 10020
Attention: Investor Relations
TELEPHONE NUMBER: 1-800-611-9976
CAREY DIVERSIFIED WILL PROVIDE SHAREHOLDERS, WITHOUT CHARGE, A COPY OF
CAREY DIVERSIFIED'S ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1999, INCLUDING THE
FINANCIAL STATEMENTS AND SCHEDULES ATTACHED THERETO, UPON WRITTEN REQUEST TO MS.
SUSAN C. HYDE, DIRECTOR OF INVESTOR RELATIONS OF CAREY DIVERSIFIED, AT CAREY
DIVERSIFIED LLC, 50 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10020.
2
<PAGE> 10
PROPOSAL ONE
ELECTION OF DIRECTORS
Carey Diversified has a classified board of directors currently consisting
of four Class III directors, two Class I directors, and two Class II directors
who will serve until the annual meetings of shareholders to be held in 2000,
2001 and 2002, respectively, and until their respective successors are duly
elected and qualified. Directors in a class are elected for a term of three
years to succeed the directors in such class whose terms expire at such annual
meeting.
Nominees for election as Class III directors are Wm. Polk Carey, Dr.
Lawrence R. Klein, Charles C. Townsend, Jr. and Donald E. Nickelson. If elected,
the nominees will serve as directors until Carey Diversified's annual meeting in
2003, and until their successors are elected and qualified. Unless otherwise
specified, proxies will be voted for the election of the named nominees. If a
nominee is unavailable for election, the board may reduce its size or designate
a substitute. If a substitute is designated, proxies voting on the original
nominee will be cast for the substituted nominee. No circumstances are presently
known that would render the nominees unavailable. All of the nominees are now
members of the board of directors.
Detailed information on each member of the board of directors, including
each Class III nominee to be elected at the meeting, is provided below.
CLASS III DIRECTORS TO SERVE UNTIL THE YEAR 2003
WILLIAM P. CAREY
AGE: 70
Mr. Carey, Chairman, Chief Executive Officer of W.P. Carey & Co. since
1973, has been active in lease financing since 1959 and a specialist in net
leasing of corporate real estate property since 1964. Before founding Carey
Management, in 1973, he served as Chairman of the Executive Committee of
Hubbard, Westervelt & Mottelay (now Merrill Lynch Hubbard), head of Real Estate
and Equipment Financing at Loeb, Rhoades & Co. (now Lehman Brothers), and head
of Real Estate and Private Placements, Director of Corporate Finance and Vice
Chairman of the Investment Banking Board of duPont Glore Forgan Inc. A graduate
of the University of Pennsylvania's Wharton School, Mr. Carey also received a
Sc.D. honoris causa from Arizona State University and is a Trustee of The John
Hopkins University and of other educational and philanthropic institutions. He
has served for many years on the Visiting Committee to the Economics Department
of the University of Pennsylvania and co-founded with Dr. Lawrence R. Klein the
Economics Research Institute at that University. In the fall of 1999, Mr. Carey
was the Executive-in-Residence at Harvard Business School. He also serves as
Chairman of the Board and Chief Executive Officer of CPA(R):10, CIP(R),
CPA(R):12 and CPA(R):14. Mr. Carey is the brother of Francis J. Carey.
DR. LAWRENCE R. KLEIN
AGE: 79
Dr. Klein was elected to the board of directors of Carey Diversified in
1998 and is Benjamin Franklin Professor Emeritus of Economics and Finance at the
University of Pennsylvania and its Wharton School, having joined the faculty of
the University in 1958. He is a holder of earned degrees from the University of
California at Berkeley, the Massachusetts Institute of Technology and Oxford
University and has been awarded the Alfred Nobel Memorial Prize in Economic
Sciences, as well as a number of honorary degrees. Founder of Wharton
Econometric Forecasting Associates, Inc., Dr. Klein has been counselor to
various corporations, governments and government agencies, including the Federal
Reserve Board and the President's Council of Economic Advisers. Dr. Klein joined
W.P. Carey & Co. in 1984 as Chairman of the Economic Policy Committee and as a
director.
3
<PAGE> 11
CHARLES C. TOWNSEND, JR.
AGE: 72
Mr. Townsend was elected to the board of directors of Carey Diversified in
1998 and currently is an Advisory Director of Morgan Stanley Dean Witter & Co.,
having held such position since 1979. Mr. Townsend was a Partner and a Managing
Director and head of the Corporate Finance Department of Morgan Stanley & Co.
from 1963 to 1978 and served as Chairman of Morgan Stanley Realty Corporation
from 1977 to 1982. Mr. Townsend holds a B.S.E.E. from Princeton University and
an M.B.A. from Harvard University. Mr. Townsend also serves as director of
CIP(R) and CPA(R):14; he will resign from those positions upon the consummation
of the merger.
DONALD E. NICKELSON
AGE: 67
Mr. Nickelson was elected to the board of directors of Carey Diversified in
1998 and is currently Vice-Chairman and director of Harbour Group Industries
Inc., a leveraged buy-out firm. Mr. Nickelson served as Chairman of the Special
Committee of the board of directors of Carey Diversified which evaluated and
approved the merger on behalf of the shareholders of Carey Diversified. From
1988 to 1990, he served as President of Paine, Webber, Jackson & Curtis,
PaineWebber, Inc. and PaineWebber Group, investment banking and brokerage firms.
He also serves as a Trustee of the Mainstay Mutual Funds Group, and is on the
Advisory Board at Stanford Institute for the Quantitative Study of Society.
Previously, Mr. Nickelson was Chairman of the Board of Omniquip International,
Inc., Greenfield Industries and Flair Corporation. He served as director for
Selectide Corporation and Sugen, Inc., biotech companies. In addition, he served
as Chairman of the Pacific Stock Exchange and director of the Chicago Board of
Options Exchange.
CLASS I DIRECTORS CONTINUING TO SERVE UNTIL THE YEAR 2001
GORDON F. DUGAN
AGE: 33
Mr. DuGan, President and Chief Acquisitions Officer of Carey Diversified,
was elected President of W.P. Carey & Co. in 1999, Executive Vice President and
a Managing Director of W.P. Carey & Co. in June 1997. Mr. DuGan rejoined W.P.
Carey & Co. as Deputy Head of Acquisitions in February 1997. Mr. DuGan was until
September 1995 a Senior Vice President in the Acquisitions Department of W.P.
Carey & Co. From October 1995 until February 1997, Mr. DuGan was Chief Financial
Officer of Superconducting Core Technologies, Inc., a Colorado-based wireless
communications equipment manufacturer. Mr. DuGan joined W.P. Carey & Co. as
Assistant to the Chairman in May 1988, after graduating from the Wharton School
at the University of Pennsylvania where he concentrated in Finance.
REGINALD WINSSINGER
AGE: 57
Mr. Winssinger was elected to the board of directors of Carey Diversified
in 1998 and is currently Chairman of the Board and Director of Horizon Real
Estate Group, Inc. and National Portfolio, Inc. Mr. Winssinger has managed
portfolios of diversified real estate assets exceeding $500 million throughout
the United States for more than 20 years. Mr. Winssinger is active in the
planning and development of major land parcels and has developed 20 commercial
properties. He is a native of Belgium with more than 25 years of real estate
practice, including 10 years based in Brussels, overseeing appraisals,
construction and management. Mr. Winssinger holds a B.S. in Geography from the
University of California at Berkeley and received a degree in Appraisal and
Survey in Belgium. Mr. Winssinger presently serves as Honorary Consul of Belgium
to the State of Arizona, a position he has held since 1991.
4
<PAGE> 12
CLASS II DIRECTORS CONTINUING TO SERVE UNTIL THE YEAR 2002
FRANCIS J. CAREY
AGE: 74
Mr. Carey was elected in 1997 as Chairman, Chief Executive Officer and a
director of Carey Diversified. From 1987 to 1997, Mr. Carey held various
positions with affiliates of the W.P. Carey & Co. Inc., including President of
W.P. Carey & Co., and President and director of CPA(R):10, CIP(R) and CPA(R):12.
Mr. Carey also served as director of Carey Management from its founding in 1973
through 1997. Prior to 1987, he was senior partner in Philadelphia, head of the
real estate department nationally and a member of the executive committee of
Reed Smith Shaw & McClay LLP, counsel for W.P. Carey & Co. and Carey
Diversified. He served as a member of the executive committee and Board of
Managers of the Western Savings Bank of Philadelphia from 1972 until its
takeover by another bank in 1982, and is a former chairman of the Real Property,
Probate and Trust Section of the Pennsylvania Bar Association. Mr. Carey served
as a member of the Board of Overseers of the School of Arts and Sciences at the
University of Pennsylvania from 1983 to 1990. He has also served as a member of
the Board of Trustees and executive committee of the Investment Program
Association since 1990, and as its Chairman from 1998 to 2000 and on the
Business Advisory Council of the Business Council for the United Nations since
1994. He holds A.B. and J.D. degrees from the University of Pennsylvania and
completed executive programs in corporate finance and accounting at Stanford
University Graduate School of Business and the Wharton School of the University
of Pennsylvania. Mr. Carey is the brother of William P. Carey.
EBERHARD FABER, IV
AGE: 63
Mr. Faber was elected to the board of directors of Carey Diversified in
1998 and is currently Chairman of the Board and director of the newspaper
Citizens Voice, Chairman of the Board of Kings College and a director of
Geisinger Wyoming Valley Hospital. Mr. Faber served as Chairman and Chief
Executive Officer of Eberhard Faber, Inc., from 1973 to 1987. Mr. Faber also
served as the director of the Philadelphia Federal Reserve Bank, including
service as the Chairman of its Budget and Operations Committee from 1980 to
1986. Mr. Faber has served on the boards of several other companies, including
First Eastern Bank from 1980 to 1994, where he was Chairman. He is also a
Borough Councilman and Chief Financial Officer of Bear Creek Village Borough.
EXECUTIVE OFFICERS OF CAREY DIVERSIFIED
Carey Diversified's executive officers are elected annually by Carey
Diversified's board of directors. Detailed information regarding Carey
Diversified's executive officers who are not directors is set forth below.
H. AUGUSTUS CAREY
AGE: 42
Mr. Carey, Managing Director and Secretary, is Senior Vice President and a
Managing Director of W.P. Carey & Co. He returned to W.P. Carey & Co. as a Vice
President in August 1988 and was elected a First Vice President in April 1992.
He also serves as President of CPA(R):10, CPA(R):12, CPA(R):14 and CIP(R). Mr.
Carey previously worked for W.P. Carey & Co. from 1979 to 1981 as Assistant to
the President. From 1984 to 1987, Mr. Carey served as a loan officer in the
North American Department of Kleinwort Benson Limited in London, England. He
received his A.B. in Asian Studies from Amherst College in 1979 and a M.Phil. in
Management Studies from Oxford University in 1984. Mr. Carey is Chairman of the
Corporate Advisory Council for the International Association for Investment
Planners and a Trustee for the Oxford Management Center Advisory Council. He is
the son of Francis J. Carey and a nephew of Wm. Polk Carey.
5
<PAGE> 13
JOHN J. PARK
AGE: 35
Mr. Park, Managing Director, Chief Financial Officer and Treasurer, is an
Executive Vice President, Chief Financial Officer and a Managing Director of
W.P. Carey & Co. Mr. Park became a First Vice President of W.P. Carey & Co. in
April 1993 and a Senior Vice President in October 1995. Mr. Park joined W.P.
Carey & Co. as an Investment Analyst in December 1987 and became a Vice
President in July 1991. Mr. Park received a B.S. in Chemistry from Massachusetts
Institute of Technology in 1986 and an M.B.A. in Finance from the Stern School
of New York University in 1991.
CLAUDE FERNANDEZ
AGE: 47
Mr. Fernandez, Managing Director -- Financial Operations, is a Managing
Director, Executive Vice President and Chief Administrative Officer of W.P.
Carey & Co. Mr. Fernandez joined W.P. Carey & Co. as Assistant Controller in
March 1983, was elected Controller in July 1983, a Vice President in April 1986,
a First Vice President in April 1987, a Senior Vice President in April 1989 and
Executive Vice President in April 1991. Prior to joining W.P. Carey & Co., Mr.
Fernandez was associated with Coldwell Banker, Inc. in New York for two years
and with Arthur Andersen & Co. in New York for over three years. Mr. Fernandez,
a Certified Public Accountant, received a B.S. in Accounting from New York
University in 1975 and an M.B.A. in Finance from Columbia University Graduate
School of Business in 1981.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of shares as of March 31, 2000 by each of the directors including the
Chief Executive Officer of the Carey Diversified. The business address of the
individuals listed is 50 Rockefeller Plaza, New York, NY 10020. Wm. Polk Carey
beneficially owns 15.2% of the shares of Carey Diversified. No other director or
officer beneficially owns more than 1% of the shares of Carey Diversified. The
directors and executive officers as a group own approximately 16.1% of the
shares.
<TABLE>
<CAPTION>
AMOUNT OF SHARES
NAME BENEFICIALLY OWNED(1)
- ---- ---------------------
<S> <C>
Francis J. Carey(2)......................................... 152,711
Wm. Polk Carey(3)........................................... 4,428,579
Gordon F. DuGan(4).......................................... 6,005
Eberhard Faber, IV(5)(6).................................... 15,958
Dr. Lawrence R. Klein(6).................................... 7,283
Donald E. Nickelson(7)...................................... 24,507
Charles C. Townsend, Jr.(6)................................. 10,398
Reginald Winssinger(6)...................................... 12,283
All Directors and Executive Officers and a Group (11
individuals).............................................. 4,689,497
</TABLE>
- ---------------
(1) Beneficial ownership has been determined in accordance with the rules of the
Securities and Exchange Commission. Except as noted, and except for any
community property interest owned by spouses, the listed individuals have
sole investment power and sole voting power as to all shares which they are
identified as being the beneficial owners.
(2) The amounts shown include 88,500 shares which Mr. Carey has the right to
acquire through the exercise of stock options within 60 days after March 31,
2000 under Carey Diversified's 1997 Listed Share Incentive Plan.
Additionally, 37,500 of these shares are held pursuant to a compensation
arrangement with Carey Management and are subject to the restrictions
connected therewith.
(3) Includes 1,367,718 shares held by Carey Management, which Mr. Carey is
deemed to own beneficially as a result of his ownership of the shareholders
of Carey Management, W.P. Carey & Co.,
6
<PAGE> 14
Inc., Carey Corporate Property, Inc., Seventh Carey Corporate Property,
Inc., Eighth Carey Corporate Property, Inc. and Ninth Carey Corporate
Property, Inc. This amount also includes 3,010,730 shares which W.P. Carey &
Co. has the right to acquire through the exercise of stock options. See
"Certain Transactions."
(4) 5,000 of these shares are held pursuant to a compensation arrangement with
Carey Management and are subject to the restrictions connected therewith.
(5) Includes 4,675 shares held by trusts of which Mr. Faber is a trustee and a
beneficiary. Does not include 1,090 shares held by the Faber Foundation.
(6) The amount shown includes 2,666 shares which each of these directors has the
right to acquire pursuant to stock options exercisable within 60 days of
March 31, 2000 under Carey Diversified's Non-Employee Director Plan.
(7) Includes 2,912 shares held by Mr. Nickelson's wife. Also includes 11,497
shares which Mr. Nickelson has the right to acquire pursuant to stock
options exerciseable within 60 days of March 31, 2000 under Carey
Diversified's Non-Employee Director Plan.
COMMITTEES OF THE BOARD OF DIRECTORS
Members of the board of directors have been appointed to serve on various
committees of the board of directors. The board of directors has currently
established three committees: (i) the Executive Committee; (ii) the Compensation
Committee; and (iii) the Audit Committee.
- EXECUTIVE COMMITTEE. The Executive Committee may authorize the execution
of contracts and agreements, including those related to the borrowing of
money by Carey Diversified. The Executive Committee will exercise, during
intervals between meetings of the board of directors and subject to
certain limitations, all of the powers of the full board of directors and
will monitor and advise the board of directors on strategic business
planning for Carey Diversified.
- COMPENSATION COMMITTEE. The Compensation Committee is responsible for
assuring that the officers and key management personnel of Carey
Diversified are effectively compensated in terms of salaries,
supplemental compensation and benefits which are internally equitable and
externally competitive. The Compensation Committee will review annually
the compensation and allowances for directors as recommended by company
management, review and approve distribution of incentive compensation or
bonuses and the design of any new supplemental compensation program and,
upon recommendation of company management, review and approve the number
of shares, price per share, and period of duration for stock grants under
any approved share incentive plan.
- AUDIT COMMITTEE. The Audit Committee has been established to make
recommendations concerning the engagement of independent public
accountants, review with the independent public accountants the plans and
results of the audit engagement, approve professional services provided
by the independent public accountants, review the independence of the
independent public accountants, consider the range of audit and non-audit
fees and review the adequacy of Carey Diversified's internal accounting
controls.
The board of directors does not have a standing nominating committee.
7
<PAGE> 15
BOARD COMMITTEE MEMBERSHIP ROSTER
<TABLE>
<CAPTION>
NAME EXECUTIVE COMPENSATION AUDIT
- ---- --------- ------------ -----
<S> <C> <C> <C>
Wm. Polk Carey.............................................. X*
Francis J. Carey............................................ X
Gordon F. DuGan............................................. X
Charles C. Townsend, Jr..................................... X*
Eberhard Faber, IV.......................................... X X
Donald E. Nickelson......................................... X X*
Reginald Winssinger......................................... X
-- -- --
Number of Meetings in 1999.................................. 0 2 2
== == ==
</TABLE>
- ---------------
* Chairman of Committee
Board Meetings and Directors' Attendance
There were four board meetings held in 1999. No incumbent director attended
less than 75% of the total number of board meetings held in 1999.
COMPENSATION OF THE BOARD OF DIRECTORS
Carey Diversified pays its directors who are not officers fees for their
services as directors. These directors receive annual compensation of $31,000,
and $1,000 for attending each quarterly meeting. This compensation is paid with
$10,000 in cash and $25,000 in the form of restricted shares or options to
purchase shares. In addition, Mr. Nickelson receives additional compensation (in
the amount of $10,000 in the form of options to purchase shares) for serving as
Chairman of the Audit Committee. This compensation may be changed by the board
of directors. Officers or employees of Carey Diversified or Carey Management who
are directors are not paid any director fees.
Pursuant to the Carey Diversified's Non-Employee Directors' Plan, each
independent director who was a member of the board of directors on January 21,
1998 was granted an option to purchase 4,000 shares at an exercise price of $20
per share and 1,250 restricted shares. The exercise price of options granted
under the Non-Employee Directors' Plan may be paid in cash, acceptable cash
equivalents, shares or a combination thereof. Options issued under the
Non-Employee Directors' Plan are exercisable for ten years from the date of
grant.
The options granted under the Non-Employee Directors' Plan are exercisable
as follows: 1,333 shares on January 21, 1999, 1,333 shares on January 21, 2000
and 1,334 shares on January 21, 2001, provided that the director is a member of
the board of directors on that date.
The Non-Employee Directors' Plan authorizes the issuance of up to 300,000
shares. In addition to the initial grant, in subsequent annual periods, each
independent director is eligible to receive quarterly an award of options to
purchase shares or restricted shares. Awards may be made on each April 1, July
1, October 1 and January 1 (each date, a "Quarterly Award Date") during the term
of the Non-Employee Directors' Plan. As part of the compensation described
above, each independent director may receive in lieu of restricted shares, on
each Quarterly Award Date on which he is a member of the board of directors, the
number of options to purchase shares or restricted shares having a fair market
value on that date that as nearly as possible equals, but does not exceed
$6,250.
EXECUTIVE COMPENSATION
Carey Diversified was organized as a Delaware limited liability company in
October 1996. On January 1, 1998, Carey Diversified completed its merger with
nine CPA(R) Partnerships. During 1996 and 1997 Carey Diversified had no
employees and paid no compensation to any executive officer. Carey
8
<PAGE> 16
Diversified currently has one employee. The following table sets forth the base
compensation earned by Francis J. Carey, Carey Diversified's Chief Executive
Officer, during 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION LONG TERM COMPENSATION
--------------- ---------------------------
RESTRICTED STOCK SECURITIES UNDERLYING
YEAR SALARY BONUS AWARDS($)(1) OPTIONS(#)
---- -------- -------- ---------------- ---------------------
<S> <C> <C> <C> <C> <C>
Francis J. Carey
Chairman & Chief Executive 1999 $300,000 $102,738 $379,688 150,000
Officer.............................
1998 250,000 150,000 150,000 113,500
</TABLE>
- ---------------
(1) On January 3, 2000, Mr. Carey received a grant of 22,500 shares as part of
his annual compensation for 1999. On January 3, 2000, the New York Stock
Exchange was closed. The closing price of Carey Diversified's shares on the
immediately preceding trading date was $16.875 per share. Mr. Carey holds
30,000 restricted shares valued at $506,250 as of December 31, 1999. These
shares are eligible to receive dividends.
OPTIONS GRANTED IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE
TOTAL OPTIONS AT ASSUMED ANNUAL RATE OF
GRANTED TO EXERCISE SHARE PRICE APPRECIATION
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------------
GRANTED(1) FISCAL YEAR SHARE DATE 0%(2) 5% 10%
---------- --------------- --------- ---------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Francis J. Carey........... 150,000 100% $16.50 1/21/08 $56,250 $1,264,809 $2,950,959
</TABLE>
- ---------------
(1) The options are exercisable for one-third of the covered shares on each of
January 2000, January 2001 and January 2002.
(2) Options were granted on January 3, 2000, when the New York Stock Exchange
was closed. The closing price of Carey Diversified shares on the immediately
preceding trading date was $16.875 per share.
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END
---------------------------- ----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Francis J. Carey........................... 0 263,000 none none
</TABLE>
Compensation Committee Report on Executive Compensation
Carey Diversified established a Compensation Committee which monitors and
implements the compensation program for Carey Diversified. The committee's
activity is currently limited to evaluating the compensation of Carey
Diversified's sole employee, Francis J. Carey, Carey Diversified's Chief
Executive Officer. For 1999, Mr. Carey's base salary was established by the
board of directors. The Compensation Committee meet during 1999 to determine the
bonus to be paid to Francis J. Carey, Carey Diversified's Chief Executive
Officer, for 1999 and his 2000 compensation.
The committee concluded that Carey Diversified was on target to satisfy its
funds from operations target for 1999 and the Mr. Carey was entitled to a bonus
of $102,738 in cash, 22,500 shares of restricted stock valued at $379,688 and
options to purchase 150,000 shares. This bonus was within the target bonus range
established by Carey Diversified's compensation consultant.
Submitted by the Compensation
Committee:
Charles C. Townsend, Jr., Chairman
Eberhard Faber, IV
Donald E. Nickelson
9
<PAGE> 17
PERFORMANCE GRAPH
The graph below provides an indicator of cumulative shareholder returns for
Carey Diversified as compared with the S&P 500 Stock Index and the National
Association of Real Estate Investment Trusts (NAREIT) Index.
[2 YEAR CUMULATIVE RETURN CHART]
<TABLE>
<CAPTION>
CDC NAREIT INDEX S&P 500 INDEX
--- ------------ -------------
<S> <C> <C> <C>
1/1/98 100.00 100.00 100.00
12/31/98 106.71 82.50 128.58
12/31/99 100.88 78.69 155.62
</TABLE>
CERTAIN TRANSACTIONS
MANAGEMENT CONTRACT WITH CAREY MANAGEMENT LLC
Carey Management, the manager of Carey Diversified, provides both strategic
and day-to-day management services for Carey Diversified including acquisition
services, research, investment analysis, asset management, capital funding
services, disposition of assets and administrative services for which it
receives a fee from Carey Diversified. W.P. Carey & Co., Inc., a company which
is owned solely by Wm. Polk Carey, a director of Carey Diversified, owns
directly and indirectly 100% of Carey Management. Carey Diversified paid
$9,660,000 in fees to Carey Management in fiscal year 1999 and $1,257,000 in
fees from January 1, 2000 through March 31, 2000 (the record date). As more
fully-detailed in Proposal Two of this proxy solicitation statement, Carey
Diversified has agreed to acquire the management business of Carey Management,
pending shareholder approval. See page 46, "Proposal Two -- Services Provided by
Carey Management," for a description of the fees and amounts paid by Carey
Diversified to Carey Management.
AMOUNTS PAID TO W.P. CAREY & CO.
Upon completion of the merger of the nine CPA(R) Partnerships on January 1,
1998, W.P. Carey & Co. received warrants to purchase 2,284,800 of Carey
Diversified's shares at $21 per share and 725,930 shares at $23 per share as
compensation for investment banking services provided to Carey Diversified. The
warrants are exercisable through December 31, 2008.
AMOUNTS PAID/PAYABLE TO THE GENERAL PARTNERS
In connection with the merger of the nine CPA(R) Partnerships, W.P. Carey &
Co. and affiliates (collectively, the "General Partners") received a
subordinated preferred return of $4,422,000, measured
10
<PAGE> 18
based upon the cumulative proceeds arising from the sale of the CPA(R)
Partnerships' assets (with the exception of CPA(R):5). The General Partner was
entitled to this payment if the Limited partners received a return of their
initial investment in the partnership plus a cumulative return of varying
percentages depending on the particular CPA(R) Partnership. Each CPA(R)
Partnership, other than CPA(R):5, was deemed to satisfy the required return
based on the trading price of the stock of Carey Diversified after the
Consolidation. Carey Management is entitled to be paid a preferred return in
connection with CPA(R):5 of $1,423,000 if the closing price of the shares
exceeds $23.11 for five consecutive days.
LIVHO, INC. TRANSACTION
In connection with the consolidation, Carey Diversified obtained a hotel in
Livonia, Michigan which was not subject to a lease. Carey Diversified would be
taxed as a corporation if it received more than a small percentage of its income
from the operation of a hotel. In order to avoid taxation as a corporation,
Carey Diversified leased the hotel to Livho Inc., a corporation wholly-owned by
Francis J. Carey, the chairman and chief executive officer of Carey Diversified
pursuant to a 10-year lease. Livho Inc. paid $2,923,044 in rent in 1999 and is
scheduled to pay $3,014,544 in rent for 2000. Rent increases annually and
reaches $3,736,737 in the final year of the lease. Livho, Inc. had a net loss of
$361,761 in 1999.
FREDIP, S.A. TRANSACTIONS
Carey Diversified has acquired six properties in France through its
subsidiary, Polkinvest. In the acquisition of these properties, Polkinvest has
co-invested with a FREDIP, S.A., a company in which Reginald Winssinger, a
director of Carey Diversified, is a 25% owner. Polkinvest owns between a 75% and
a 99% interest in these properties and FREDIP owns the remaining interest. The
total cost to Polkinvest of acquiring these properties was $18,963,373. FREDIP
has invested a total of $5,934,000 on the same terms as Carey Diversified.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In 1999, Francis J. Carey filed two late reports and Charles C. Townsend,
Jr., H. Augustus Carey and Reginald Winssinger each filed one late report
required by Section 16(a). Based on a review of its records and written
representations, Carey Diversified believes that during 1999, all other Section
16 filings of its officers and directors complied with the requirements of the
Securities Exchange Act.
INDEPENDENT PUBLIC ACCOUNTANTS
From our inception, we have engaged the firm of PricewaterhouseCoopers LLP
as our independent public accountants. A representative of
PricewaterhouseCoopers LLP will be present at the annual meeting to respond to
any questions.
11
<PAGE> 19
PROPOSAL TWO
---------------------
APPROVAL OF THE MERGER
SUMMARY OF PROPOSAL TWO
This summary highlights selected information from this document and does
not contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the terms and conditions of
the merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" (page 59).
A copy of the merger agreement is attached to this proxy solicitation statement
as Appendix I. We have included page references parenthetically to direct you to
a more complete description of the topics presented in this Summary.
In this section of the proxy solicitation statement, the term Carey
Diversified will be used to refer to Carey Diversified before the merger. Carey
Management will be used to refer to the company that now owns all of the
operating assets and liabilities of W.P. Carey & Co., Inc. and its affiliates
and that will be combined with Carey Diversified in the merger. W.P. Carey & Co.
LLC will be used to refer to the combined company after the merger. The four
REITs managed by Carey Management are referred to as the CPA(R) REITs.
THE MERGER (PAGE 23)
This section of the proxy solicitation statement describes the proposed
acquisition by merger of the management business of W.P. Carey & Co., Inc. and
its affiliates, including Carey Diversified's own investment advisor, Carey
Management. To facilitate this acquisition, all of the operating assets and
liabilities of W.P. Carey & Co., Inc. and its affiliates have been consolidated
in Carey Management. If the merger proposal is approved and the other conditions
to the merger are satisfied, Carey Management will be merged into a wholly-owned
subsidiary of Carey Diversified. At the effective time of the merger, Carey
Diversified will issue 8,000,000 shares (subject to adjustment) to the
shareholders of Carey Management and will issue an additional 2,000,000 shares
over four years if specified performance goals are achieved. Upon completion of
the merger, Carey Diversified will change its name to W.P. Carey & Co. LLC. The
8,000,000 shares to be issued at the effective time of the merger will be
subject to a three-year lock-up agreement (with one-third of the shares released
from the lock-up each year). The owners of these shares will have the benefit of
certain registration rights if the shares are not subject to the lock-up. The
merger agreement is attached as Appendix I to this proxy solicitation statement.
You are encouraged to read the merger agreement as it is the legal document that
governs the merger.
Assuming a price of $16.625 per share (the closing price per share of Carey
Diversified on the New York Stock Exchange on the record date), the aggregate
merger consideration of the 8,000,000 shares has a value of $133,000,000. The
value of the 2,000,000 earnout shares, if earned, will depend on the price per
share at the time of issuance. If issued at $16.625 per share, the value of
these additional shares would be $33,250,000.
THE COMBINED COMPANY
W.P. Carey & Co. LLC will be the largest diversified net leased real estate
investment company (based on total assets owned and under management), and among
the top four asset managers and owners of net leased real estate in the United
States. The merger will combine the ownership of 207 properties and the
management of an additional 201 properties. The combined company will be a real
estate finance company which will have the ability to provide a wide range of
solutions to corporations seeking real estate or other financing. It is expected
that W.P. Carey & Co. LLC will also be able to originate and market new
investment products, including interests in real estate investment trusts it
will manage. It is expected that the combined company will earn revenue from the
ownership and management of real estate and from the sale of investment
products.
12
<PAGE> 20
PARTIES TO THE MERGER
CAREY DIVERSIFIED LLC
Carey Diversified LLC
50 Rockefeller Plaza
New York, NY 10020
(212) 492-1100
Carey Diversified is a real estate investment company that acquires and
owns commercial properties leased to companies nationwide and in Europe,
primarily on a triple net basis. Under triple net leases, tenants are generally
obligated to pay the costs of maintenance, taxes and insurance in addition to
rent. Carey Diversified's mission is to provide investors with stable income,
consistent investment performance and earnings growth. As of March 31, 2000,
Carey Diversified owned 207 properties in 35 states and France, consisting of an
aggregate of over 20 million square feet.
CAREY MANAGEMENT, W.P. CAREY & CO., INC. AND THEIR AFFILIATES
W.P. Carey & Co., Inc.
50 Rockefeller Plaza
New York, NY 10020
(212) 492-1100
Since its founding in 1973, W.P. Carey & Co., Inc. and its affiliates have
specialized in providing net lease financing to corporations throughout the
United States, primarily in sale-leaseback transactions. Over the last 26 years,
W.P. Carey & Co., Inc. and its affiliates have provided capital to corporations
by structuring net lease transactions on corporate real estate facilities. W.P.
Carey & Co., Inc. and its affiliate manages 392 properties leased to 207
tenants.
Immediately prior to the execution of the merger agreement, W.P. Carey &
Co., Inc. and certain of its affiliates transferred substantially all of the
operating assets and liabilities, including certain real estate investment
advisory agreements and all of the outstanding common stock of Carey Financial
Corporation, a broker-dealer affiliate of W.P. Carey & Co., Inc., to Carey
Management pursuant to an assignment and assumption agreement. These assets and
liabilities are described in the next paragraph. As a result, Carey Management
currently provides acquisition, asset management, real estate brokerage,
investment advisory, accounting and shareholder relations services to Carey
Diversified, as well as to the following real estate investment trusts:
Corporate Property Associates 10 Incorporated, Corporate Property Associates 12
Incorporated, Corporate Property Associates 14 Incorporated and Carey
Institutional Properties Incorporated. Carey Management also sponsors investment
programs and through its wholly-owned broker-dealer subsidiary, Carey Financial
Corporation, markets these programs and raises equity capital on behalf of the
entities it manages. If the merger is approved, Carey Diversified will succeed
to all of the management and business operations of Carey Management and will
change its name to W.P. Carey & Co. LLC.
WHAT CAREY DIVERSIFIED WILL RECEIVE IN THE MERGER
Through the merger, Carey Diversified will acquire all of the assets and
liabilities of Carey Management. These assets and liabilities include the rights
and obligations under investment advisory agreements with the CPA(R) REITs and
Carey Diversified; computer, telecommunications and other office equipment;
operating systems, databases and software; agreements with broker-dealers; and
the assets and liabilities associated with the personnel of Carey Management. It
is anticipated that all employees of Carey Management will become employees of
W.P. Carey & Co. LLC.
RECOMMENDATION TO SHAREHOLDERS (PAGE 39)
The Carey Diversified board of directors believes that the merger is fair
to you and in your best interest and unanimously recommends that you vote FOR
the proposal to adopt the merger agreement and the issuance of the merger
consideration.
13
<PAGE> 21
RECORD DATE
You are entitled to vote on the merger if you owned shares as of the close
of business on March 31, 2000, the record date. On the record date, there were
9,469 shareholders of record and 25,979,383 shares eligible to vote on the
merger proposal.
VOTE REQUIRED TO APPROVE THE MERGER (PAGE 56)
Owners of a majority of the shares outstanding on the record date
(12,989,692 shares) must vote to adopt the merger agreement and the issuance of
up to 10,000,000 shares as consideration for the merger.
SHARE OWNERSHIP AFTER THE MERGER (PAGE 52)
On the record date, directors and executive officers of Carey Management
owned and were allowed to vote 1,568,106 shares of Carey Diversified, or
approximately six percent of the shares of Carey Diversified outstanding on the
record date. The shares of W.P. Carey & Co. LLC initially issued to the Carey
Management shareholders in the merger will represent approximately 24% of the
outstanding shares of W.P. Carey & Co. LLC.
DIVIDEND POLICY FOLLOWING THE MERGER
Following the merger, management expects to maintain the current dividend
policy of Carey Diversified. The dividend during 1999 was $1.67 per share. The
dividend declared in March 2000 was $1.69 (annualized). The dividend policy is
to grow funds from operations faster than dividends. It is expected that this
transaction will be accretive to funds from operations. The board of W.P. Carey
& Co. LLC reserves the right to change the dividend policy at any time.
BOARD OF DIRECTORS AND MANAGEMENT OF CAREY DIVERSIFIED FOLLOWING THE MERGER
(PAGE 53)
If the merger is completed and assuming the election of all nominees in
Proposal One, the board of directors of W.P. Carey & Co. LLC will include the
following members:
<TABLE>
<S> <C>
- - Francis J. Carey - Donald E. Nickelson
- - Wm. Polk Carey - George E. Stoddard
- - Gordon F. DuGan - Charles C. Townsend, Jr.
- - Eberhard Faber, IV - Reginald Winssinger
- - Dr. Lawrence R. Klein
</TABLE>
If the merger is completed:
- Wm. Polk Carey will chair the board of directors and serve as the Chief
Executive Officer.
- Francis J. Carey will be Vice Chairman of the board of directors and
Chairman of the Executive Committee.
- George E. Stoddard will be Chairman of the Investment Committee and Chief
Investment Officer.
- Gordon F. DuGan will continue to serve as the President.
- John J. Park will continue to serve as Managing Director and Chief
Financial Officer.
After the merger, the Investment Committee will include the following
members:
<TABLE>
<S> <C>
- - George E. Stoddard, Chairman - Frank J. Hoenemeyer
- - Dr. Lawrence R. Klein - Nathaniel S. Coolidge
</TABLE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 54)
In considering the recommendation of our board that you vote in favor of
the merger proposal, you should be aware that two of our directors, Wm. Polk
Carey and Gordon F. DuGan, and several executive
14
<PAGE> 22
officers of Carey Diversified are also directors and/or executive officers of
W.P. Carey & Co. and its affiliates, including Carey Management, and, therefore,
may have interests in the merger that are different from, or in addition to,
your interests as a shareholder. In addition to Messrs. Wm. Polk Carey and
DuGan, three other officers of Carey Diversified will receive shares of Carey
Diversified if the merger is approved. The 8,000,000 shares to be issued by
Carey Diversified in the merger will be allocated, directly or indirectly, to
the following individuals on the basis of the share price at the time of the
merger. The shares (and value) will be allocated as follows (based on a share
price of $16.625).
<TABLE>
<S> <C>
- - Wm. Polk Carey -- 7,275,514 - Claude Fernandez -- 155,347
($120,955,420) ($2,582,644)
- - Gordon F. DuGan -- 250,571 - H. Augustus Carey -- 147,473
($4,165,743) ($2,451,739)
- - John J. Park -- 171,095
($2,844,454)
</TABLE>
An additional 2,000,000 shares will be issued upon the satisfaction of
certain performance targets as described more fully under "Description of the
Merger -- The Merger Agreement -- Funds From Operation (FFO) Target" and
"-- Total Return Target." These shares will be distributed to the individuals
listed above and several other officers. Upon completion of the merger, it is
expected that current employees of Carey Management will become employees of
W.P. Carey & Co. LLC and will be eligible to receive awards under the 1997
Listed Share Incentive Plan.
In recognition of the potential conflicts of interest inherent in the
transaction, the merger was considered and unanimously approved by a special
committee comprised solely of independent members of the board of Carey
Diversified. Members of the special committee are Donald E. Nickelson, Chairman,
Eberhard Faber, IV and Reginald Winssinger. The merger and the amendment to the
1997 Listed Share Incentive Plan were also unanimously approved by the full
board of directors of Carey Diversified (Messrs. Wm. Polk Carey and DuGan
abstaining).
OPINION OF THE FINANCIAL ADVISOR (PAGE 39)
In deciding to approve the merger, the special committee of the board of
directors considered, among other factors, the opinion of its financial advisor,
Robert A. Stanger & Co., Inc., as to the fairness of the merger consideration to
the public shareholders of Carey Diversified from a financial point of view. The
financial advisor performed several analyses in connection with its opinion
which are described in this consent solicitation statement. The full opinion is
attached as Appendix II to this proxy solicitation statement. You are encouraged
to read the opinion carefully.
FEDERAL TAX MATTERS (PAGE 55)
In general, you will not be taxed as a result of the merger. The tax basis
used to determine the treatment of distribution by W.P. Carey & Co. LLC of your
shares will be reduced to reflect the reallocation of W.P. Carey & Co. LLC debt
to all of the shares outstanding after the merger. This tax basis reduction is
expected to be approximately $1.25 per share. The final adjustment cannot be
determined until the merger is completed. It is not expected to be materially
different from $1.25 per share. The tax basis will be reflected on the tax
reporting form issued in early 2001. The change in the tax basis will not effect
the amount of gain or loss recognized on the sale of shares of W.P. Carey & Co.
LLC.
CLOSING OF THE MERGER; CONDITIONS TO CLOSING (PAGE 32)
We expect the closing of the merger to occur as soon as practicable
following approval of the shareholders at the annual meeting to which this proxy
solicitation statement relates.
15
<PAGE> 23
The obligations of each party to effect the merger are subject to the
satisfaction or waiver of a number of conditions, which include:
- the approval of the merger proposal by the holders of a majority of the
shares of Carey Diversified;
- the absence of legal restraints which prevent the completion of the
merger, or which are reasonably likely to have a material adverse effect
on Carey Diversified or Carey Management, as applicable; provided that
the parties must use all reasonable efforts to prevent such restraints;
- the absence of a material adverse change in the business operations or
financial condition of Carey Diversified or Carey Management, as
applicable;
- the representations and warranties made by Carey Diversified and Carey
Management set forth in the merger agreement are true and correct in all
material respects as of the closing of the merger;
- the completion by all parties of their obligations under the merger
agreement in all material respects;
- the receipt of the required approval from the National Association of
Securities Dealers under Rule 1018 of the Membership and Registration
Rules of the National Association of Securities Dealers permitting the
change of ownership of Carey Financial Corporation, the broker-dealer
subsidiary of Carey Management, in the form and substance reasonably
satisfactory to Carey Diversified and Carey Management (which approval
has been received); and
- the approval for listing on the New York Stock Exchange of the shares
issuable to Carey Management shareholders upon completion of the merger.
TERMINATION OF THE MERGER AGREEMENT
The parties may mutually agree to terminate the merger agreement without
completing the merger. In addition, either Carey Diversified or Carey Management
may terminate the merger agreement if any of the following occurs:
- holders of a majority of the shares of Carey Diversified do not approve
the merger proposal;
- the merger is not completed by June 30, 2000 (provided the failure to
complete the merger by such time is not caused by the terminating party's
failure to perform its obligations under the merger agreement);
- a legal restraint which prevents the completion of the merger or which is
reasonably likely to have a material adverse effect on Carey Diversified
or Carey Management has become final and nonappealable; or
- the other party materially breaches any of the representations or
warranties it made or materially fails to comply with the obligations it
has under the merger agreement.
RISKS OF THE MERGER TO CAREY DIVERSIFIED AND ITS SHAREHOLDERS(PAGE 50)
You should carefully consider all of the information provided in this proxy
solicitation statement and, in particular, you should evaluate the specific
factors described under "Risks of the Merger to Carey Diversified and its
Shareholders" for a description of the risks associated with the merger.
ACCOUNTING TREATMENT (PAGE 55)
The merger will be accounted for under the purchase method. However, the
portion of the purchase price attributable to the existing management agreement
between Carey Diversified and Carey Management will be accounted for as a
contract termination, and this amount will be expensed immediately at the
effective date of the merger. See Notes 5 and 6 to Pro Forma Condensed
Consolidated Statements of Income on page F-12.
16
<PAGE> 24
NO APPRAISAL RIGHTS (PAGE 56)
Carey Diversified is a Delaware limited liability company. Under Delaware
law, shareholders have no right to an appraisal of the value of their shares in
connection with the merger. The shareholders of Carey Management have approved
the merger and have no appraisal rights.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS (PAGE 26)
There are forward-looking statements in this proxy solicitation statement
(and in documents that are incorporated by reference into this consent
solicitation statement) that are subject to risks and uncertainties.
Forward-looking statements include the information concerning possible future
results of operations of W.P. Carey & Co. LLC. Also, when we use words like
"believes," "expects," "anticipates" or similar expressions, we are making
forward-looking statements. You should note that many factors, some of which are
discussed elsewhere in this proxy solicitation statement and in the documents
which we incorporate by reference, could affect the future financial results of
W.P. Carey & Co. LLC and could cause those results to differ materially from
those expressed in our forward-looking statements.
17
<PAGE> 25
SUMMARY SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables set forth the summary selected historical operating,
balance sheet and other data for Carey Diversified as of and for each of the
five years ended December 31, 1999 and as of and for each of the three month
periods ending March 31, 2000 and 1999. The consolidated financial information
as of December 31, 1998 and 1999 and for the years then ended reflects the
entity resulting from the consolidation transaction which occurred effective
January 1, 1998. The combined financial information as of and for the three
years ended December 31, 1997 represent the information applicable to the nine
predecessor CPA(R) Partnerships. Prior to the consolidation, the CPA(R)
Partnerships were in liquidation mode, distributing proceeds from the sale of
their assets and thereby reducing the asset base upon which revenues could be
earned. The consolidated and combined operating and balance sheet information as
of and for the five years ended December 31, 1999 have been derived from audited
financial statements. The interim data as of and for the three months ended
March 31, 2000 and 1999 have been derived from the unaudited interim financial
statements of Carey Diversified. The accompanying revenues and expenses of W.P.
Carey & Co., Inc. and its affiliates for each of the five years ended December
31, 1999 have been derived from audited combined financial statements and for
the three months ended March 31, 2000 and 1999 have been derived from the
unaudited interim financial statements of W.P. Carey & Co., Inc.
The summary unaudited pro forma consolidated financial data for W.P. Carey
& Co. LLC for the year ended December 31, 1999 and the three months ended March
31, 2000, gives effect to the merger as if it had occurred on January 1, 1999
for operating data and March 31, 2000 for balance sheet data, after giving
effect to the pro forma adjustments described in the unaudited pro forma
financial statements included elsewhere in this proxy solicitation statement.
The summary financial information should be read in conjunction with the
respective historical financial statements of Carey Diversified included in its
Annual Report on Form 10-K for Fiscal Year 1999 and its interim filing on Form
10-Q for the three months ended March 31, 2000, incorporated by reference
herein, and the historical financial statements of W.P. Carey & Co., Inc. and
unaudited pro forma financial statements included elsewhere in this consent
solicitation statement. It should be noted that prior to the consolidation of
the predecessor CPA(R) Partnerships, those partnerships were restricted in that
they could not acquire additional properties. The consolidation of those
partnerships into Carey Diversified in 1998 removed those restrictions.
Comparisons of the revenues and earnings in the years prior to 1998 should be
interpreted accordingly.
18
<PAGE> 26
CAREY DIVERSIFIED LLC
SUMMARY SELECTED HISTORICAL AND
UNAUDITED PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
W.P. CAREY
& CO. LLC
PRO FORMA
HISTORICAL (UNAUDITED)
--------------------------------------------------------- -----------
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
-----------------------------------------------------------------------
1995(1) 1996(1) 1997(1) 1998 1999 1999
--------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues................... $ 107,946 $101,576 $ 96,271 $ 85,330 $ 88,506 $129,255
Income before income from equity
investments, gain on
disposition of properties,
taxes, extraordinary items and
allocation to minority
interest....................... 36,404 43,256 39,496 40,398 34,385 48,751
Income before extraordinary items
attributable to Listed
Shares......................... 49,363 45,547 40,561 39,085 34,078 48,803
Basic and diluted earnings per
Listed Share................... -- -- -- 1.57 1.33 1.45
Weighted average listed shares
outstanding -- basic........... -- -- -- 24,866,225 25,596,793 33,596,793
Weighted average listed shares
outstanding -- diluted......... -- -- -- 24,869,570 25,596,793 33,596,793
Distributions declared per Listed
Share outstanding.............. -- -- -- 1.65 1.67 --
OTHER DATA:
Cash provided by operating
activities..................... $ 63,276 $ 53,317 $ 51,641 $ 51,944 $ 48,241
Cash provided by (used in)
investing activities........... 24,327 19,545 (273) (71,525) (55,189)
Cash (used in) provided by
financing activities........... (105,578) (72,020) (61,335) 6,668 3,353
Funds from operations
(unaudited)(2)................. -- -- -- 49,265 52,879
Cash distributions............... 57,216 34,173 43,620 30,820 42,525
BALANCE SHEET DATA (AT END OF
PERIOD):
Real estate, net of accumulated
depreciation................... $ 533,213 $487,404 $471,641 $761,849 $799,997
Total assets..................... 582,325 544,728 523,420 813,264 856,259
Total debt....................... 274,737 227,548 207,627 271,298 317,351
Minority interest................ (1,596) (750) (6,250) (3,626) (3,136)
Members' equity.................. 292,896 304,045 300,888 514,233 512,600
</TABLE>
19
<PAGE> 27
CAREY DIVERSIFIED LLC
UNAUDITED SUMMARY SELECTED HISTORICAL AND
PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
W.P. CAREY & CO. LLC
PRO FORMA
HISTORICAL (UNAUDITED) (UNAUDITED)
------------------------- --------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------- --------------------
1999 2000 2000
----------- ----------- --------------------
(AMOUNTS IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
OPERATING DATA:
Total revenues..................................... $ 21,114 $ 23,276 $ 30,187
Income before income from equity investments, gain
on dispositions of properties, taxes,
extraordinary items and allocation to minority
interest......................................... 10,030 9,389 9,659
Income before extraordinary items attributable to
Listed Shares.................................... 9,866 9,625 10,111
Basic and diluted earnings per listed share........ .39 .38 .30
Weighted average listed shares
outstanding -- basic............................. 25,416,171 25,624,346 33,624,346
Weighted average listed shares
outstanding -- diluted........................... 25,416,171 25,624,346 33,624,346
Distributions declared per listed share
outstanding...................................... .42 .42 --
OTHER DATA:
Cash provided by operating activities.............. 10,899 15,139
Cash used in investing activities.................. (24,334) (11,520)
Cash provided by financing activities.............. 13,213 3,318
Funds from operations (unaudited)(2)............... .50 .51
Cash distributions................................. 10,450 10,716
BALANCE SHEET DATA (AT END OF PERIOD):
Real estate, net of accumulated depreciation....... $780,671 $807,208 $807,208
Total assets....................................... 836,416 871,095 948,995
Total debt......................................... 293,880 340,024 340,024
Minority interest.................................. (3,219) (3,078) (4,115)
Members' equity.................................... 517,494 503,515 580,594
</TABLE>
- ---------------
(1) The combined financial information for years ended December 31, 1995 to 1997
have been presented as those of a predecessor company consisting of
interests in nine Corporate Property Associates ("CPA(R)") real estate
limited partnerships and their wholly-owned subsidiaries. The financial
information has been presented on a combined basis at historical cost
because of affiliated general partners, common management and common control
and because the majority ownership interests in the CPA(R) Partnerships were
transferred to Carey Diversified effective January 1, 1998, pursuant to a
consolidation transaction. The consolidated financial information for the
years ended December 31, 1998 and 1999 are those of Carey Diversified and
its wholly-owned and majority-owned subsidiaries including the nine CPA(R)
Partnerships. All material inter-entity transactions have been eliminated.
As a result of the consolidation transaction, a change in basis of
accounting was established for Carey Diversified as of January 1, 1998. As a
result, the results of operations for 1998 are not directly comparable to
those of any prior period of the predecessor and have been separated by a
solid line.
20
<PAGE> 28
(2) Carey Diversified believes that Funds From Operations ("FFO") is an
appropriate measure of its performance, in addition to other measures,
because net income assumes that the value of real estate assets decrease at
pre-determined rates over time, whereas Carey Diversified believes that real
estate values have historically increased or decreased primarily due to
changes in market conditions. FFO is defined as net income determined in
accordance with generally accepted accounting principles ("GAAP"), excluding
gains and losses from sales of real estate and from debt restructuring, plus
depreciation of real estate, amortization and certain non-cash expenses, and
after adjustments for unconsolidated partnerships and joint ventures. FFO
should not be considered a substitute for cash provided by operating
activities or net income calculated in accordance with GAAP, nor should it
be considered as an alternative measure of Carey Diversified's liquidity or
its ability to pay distributions. FFO as determined by Carey Diversified may
not be comparable to "funds from operations" reported by other entities that
do not compute funds from operations in the same manner.
21
<PAGE> 29
W.P. CAREY & CO., INC. AND AFFILIATES
SUMMARY HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------------------------------------------
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -------------------
1995 1996 1997 1998 1999 2000 1999
------- ------- ------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
REVENUES:
Management fees from
affiliates.................... $ 7,855 $ 8,454 $11,515 $17,160 $31,202 $ 5,538 $14,662
Structuring and financing
fees.......................... 4,144 6,712 14,360 26,330 16,356 2,060 3,813
Equity in earnings of
affiliates.................... 2,986 2,876 2,422 5,229 4,687 1,657 1,414
Total revenues........ $16,629 $19,534 $44,384 $51,874 $56,705 $10,370 $20,811
EXPENSES:
Salaries and other
compensation.................. $ 9,642 $11,131 $14,395 $25,962 $23,661 $ 6,337 $ 5,462
Total expenses................ 12,560 16,693 23,796 29,875 27,844 7,342 6,109
NET INCOME...................... $ 4,172 $ 2,702 $19,463 $20,478 $27,915 $ 3,231 $14,374
</TABLE>
22
<PAGE> 30
THE MERGER
The ownership of Carey Management and Carey Diversified and the changes in
the management of the assets of Carey Diversified and the CPA(R) REITs are
depicted in the charts below and are more fully described under "Description of
the Merger and Merger Agreement -- General."
MANAGEMENT OF CAREY DIVERSIFIED AND THE CPA(R) REITS
BEFORE THE MERGER
[PREMERGER CHART]
AFTER THE MERGER
[POSTMERGER CHART]
23
<PAGE> 31
OWNERSHIP OF CAREY DIVERSIFIED AND CAREY MANAGEMENT
BEFORE THE TRANSACTION
[OWNERSHIP BEFORE THE MERGER FLOW CHART]
THE TRANSACTION
W.P. Carey & Co., Inc. contributes its operating assets to Carey
Management. WPC Acquisition LLC merges with Carey Management, and Carey
Diversified issues 8,000,000 shares to Wm. Polk Carey and four officers of W.P.
Carey & Co., Inc. Carey Management contributes some of the management contracts
and other assets to a wholly-owned corporation.
[OWNERSHIP FOR THE MERGER FLOW CHART]
24
<PAGE> 32
AFTER THE MERGER
Carey Diversified changes its name to W.P. Carey & Co. LLC.
[OWNERSHIP AFTER THE MERGER FLOW CHART]
25
<PAGE> 33
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In this proxy solicitation statement, we make "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Exchange Act of 1934, each as amended, which are usually identified by
the use of words such as "will," "anticipates," "believes," "estimates,"
"expects," "projects," "plans," "intends," "should" or similar expressions.
Carey Diversified and W.P. Carey & Co. LLC intend those forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995 and are
including this statement for purposes of complying with these safe harbor
provisions.
These forward-looking statements reflect our current views about the plans,
strategies and prospects of W.P. Carey & Co. LLC, which are based on the
information currently available to us and on assumptions we have made.
Although we believe that our plans, intentions and expectations as
reflected in or suggested by those forward-looking statements are reasonable, we
can give no assurance that the plans, intentions or expectations will be
achieved. We have listed below and have discussed elsewhere in this proxy
solicitation statement some important risks, uncertainties and contingencies
which could cause W.P. Carey & Co. LLC's actual results, performances or
achievements to be materially different from the forward-looking statements we
make in this consent solicitation statement. These risks, uncertainties and
contingencies include, but are not limited to, the following:
- the success or failure of our efforts to implement our current business
strategy;
- economic conditions generally and in the commercial real estate and
finance markets specifically;
- the performance and financial condition of tenants;
- the actions of our competitors and our ability to respond to those
actions;
- the cost and availability of capital for W.P. Carey & Co. LLC, which
depends in part on its portfolio quality, credit rating, prospects and
outlook and general market conditions;
- changes in governmental regulations, tax rates and similar matters;
- legislative and regulatory changes (including changes to laws governing
the taxation of limited liability companies and other policies and
guidelines applicable to limited liability companies);
- interest rates, competition and supply and demand for real estate; and
- other factors discussed under the heading "Risk Factors" and elsewhere in
this proxy solicitation statement.
In evaluating forward-looking statements, you should consider these risks
and uncertainties, together with the other risks described from time to time in
Carey Diversified's reports and documents filed with the SEC, and you should not
rely solely on those statements.
26
<PAGE> 34
THE COMPANIES
THE COMBINED COMPANY -- W.P. CAREY & CO. LLC
W.P. Carey & Co. LLC will be a fully integrated company that will continue
and expand the nationwide real estate investment business of Carey Diversified
and the asset and private equity management business of Carey Management. Since
its founding in 1973, Carey Management has specialized in providing net lease
financing to corporations throughout the United States and in Europe, primarily
in sale-leaseback transactions. Over the last 26 years, Carey Management has
provided capital to major corporations by structuring net lease transactions on
corporate real estate facilities. From 1979 through 1999, Carey Management has
managed the investment of over two billion dollars in the acquisition of over
460 net leased properties located in 42 states, France and England containing
more than 38 million square feet of space, by the CPA(R) Partnerships, the
CPA(R) REITs and Carey Diversified.
W.P. Carey & Co. LLC will succeed to the management and business operations
of Carey Management and Carey Diversified. Upon completion of the merger, W.P.
Carey & Co. LLC will both own and manage commercial and industrial properties
located in 35 states and France and England, net leased to 125 tenants. In
addition, W.P. Carey & Co. LLC will manage 201 additional net leased properties
on behalf of the CPA(R) REITs.
The primary business objective of W.P. Carey & Co. LLC will be to maximize
the total return to shareholders through increases in funds from operations per
share, dividends per share and the value of the properties and operations. W.P.
Carey & Co. LLC believes that it will achieve this objective by:
- realizing the benefits of direct ownership of net lease real estate,
through contractual rent increases, refinancing of debt of W.P. Carey &
Co. LLC and the acquisition of additional net leased properties;
- increasing revenues from the management business (which provides services
to the CPA(R) REITs) by increasing assets under management as the CPA(R)
REIT's acquire additional property and organizing new investment
entities;
- maximizing the value of the W.P. Carey & Co. brand by entering into
complimentary businesses, such as mezzanine financing and private
placements, in markets that would recognize the W.P. Carey & Co. name;
- leveraging the talent of the combined organization to maximize the value
of W.P. Carey & Co. LLC and to expand into other fields as appropriate;
and
- fully utilizing the debt capacity of Carey Diversified and the CPA(R)
REITs to increase revenue by increasing investments in property ownership
and assets under management which generate income from management
services.
CAREY DIVERSIFIED
Carey Diversified is a real estate investment company that acquires and
owns commercial properties leased to companies in the United States, France and
England, primarily on a triple net basis. Carey Diversified's core investment
strategy is to purchase and own properties fully leased to a variety of single
tenant companies. The diversity of the geographic locations of the properties
and industries in which the tenants operate, together with the contractual
rental payments and financial covenants provided in the lease documents provide
Carey Diversified with a solid base from which to grow. In addition, because the
leases typically provide for increases in rent over time based on either a fixed
schedule, a specified index (e.g., the consumer price index) or a percentage of
revenues, the portfolio carries built-in inflation protection and the
opportunity for growth over time.
The limited liability company form allows pass-through federal income tax
advantages similar to those enjoyed by limited partnerships and provides maximum
flexibility with regard to optimizing the balance
27
<PAGE> 35
between distributions and the reinvestment of capital. Unlike REITs, limited
liability companies are not required to distribute profits to avoid taxation.
Carey Diversified began operations on January 1, 1998 through the merger of
the nine Corporate Property Associates limited partnerships. That merger is
referred to in this proxy solicitation statement as the Consolidation and the
partnerships are referred to as the CPA(R) Partnerships.
CAREY MANAGEMENT
Carey Management is an investment banking and asset management firm which
provides management services to Carey Diversified and the CPA(R) REITs. These
services include both strategic and day-to-day management, including acquisition
services, research, investment analysis, asset management, capital funding
services, disposition of assets, accounting and shareholder relations and
administrative services. Carey Management also provides office and other
facilities for these entities. In addition, Carey Management originates, markets
and manages real estate investment products, including public net lease funds.
Carey Management does not own any real estate.
From 1979 through 1999, Carey Management and its affiliates have acquired
on behalf of its managed entities interests in over 460 properties at a total
cost of over two billion dollars. During this time, Carey Management and its
affiliates have sponsored 13 public net lease funds, which have raised over $1.2
billion in equity capital from over 62,000 investors.
Carey Management specializes in evaluating corporate credit and believes it
has one of the most extensive underwriting processes in the net lease industry.
As a result of its reputation and experience in the industry and the contacts
maintained by its professionals, Carey Management has a strong presence and
reputation among participants in the net lease market that has provided it with
the opportunity to invest in a significant number of transactions on an ongoing
basis.
Carey Management employs a staff of approximately 80 professionals led by
Wm. Polk Carey, its Chairman and Chief Executive Officer. Its senior executives
have extensive experience in the net lease real estate business and have managed
the business and operations of Carey Management and its affiliates for more than
15 years. These senior executives, along with Francis J. Carey, will continue to
manage the business and operations of W.P. Carey & Co. LLC. For more information
about Carey Management, the services it provides and the fees it receives, see
"Services Provided by Carey Management."
DESCRIPTION OF THE MERGER AND THE MERGER AGREEMENT
Below is a summary of the material terms of the proposed merger. The merger
agreement, a copy of which is attached to this proxy solicitation statement as
Appendix I, contains a more extensive description of the terms of the proposed
merger. The summary set forth below is qualified in its entirety by reference to
the merger agreement. As used in this proxy statement the term "merger
agreement" means the Amended and Restated Agreement and Plan of Merger. See
"Reasons for and Background of the Merger -- Deliberations and Recommendation of
the Special Committee."
GENERAL
Immediately prior to the execution of the merger agreement, W.P. Carey &
Co., Inc. and certain of its affiliates transferred substantially all of their
operating assets and liabilities, including the real estate investment advisory
agreements with the CPA(R) REITs and all of the outstanding common stock of
Carey Financial Corporation, a broker-dealer affiliate of W.P. Carey & Co.,
Inc., to Carey Management pursuant to an assignment and assumption agreement. If
the conditions to the completion of the merger are satisfied, including approval
of the merger proposal by the shareholders of Carey Diversified, Carey
Management will merge with a wholly-owned corporate subsidiary of Carey
Diversified.
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THE MERGER AGREEMENT
PAYMENT OF THE CONSIDERATION
Upon completion of the merger, the shareholders of Carey Management and
certain of its directors and officers who hold options to purchase Carey
Management shares will receive 8,000,000 shares of stock of Carey Diversified.
In addition, if as of the closing of the merger, the net working capital of
Carey Management does not equal zero, a cash payment will be made to the
shareholders of Carey Management by W.P. Carey & Co. LLC equal to any positive
amount of net working capital and a cash payment will be made by the
shareholders of Carey Management to W.P. Carey & Co. LLC equal to any negative
amount of net working capital. Carey Management will submit a statement of net
working capital as of the closing of the merger within 60 days of the closing.
Settlement will be made within ten days thereafter.
The Carey Management shares (which are controlled by Wm. Polk Carey) and
certain officers and directors who hold options to acquire Carey Management
shares and other employees of Carey Management, under incentive plans, may earn
up to an additional 2,000,000 shares, payable over four years upon the
satisfaction of two different performance goals. These earnout shares will be
paid annually in four equal installments of 400,000 shares (the "FFO Target
Shares") for one performance target and 100,000 shares (the "Total Return Target
Shares") for the other performance target within 10 days after the audited
financial statements for the target year are issued by W.P. Carey & Co. LLC. If
a change of control of W.P. & Carey & Co. LLC takes place, all earnout shares
will be paid for the current and future years, regardless of whether any of the
targets are met.
Directors, officers and employees eligible to receive these shares include,
Wm. Polk Carey, H. Augustus Carey, Gordon DuGan, John Park, Claude Fernandez,
Gordon Whiting, Edward LaPuma, W. Sean Sovak, Anne Coolidge, Susan Hyde, Debra
Bigler, Ted Lagreid and David Marvin.
Assuming a price of $16.625 per share (the closing price per share of Carey
Diversified on the New York Stock Exchange on the record date), the aggregate
merger consideration of the 8,000,000 shares has a value of $133,000,000. The
value of the 2,000,000 earnout shares, if earned, will depend on the price per
share at the time of issuance. If issued at $16.625 per share, the value of
these additional shares would be $33,250,000.
FUNDS FROM OPERATIONS (FFO) TARGET
The shareholders of Carey Management will be entitled to receive the FFO
Target Shares for an applicable target year if the fully diluted FFO per share
(as defined in the merger agreement) of W.P. Carey & Co. LLC exceeds the
following target levels:
<TABLE>
<CAPTION>
YEAR FFO PER SHARE TARGET
---- --------------------
<S> <C>
2000, if the merger is completed between June 16, 2000 and
June 30, 2000......................................... 2.26
2001...................................................... 2.41
2002...................................................... 2.45
2003...................................................... 2.55
2004 (contingent year).................................... 2.65
</TABLE>
If the merger is completed after June 30, 2000, the first target year will
be 2001 and the target for 2004 will be relevant only in that instance. FFO
Target Shares not earned in any given year cannot be earned in subsequent years.
For purposes of this performance target, FFO per share is the net income
(loss), computed in accordance with generally accepted accounting principles and
consistent with the accounting principles applied by Carey Diversified in its
prior fiscal years, excluding gains or losses from debt restructuring and sales
of properties, plus depreciation and amortization and after adjustments for
unconsolidated partnerships and joint ventures, divided by the weighted average
of W.P. Carey & Co. LLC shares outstanding on a fully-diluted basis during the
prior twelve months.
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<PAGE> 37
TOTAL RETURN TARGET
The shareholders of Carey Management will be entitled to receive the Total
Return Target Shares for an applicable target year if the total return per W.P.
Carey & Co. LLC share (which is defined in the merger agreement to mean the
appreciation in stock price plus dividends) exceeds by five percent the average
total return per share of a target group of twelve public real estate companies
for the applicable year. For the target year 2000, the base for the calculation
of the total return will be the last 20 trading days prior to the effective date
of the merger. If the merger is completed after June 30, 2000, the first target
year will be 2001 and performance in 2004 will be relevant only in that
instance.
These companies comprise the target group:
- AMB Properties Corporation (NYSE: AMB)
- Capital Automotive REIT (NYSE: CARS)
- Cabot Industrial Trust (NYSE: CTR)
- Captec Net Lease Realty (NYSE: CRRR)
- Commercial Net Lease Realty (NYSE: NNN)
- Entertainment Properties Trust (NYSE: EPR)
- First Industrial Realty Trust (NYSE: FR)
- Franchise Finance Corporation of America (NYSE: FFA)
- Lexington Corporate Properties Trust (NYSE: LXP)
- Prologis Trust (NYSE: PLD)
- Realty Income Corporation (NYSE: O)
- US Restaurant Properties (NYSE: USV)
If a company included in the total return target group is acquired or
otherwise ceases to exist as an independent company in any year during which the
total return target is used, that company will not be included in the total
return target group in the year of acquisition or in any subsequent year. If the
number of companies in the target group falls below five, a majority of the
former Carey Management shareholders and the board of directors of W.P. Carey &
Co. LLC will mutually agree to add a fifth company (or if they cannot agree,
each will add a new company, bringing the total in the target group to six).
If any Total Return Shares for any year are not earned, they may be earned
in subsequent years if the total cumulative return for the period including the
then current target year and all prior target years is at least five percent
greater than the average of the total cumulative return for the target group for
the same period. Any FFO Target Shares or Total Return Shares not earned as of
the final target year will not be paid.
LOCK-UP AGREEMENT
The shareholders of Carey Management have agreed to enter into a lock-up
agreement under which they will be prohibited from transferring the 8,000,000
shares of Carey Diversified they receive in the merger without the prior written
consent of the board of directors of W.P. Carey & Co. LLC for a period of three
years. One-third of the shares will become freely transferable on each
anniversary of the closing of the merger. With respect to each shareholder, the
lock-up will generally terminate on the earliest of
- the date of the third anniversary of the closing of the merger,
- the date on which that shareholder ceases to be a director or officer of
W.P. Carey & Co. LLC, and
- the date of that shareholder's death.
In addition, a shareholder may transfer all or a portion of the shares:
- to immediate family members and trusts or similar entities for their
benefit or for purposes of estate planning,
- to entities controlled by that shareholder, or
- as a bona fide gift(s).
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<PAGE> 38
Individuals or entities that receive shares under these exceptions (other
than transferees who are tax exempt organizations qualified under Section
501(c)(3) of the Internal Revenue Code) will be required to execute a
substantially identical lock-up agreement with respect to the transferred
shares.
The shares are also subject to the restrictions on transfer under Rule 144
of the Securities Act of 1933, as amended. Rule 144 requires that the shares be
held for one or two years, depending on the status of the holder, before they
can be sold without registration under the Securities Act. Rule 144 also imposes
some additional restrictions on the number of shares that can be sold during any
three-month period. The holding period with respect to the shares will begin on
the closing date of the merger.
REGISTRATION RIGHTS AGREEMENT
The shares issued to the Carey Management shareholders in connection with
the merger will not be registered under the Securities Act. As a result, these
shares will be restricted securities and not immediately freely transferable.
Wm. Polk Carey and W.P. Carey & Co. LLC will enter into a registration rights
agreement which will allow Mr. Carey to ask W.P. Carey & Co. LLC to register the
shares received by him and the other Carey Management shareholders, in
connection with the merger (and not subject to the lock-up agreement described
above) up to three times. Mr. Carey may also require W.P. Carey & Co. LLC to
register these shares when other W.P. Carey & Co. LLC shares are being
registered. These rights are subject to certain conditions. The registration of
the shares will enable Mr. Carey and the other Carey Management shareholders to
freely sell the shares.
NON-COMPETITION AGREEMENT
The merger agreement provides that, for five years following the closing of
the merger, without the permission of the independent directors of W.P. Carey &
Co. LLC (which will not be unreasonably withheld if there is an insignificant
impact on W.P. Carey & Co. LLC), neither Wm. Polk Carey nor any entity
affiliated with Carey Management or Mr. Carey will be permitted to engage in the
business of owning, operating or managing net lease commercial real estate
anywhere in the United States, England or France (except for the passive
investment option described below). In addition, these entities may not enter
the employ or agency of, or render any services to or for, any entity that is
engaged in the net lease business anywhere in the United States, England or
France. Any of these affiliates may own, solely as a passive investment,
securities of any publicly traded entity if such affiliate is not a controlling
person of, or a member of a group which controls, such entity and if the
affiliate does not, directly or indirectly, beneficially own five percent or
more of any class of securities of such entity. Mr. Carey may also own directly
or indirectly one or more net lease assets if the acquisition of such assets is
approved by the Investment Committee of W.P. Carey & Co. LLC prior to its
acquisition. The Investment Committee as of the closing of the merger will
consist of:
- George E. Stoddard, Chairman
- Frank J. Hoenemeyer,
- Dr. Lawrence R. Klein, and
- Nathaniel S. Coolidge
USE OF W.P. CAREY NAME
In the event that Wm. Polk Carey no longer serves as a member of the board
of directors of W.P. Carey & Co. LLC, other than as a result of his voluntary
resignation or retirement, disability due to physical or mental illness, or
death, W.P. Carey & Co. LLC will immediately cease to use (and will cause its
subsidiaries to cease to use) the name "W.P. Carey" or similar names in the
operation of its businesses. W.P. Carey & Co. LLC has the unlimited right to use
the name "Carey Diversified."
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<PAGE> 39
CLOSING
The merger agreement provides that, subject to the approval of the
shareholders of Carey Diversified and subject to the satisfaction of certain
other conditions, Carey Management will merge with and into a wholly-owned
subsidiary of Carey Diversified. Upon completion of the merger, the ownership
interests in Carey Management will be exchanged for newly issued shares of Carey
Diversified.
The merger agreement provides that the closing will occur after all of the
conditions set forth in the merger agreement have been satisfied or waived. It
is contemplated that the closing date will occur shortly after the completion of
the solicitation period.
CONDUCT OF BUSINESS PRIOR TO CLOSING
Carey Management has agreed, among other things, to carry on its business
pending the closing in the ordinary course, consistent with past practice and in
compliance with all material laws and regulations. Additionally, Carey
Management has agreed that prior to the completion of the merger, Carey
Management will not take certain actions outside the normal course of business
without Carey Diversified's prior written consent, including but not limited to:
- pay any dividends;
- issue any new securities of Carey Management;
- repurchase, redeem or pledge any existing Carey Management securities;
- adopt any amendment to its operating agreement or its bylaws;
- incur or guarantee any indebtedness for borrowed money;
- mortgage, lease, pledge, sell or transfer any material assets of Carey
Management (other than the transfer of assets in connection with the
merger);
- take any action that would materially change the tax status or have a
material adverse effect on any tax liability of Carey Management;
- increase the compensation of, or pay a bonus to, an employee of Carey
Management; other than in the ordinary course of business
- materially change its accounting practices;
- pay, discharge or satisfy any claims or liabilities not in the ordinary
course of business or reflected or reserved on its balance sheet; or
- create, renew, amend, terminate or cancel any material contract not in
the ordinary course of business.
CONDITIONS TO CLOSING
The obligations of Carey Diversified and Carey Management to effect the
merger are subject to the fulfillment or waiver at or prior to the completion of
the merger of certain conditions, including the approval of the merger by the
shareholders of Carey Diversified. In addition, the obligations of Carey
Diversified and Carey Management to effect the merger are subject to the
fulfillment or waiver at or prior to completion of the merger of certain
additional conditions, including that the representations and warranties made by
the other party set forth in the merger agreement are true and correct in all
material respects as of the date the merger is completed, that the 8,000,000
shares are listed for trading on the New York Stock Exchange, that the
obligations required to be performed by the other party are performed in all
material respects and that no material adverse changes in the business
operations or financial conditions of the other party has occurred. In addition,
the obligations of Carey Diversified to effect the merger are subject to the
receipt of the consents of the CPA(R) REITs to the transfer of their advisory
agreements with Carey Management in the merger (which consents have been
obtained).
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<PAGE> 40
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various customary representations and
warranties of Carey Management. These representations and warranties survive
until the first anniversary of the completion of the merger with the exception
of representations and warranties with respect to certain tax matters, which
survive until the expiration of the applicable statute of limitations. The
material representations and warranties are:
- the organization and standing of Carey Management and the power of Carey
Management to enter into the merger and the transactions in connection
therewith;
- Carey Management's capitalization;
- authorization of the merger by Carey Management and Carey Management's
shareholders;
- Carey Management's financial statements;
- the absence of certain material changes or events;
- pending or threatened litigation;
- compliance with laws and holding applicable permits and licenses;
- the merger agreement's noncontravention of any law or governmental order,
any operating agreement or bylaw provision, or any contract or other
agreement;
- ownership and title or license to tangible and intangible property and
assets owned or used by Carey Management;
- lack of undisclosed liabilities of Carey Management;
- payment of taxes;
- certain contracts and leases of Carey Management;
- existence of insurance;
- certain matters with respect to employees and employee benefits;
- disclosure of affiliated business relationships; and
- the status of each advisory agreement with the CPA(R) REITs.
The merger agreement also includes various customary representations and
warranties of Carey Diversified (which representations and warranties survive
until the first anniversary of the completion of the merger with the exception
of certain representations as to certain tax matters, which survive until the
expiration of the applicable statute of limitations). The most significant
representations and warranties are:
- the organization and standing of Carey Diversified and the power of Carey
Diversified to enter into the merger agreement and the transactions in
connection therewith;
- Carey Diversified's capitalization;
- authorization of the merger by Carey Diversified and its shareholders;
- absence of certain material adverse changes;
- the merger agreement's noncontravention of any law or governmental order,
any charter or bylaw provision, or any contract or other agreement;
- receipt of fairness opinion;
- compliance with laws; and
- payment of taxes.
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<PAGE> 41
The complete list of representations and warranties are set forth in the
merger agreement, which is attached to this proxy solicitation statement as
Appendix I.
EXPENSES
Carey Diversified, Carey Management and Carey Management's shareholders
will each bear their own costs and expenses (including legal fees and expenses)
incurred in connection with the merger agreement and the merger. It is
anticipated that Carey Diversified's expenses will be approximately $2,305,000.
REASONS FOR AND BACKGROUND OF THE MERGER
The merger will enable W.P. Carey & Co. LLC to combine the principal
business of Carey Diversified with the agency, investment product origination,
marketing, advisory and asset management businesses of Carey Management to form
a fully integrated, internally managed net lease real estate and asset
management company. Carey Diversified believes that the integration of the
businesses and capabilities of Carey Management with the net lease property
ownership of Carey Diversified may provide substantial benefits for the combined
company and potentially help achieve the short and long-term objectives of Carey
Diversified. Among these objectives and the potential advantages of the merger
are:
- Potentially Increased Earnings Growth Rate. The net income of the
advisory business of Carey Management has historically grown at a faster
rate than the net income of Carey Diversified and its predecessors, as
reflected in their respective historical financial statements. The merger
is expected to combine this faster growth rate with the stability of the
return on assets of Carey Diversified's business. As a result, management
and the board believe that the combined growth rate of W.P. Carey & Co.
LLC is expected to be higher than that of Carey Diversified.
- Enhanced Control Over Critical Functions. While it is not possible to
quantify the competitive advantages obtained through internal management,
Carey Diversified believes that establishing in-house acquisition,
structuring, financing, leasing and asset management capability is likely
to improve Carey Diversified's performance through direct control over
these functions.
- Increased Diversification of Revenue Sources. Carey Diversified will
also acquire the investment origination, marketing and REIT advisory
businesses of Carey Management, which it expects to add to and diversify
its sources of revenue.
- Enhanced Perception of Value for Internally Managed Company. Investment
analysts and investors specializing in real estate debt and equity
securities have emphasized their strong preference for internally managed
real estate companies. These analysts believe that the nature of the
relationship between real estate companies that are not internally
managed and their outside advisors is susceptible to conflicts of
interest that may not best align the interests of an advisor with the
real estate company's shareholders. Notwithstanding Carey Management's
mechanisms implemented to resolve potential conflicts of interest and
protect Carey Diversified's shareholders, Carey Diversified believes the
negative perception of an externally managed real estate company in the
marketplace continues. Accordingly, Carey Diversified believes that
investors and analysts may view Carey Diversified with an internally
managed structure more favorably.
- Immediate Accretion of Income before Extraordinary Items. The merger is
expected to be accretive to W.P. Carey & Co. LLC. Carey Management's
primary sources of income are advisory and transaction fees and
reimbursements earned from Carey Diversified and the CPA(R) REITs. Based
on the base income stream for the 12 months ending December 31, 1999, and
the base operating expenses for that same period, Carey Diversified's
recurring income would be expected to increase by approximately $26
million as a result of the merger. This increase is estimated without
giving effect to increased fees arising from growth in the equity capital
base of Carey Diversified over the same 12 month period (resulting from
increased revenue from new investments) or of the CPA(R) REITs (resulting
from increased fee revenue derived by increased assets under management).
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- Ability to Offer Full Range of Financial Options to Corporate Property
Owners and Lessees. The acquisition of Carey Management is expected to
permit Carey Diversified to offer a full range of internally generated
financing and leasing options to corporate property owners and lessees.
- Elimination of Fees Paid to External Advisor and Improved Alignment of
Interests. Upon completion of the merger, fees paid to Carey Management
will be eliminated and, with the issuance of shares to the shareholders
of Carey Management, Carey Diversified believes that the interests of
Carey Management shareholders will be better aligned with the interests
of Carey Diversified's shareholders and that any perceived conflict of
interest will be mitigated. See also "Risks of the Merger to Carey
Diversified and Its Shareholders -- Carey Diversified directors and
executive officers may have interests in the merger which differ from the
interests of Carey Diversified shareholders."
- Improved Access to the Capital Markets. Carey Diversified's ability to
raise equity capital in public markets is expected to be enhanced with an
internally advised structure. Also, by acquiring Carey Management without
indebtedness, Carey Diversified's debt capacity is expected to increase,
potentially enabling an expansion of its asset base. In addition, during
periods of time when capital is not readily available to publicly-traded
real estate companies (as has been the case over the past two years),
Carey Diversified may be able to continue to raise capital on behalf of
the CPA(R) REITs, which have raised over $300,000,000 during the past two
years. This capital will enable Carey Diversified to remain active in the
net lease real estate market and to grow its revenue even though it may
be constrained in its ability to make new investments as a sole
principal.
- Strengthened Credit Profile. The increase of earnings resulting from the
acquisition of Carey Management without indebtedness is expected to
improve Carey Diversified's financial ratios.
In reaching the determination that the merger is fair and in the best
interests of Carey Diversified and its shareholders, the board consulted with
the management of Carey Diversified and Carey Management as well as its
financial advisor, legal counsel and accountants and considered the short-term
and long-term interests and objectives of Carey Diversified. The factors
considered by Carey Diversified's board include those described above. While the
Carey Diversified board considered all of these factors, it did not make
determinations with respect to each of the factors. Rather, the Carey
Diversified board made its judgment with respect to the merger based on the
total mix of information available to it, and the judgments of individual
directors may have been influenced to a greater or less degree by their
individual views with respect to different factors. The Carey Diversified board
did not find it practical to, and did not, quantify or otherwise attempt to
assign relative weights to the specific factors considered in making its
determination.
DELIBERATIONS AND RECOMMENDATION OF THE SPECIAL COMMITTEE
At the time the consolidation of nine CPA(R) Partnerships was considered,
consideration was given to including W.P. Carey & Co., Inc. in the
consolidation. However, management believed that the consolidation transaction
was already complicated and did not want to add to the complexity of the
transaction by considering the merger of the management company.
Since its inception on January 1, 1998, the board of directors informally
discussed the possibility of acquiring its financial advisor from time to time.
On September 23, 1998, the board of directors of Carey Diversified formalized
this process by creating a special committee of independent directors to
evaluate the possible acquisition of Carey Management following a formal
presentation made by John Park on behalf of Carey Management, which was
accompanied by its counsel, Skadden, Arps, Slate, Meagher & Flom LLP. The board
appointed Messrs. Donald E. Nickelson, Eberhard Faber, IV and Reginald
Winssinger to serve on the special committee and the special committee elected
Mr. Nickelson to serve as chairman. They were chosen because they were not
affiliated with W.P. Carey & Co., Inc. or any entity managed or advised by Carey
Management. Between September 23, 1998 and October 14, 1998, the special
committee held several meetings to discuss the retention of a law firm and a
financial advisor to represent the special committee in connection with its
evaluation of the possible acquisition by Carey Management, and to
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<PAGE> 43
interview applicants for those positions. As a result of these meetings, the
special committee selected Hogan & Hartson L.L.P. as its special legal counsel
and Robert A. Stanger & Co., Inc. as its financial advisor.
On November 10, 1998, Stanger presented to the special committee its
analysis of preliminary financial evaluation materials provided by Carey
Management on October 20, 1998. These materials evaluated the revenue and income
generating potential of all of the operating assets of Carey Management. The
special committee determined that the purchase price for Carey Management
implied by these materials ($195,000,000) was in excess of a price that could be
determined to be fair to Carey Diversified.
Further meetings of the special committee were held on December 13, 1998,
February 18, 1999, March 4, 1999, March 22, 1999, April 7, 1999 and May 19,
1999. At each of these meetings, representatives of Stanger updated the special
committee on their continuing discussions and meetings with Carey Management and
Carey Management's representatives (including Messrs. John Park, Philip Kibel
and Gagan Singh)and advisors, including Deutsche Banc Alex. Brown, concerning
the proposed consideration regarding an acquisition of Carey Management. Stanger
and Deutsche Banc Alex. Brown were unable in these discussions and meetings to
reach agreement as to an appropriate price or transaction structure to recommend
an acquisition of Carey Management by Carey Diversified. At each of the special
committee meetings from March 4 through May 19, 1999, the special committee
nevertheless authorized Stanger to continue discussions with Deutsche Banc Alex.
Brown concerning a possible acquisition. On July 16, 1999, Stanger informed the
special committee and Hogan & Hartson that little progress had been made toward
reaching an agreement as to appropriate terms of a possible acquisition of Carey
Management. Mr. Nickelson updated the full board on the status of the
discussions at the regular quarterly board meetings (December 16, 1998, March
16, 1999, June 10, 1999 and September 15, 1999).
The special committee did not meet again until September 10, 1999, when
Stanger informed the special committee that Deutsche Banc Alex. Brown had made a
downward revision in its proposed consideration offered for Carey Management and
that discussions had been held with Carey Management's representatives regarding
a proposed earn-out provision.
The special committee next met on October 25, 1999 to discuss a proposal
from Deutsche Banc Alex. Brown on behalf of Carey Management providing for the
acquisition of Carey Management by Carey Diversified for a base purchase price
of eight million shares of Carey Diversified, and an earn-out provision through
which the owners of Carey Management could receive as many as two million
additional shares of Carey Diversified if certain financial indicator targets
were met by Carey Diversified in the future. The special committee discussed the
proposal and decided to review the proposal further and meet again the following
week. On or about October 31, 1999, Carey Management's outside legal advisor,
Skadden, Arps, Slate, Meagher & Flom, LLP, circulated a draft merger agreement
reflecting the terms of the revised proposal. The draft merger agreement
contemplated an assignment to Carey Management of the operating assets and
liabilities of W.P. Carey & Co., Inc. and its affiliates (not already held by
Carey Management) prior to the execution of the merger agreement. The draft
assignment and assumption agreement was circulated by Skadden, Arps shortly
thereafter.
The special committee followed up on its October 25 meeting with a meeting
on November 1, 1999. The members of the special committee agreed that they
generally viewed the proposal favorably, but felt that a number of issues were
not addressed in the proposal, such as registration rights, the lock-up of the
shares issued as merger consideration and non-compete terms and the inclusion of
operations in France and England. The special committee requested that Stanger
and Hogan & Hartson work with Carey Management and its advisors, including
Deutsche Banc Alex. Brown and Skadden, Arps, and continue to consult with the
special committee regarding resolution of outstanding issues and details of the
proposed transaction. Throughout this process, the special committee updated the
full board of directors at its regularly scheduled quarterly meetings.
From October 31, 1999 to November 30, 1999, the special committee and its
legal advisor, Hogan & Hartson, and Carey Management and its legal advisor,
Skadden, Arps, negotiated the terms of the merger agreement, the assignment and
assumption agreement, a lock-up agreement and a registration rights
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<PAGE> 44
agreement. The special committee met again on November 10, 1999, November 23,
1999 and November 26, 1999. During these meetings, Stanger and Hogan & Hartson
consulted with the special committee with respect to the negotiations of the
terms of the proposed transaction and preparation of the merger agreement and
related agreements. At the beginning of the November 26th meeting, Wm. Polk
Carey addressed the special committee, stating his view that the proposed
transaction was in the best interest of Carey Diversified's shareholders and
requesting that the special committee approve it in principle. Mr. Carey then
excused himself from the meeting. After extensive deliberations, the special
committee determined that several issues remained outstanding, including the
terms of a lock-up provision, a covenant not to compete, the acceleration of the
earn-out shares upon a change of control, the adjustment proposed by the special
committee if Carey Management's 1999 financial statements reflected less income
than anticipated and the final target levels for the FFO portion of the
earn-out. The special committee determined to request a meeting with Mr. Carey
in an attempt to resolve all outstanding issues and reach an agreement in
principle on the terms of a transaction which the special committee would view
as fair to and in the best interest of Carey Diversified and its shareholders.
The members of the special committee met with Mr. Carey on November 28,
1999 and believed that they reached an agreement in principle with him on all
material terms of the proposed transaction. The terms agreed to on November 28,
as modified by the Earn-Out Revision discussed below, represent the material
terms of the transaction being submitted for shareholder approval.
A meeting of the special committee, with its advisors, was convened on
November 28 subsequent to the committee members' meeting with Mr. Carey which
included Carey Management's attorneys, Skadden, Arps. After extensive review and
deliberations, the special committee concluded that the transaction should be
approved in principle.
At the conclusion of the special committee's discussion and review of the
transaction, Stanger affirmed its oral opinion that the proposed merger
consideration was fair, from a financial point of view, to the public
shareholders of Carey Diversified. The special committee then unanimously
resolved, subject to receipt of final documentation satisfactory to it, that the
acquisition of Carey Management was fair and reasonable to, and in the best
interest of, Carey Diversified and the public shareholders of Carey Diversified.
Finally, the special committee unanimously recommended that the board of
directors of Carey Diversified approve in principle the acquisition of Carey
Management.
At the meeting of the full board on the morning of November 29, the special
committee was informed by Mr. Carey that he was uncomfortable with an earn-out
provision based in any part on market performance (i.e., shareholder total
returns vs. a market index), because such a structure subjected him to market
risks which were beyond his control. The special committee met that evening and
decided to present a counter offer to Mr. Carey with respect to the earn-out
provision of the merger agreement. The special committee's proposal would shift
100,000 of the shares available annually pursuant to the four-year earn-out from
the Total Return Target to the FFO Target (the "Earn-out Revision"). Thus, for
each year of the earn-out period, 100,000 shares (rather than 200,000) would be
available as Total Return Target Shares and 400,000 shares (rather than 300,000)
would be available as FFO Target Shares. The meeting was briefly recessed to
allow Mr. Nickelson to present the Earn-out Revision to Mr. Carey, who accepted
it and agreed in principle to the terms of the transaction as approved by the
special committee on November 28, as modified by the Earn-out Revision. The
special committee reconvened, Stanger reaffirmed its oral opinion as to the
fairness of the merger consideration (as modified) from a financial point of
view, and the special committee then unanimously resolved, subject to receipt of
final documentation satisfactory to it, that the acquisition of Carey
Management, as revised that evening, was fair and reasonable to, and in the best
interest of, Carey Diversified and to the public shareholders of Carey
Diversified. The special committee also again unanimously recommended that the
board of directors of Carey Diversified approve in principle the acquisition of
Carey Management. On November 30, the full board approved the merger and the
issuance of 8,000,000 shares ($133,000,000) upon completion and up to an
additional 2,000,000 shares ($33,250,000) upon satisfaction of the earn out
targets.
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On or about March 6, 2000, Carey Management proposed an amendment to the
merger agreement to adjust the FFO Target downward since the completion to the
merger was going to occur later than the parties had initially contemplated. On
March 15, 2000, the special committee met and approved the amendment and
restatement of the merger agreement as described in this proxy solicitation
statement. The full board met and unanimously approved the amendment and
restatement the same day (Messrs. Wm. Polk Carey and DuGan, abstaining).
All of the members of the special committee attended all of the special
committee meetings except that Mr. Winssinger did not attend the October 7, 1998
or September 10, 1999 meetings and Mr. Faber did not attend the November 10,
1998 or March 22, 1999 meetings. Throughout this process, the special committee
also considered the principal alternatives to the acquisition and concluded that
such alternatives would not be as beneficial to Carey Diversified and its
shareholders as the acquisition, in particular:
- maintaining the status quo would not result in any of the benefits of
becoming self-managed as outlined above; and
- attempting to become self-managed by hiring other management entities or
personnel would cause a significant disruption in Carey Diversified's
operations and would not contribute to Carey Diversified's growth as
outlined above.
In addition to the positive factors detailed above, the special committee
reviewed potentially negative factors of the proposed acquisition, but found
that these factors were outweighed by the positive factors set forth above. The
following potentially negative factors were considered by the special committee:
- there could be no assurance that the acquisition would result in the
achievement by Carey Diversified of all of its objectives or the expected
increase in the per share financial performance of Carey Diversified;
- the acquisition, while providing more growth potential to Carey
Diversified, also could result in more potential volatility in Carey
Diversified's earnings;
- future capital raising in existing or future managed entities is subject
to uncertainty and is subject to capital market and real estate market
conditions; and
- the conflict of interest of Messrs. Wm. Polk Carey, and Gordon DuGan, as
directors and officers of Carey Diversified and Carey Management, and
Messrs. John Park, Claude Fernandez and H. Augustus Carey as officers of
both companies in negotiating the transaction.
In addition to the foregoing factors, in reaching its conclusion that the
terms of the proposed merger are fair to Carey Diversified and its shareholders,
the special committee reviewed the following:
- the procedural steps taken (e.g., the creation of the special committee,
the retention of special counsel and financial advisor and the securing
of a fairness opinion) to ensure that the acquisition would not be
affected by the existing conflicts of interest between Carey Diversified
and Carey Management;
- the extended process of negotiations;
- the contingent form of payment of a portion of the merger consideration
which requires achievement of two distinct performance goals;
- the view of legal advisors to Carey Diversified that Carey Diversified
would not recognize taxable income, gain or loss upon the consummation of
the acquisition of Carey Management; and
- the oral presentation of Stanger to the special committee that the merger
consideration to be paid by Carey Diversified for the acquisition of
Carey Management was fair, from a financial point of view, to the public
shareholders of Carey Diversified.
From November 30 through December 15, Stanger and Hogan & Hartson (on
behalf of the special committee) worked with the advisors to Carey Management
(Deutsche Banc Alex. Brown and Skadden,
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Arps, Slate, Meagher & Flom LLP) and counsel to Carey Diversified (Reed Smith
Shaw & McClay LLP) to finalize the merger agreement and related transactional
documents. Final drafts of these documents were provided to the special
committee on Friday, December 17, including the assignment and assumption
agreement. The special committee met on Monday, December 20 and approved the
merger agreement and related documents.
THE RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors (excluding Messrs. Wm. Polk Carey and DuGan, who are
principals in the transaction and accordingly abstained) has unanimously
approved the merger having determined that the merger is fair to, and in the
best interests of, Carey Diversified and its shareholders. Accordingly, the
board of directors (with Messrs. Wm. Polk Carey and DuGan abstaining)
unanimously recommend that shareholders vote for the merger.
The board of directors based its determination that the merger is fair to,
and in the best interests of, Carey Diversified and its shareholders primarily
on
- the analyses and conclusions of the special committee (which were adopted
by the board of directors as its own);
- the business reasons for the merger, including the benefits to be
realized by Carey Diversified from the merger;
- the extensive negotiations of the special committee with representatives
of Carey Management; and
- the Robert A. Stanger & Co. fairness opinion delivered to the special
committee stating that the merger consideration is fair, from a financial
point of view, to the public shareholders of Carey Diversified.
The board of directors did not find it practicable to, and did not,
quantify or otherwise assign relative weights to the specific factors considered
in reaching its determination.
OPINION OF THE FINANCIAL ADVISOR
STANGER FAIRNESS OPINION
In connection with the merger the special committee of the board of
directors of Carey Diversified retained Stanger to act as financial advisor to
the special committee. Stanger was retained to render its opinion as to the
fairness to the shareholders of Carey Diversified, from a financial point of
view, of the merger consideration to be paid by Carey Diversified in the merger.
Stanger assisted in the special committee's discussions and negotiations with
Carey Management and its advisors leading up to the approval and execution of
the merger agreement and in the consideration by the special committee of the
merger. If the merger agreement is amended, the special committee may, but is
not obligated to, seek a revised fairness opinion.
On November 30, 1999, Stanger delivered its oral opinion to the special
committee, which was confirmed in writing on May 5, 2000, to the effect that, as
of the date of such opinion, based on Stanger's review and subject to the
assumptions, qualifications and limitations described in the written opinion,
the merger consideration to be paid in the merger is fair to the public
shareholders of Carey Diversified (other than the shareholders and officers of
Carey Management) from a financial point of view. The Stanger opinion does not
constitute a recommendation to any shareholder of Carey Diversified as to how a
shareholder should vote on the merger.
A copy of the written opinion of Stanger, dated May 5, 2000, which includes
the procedures followed, the matters considered, the assumptions made and the
limitations and qualifications of its review, is attached hereto as Appendix II
and is incorporated herein by reference. Shareholders are urged to read such
opinion in its entirety.
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EXPERIENCE OF STANGER
Since its founding in 1978, Stanger has provided information, research,
appraisal, investment banking and consulting services to clients throughout the
United States, including major New York Stock Exchange firms and insurance
companies and over 70 companies engaged in the management and operation of
partnerships and real estate investment trusts. The investment banking
activities of Stanger include financial advisory services, asset and securities
valuations, industry and company research and analysis, litigation support and
expert witness services and due diligence investigations in connection with both
publicly registered and privately placed securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other purposes.
Stanger's valuation practice principally involves real estate investment trusts,
partnerships, partnership securities and the assets typically held through
partnerships, such as real estate, oil and gas reserves, cable television
systems and equipment leasing assets.
REASONS FOR SELECTION OF STANGER
The special committee selected Stanger as its financial advisor on the
basis of Stanger's experience and reputation in the valuation of assets,
businesses and/or their securities in connection with mergers, acquisitions and
reorganizations, especially with respect to REITs, partnerships and other real
estate companies. Prior to its current engagement by the special committee,
Stanger provided fairness opinions on behalf of the CPA(R) Partnerships in the
consolidation of the CPA(R) Partnerships and has performed real estate portfolio
appraisals for various entities advised by Carey Management, including the first
ten Corporate Property Associates entities. The committee determined that
Stanger's previous relationships with Carey Management and its affiliates
increased Stanger's knowledge of Carey Diversified and its familiarity with
Carey Management's relationship to Carey Diversified which the special committee
believed was beneficial.
SUMMARY OF MATERIALS CONSIDERED
In the course of Stanger's analysis to render its opinion, Stanger, among
other things:
- reviewed a draft of the consent solicitation statement related to the
merger, which draft management of Carey Diversified and Carey Management
have indicated to be in substantially the form intended to be finalized
and filed with the Securities and Exchange Commission;
- reviewed the merger agreement, the assignment and assumption agreement
and the related schedules between Carey Diversified and Carey Management
dated December 21, 1999 and the amended and restated merger agreement
dated March 15, 2000;
- reviewed Carey Diversified's annual report to shareholders filed with the
SEC on Form 10-K for the fiscal year ending December 31, 1998 and for the
fiscal year ended December 31, 1999, which report Carey Diversified's
management has indicated to be the most current financial statements
available;
- reviewed the audited financial statements of W.P. Carey & Co., Inc. and
Subsidiaries and Certain Affiliated Companies for the fiscal year ended
December 31, 1998, interim financial statements prepared by management
for the nine-month period ending September 30, 1999, pro forma financial
statements prepared by management for the full year ending December 31,
1999, and audited financial statements for the fiscal year ending
December 31, 1999, which report management has indicated to be the most
current financial statements available;
- reviewed the proposal submitted to the special committee of the board of
directors of Carey Diversified by Carey Management dated October 20, 1999
and schedules relating to the proposed merger;
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- reviewed summaries of the fee structures and key provisions of the
agreements between Carey Management or its affiliates on the one hand and
Carey Diversified and the CPA(R) REITs on the other hand;
- reviewed summary internal historical and pro forma financial information
and forecasts prepared by the management of Carey Diversified and
management of Carey Management of the results of operations of Carey
Diversified and Carey Management, respectively, on a stand-alone basis
without giving effect to the merger, and on a consolidated basis giving
effect to the merger;
- discussed with management of Carey Diversified conditions in the
marketplace for net lease property transactions, conditions in current
capital markets, current and projected operations and performance,
financial condition and future prospects of Carey Diversified and the
combined company after the merger;
- discussed with management of Carey Management conditions in the
marketplace for net leased investments, recent and prospective trends in
fundraising and assets under management, the operations, financial
condition, future prospects and projected operations and performance of
Carey Management and its affiliates and the combined company after the
merger;
- reviewed certain publicly available information relating to selected
companies and/or transactions deemed relevant to Stanger's reviews
regarding Carey Diversified, Carey Management and the merger;
- reviewed historical market prices, trading volume and dividends for the
shares of Carey Diversified; and
- conducted such other studies, analyses, inquiries and investigations as
Stanger deemed appropriate.
SUMMARY OF ANALYSIS
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods to apply to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or amenable to summary description. Accordingly, Stanger
believes that its analysis must be considered as a whole and that considering
any portion of the analysis or of the factors considered, without considering
all analyses and factors, could create an incomplete view of the process
underlying the Stanger opinion. Any estimates contained in these analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the values of businesses may not
reflect the prices at which businesses may actually be sold.
In connection with rendering its opinion, Stanger performed a variety of
financial and comparative analyses, including those summarized below, which
describe all of the material analyses performed. The summary set forth below
does not purport to be a complete description of the analyses used by Stanger in
rendering its opinion.
As background for its analyses, Stanger held discussions with the special
committee and with members of senior management of Carey Diversified and Carey
Management and Carey Management's financial advisor regarding the history,
current business operations, financial condition, future prospects and strategic
objectives of Carey Diversified and Carey Management.
In evaluating the merger consideration to be paid to the shareholders of
Carey Management, Stanger considered a variety of analytical methodologies,
including
- an analysis of certain transactions pursuant to which real estate
companies have acquired or merged with an external advisor;
- an analysis of selected publicly traded companies that act as advisors or
managers in the real estate business;
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- a discounted cash flow analysis; and
- an accretion analysis.
For purposes of its analysis, Stanger relied upon internal schedules of
anticipated fundraising, acquisitions, dispositions and fees and reimbursements
and other revenues and expenses of Carey Management as provided by Carey
Management and upon Carey Diversified's forecasts of the financial results for
Carey Diversified on a stand-alone basis, financial results for Carey Management
on a stand-alone basis, and the pro forma financial results of Carey Diversified
assuming consummation of the merger.
In performing its analysis, Stanger considered a "Company Base Case"
scenario prepared by the management of Carey Diversified and two scenarios for
Carey Management prepared by the management of Carey Management: (1) a "Carey
Management Base Case Scenario"; and (2) a "Carey Management Growth Case"
scenario, whereby assumptions regarding fundraising and acquisition levels and
operating results were increased from the Carey Management Base Case. Unless
otherwise indicated, the analyses described below are based on the Carey
Diversified Base Case and Carey Management Base Case scenarios. The Carey
Management scenarios included the fees and expenses associated with the
provision of services to Carey Diversified by Carey Management pursuant to the
advisory contract. Although this contract is to be terminated as a result of the
merger, Stanger considered the inclusion of such fees and expenses in the
scenarios to be appropriate since (i) a third-party buyer of Carey Management
would include such fees and expenses in its assessment of the value of the
on-going business of Carey Management; (ii) the advisory contract between Carey
Management and Carey Diversified would not be terminated absent the proposed
merger; and (iii) following the merger, Carey Diversified will receive the net
benefits of the contract following the merger in the form of receiving the same
services without incurring the fee expense (which it was paying prior to the
merger).
MERGER CONSIDERATION ANALYSIS
Stanger noted that the merger consideration was composed of two components:
(i) eight million Carey Diversified shares to be issued upon the closing of the
merger, which shares are initially subject to transfer restrictions; and (ii)
two million shares of Carey Diversified to be issued only upon attainment of
specified performance goals relating to funds from operations per share and
total return relative to an index of total return for a group of similar public
companies. Stanger further noted that the additional consideration would not be
paid by Carey Diversified if the performance criteria are not achieved.
For purposes of its financial analysis, Stanger used a dollar value range
of the total merger consideration to be paid of approximately $157.1 million to
$163.2 million, with a mean value of $160.0 million. The value of the merger
consideration was obtained by adding the value of the eight million shares,
$132.1 million based on the average closing price of Carey Diversified shares
during the twenty trading days prior to announcement of the merger
(approximately $16.51 per share) and a range of the estimated discounted present
value of the additional two million shares. The range of estimated discounted
present value of the additional two million shares was obtained by: (i)
calculating an estimated range of prices of Carey Diversified shares using a
range of funds from operations per share multiples of 8.0 (the approximate
multiple at the time of announcement of the merger) to 9.0 and applying that
multiple to the annual funds from operations targets required for payment of the
additional two million shares; (ii) multiplying the resulting range of stock
prices by the maximum number of additional shares which could be issued at the
end of each target year in consideration of the attainment of both targets;
(iii) discounting these resulting values at discount rates ranging from 15.0% to
20.0%, which reflect Stanger's assessment of the risks of the business of Carey
Management, of Carey Diversified and of achieving specified absolute and
relative performance goals such as the FFO targets and total return targets
required for the shareholders of Carey Management to receive the additional
shares; and (iv) adding the resulting estimated discounted present values of the
additional shares to the value of the initial eight million shares.
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Stanger believes that Carey Management, like most service companies, should
be evaluated in terms of the profitability of its operations and therefore
focused its analysis on Carey Management's earnings before interest, taxes,
depreciation and amortization ("EBITDA").
SELECTED COMPARABLE TRANSACTION ANALYSIS
Stanger analyzed selected transactions in which previously non
self-administered REITs or real estate companies or partnerships have acquired
or merged with an external advisor. These transactions included: Franchise
Finance Corporation of America's acquisition of FFCA Management Company, L.P. as
part of a consolidation (completed June 1994); Realty Income Corporation's
acquisition of R.I.C. Advisor, Inc. (completed August 1995); Shurgard Storage
Centers, Inc.'s acquisition of Shurgard, Incorporated (completed March 1995);
Storage Equities, Inc.'s acquisition of Public Storage Management, Inc.
(completed November 1995), CRIIMI MAE's acquisition of C.R.I., Inc. (completed
June 1995); the acquisition of external advisors affiliated with Security
Capital Group, Inc. by Security Capital Atlantic Trust, Security Capital
Industrial Trust and Security Capital Pacific Trust (completed September 1997);
Commercial Net Lease Realty's acquisition of CNL Realty Advisors, Inc.
(completed January 1998); U.S. Restaurant Properties' acquisition of QSV
Properties, Inc. (completed October 1997); Glenborough Realty Trusts'
acquisition of Glenborough, Inc. as part of a consolidation (completed December
1995); Municipal Mortgage & Equity LLC's acquisition of the businesses of SCA
Realty I, Inc. and SCA Associates 86, LP as part of a consolidation (completed
August 1996); Equity Office Properties Trust's acquisition of the management and
advisory businesses of Equity Office Properties LLC and Equity Office Holdings
LLC as part of a consolidation and public offering (completed July 1997); the
consideration ascribed to Imperial Credit Commercial Mortgage Asset Management
Corp. in the context of the acquisition of Imperial Credit Commercial Mortgage
Investment Corp. (completed March 2000); Starwood Financial Trust's acquisition
of Starwood Financial Advisors (completed November 1999); and four other private
transactions completed between 1997 and 1999. All of the acquirers in the public
transactions were publicly traded companies at the time of the transaction, or
in the case of the transactions cited above which occurred in the context of
consolidations, became publicly traded in connection with the consolidation. In
connection with these reviews, Stanger considered the business, financial and
operating characteristics of these companies.
Stanger compared the purchase price paid in each of these comparable real
estate advisor transactions with the EBITDA during the latest twelve months or
reported period prior to the announcement of the transactions, on an annualized
basis, of these companies based on historic and pro forma earnings information
disclosed in the financial reports of the companies or the proxy or consent
solicitation statements relating to each transaction and calculated a range of
multiples of the purchase price to the acquired company EBITDA of 5.0x to 11.4x
with a mean of 7.8x. Applying the applicable range of these acquisition
multiples, as determined by Stanger, to Carey Management's EBITDA for 1999, as
adjusted to reflect management's pro forma adjustments and certain additional
adjustments to reflect the elimination of approximately $9.8 million of
management fees related to services rendered in prior periods but realized in
1999 that Stanger deemed appropriate due to the non-recurring nature of this
income, yielded an implied range of values of Carey Management of approximately
$152.2 million to $202.9 million, with a mean value of approximately $177.6
million. Stanger noted that Carey Management's EBITDA for 1999 does not fully
reflect future management fees from assets currently managed due to the
partial-year nature of fees relating to assets acquired during 1999.
Stanger also noted that in each of the comparable real estate advisor
transactions, the majority, if not all, of the consideration paid for the
acquired company was in the form of an initial fixed payment without regard to
future performance and therefore did not involve significant amounts of future
contingent payments. Of the 19 transactions analyzed, only four (the sales of
Public Storage, Shurgard, CNL Realty Advisor and QSV Properties) involved
contingent future consideration for the acquisition of the advisor. By contrast,
in the merger, up to 2,000,000 shares of the merger consideration is contingent
upon Carey Diversified's future ability to reach certain funds from operations
targets and total return targets following the merger.
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Given that the mean value of the merger consideration is within the implied
values of Carey Management derived from the range of acquisition multiples of
the transactions involving comparable companies, Stanger believes that this
analysis supports the fairness to the shareholders of Carey Diversified, from a
financial point of view, of the merger consideration to be paid in the merger.
SELECTED COMPARABLE PUBLIC REAL ESTATE ADVISORS ANALYSIS
Stanger compared certain financial information relating to Carey Management
to certain corresponding information for a group of five selected publicly
traded companies that act as advisors or managers in the real estate business.
Stanger considered the following companies: CB Richard Ellis Services Inc.;
Grubb & Ellis Company; Insignia Financial Group, Inc.; Jones Lang LaSalle; and
Trammell Crow Company.
Stanger compared the total market capitalization (equity market
capitalization plus long-term liabilities) of each of the public real estate
managers with its actual EBITDA for the latest twelve months, or reported period
on an annualized basis at the time of the announcement of the merger. Based on
closing market trading prices as of the date of the announcement of the merger,
the public real estate managers traded in a range of total market capitalization
to trailing EBITDA multiples of 6.03x to 7.95x with a mean of 6.81x. Applying
the range of these selected multiples, as determined by Stanger, to Carey
Management's EBITDA for 1999, as adjusted to reflect management's pro forma
adjustments and an additional adjustment to reflect elimination of approximately
$9.8 million of management fees related to services rendered in prior periods
but realized in 1999 that Stanger deemed appropriate due to the non-recurring
nature of this income, yielded an implied range of values of Carey Management of
approximately $153.0 million to $201.7 million, with a mean of $177.4 million.
Given that the mean value of the merger consideration to be paid in the
merger is within the range of implied values of Carey Management derived from
the range of trading multiples of the public real estate advisors, Stanger
believes that this analysis supports the fairness to the shareholders of Carey
Diversified, from a financial point of view, of the merger consideration to be
paid in the merger.
DISCOUNTED CASH FLOW ANALYSIS
Stanger analyzed the merger consideration using a discounted cash flow
analysis. The discounted cash flow approach is based on the premise that the
intrinsic value of any business reflects the current value of the future cash
flows that the business will generate for its owners. To establish a current
implied value under this approach, future cash flow must be estimated and an
appropriate discount rate determined.
Stanger used the Carey Management Base Case Scenario and other information
provided by the management of Carey Diversified and Carey Management to estimate
the cash flows, defined as total revenue (including structuring, financing and
disposition fees and associated interest income, asset management fees and
performance fees, distributions received from equity investments in affiliates
and marketing and time charge reimbursements) less Carey Management expenses
during the four-year period 2000 through 2003, inclusive. The cash flows were
then discounted to present value using discount rates ranging from 17.5% to
22.5% and terminal value multiples from 6.0x to 8.0x applied to projected cash
flows for the four years ending December 31, 2003. These discount rates
reflected Stanger's assessment of the risks of equity investments, in general,
and the specific risks of Carey Management business, in particular, which
include the uncertainty of the results of future capital-raising activities in
existing and future managed entities and the potential volatility of revenues
relating to transaction-based fees. Stanger's calculations resulted in a range
of implied values of Carey Management of $167.9 million to $231.0 million, with
a mean of $197.8 million. Stanger observed that had the Carey Management Growth
Case Scenario been utilized, the resulting implied value indicators for Carey
Management would have been higher.
Given that the mean value of the merger consideration is below the range of
implied values of Carey Management derived from the discounted cash flow
analysis, Stanger believes that this analysis supports
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the fairness to the shareholders of Carey Diversified, from a financial point of
view, of the merger Consideration to be paid in the merger.
ACCRETION ANALYSIS
Stanger also compared the funds from operations per share projected by
management for the years 2000 through 2003 for Carey Diversified on a
stand-alone basis with the funds from operations per share of Carey Diversified
following the merger utilizing the Carey Management Base Case and Growth Case
Scenarios (giving effect to the issuance of additional shares relating to the
FFO targets) which was prepared by Carey Management and provided to Stanger. The
Carey Management Growth Case Scenario assumed the following increases above the
Carey Management Base Case Scenario in the volume of acquisitions by the CPA(R)
REITs and managed entities: $48 million in the year 2000; $33 million in 2001;
$23 million in 2002; and $63 million in 2003. The scenario also reflected
estimated effective compound average annual growth rates of approximately 1.2%
in the dollar amount of annual acquisition transactions by Carey Management,
7.8% in revenues, and 6.8% in expenses, and took into effect the elimination of
Carey Diversified fee payments to Carey Management as a result of the merger.
Stanger assumed that all the additional shares relating to the total return
targets were paid to the shareholders of Carey Management in the Growth Case
Scenario. Had Stanger assumed that such shares were not paid to the shareholders
of Carey Management, the level of funds from operations accretion cited below
would be larger.
Stanger observed that in each year, the funds from operations per share for
Carey Diversified increased after giving effect to the merger. The amount of
increase in projected FFO per share in the Carey Management Base Case Scenario
was as follows for each year: 2000 -- $0.19; 2001 -- $0.29; 2002 -- $0.33;
2003 -- $0.36. The amount of increase in projected FFO per share in the Carey
Management Growth Case Scenario was as follows for each year: 2000 -- $0.23;
2001 -- $0.29; 2002 -- $0.33; and 2003 -- $0.40. (The year 2000 amounts assume
the merger was completed as of April 1, 2000.)
CONCLUSIONS
Based on and subject to the foregoing and the assumptions, limitations and
qualifications cited in its opinion, Stanger concluded, as of the date its
analysis, that the merger consideration to be paid in the merger is fair to the
public shareholders of Carey Diversified (other than the shareholders and
officers of Carey Management, with respect to whom no opinion is expressed) from
a financial point of view.
ASSUMPTIONS
In conducting its review and in rendering the fairness opinion, Stanger
assumed that the definitive proxy solicitation statement will not, when filed,
differ in any material respect from the drafts thereof that Stanger reviewed.
Stanger relied upon and assumed, without independent verification, the accuracy
and completeness of all financial and other information that was publicly
available, contained in the proxy solicitation statement, or that was furnished
or otherwise communicated to Stanger by Carey Diversified and Carey Management,
including without limitation the internal analyses and forecasts of the results
of operations of Carey Diversified and Carey Management on a stand-alone basis
and giving effect to the merger, and Stanger does not assume responsibility for
such information. Stanger did not perform an independent review or audit of
these analyses and forecasts or of the assets and liabilities (contingent or
otherwise) of Carey Management and relied upon and assumed the accuracy of the
internal analyses and forecasts. Stanger also relied on the assurance of Carey
Diversified and Carey Management that any pro forma financial statements,
projections, budgets, or information contained in the proxy solicitation
statement or otherwise provided to Stanger were reasonably prepared on bases
consistent with actual historical experience and reflect the best currently
available estimates and good faith judgments of Carey Diversified and Carey
Management as to the future performance of Carey Diversified and Carey
Management and Carey Diversified giving effect to the merger; that the
determination of all fees, charges and reimbursements earned or forecast to be
earned by Carey Management from the CPA(R) REITs is consistent with the
provisions of the advisory agreements between Carey Management and the CPA(R)
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REITs and that such agreements remain in full force and effect; that any
material liabilities (contingent or otherwise) of Carey Diversified and Carey
Management are as set forth in the consolidated financial statements of Carey
Diversified and Carey Management, respectively; that no material changes have
occurred in the terms of any management agreements, broker/dealer agreements,
any other agreements material to the operations of Carey Management, or the
information reviewed between the date of the information provided and the date
of its opinion; and that Carey Diversified and Carey Management are not aware of
any information or facts that would cause the information supplied to Stanger to
be incomplete or misleading in any material respect.
LIMITATIONS AND QUALIFICATIONS OF FAIRNESS OPINION
Stanger was not requested to, and therefore did not, select the method of
determining the consideration offered in the merger; make any recommendation to
the shareholders of Carey Diversified or Carey Management with respect to
whether to approve or reject the merger; or express any opinion as to: the
business decision to effect the merger or alternatives to the merger; tax
factors resulting from the merger; the price or trading range at which Carey
Diversified shares may trade in the future on a stand-alone basis or following
the merger; the impact, if any, of the relative share ownership of Carey
Management on future business decisions of Carey Diversified or its
shareholders; the forecasts and the assumptions on which they were based; the
terms of any employment agreements, grants or other compensation between Carey
Diversified and the officers of Carey Management; or any terms of the merger
other than the merger consideration.
Although Stanger evaluated the merger consideration and participated in
discussions concerning the consideration to be paid, Stanger did not propose the
specific form or amount of merger consideration or terms related thereto. The
merger consideration was determined by the special committee and Carey
Management in arms-length negotiations.
Stanger's opinion is based on business, economic, real estate and
securities market conditions and other conditions as they existed and could be
evaluated as of the date of its analysis and addresses the merger consideration
in the context of information available as of the date of its analysis. Events
occurring after that date may materially affect the financial results or values
of Carey Diversified or Carey Management or the assumptions used in preparing
the opinion.
COMPENSATION AND MATERIAL RELATIONSHIPS
Pursuant to the terms of Stanger's engagement, Stanger received an initial,
non-refundable fee of $25,000 upon the execution of the engagement letter and
has received an additional $1,125,000 as of the date of this proxy solicitation
statement. Stanger will also be reimbursed for certain of its expenses, in an
amount not to exceed $25,000 without the prior consent of the special committee.
Carey Diversified has agreed to indemnify Stanger, its affiliates and each of
its directors, officers, employees, agents, consultants and attorneys, and each
person or firm, if any, controlling Stanger or any of the foregoing, against
certain liabilities, including liabilities under federal securities law.
SERVICES PROVIDED BY CAREY MANAGEMENT
Carey Management provides its advisory and management services pursuant to
investment advisory agreements with Carey Diversified and each of the CPA(R)
REITs. These agreements and relationships are described below.
MANAGEMENT SERVICES PROVIDED BY CAREY MANAGEMENT TO CAREY DIVERSIFIED
Carey Diversified was created as a result of the Consolidation which took
place on January 1, 1998. Carey Management serves as the investment advisor to
Carey Diversified and provides all of the required advisory and administrative
services necessary for its operation. The current term of the investment
advisors agreement between Carey Diversified and Carey Management pursuant to
which these services
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<PAGE> 54
are provided ends on December 31, 2000 and thereafter will be automatically
renewed for successive one-year periods, unless either party gives notice of
non-renewal not less than 60 days before the end of the term. Some termination
payments must be made by Carey Diversified to Carey Management if Carey
Diversified terminates the agreement before December 31, 2003.
Carey Management and its affiliates provide advisory services to other
entities, and, as a result, their resources are not dedicated exclusively to the
business of Carey Diversified. However, pursuant to the investment advisory
agreement, Carey Management must devote sufficient resources to the
administration of Carey Diversified to properly discharge its obligations under
that agreement.
Carey Diversified believes that fees paid to Carey Management are no more
favorable than the fees that would be paid to another third party advisor. In
addition, Carey Diversified believes that no other advisor could provide the
same level of experience and expertise as Carey Management, and, therefore, has
not actively pursued any other advisory companies prior to entering into the
merger agreement.
If the merger is approved, Carey Diversified will no longer pay any fees to
Carey Management but will pay directly for the overhead necessary to provide the
services that Carey Management currently provides Carey Diversified under the
management agreement.
FEES PAYABLE TO CAREY MANAGEMENT BY CAREY DIVERSIFIED UNDER EXISTING AGREEMENT
The following is a description of the fees payable by Carey Diversified to
Carey Management in connection with the services provided by Carey Management:
Management Fee. Carey Management is paid a monthly management fee at an
annual rate of 0.5 percent of the total capitalization of Carey Diversified.
Total capitalization is based on the average of total principal amount of the
debt owed by Carey Diversified and the average market capitalization of Carey
Diversified. The management fee is reduced by one-half of the amount received by
Carey Management from the partnerships controlled by Carey Diversified for
property management or leasing fees and distributions of cash from operations.
Performance Fee. Carey Management is paid a monthly performance fee at an
annual rate of 0.5 percent of the total capitalization of Carey Diversified.
This fee is paid in the form of cash or restricted shares of Carey Diversified
which vest ratably over five years. Until these shares become vested, the
restricted shares are not transferable and are subject to forfeiture in the
event Carey Management is terminated for cause or resigns. The restricted shares
vest immediately in the event of a change of control and certain other
circumstances. The merger will not be considered a change of control for
purposes of the vesting schedule of these shares. The performance fee is reduced
by one-half of the amount received by Carey Management from the partnerships
controlled by Carey Diversified for property management or leasing fees and
distributions of cash from operations. The sale of the shares is restricted
pursuant to Rule 144 of the Securities Act.
Termination Fee. If the management agreement is terminated by Carey
Diversified, Carey Management is entitled to receive payment of any earned but
unpaid compensation and expense reimbursements accrued as of the end of the term
of the agreement and an incentive fee equal to 15% of the appreciation in
property value of properties under management site December 31, 1997 or the date
acquired, whichever was later, and based on the appraised value of the
properties on the termination date. If the management agreement is terminated in
connection with a change of control of Carey Diversified, without cause or by
Carey Management with good reason, Carey Management is entitled to receive a
termination fee. The termination fee equals the sum of
- any fees that would be earned by Carey Management upon the disposition of
the assets of Carey Diversified owned by the CPA(R) Partnerships prior to
the Consolidation at their appraised value as of the date the management
agreement is terminated, and
- if the agreement is terminated by Carey Diversified after a change in
control, five times the total fees paid to the Carey Management by Carey
Diversified and the CPA(R) Partnerships in the 12 months preceding the
change in control, or
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<PAGE> 55
- if the agreement is terminated without cause or for good reason, $40
million if the agreement is terminated before December 31, 2000; $30
million if the agreement is terminated before December 31, 2001; $20
million if the agreement is terminated before December 31, 2002 and $10
million if the agreement is terminated before December 31, 2003.
No termination fee will be paid in connection with the merger.
Carey Management is also paid fees on a transactional basis for
acquisitions. The acquisition fees are generally 2.5% of the purchase price of
properties purchased on behalf of Carey Diversified, which is paid at the time
of acquisition, plus 2% of the purchase price if certain performance goals are
satisfied, which is paid over eight years (with interest).
Fees Payable by the Partnerships Controlled by Carey Diversified. Carey
Management is entitled to certain distributions from the CPA(R) Partnerships.
Distributions paid to Carey Management by these partnerships reduce each of the
management fee and performance fee otherwise payable to Carey Management by
Carey Diversified by one-half of the amount paid by each partnership.
Incentive Fee. Carey Management is paid an incentive fee of 15 percent of
the amount of the net proceeds received from the sale of a property previously
held by a CPA(R) Partnership in excess of the appraised value of the equity
interest in that property used for purposes of the Consolidation, less an
adjustment for the share of the net proceeds in excess of the appraised value of
the equity interest attributable to Carey Management's interest in the shares of
Carey Diversified.
Expenses. Carey Diversified reimburses Carey Management for certain costs
that it incurs in connection with the services it provides to Carey Diversified,
including, but not limited to, personnel costs, rent and the cost of goods and
services used on behalf of Carey Diversified.
AMOUNTS PAID BY CAREY DIVERSIFIED TO CAREY MANAGEMENT
The following table sets forth the amounts paid by Carey Diversified for
management services in 1998 and 1999.
CAREY MANAGEMENT COMPENSATION FROM CAREY DIVERSIFIED
<TABLE>
<CAPTION>
ACQUISITION MANAGEMENT FINANCING DISPOSITION
FEES(1) FEES(2) FEES(1) FEES(1) TOTAL
----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1998.............................. $6,640,000 $6,769,000 $1,001,000 $1,007,000 $15,417,000
1999.............................. 1,474,000 6,801,000 696,000 695,000 9,666,000
2000(3)........................... -- 1,377,000 -- -- 1,377,000
</TABLE>
- ---------------
(1) Revenue classified as structuring and financing fees by Carey Management.
(2) Revenue classified as management fees by Carey Management. Includes
reimbursement of expenses.
(3) For the three months ended March 31, 2000.
If the merger is approved, W.P. Carey & Co. LLC will no longer pay any of
the fees listed above, but will be responsible for the salaries and other
overhead expenses necessary to provide the services that Carey Management
currently provides to Carey Diversified and the CPA(R) REITs. In 1999, Carey
Management received 15% of its gross revenue from Carey Diversified.
SERVICES PROVIDED TO THE CPA(R) REITS
Carey Management has an agreement with each of the CPA(R) REITs under which
it provides the same management services to these REITs as it provides to Carey
Diversified. The board of directors of each REIT has approved the transfer of
the advisory agreement through the merger.
ADVISORY AGREEMENTS
Under the terms of each advisory agreement, Carey Management undertakes to
use its best efforts to present to each CPA(R) REIT investment opportunities
consistent with the investment policies and objectives of the CPA(R) REIT. In
its performance of this undertaking, Carey Management must (at all
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<PAGE> 56
times subject to the continuing and exclusive authority of the board of each
CPA(R) REIT over the management of each CPA(R) REIT):
- find, present and recommend to each CPA(R) REIT a continuing series of
real estate investment opportunities consistent with that CPA(R) REIT's
investment policies and objectives and available capital;
- provide advice to, and act on behalf of, each CPA(R) REIT with respect to
the acquisition, financing, refinancing, holding, leasing and disposition
of real estate investments; and
- provide day-to-day management of business activities of the CPA(R) REITs
and the other administrative services for the CPA(R) REITs as may be
requested by the board.
The term of each advisory agreement ends on December 31, 2000 and
thereafter will be automatically renewed for successive one-year periods unless
either party gives the other party notice of non-renewal not less than 60 days
before the end of any term. Additionally, an advisory agreement may be
terminated under generally the same circumstances under which the agreement
between Carey Diversified and Carey Management may be terminated. If an
agreement is terminated without cause or for good reason, Carey Management is
entitled to all unpaid fees and 15% of the gain on properties owned as of the
termination date. This fee is to be paid as the properties are sold.
Each advisory agreement requires Carey Management to devote sufficient
resources to the administration of the CPA(R) REIT to discharge its obligations.
The advisory agreements are not generally assignable or transferable by either
party without the consent of the other party. The transfer of the agreements to
W.P. Carey & Co. LLC in the merger has been approved by each CPA(R) REIT.
Each CPA(R) REIT reimburses Carey Management for costs it incurs in
connection with the services it provides to the CPA(R) REIT, including, but not
limited to, organization and offering costs, personnel costs, rent, the costs of
goods and services used on behalf of the CPA(R) REITs and acquisition expenses.
Carey Management must reimburse each CPA(R) REIT at least annually for the
amount by which operating expenses, including advisory fees, of the CPA(R) REIT
exceed the greater of 2% of average invested assets or 25% of net income. To
date, no reimbursements have been required to be made.
The amount of the fees payable to Carey Management by the CPA(R) REITs over
the last three years include acquisition fees, management fees, disposition fees
and financing fees. The total fees received in each category were as follows:
CAREY MANAGEMENT COMPENSATION FROM CPA(R) REITS
<TABLE>
<CAPTION>
CAPITAL
ACQUISITION MANAGEMENT FINANCING MARKETING RAISING DISPOSITION
FEES(1) FEES(2) FEES(1) FEES(3) FEES(4) FEES(1) TOTAL
----------- ----------- ---------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1997....................... $ 5,433,215 $10,916,393 $1,552,347 $ 848,745 $780,000 $1,202,250 $20,732,950
1998....................... 10,295,447 12,043,349 1,894,451 1,128,077 180,000 72,000 25,613,324
1999....................... 10,038,000 24,355,000 3,229,000 1,574,000 895,000 -0- 40,091,000
2000(5).................... 1,626,000 4,160,998 434,000 519,000 172,000 -- 6,911,998
</TABLE>
- ---------------
(1) Revenue classified as structuring and financing fees by Carey Management.
(2) Revenue classified as management fees by Carey Management. Includes expense
reimbursements.
(3) Classified as marketing reimbursement revenue by Carey Management.
(4) Revenue classified as other income by Carey Management.
(5) For the three months ended March 31, 2000.
If the merger is approved, W.P. Carey & Co. LLC will continue to earn fees
from the CPA(R) REITs and any new investments originated. It will also be
responsible for the salaries and other overhead necessary to provide these
services. In 1999, Carey Management received 70% of its gross revenue from the
CPA(R) REITs.
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<PAGE> 57
CAPITAL RAISING SERVICES
Carey Management manages the capital raising process on behalf of the
CPA(R) REITs. The CPA(R) REITs raise capital through a network of investment
advisors and broker dealers in publicly registered offerings. The shares of the
CPA(R) REITs are not traded on any public stock market or exchange. Carey
Management contracts with all of the investment advisors and broker dealers,
provides wholesaling services to these organizations, prepares all sales
materials and provides strategic marketing advice.
In addition, Carey Management assists Carey Institutional Properties, one
of the CPA(R) REITs, in raising capital from institutional investors. These
sales are made through a direct sales effort with both institutional investors
and consultants who advise institutional investors.
Over the past three years, Carey Management has raised the following amount
of capital for the CPA(R) REITs:
<TABLE>
<CAPTION>
YEAR CAPITAL RAISED
---- --------------
<S> <C>
1997.................................................. $130,500,000
1998.................................................. $161,300,000
1999.................................................. $185,800,000
</TABLE>
RISKS OF THE MERGER TO CAREY DIVERSIFIED AND ITS SHAREHOLDERS
Shareholders should carefully consider the following factors, in addition
to other information included in this proxy solicitation statement, in deciding
whether to vote to approve the merger and the issuance of shares in connection
with the merger.
THE INVESTMENT ADVISORY BUSINESS PRESENTS DIFFERENT RISKS.
The merger will expose W.P. Carey & Co. LLC to risks of the real estate
management business to which it has not historically been exposed. These risks
include that:
- there can be no assurance that the merger will result in the achievement
by Carey Diversified of its objectives or the expected increase in the
per share financial performance of Carey Diversified;
- the merger could result in more volatility in Carey Diversified's
earnings because revenue from the real estate management business has
traditionally been more volatile than revenue from ownership of real
estate subject to triple net leases; and
- the growth in revenue from the management business is dependent in part
on future capital raising in existing or future managed entities which is
subject to uncertainty and is subject to capital market and real estate
market conditions.
Our business, results of operations or financial condition would be
materially adversely affected if any of these outcomes were to occur.
FUTURE SALES OF OUR STOCK BY SHAREHOLDERS OF W.P. CAREY & CO. LLC MAY ADVERSELY
AFFECT THE MARKET PRICE OF OUR STOCK.
Sales of a substantial number of shares by shareholders of W.P. Carey & Co.
LLC, or the perception that these sales could occur, could adversely affect
prevailing market prices for the shares. These sales also might make it more
difficult for W.P. Carey & Co. LLC to sell equity securities in the future at a
time and price it deems appropriate. Upon completion of the merger, Carey
Diversified will issue 8,000,000 shares to the shareholders of Carey Management
and may issue up to an additional 2,000,000 shares to them upon the satisfaction
of performance targets. In addition, directors and officers of Carey Diversified
own or have the right to acquire up to an additional 3,270,993 shares.
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<PAGE> 58
THE REVENUE STREAMS FROM THE INVESTMENT ADVISORY AGREEMENTS ARE SUBJECT TO
LIMITATION OR CANCELLATION.
The agreements under which W.P. Carey & Co. LLC will provide investment
advisory services may generally be terminated by each CPA(R) REIT upon 60 days
notice, with or without cause. In addition, the fees payable under each
agreement are subject to a variable annual cap based on a formula tied to the
assets and income of that CPA(R) REIT. This cap may limit the growth of the
management fees. There can be no assurance that these agreements will not be
terminated or that W.P. Carey & Co. LLC's income will not be limited by the cap
on fees payable under the agreements. A cap on the fees could have a material
adverse effect on our business, results of operations and financial condition.
CAREY DIVERSIFIED DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE INTERESTS IN THE
MERGER WHICH DIFFER FROM THE INTERESTS OF CAREY DIVERSIFIED SHAREHOLDERS.
Shareholders should be aware that some of the Carey Diversified directors,
officers and employees (Wm. Polk Carey, H. Augustus Carey, Gordon DuGan, Claude
Fernandez, John Park, Gordon Whiting, Edward LaPuma, W. Sean Sovak, Anne
Coolidge, Susan Hyde, Debra Bigler, Ted Lagreid and David Marvin) have the
ability to earn up to 2,000,000 additional shares if certain targets are
achieved. The contingent nature of this portion of the merger consideration
could cause management to make decisions that are in the short-term best
interest of the shareholders but not in the long term interests of shareholders.
These interests are described more fully in the section "Interests of Certain
Persons in the Merger."
THE FIXED NUMBER OF SHARES TO BE ISSUED IN THE MERGER WILL NOT REFLECT ANY
CHANGES IN THE RELATIVE VALUE OF EACH OF THE TWO COMPANIES AFTER THE DATE THE
MERGER AGREEMENT WAS SIGNED.
In considering whether to approve the merger, Carey Diversified
shareholders should consider the fact that the initial number of shares to be
issued to the shareholders of Carey Management in the merger is fixed. This
means that these shareholders will receive the same number of Carey Diversified
shares regardless of the price at which Carey Diversified shares are trading at
the time of the merger. An increase in the trading price of Carey Diversified
shares would result in a corresponding increase in the price paid by Carey
Diversified in the merger. Neither Carey Management nor Carey Diversified has
the right to terminate the merger agreement because of any change in the
prevailing market price of Carey Diversified shares.
AFTER THE MERGER, THE OFFICERS AND DIRECTORS OF W.P. CAREY & CO. LLC MAY CONTROL
THE COMPANY.
After the merger, the eleven executive officers and directors of W.P. Carey
& Co. LLC will, in the aggregate, beneficially own approximately 33.3% of the
shares of W.P. Carey & Co. LLC. These shareholders may be able to effectively
exercise control over all matters requiring approval by the shareholders,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may also have the effect of
delaying or preventing a change in control of W.P. Carey & Co. LLC, which could
have a material adverse effect on the price of the shares of W.P. Carey & Co.
LLC.
BENEFIT TO THE SHAREHOLDERS OF
CAREY MANAGEMENT RESULTING FROM THE MERGER
The merger, if completed, will result in the shareholders of Carey
Management receiving, directly and indirectly, up to 10,000,000 shares, which
could represent up to 27% of the issued and outstanding shares of Carey
Diversified based on the currently outstanding shares. The shareholders of Carey
Management have agreed not to sell the shares received in the merger for a
period of up to three years without the prior written consent of the board of
directors of W.P. Carey & Co. LLC. They will be permitted to sell one-third of
the shares received in the merger after each of the first, second and third
anniversary of the effective date of the merger.
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<PAGE> 59
SHARE OWNERSHIP AFTER THE MERGER
The following table presents certain information regarding beneficial
ownership of the shares by the directors and executive officers of Carey
Diversified as of March 31, 2000, and on a pro forma basis, assuming the merger
consideration is paid. On the record date there were 25,979,383 shares
outstanding. After the merger there are assumed to be 33,979,383 shares
outstanding, based upon 8,000,000 shares being paid as merger consideration.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
CURRENT NUMBER OWNED UPON
OF SHARES PAYMENT OF
NAME OF BENEFICIALLY PERCENT OF MERGER PERCENT OF
BENEFICIAL OWNER OWNED SHARES CONSIDERATION(7) SHARES
- ---------------- -------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Francis J. Carey.......................... 152,711(1) * 152,711 *
Wm. Polk Carey............................ 4,428,579(2) 14.8% 11,628,380 31.3%
Gordon F. DuGan........................... 6,005 * 290,639 *
Lawrence R. Klein......................... 7,283(3) * 7,283 *
Charles C. Townsend, Jr. ................. 10,398(3) * 10,398 *
Donald E. Nickelson....................... 24,507(4,5) * 24,507 *
Eberhard Faber, IV........................ 15,958(3,6) * 15,958 *
Reginald Winssinger....................... 12,284(3) * 12,284 *
All Directors and Executive Officers as a
Group (11 individuals).................. 4,689,497 15.6% 12,367,140 33.3%
------------ ---- ----------- ------
</TABLE>
- ---------------
* Less than 1%
(1) Includes options to purchase 88,500 shares, which are currently exercisable
or exercisable within 60 days of the date hereof.
(2) Includes warrants to purchase 3,010,730 shares which are currently
exercisable. Also includes 1,367,718 shares held by entities controlled by
Mr. Carey. See "Proposal One: Certain Transactions."
(3) Includes options to purchase 2,666 shares which are currently exercisable or
exercisable within 60 days of the date hereof.
(4) Includes 2,912 shares held by Mr. Nickelson's wife.
(5) Including options to purchase 11,497 shares which are currently exercisable
or exercisable within 60 days of the date hereof.
(6) Includes 4,675 shares held by the Faber Family Trust. Does not include 1,090
shares held by the Faber Foundation.
(7) Does not include options or restricted shares to be issued upon completion
of the merger and approval of the amendment to the 1997 Listed Share
Incentive Plan.
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<PAGE> 60
CONSEQUENCES OF FAILURE TO APPROVE THE MERGER
If the merger is not approved, Carey Diversified intends to continue to
conduct its business generally in a manner consistent with past practices. Carey
Diversified is unable to predict the precise consequences that a rejection of
the merger would have. Although there can be no assurance, if the merger is not
approved, Carey Diversified expects that it will continue to be able to obtain
management services from Carey Management beyond December 31, 2000. Even if the
merger is approved, there is no assurance that the merger will be completed.
However, to the knowledge of Carey Diversified, if the merger is approved and
the conditions set forth in the merger agreement are satisfied, the merger will
be completed as indicated herein.
MANAGEMENT OF W.P. CAREY & CO. LLC
DIRECTORS AND EXECUTIVE OFFICERS OF W.P. CAREY & CO. LLC.
The post-merger board of directors will be divided into three classes.
Members of each class will serve until their successors are elected or
qualified. The following table sets forth information with respect to the board
of directors of W.P. Carey & Co. LLC.
<TABLE>
<CAPTION>
TERM
NAME TITLE EXPIRES
---- ----- -------
<S> <C> <C>
Wm. Polk Carey......................... Chairman and Chief Executive Officer 2000
Francis J. Carey....................... Vice Chairman and Chairman of the 2002
Executive Committee
Gordon F. DuGan........................ President and Director 2001
Eberhard Faber, IV..................... Director 2002
Dr. Lawrence R. Klein.................. Director 2000
Charles C. Townsend, Jr. .............. Director 2000
Donald E. Nickelson.................... Director 2000
Reginald Winssinger.................... Director 2001
George E. Stoddard..................... Director, Chairman of the Investment
Committee
H. Augustus Carey...................... Managing Director and Secretary
Claude Fernandez....................... Managing Director-Financial Operations
John J. Park........................... Managing Director and Chief Financial
Officer
</TABLE>
See "Proposal One: Election of Directors" beginning on page 3 of this proxy
solicitation statement for the biographies of the directors and executive
officers.
CAREY ASSET MANAGEMENT CORP.
After the merger, Carey Asset Management Corp. will be a wholly-owned
subsidiary of W.P. Carey & Co. LLC. Carey Asset Management will be responsible
for performing all management services for the CPA(R) REITs. The board of
directors of Carey Asset Management will include the following members:
<TABLE>
<S> <C>
- - Francis J. Carey - Dr. Lawrence R. Klein
- - Wm. Polk Carey - Frank J. Hoenemeyer
- - Nathaniel S. Coolidge - George E. Stoddard
- - Gordon F. DuGan
</TABLE>
The Investment Committee of Carey Asset Management will be comprised of the
following members:
<TABLE>
<S> <C>
- - George E. Stoddard, Chairman - Nathaniel S. Coolidge
- - Frank J. Hoenemeyer, Vice Chairman - Dr. Lawrence R. Klein
</TABLE>
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<PAGE> 61
Information regarding Messrs. Wm. Polk Carey, F. J. Carey, DuGan,
Fernandez, H. A. Carey and Dr. Klein is set forth under "Management of W.P.
Carey & Co. LLC -- Directors and Executive Officers of W.P. Carey & Co. LLC."
GEORGE E. STODDARD
AGE: 83
Mr. Stoddard, elected director in June 1997, was until 1979
officer-in-charge of the Direct Placement Department of The Equitable Life
Assurance Society of the United States ("Equitable"), with responsibility for
all activities related to Equitable's portfolio of corporate investments
acquired through direct negotiation. Mr. Stoddard was associated with Equitable
for over 30 years. He holds an A.B. degree from Brigham Young University, an
M.B.A. from Harvard Business School and an LL.B. from Fordham University Law
School. Mr. Stoddard also serves as a Managing Director of W.P. Carey & Co. Mr.
Stoddard is a director of CPA(R):10, CIP(R), CPA(R):12 and CPA(R):14.
NATHANIEL S. COOLIDGE
AGE: 61
Mr. Coolidge, former Senior Vice President of John Hancock Mutual Life
Insurance retired in 1995 after 20 years of service. From 1986 to 1995, Mr.
Coolidge headed the Bond and Corporate Finance Department which was responsible
for managing fixed income investments. Prior to 1986, Mr. Coolidge served as
Second Vice President and Senior Investment Officer. Mr. Coolidge holds a B.A.
from Harvard University.
FRANK J. HOENEMEYER
AGE: 80
Mr. Hoenemeyer, elected Vice Chairman of the Investment Committee and
director in May 1992, was Vice Chairman, Director and Chief Investment Officer
of The Prudential Insurance Company of America until his retirement in November
1984. As Chief Investment Officer he was responsible for all of Prudential's
investments, including stocks, bonds, private placements, leveraged buyouts,
venture capital, real estate ownership and mortgages. Mr. Hoenemeyer was
graduated with a B.S. in Economics from Xavier University, Cincinnati, Ohio and
an M.B.A. from the Wharton School of the University of Pennsylvania and joined
Prudential in 1947. Under his direction as Chief Investment Officer, Prudential
built the world's largest real estate and securities investment portfolio and
became a leader in investments including the purchase and development of real
estate, leveraged buyouts and venture capital. Mr. Hoenemeyer serves on the
Boards of American International Group and Mitsui Trust Bank (U.S.A.) and is
formerly a director of Corporate Property Investors, a $4.4 billion private real
estate investment trust.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of our board that you vote in favor of
the merger proposal, you should be aware that two of our directors, Wm. Polk
Carey and Gordon F. DuGan, and three of our executive officers are also
directors and/or executive officers of W.P. Carey & Co., Inc. and its
affiliates, including Carey Management, and, therefore, may have interests in
the merger that are different from, or in addition to, your interests as a
shareholder.
Wm. Polk Carey owns, directly or indirectly, 100% of Carey Management and
will receive the merger consideration and the additional consideration payable
upon Carey Diversified's satisfaction of certain performance targets as
described more fully under "Description of the Merger and Merger Agreement --
The Merger Agreement -- Funds From Operation (FFO) Target" and "-- Total Return
Target." Gordon F. DuGan, John J. Park, Claude Fernandez and H. Augustus Carey
together have the right to acquire approximately nine percent of Wm. Polk
Carey's interests in Carey Management. These officers and an additional eight
officers will receive approximately 23% of the additional 2,000,000 shares. In
addition, except for Francis J. Carey, Donald E. Nickelson, Eberhard Faber, IV
and Reginald Winssinger who are not affiliated with Carey Management, all of the
other executive officers and directors of Carey Diversified hold similar
positions with W.P. Carey & Co., Inc. and its affiliates.
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<PAGE> 62
Upon completion of the merger, it is expected that the approximately 80
current employees of W.P. Carey & Co., Inc. or Carey Management will become
employees of Carey Diversified and will be eligible to receive awards under the
1997 Listed Share Incentive Plan. The compensation committee of the board of
Carey Diversified has approved grants of options to acquire approximately
806,000 shares and grants of approximately 475,000 restricted shares. These
grants will be made upon completion of the merger. In addition, certain
executive officers and employees of Carey Management are parties to executive
stock purchase agreements, pursuant to which, on the terms and subject to the
conditions of those agreements, they are eligible to receive restricted shares
of Carey Diversified stock. Under the terms of these agreements, these officers
have borrowed money from W.P. Carey & Co., Inc. to purchase an aggregate of
26,500 shares of stock. One quarter of the obligation to repay the loan is
forgiven for each year the officer is employed by Carey Management. W.P. Carey &
Co. LLC will assume Carey Management's obligations under these agreements and
will receive the 26,500 shares of stock which can be purchased under these
agreements, by virtue of the merger.
In recognition of the potential conflicts of interest inherent in the
transaction, the merger and amendment to the Listed Share Incentive Plan were
considered and unanimously approved by a special committee comprised solely of
independent members of the board of Carey Diversified.
FINANCIAL, ACCOUNTING, TAX AND OTHER LEGAL INFORMATION
REGARDING THE MERGER
FINANCIAL INFORMATION
Attached on pages F-1 through F-35 of this proxy solicitation statement is
financial information with respect to W.P. Carey & Co., Inc. and subsidiaries
and certain affiliates and certain pro forma information reflecting the merger.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method. The portion of
the purchase price attributable to the existing management contract between
Carey Diversified and Carey Management will be accounted for as a contract
termination, and this amount will be expensed immediately at the date of
acquisition. The balance of the transaction will be accounted for under the
purchase method. Under the purchase method, the excess of the purchase price
over the historical book value of the assets of Carey Management will be
allocated principally to intangible assets and will be amortized over the useful
lives of those assets. See Notes 5 and 6 to Pro Forma Condensed Consolidated
Statements of Income on page F-12.
FEDERAL TAX MATTERS
The following discussion summarizes the material federal income tax
consequences in connection with the merger to a shareholder who is a U.S.
citizen or resident or that is a tax exempt organization. Reed Smith Shaw &
McClay LLP, counsel to Carey Diversified, has reviewed the following discussion
and believes that it fairly summarizes the federal income tax considerations
that are likely to be material to these holders of shares. This discussion is
based on current law. The discussion is not exhaustive of all possible tax
considerations, nor does the discussion give a detailed description of any
state, local, or foreign tax considerations. This discussion does not describe
all of the aspects of federal income taxation that may be relevant to a
shareholder in light of his or her particular circumstances or to certain types
of shareholders (including insurance companies, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) subject to special treatment under the federal
income tax laws. No ruling has been or will be requested from the Internal
Revenue Service.
EACH SHAREHOLDER IS URGED TO CONSULT WITH HIS OR HER OWN TAX ADVISER
REGARDING THE SPECIFIC CONSEQUENCES OF THE MERGER.
For federal income tax purposes, the merger will be treated as a
contribution by Carey Management shareholders of their interests in Carey
Management to Carey Diversified. As a result, the merger will be tax-free to
Carey Diversified and its shareholders, except as described below. W.P. Carey &
Co. LLC's adjusted basis for the interests that it acquires in the merger will
be equal to the basis that Carey
55
<PAGE> 63
Management shareholders had for those interests immediately before the merger,
plus the gain, if any, Carey Management shareholders recognize as a result of
the merger. The merger will result in W.P. Carey & Co. LLC owning 100 percent of
the interests acquired.
Each shareholder's adjusted basis for his shares includes his share of the
liabilities of Carey Diversified. The merger will reduce the percentage of Carey
Diversified's nonrecourse liabilities that is allocated to each shareholder.
This reduction will be treated as a deemed distribution of cash to each
shareholder and will reduce his adjusted basis for his shares. This deemed
distribution will not cause the recognition of taxable income at the time of
this deemed distribution unless the amount of any deemed cash distribution
exceeds a shareholder's adjusted basis for his shares. Generally, the gain, if
any, will be treated as gain or loss from the sale of a capital asset. It is not
anticipated that any of the shareholders of Carey Diversified will recognize
gain as a result of the merger unless his basis in the shares of Carey
Diversified is extremely low in relation to the value of such shares. This
reduced basis will affect the amount of distributions that W.P. Carey & Co. LLC
will be able to make on a tax-free basis but will not affect the gain or loss
recognized on the sale of shares.
Ordinary income may result to the extent Carey Diversified has "unrealized
receivables" or "inventory items which have appreciated substantially in value"
(including Carey Diversified's previously allowed depreciation and cost recovery
deductions subject to recapture) as those terms are defined in Section 751 of
the Internal Revenue Code. Carey Diversified anticipates that it will have no or
an insignificant amount of unrealized receivables or inventory items which have
appreciated substantially in value as defined in the Internal Revenue Code.
For income tax purposes, W.P. Carey & Co. LLC will be taxed as a
corporation unless 90 percent or more of its gross income for each tax year of
its existence is "qualifying income." Qualifying income, in relevant part,
includes rents from real property (as defined in the Code), gain from the sale
or other disposition of real property, gain from the sale or disposition of a
capital asset or depreciable property held for more than one year, real property
held for more than one year used in the trade or business that is not inventory,
all interest and dividends and gain from the sale or other disposition of stock,
securities or foreign currencies, or other income, including but not limited to,
gains from options, futures or forward contacts derived with respect to the
business of investing in this stock, securities or currencies.
Acquisition and disposition fees and fees for managing entities (other than
corporations) not wholly owned by Carey Diversified are not qualifying income.
Therefore, in order for 90 percent or more of its gross income to be qualifying
income after the merger, soon after the merger, Carey Diversified will
contribute certain assets to Carey Asset Management in one or more transactions
that will be tax free to Carey Diversified and its shareholders. After these
transactions, Carey Diversified will own all of the outstanding stock of Carey
Asset Management. Carey Asset Management will render the services, generating
fees and will be subject to federal and state income taxes on its taxable
income. As a result, Carey Diversified anticipates that at least 90 percent of
its gross income will be qualifying income and that it will continue to be
taxable for Federal income tax purposes as a partnership and not as a
corporation. Any of these fees earned by W.P. Carey & Co. LLC will be ordinary
income and be treated as unrelated business taxable income to shareholders who
are tax-exempt entities.
NO APPRAISAL RIGHTS
Under Delaware law and the operating agreement, holders of shares will not
be entitled to rights of appraisal in connection with the merger.
VOTE REQUIRED TO APPROVE THE MERGER
In order to approve the merger, holders of a majority of the shares must
vote in favor of the merger. Accordingly, shares that are not voted (whether by
abstention, broker non-vote or otherwise) will have the effect of counting
against the requirement that holders of a majority of the shares vote on the
merger, but will not count as a vote against the merger itself.
A VOTE FOR THE PROPOSAL WILL BE DEEMED A VOTE PERMITTING THE BOARD OF
DIRECTORS TO EFFECT THE MERGER PURSUANT TO THE MERGER AGREEMENT APPROVED BY THE
SHAREHOLDERS OF CAREY DIVERSIFIED.
56
<PAGE> 64
PROPOSAL THREE
AMENDMENT TO 1997 LISTED SHARE INCENTIVE PLAN
You are being asked to approve an amendment to the 1997 Listed Share
Incentive Plan to increase the number of shares eligible for issuance from
700,000 shares to 2,600,000 shares. This increase is necessary to allow for the
granting of awards under the Plan to the new employees of W.P. Carey & Co. LLC
following the merger. The compensation committee of the board of directors of
Carey Diversified has approved additional awards.
The Plan was approved for the purpose of attracting and retaining executive
officers, directors and employees. The Plan is administered by the compensation
committee of the board of directors or its delegate. The compensation committee
may not delegate its authority with respect to grants and awards to individuals
subject to Section 16 of the Securities Exchange Act of 1934, as amended.
Officers and other employees of W.P. Carey & Co. LLC and its affiliates
generally are eligible to participate in the Plan. The compensation committee
selects the individuals who will participate in the Plan ("Participants").
If amendment to the Plan is approved by the shareholders, the compensation
committee will be authorized to issue of up to a total of 2,600,000 Listed
Shares (including those already issued). The Plan provides for the grant of (i)
share options which may or may not qualify as incentive stock options under
Section 422 of the Internal Revenue Code, (ii) performance shares, (iii)
dividend equivalent rights, issued alone or in tandem with options, and (iv)
restricted shares, which are contingent upon the attainment of performance goals
or subject to vesting requirements or other restrictions. The compensation
committee prescribes the conditions which must occur for restricted shares or
performance shares to vest and incentive awards to be earned.
In connection with the grant of options under the Plan, the compensation
committee determines the option exercise period and any vesting requirements.
The initial options granted under the Plan have 10-year terms and will become
exercisable for one-third of the covered shares (disregarding fractional shares,
if any) on the first and second anniversaries of the date of grant and, for the
balance of the shares, on the third anniversary of the date of grant subject to
acceleration of vesting upon a change in control of Carey Diversified (as
defined in the Plan). Such acceleration will not be triggered by the merger. An
option may be exercised for any number of whole shares less than the full number
for which the option could be exercised. A Participant has no rights as a
shareholder with respect to shares subject to his or her option until the option
is exercised. If a Participant is terminated due to dishonesty or similar
reasons, all unexercised options, whether vested or unvested, will be forfeited.
Any shares subject to options which are forfeited (or expire without exercise)
pursuant to the vesting requirement or other terms established at the time of
grant will again be available for grant under the Plan. The exercise price of
options granted under the Plan may not be less than the fair market value of the
shares on the date of grant. Payment of the exercise price of an option granted
under the Plan may be made in cash, cash equivalents acceptable to the
Compensation Committee or, if permitted by the option agreement, by exchanging
shares having a fair market value equal to the option exercise price.
As of the date of this proxy solicitation statement, options for 302,000
shares (of which 88,499 shares are currently eligible for exercise) and 30,000
restricted shares were granted to the sole employee of Carey Diversified.
No option, dividend equivalent right, restricted shares or performance
shares may be granted under the Plan after December 31, 2006. The board may
amend or terminate the Plan at any time, but an amendment will not become
effective without shareholder approval if the amendment materially (i) increases
the number of shares that may be issued under the Plan (other than an adjustment
or automatic increase described above), (ii) changes the eligibility
requirements or (iii) increases the benefits that may be provided under the
Plan. No amendment will affect a Participant's outstanding award without the
Participant's consent.
57
<PAGE> 65
The following table summarizes the grant of restricted shares and options
to purchase of listed shares under the Plan approved by the compensation
committee of Carey Diversified. These shares and options will be granted upon
consummation of the merger and are conditioned upon shareholder approval of the
amendment to the Plan. Listed below are the grants to be made to the current
Chief Executive Officer, the incoming Chief Executive Officer and the next three
highest paid employees. The positions listed below are the current positions,
and except as otherwise stated, the officers serve in the same positions for
both Carey Diversified and Carey Management.
<TABLE>
<CAPTION>
VALUE OF STOCK
UNDERLYING OPTIONS AS OF
NAME AND POSITION RESTRICTED SHARES OPTIONS GRANTED EXERCISE PRICE MARCH 31, 2000
----------------- ----------------- --------------- -------------- ------------------------
<S> <C> <C> <C> <C>
WM. POLK CAREY, -0- -0- -- --
Chairman, Chief Executive
Officer, Carey Management
FRANCIS J. CAREY, -0- -0- -- --
Chairman, Chief Executive
Officer, Carey Diversified
GORDON F. DUGAN, 74,766 147,533 $ 7.69 $ 2,452,736
President
EDWARD V. LAPUMA 50,000 25,000 $16.25 $ 415,625
Executive Director
W. SEAN SOVAK 50,000 25,000 $16.25 $ 415,625
Executive Director
ALL CURRENT EXECUTIVE 74,766 209,406 $7.69-$16.25 $ 3,481,375
OFFICERS, AS A GROUP
ALL EMPLOYEES (EXCLUDING 474,573 806,152 $7.69-$16.25 $13,402,277
EXECUTIVE OFFICERS INCLUDED
ABOVE), AS A GROUP
</TABLE>
The restricted shares vest ratably over four years. Each of the options
granted as described above vest over a period of three years, beginning on the
first anniversary of the date of grant and are exercisable until the tenth
anniversary of the date of grant. These options are non-qualified for federal
income tax purposes and are not taxable to the recipient or deductible by Carey
Diversified until exercised. Upon exercise, the recipient will recognize
ordinary income to the extent the exercise price is below the market value of
the listed shares at such time and Carey Diversified will incur deductible
compensation expense in the same amount.
58
<PAGE> 66
WHERE YOU CAN FIND MORE INFORMATION
Carey Diversified is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended, and files annual, quarterly and
special reports, proxy statements and other information with the SEC. You may
read and copy any materials Carey Diversified files at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. Carey Diversified's SEC Filings are also available to the
public at the SEC's web site at http://www.sec.gov. Carey Diversified's shares
are listed on the New York Stock Exchange under the symbol "CDC" and all
reports, proxy statements and other information filed by Carey Diversified with
the New York Stock Exchange may be inspected at the New York Stock Exchange's
office at 20 Broad Street, New York, New York 10005.
The SEC allows Carey Diversified to "incorporate by reference" some of the
information Carey Diversified files with them, which means that Carey
Diversified can disclose important information to you by referring you to those
documents. The information incorporated by reference is an important part of
this proxy solicitation statement and later information filed with the SEC will
automatically update and supersede this information. Carey Diversified
incorporates by reference any future filings, as of the date of those filings,
made by it with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this proxy solicitation
statement and prior to June 28, 2000.
Any statement contained in a document incorporated or deemed to be
incorporated herein shall be deemed modified or superseded for purposes of this
proxy solicitation statement to the extent that a statement contained herein or
in any other subsequently filed document that is deemed to be incorporated
herein modifies or supersedes that statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this joint proxy statement and prospectus.
Carey Diversified incorporates by reference the documents listed below:
(a) Quarterly Report on Form 10-Q for the quarter ended March 31, 2000.
(b) Annual Report on Form 10-K for the year ended December 31, 1999.
(c) Current Report on Form 8-K dated December 2, 1999.
(d) The description of Carey Diversified's shares contained in the
Registration Statement on Form S-4 dated October 15, 1997.
(e) The description of Carey Diversified's shares contained in the
Registration Statement on Form 8-A dated January 13, 1998.
(f) The description of Carey Diversified's shares contained in its
Registration statement on Form 8-A dated October 22, 1999.
You may request a copy of each of the above-listed Carey Diversified
documents at no cost by contacting Carey Diversified at:
Carey Diversified LLC
50 Rockefeller Plaza
New York, NY 10020
Attention: Investor Relations
Telephone: 1-800-611-9976
59
<PAGE> 67
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
W.P. CAREY & CO. LLC
Pro Forma (unaudited):
Condensed Consolidated Balance Sheet, as of March 31,
2000................................................... F-5
Notes to Condensed Consolidated Balance Sheet............. F-6
Pro Forma Condensed Consolidated Statements of Income for
the year ended December 31, 1999....................... F-9
Pro Forma Condensed Consolidated Statements of Income for
the three months ended March 31, 2000.................. F-10
Notes to Condensed Consolidated Statements of Income...... F-11
W.P. CAREY & CO., INC. AND SUBSIDIARIES AND CERTAIN
AFFILIATED COMPANIES
Annual Combined Financial Statements:
Report of Independent Accountants......................... F-14
Combined Balance Sheets, as of December 31, 1999, 1998 and
1997................................................... F-15
Combined Statements of Income for the years ended December
31, 1999, 1998 and 1997................................ F-16
Combined Statements of Stockholder's Equity for the years
ended December 31, 1999, 1998 and 1997................. F-17
Combined Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997....................... F-18
Notes to Combined Financial Statements.................... F-19
Interim Condensed Combined Financial Statements (unaudited):
Condensed Combined Balance Sheets, as of March 31, 2000
and December 31, 1999.................................. F-29
Condensed Combined Statements of income for the three
months ended March 31, 2000 and 1999................... F-30
Condensed Combined Statements of Comprehensive Income for
the three months ended March 31, 2000 and 1999......... F-31
Condensed Combined Statements of Cash Flows for the three
months ended March 31, 2000 and 1999................... F-32
Notes to Condensed Combined Financial Statements.......... F-33
</TABLE>
F-1
<PAGE> 68
W.P. CAREY & CO. LLC
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
The following unaudited pro forma Condensed Consolidated Balance Sheet as
of March 31, 2000 has been presented as if the merger of Carey Management into a
wholly-owned subsidiary of Carey Diversified had occurred on March 31, 2000.
This unaudited pro forma Condensed Consolidated Balance Sheet should be read in
conjunction with the (i) consolidated balance sheet of Carey Diversified as of
March 31, 2000 included in its Form 10-Q filing as of March 31, 2000
incorporated by reference herein and (ii) the combined balance sheet of W.P.
Carey & Co., Inc. as of March 31, 2000 and related financial statements included
elsewhere herein. In management's opinion, all adjustments necessary to reflect
the merger and the related issuance of shares of common stock of Carey
Diversified have been made.
The following unaudited pro forma Condensed Consolidated Statements of
Income for the year ended December 31, 1999 and the three months ended March 31,
2000 have been presented as if the merger of Carey Management into a wholly
owned subsidiary of Carey Diversified had occurred as of January 1, 1999. The
unaudited pro forma Condensed Consolidated Statements of Income should be read
in conjunction with the (i) consolidated financial statements of Carey
Diversified included in its Form 10-Q filing as of March 31, 2000 and the
financial statements included in its Annual Report on Form 10-K for Fiscal Year
1999 incorporated by reference herein and (ii) the financial statements of W.P.
Carey & Co., Inc. for the three months ended March 31, 2000, and the three years
ended December 31, 1999 included elsewhere herein. In management's opinion, all
adjustments necessary to reflect the merger and the related issuance of shares
of common stock of Carey Diversified have been made.
Pursuant to the terms of the transaction, Carey Management, a wholly owned
subsidiary of W.P. Carey & Co., Inc., will be merged into a subsidiary of Carey
Diversified. Certain of the operating assets and liabilities to be acquired by
Carey Diversified are currently held by other affiliated entities of W.P. Carey
& Co., Inc. Such assets include: the Advisory Agreements with the CPA(R) REITs,
the stock of an affiliated broker dealer, investments of 20,000 shares in each
of the CPA(R) REITs and certain office furniture fixtures and equipment. Prior
to the merger, these operating assets and liabilities will be contributed to
Carey Management by W.P. Carey & Co., Inc. and its affiliates in exchange for
stock of Carey Management LLC pursuant to an Assignment and Assumption
Agreement. The transfer of such assets and liabilities represents a transfer
among entities under common control and will be accounted for at their
historical cost basis. The consolidated assets and liabilities of W.P. Carey &
Co., Inc. which were not transferred to Carey Management LLC are not integral to
the future management and business operations historically performed by W.P.
Carey & Co., Inc. Assets and Liabilities excluded from the acquisition are
primarily: excess cash, marketable securities and receivables not required to
satisfy the Net Working Capital requirement as defined in the Agreement;
investments in shares and warrants to acquire shares of Carey Diversified and
the CPA(R) REITs; and other miscellaneous assets and liabilities not directly
related to the business operations to be acquired by Carey Diversified.
Carey Diversified will acquire Carey Management in exchange for 8,000,000
shares of Carey Diversified common stock to be issued upon completion of the
merger, and an additional 2,000,000 shares to be issued over four years if
specified performance criteria are achieved. The operating assets to be acquired
primarily consist of four Advisory Agreements with four affiliated publicly
owned real estate investment trusts (the "CPA(R) REITs"), a Management Agreement
with Carey Diversified LLC, certain cash and cash equivalents required to
satisfy the current liabilities that will be assumed by Carey Diversified
pursuant to the merger, all of the stock of an affiliated broker dealer,
investments in the stock of the CPA(R) REITs and office furniture, fixtures and
equipment required to carry on the administrative operations of Carey
Management. The employees of W.P. Carey & Co., Inc. will also be transferred to
Carey Management. Upon completion of the transaction, Carey Diversified will
assume the name of "W.P. Carey & Co. LLC".
F-2
<PAGE> 69
W.P. CAREY & CO. LLC
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The exchange of interests in Carey Management for shares of Carey
Diversified will be accounted for as a purchase and recorded at the fair value
of the initial 8,000,000 shares issued by Carey Diversified. The purchase price
will be allocated to the assets and liabilities acquired based on their
estimated fair market values. Upon consummation of the merger, we will obtain
appraisals for the assets acquired, principally the Advisory Agreements, other
identifiable intangible assets and the Management Agreement. The allocations
reflected in the pro forma financial statements are preliminary and will be
adjusted based on the appraisals of the assets acquired. The value of the
Advisory Agreements reflected in the pro forma financial statements have been
computed based on a discounted cash flow analysis of the projected fees, net of
related costs, to be derived from each agreement. The discounted cash flow
approach is based on the premise that the intrinsic value of an asset reflects
the current value of future cash flows generated by the asset. The value of the
Management Agreement reflects the approximate amount Carey Diversified would
currently have to pay to terminate the Management Agreement as accounted for in
the following paragraph. Upon consummation of the Merger, the Management
Agreement will be recorded at its appraised value, which is expected to
approximate the termination fee. The purchase price will be further allocated to
other identifiable tangible and intangible assets acquired at their fair market
value. Any excess of the purchase price over the identifiable tangible and
intangible assets, currently equal to approximately $27 million, will be
accounted for as goodwill. The merged entity will continue the asset management
business of Carey Management by continuing offerings of CPA(R) REITs and other
investment products. The new assets under management are expected to lead to
significant income and value to the merged entity.
The portion of the purchase price attributable to the existing management
contract between Carey Diversified and Carey Management, currently estimated to
approximate $40 million, will be accounted for as a contract termination and
such amount will be expensed immediately at the date of acquisition.
If the value of the continuing asset management business acquired from
Carey Management based on appraisal and the value attributable to the existing
management contract between Carey Diversified and Carey Management, which is
expected to approximate the termination fee, is less than the value of the
consideration given in the merger, the excess will be recorded as a distribution
to shareholders of Carey Management. The company does not expect that an excess
will exist and therefore no distribution would be recorded.
Issuance of the additional 2,000,000 shares will be recorded when the
contingencies related to their issuance are resolved. The additional purchase
price will be attributable to the ongoing advisory business as the achievement
of the performance criteria is dependent upon the continued growth of that
component of the acquired business. The growth of fees derived from the CPA(R)
REIT Advisory agreements are expected to exceed the rate of growth generated
from internal operations of Carey Diversified. Accordingly, the additional
purchase price will be recorded as goodwill.
Whenever events or circumstances in the future indicate that the carrying
amount of the acquired assets relating to the ongoing advisory business (REIT
Advisory contracts, workforce and goodwill) in the aggregate may not be
recoverable, the Company's policy is to assess any impairment in value by making
a comparison of the current and projected undiscounted cash flows related to
such continuing advisory business acquired in the transaction over its remaining
useful life to the carrying amount of assets acquired, including goodwill,
related to the business. Such carrying amount would be adjusted, if necessary,
to fair value to reflect any impairment.
The accompanying pro forma financial statements separately reflect (i) the
assignment and assumption of assets and liabilities to Carey Management from
W.P. Carey & Co., Inc. and certain of its affiliates which are subject to the
merger and (ii) the merger of Carey Management into Carey Diversified.
F-3
<PAGE> 70
W.P. CAREY & CO. LLC
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma Condensed Consolidated Balance Sheet is not
necessarily indicative of what the actual financial position would have been at
March 31, 2000, nor does it purport to represent the future financial position
of W.P. Carey & Co. LLC. The unaudited pro forma Condensed Consolidated
Statements of Income are not necessarily indicative of what the actual results
of operations would have been, nor does it purport to represent the results of
operations for future periods.
F-4
<PAGE> 71
W.P. CAREY & CO. LLC
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL(1) ADJUSTMENTS(2) PRO FORMA(2) HISTORICAL(1)
------------- -------------- ---------------- -----------------
ASSIGNMENT AND
W.P. CAREY ASSUMPTION
& CO., INC. AGREEMENT CAREY MANAGEMENT CAREY DIVERSIFIED
------------- -------------- ---------------- -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Real estate leased to other:
Accounted for under the
operating method, net........ $498,410
Net investment in direct
financing leases............. 295,558
Operating real estate, net....... 6,802
Real estate under construction
leased to others............... 3,347
Assets held for sale............. 3,091
Cash and cash equivalents........ $ 4,752 $ (4,593) $ 159 9,209
Investments in affiliates........ 60,962 (58,726) 2,236
Receivables from affiliates...... 24,367 (20,105) 4,262
Equity investments............... 32,920
Other assets, net................ 5,236 (3,952) 1,284 21,758
Intangible assets................
------- -------- ------ --------
Total assets............ $95,317 $(87,376) $7,941 $871,095
======= ======== ====== ========
LIABILITIES AND PARTNERS' CAPITAL/MEMBERS' EQUITY:
Mortgage notes payable........... $185,924
Notes payable.................... 154,100
Accrued interest payable......... 3,034
Accrued expenses payable......... $ 7,768 $ (2,827) $4,941
Dividends payable................ 10,970
Accounts payable to affiliates... 6,656
Other liabilities................ 3,301 (2,396) 905 9,974
Deferred compensation............ 12,414 (12,414) (0)
------- -------- ------ --------
Total liabilities....... $23,483 (17,637) 5,846 370,658
------- -------- ------ --------
Minority interest................ (3,078)
------- -------- ------ --------
PARTNERS' CAPITAL/MEMBERS' EQUITY:
Listed Shares, no par value...... 2,095 2,095
Common stock..................... 3 (3) (0) 527,876
Additional paid in capital....... 484 (484) 0
Distributions in excess of
accumulated earnings........... (12,904)
Retained earnings................ 71,224 (71,224) 0
Accumulated other comprehensive
income......................... 398 (398) 0 (1,710)
------- -------- ------ --------
72,109 (70,014) 2,095 513,262
Less, Treasury stock, at cost.... 275 (275) 0 9,747
------- -------- ------ --------
71,834 (69,739) 2,095 503,515
------- -------- ------ --------
Total liabilities and
partners'
capital/members'
equity................ $95,317 $(87,376) $7,941 $871,095
======= ======== ====== ========
<CAPTION>
PRO FORMA
ADJUSTMENTS
-----------
PRO FORMA
MERGER CONSOLIDATED
----------- ------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS:
Real estate leased to other:
Accounted for under the
operating method, net........ $498,410
Net investment in direct
financing leases............. 295,558
Operating real estate, net....... 6,802
Real estate under construction
leased to others............... 3,347
Assets held for sale............. 3,091
Cash and cash equivalents........ 9,368
Investments in affiliates........ $ (1,037)(5) 1,199
Receivables from affiliates...... (3,780)(5) 482
Equity investments............... 32,920
Other assets, net................ (6,034)(5) 17,008
Intangible assets................ 120,810(3) 80,810
(40,000)(3)
-------- --------
Total assets............ $ 69,959 $948,995
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Mortgage notes payable........... $185,924
Notes payable.................... 154,100
Accrued interest payable......... 3,034
Accrued expenses payable......... 4,941
Dividends payable................ 10,970
Accounts payable to affiliates... $ (6,293)(5) 363
Other liabilities................ 2,305(3) 13,184
Deferred compensation............ (0)
-------- --------
Total liabilities....... (3,988) 372,516
-------- --------
Minority interest................ (1,037)(5) (4,115)
-------- --------
PARTNERS' CAPITAL/MEMBERS' EQUITY
Listed Shares, no par value...... 118,505(4) 120,600
Common stock..................... 527,876
Additional paid in capital.......
Distributions in excess of
accumulated earnings........... (3,521)(5) (56,425)
(40,000)(3)
Retained earnings................
Accumulated other comprehensive
income......................... (1,710)
-------- --------
74,984 590,341
Less, Treasury stock, at cost.... 9,747
-------- --------
74,984 580,594
-------- --------
Total liabilities and
partners'
capital/members'
equity................ $ 69,959 $948,995
======== ========
</TABLE>
See accompanying notes to pro forma condensed consolidated balance sheet.
F-5
<PAGE> 72
W.P. CAREY & CO. LLC
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000 (UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(1) Reflects the historical consolidated balance sheet for each entity as of
March 31, 2000, incorporated by reference or included elsewhere herein.
(2) In accordance with the Merger Agreement, Carey Diversified will acquire the
net lease business operations of W.P. Carey & Co., Inc. pursuant to a merger
with Carey Management, a wholly-owned subsidiary of W.P. Carey & Co., Inc.
Carey Management is the manager of Carey Diversified pursuant to a
Management Agreement. In accordance with the Assignment and Assumption
Agreement, affiliates of W.P. Carey & Co., Inc. that are not merging with
Carey Diversified will contribute certain operating assets and liabilities
required to carry on the net lease business operations to Carey Management
prior to the merger in exchange for stock of Carey Management. Such
contribution will be accounted for as a transfer among entities under common
control and accounted for at their historical cost basis because Wm. Polk
Carey, either directly or indirectly, owns all the stock of Carey Management
LLC and each of the combining affiliates. The operating assets and
liabilities contributed to Carey Management include four Advisory Agreements
to provide asset management services to four affiliated publicly owned real
estate investment trusts (the "CPA(R) REITs"), investments of 20,000 shares
of the stock of each of the CPA(R) REITs, the stock of an affiliated broker
dealer, and other miscellaneous assets and liabilities. The affiliated
entities that are not merging with Carey Diversified will retain certain
assets and liabilities that are not required to carry on the future net
lease business operations, including certain cash and cash equivalents,
receivables earned prior to the merger, certain of the equity investments in
the CPA(R) REITs, and investments in Carey Diversified stock and liabilities
for deferred compensation. The pro forma adjustments for W.P. Carey & Co.,
Inc. reflect the exclusion of the assets and liabilities not subject to the
merger, resulting in the pro forma balance sheet of Carey Management
pursuant to the Assignment and Assumption Agreement.
The CPA(R) REITs include Corporate Property Associates 10 Incorporated,
Carey Institutional Properties Incorporated, Corporate Property Associates
12 Incorporated, and Corporate Property Associates 14 Incorporated. The
CPA(R) REITs are currently advised by W.P. Carey & Co., Inc. Upon
completion of the merger W.P. Carey & Co. LLC, the new name for Carey
Diversified, will become the advisor of the CPA(R) REITs.
(3) In accordance with the terms of the Merger Agreement, Carey Diversified will
acquire the common stock of Carey Management in exchange for an initial
8,000,000 shares of Carey Diversified common stock and an additional
2,000,000 shares of common stock, issuable over four years if specified
performance goals are achieved. The contingent shares will be recorded in
the future when the contingency is resolved and the additional shares become
issuable.
The purchase price of Carey Management at the date of acquisition is
comprised of:
<TABLE>
<S> <C>
Issuance of 8,000,000 shares of Carey Diversified........... $120,600
Costs....................................................... 2,305
--------
$122,905
========
</TABLE>
The shares of Carey Diversified stock to be issued have been valued based
upon an average of the market prices of the stock at the time of the
announcement of the transaction, and have been discounted by 10% to reflect
the restrictions on their disposition.
The purchase price has been allocated to various assets and liabilities
acquired based upon their estimated respective fair market values. The
allocations included in this pro forma balance sheet are preliminary
estimates and will be further adjusted as appropriate at the acquisition
date based on
F-6
<PAGE> 73
W.P. CAREY & CO. LLC
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
appraisals to be obtained. Any excess purchase price over the identifiable
tangible and intangible assets acquired will be recorded as goodwill. The
preliminary allocations are as follows:
<TABLE>
<S> <C>
Intangible assets:
Advisory agreements with CPA(R) REITs..................... $ 50,242
Assembled workforce and expertise......................... 4,000
Goodwill.................................................. 26,568
Net tangible assets......................................... 2,095
--------
Amount to be recorded as purchase price at date of
acquisition............................................ 82,905
Management agreement between Carey Diversified and Carey
Management to be cancelled and to be expensed at date of
acquisition............................................... 40,000
--------
$122,905
========
</TABLE>
The value of the Advisory Agreements with the CPA(R) REITs was determined
by projecting the future fees, net of related costs, derived from each
agreement over the expected remaining life of each agreement and
discounting such fees at a rate commensurate with their risk. The fees used
for the valuation include asset management fees, performance fees,
acquisition fees and disposition fees. Such fees were determined in
accordance with the provisions of each agreement. The weighted average
remaining life of the agreements approximates nine years. Projected fees
are assumed to grow at a rate consistent with historical growth rates which
range from 1.5% to 2.5% per year. The projected disposition fees derived
from each CPA(R) REIT were determined by calculating excess cash proceeds
generated from an assumed sale of the assets in each portfolio at the time
of liquidation, after deducting projected mortgage debt balances,
transaction costs and deducting amounts to be returned to shareholders to
recover their initial investment and their preferred return, in accordance
with provisions of each Advisory Agreement. Fees from CPA(R):14 which is
currently in offering stage, were estimated by assuming two years of
capital raising which is the anticipated term of CPA(R):14's offering.
Estimated capital raised for CPA(R):14 and related offering costs were
projected based on CPA(R):14's offering history. Projected fees were
discounted at rates ranging from 8.5% to 20% based on a review of the
interest rate environment including long-term corporate bond yields and
their yield to maturity based on various maturities and debt ratings.
Profit margins were applied to the present value of the discounted fees to
determine their value. These margins reflect the approximate profits
realized on such fees, after providing for the estimated cost of rendering
services required by each contract. The profit margins were determined
based on the historical operations of W.P. Carey & Co. and its affiliates.
The value of Carey Management's workforce and expertise is estimated to
equal $4,000. Carey Management employs a unique approach to the structuring
of net lease investments that is intended to minimize exposure to ownership
risks and provide stable cash flows throughout the life of the investment.
This is accomplished, in part, through the expertise of Carey Management
personnel in evaluating corporate credit. Carey Management has developed an
extensive underwriting process to identify the level of risk associated
with potential lessees and develop appropriate measures to minimize the
exposure to such risks. The ownership of properties is also structured in a
manner that minimizes exposure to risks of the changing real estate
markets. Senior executives with extensive experience in the net lease
business have managed the business operations of Carey Management for over
15 years. During this period they have developed special expertise in the
process of raising capital, structuring net lease investments, managing
assets to achieve stable returns and disposing of assets. Carey Management
personnel have acquired this expertise through internal training and
extensive experience with net lease business operations. The value assigned
to the work force is based upon an estimate of the cost to replace key
employees and members of the investment committee.
F-7
<PAGE> 74
W.P. CAREY & CO. LLC
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)
The management contract with Carey Management provides for the payment of a
termination fee if the contract is terminated by Carey Diversified without
cause. The fee is equal to $40 million if the contract is terminated before
December 31, 2000, and any fees that would be earned by the manager upon
disposition of the assets of Carey Diversified at their appraised value at
the date the contract is terminated. The portion of the purchase price
attributed to the termination of the contract with Carey Management has
been recorded at the contractual termination fee of $40 million subject to
completion of the appraisal of such agreement. It is expected that the
Management Agreement will be ultimately recorded at such amount based on
the current estimates of value of the properties which would not trigger
the incentive fee.
Whenever events or circumstances in the future indicate that the carrying
amount of the acquired assets relating to the ongoing advisory business
(REIT Advisory contracts, workforce and goodwill) in the aggregate may not
be recoverable, the Company's policy is to assess any impairment in value
by making a comparison of the current and projected undiscounted cash flows
related to such continuing advisory business acquired in the transaction
over its remaining useful life to the carrying amount of assets acquired,
including goodwill, related to the business. Such carrying amount would be
adjusted, if necessary, to fair value to reflect any impairment.
Whenever events or circumstances in the future indicate that the carrying
amount of goodwill may not be recoverable, the Company's policy is to
assess any impairment in value by making a comparison of the current and
projected undiscounted cash flows related to such business over its
remaining useful life to the carrying amount of such assets related to the
business. Such carrying amount would be adjusted, if necessary, to fair
value to reflect any impairment.
(4) Reflects issuance of 8,000,000 Listed Shares in connection with the merger.
(5) Reflects elimination of intercompany accounts.
F-8
<PAGE> 75
W.P. CAREY & CO. LLC
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS(2)
HISTORICAL(1) -------------- PRO FORMA(3) HISTORICAL(1)
------------- ASSIGNMENT ------------ ------------- PRO FORMA
AND ADJUSTMENTS
W.P. CAREY & ASSUMPTION CAREY CAREY ----------- PRO FORMA
CO., INC. AGREEMENT MANAGEMENT DIVERSIFIED MERGER CONSOLIDATED
------------- -------------- ------------ ------------- ----------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental Income................ $ 46,719 $ 46,719
Interest from direct
financing leases........... 33,842 33,842
Structuring and financing
fees....................... $16,356 $16,356 $ (2,865)(4) 13,491
Management fees from
affiliates................. 31,202 31,202 (6,801)(4) 24,401
Marketing reimbursements from
affiliates................. 1,574 1,574 1,574
Other interest and dividend
income..................... 1,441 $(1,441) 962 962
Other income................. 1,445 (162) 1,283 1,208 2,491
Revenue of hotel
operations................. 5,775 5,775
------- ------- ------- ---------- --------- ----------
Total Revenues......... 52,018 (1,603) 50,415 88,506 (9,666) 129,255
------- ------- ------- ---------- --------- ----------
Expenses:
Interest..................... 18,801 18,801
Depreciation and
amortization............... 11,192 6,268(5) 21,212
3,752(6)
General and administrative... 27,844 (9,403) 18,441 8,045 (1,457)(4) 27,434
2,774(7)
(369)(8)
Property expenses............ 5,433 (3,026)(9) 2,407
Writedown to fair value...... 5,988 5,988
Operating expenses of hotel
operations................. 4,662 4,662
------- ------- ------- ---------- --------- ----------
27,844 (9,403) 18,441 54,121 7,942 80,504
------- ------- ------- ---------- --------- ----------
Income before income from
equity investments, net
gains, taxes, minority
interest in income and
extraordinary items........ 24,174 7,800 31,974 34,385 (17,608) 48,751
Income from equity
investments.................. 4,687 (2,408) 2,279 1,886 (2,230)(9) 1,935
------- ------- ------- ---------- --------- ----------
Income before net gains,
taxes, minority interest
in income, and
extraordinary items...... 28,861 5,392 34,253 36,271 (19,838) 50,686
Gains on sales of real estate
and securities, net.......... 471 695(4) 1,166
------- ------- ------- ---------- --------- ----------
Income before taxes,
minority
interest in income and
extraordinary items...... 28,861 5,392 34,253 36,742 (19,143) 51,852
Provision for taxes............ (946) (84) (1,030) (1,585)(10) (2,615)
Minority interest in income.... (2,664) 2,230(9) (434)
------- ------- ------- ---------- --------- ----------
Income before extraordinary
items attributable to
Listed Share............... $27,915 $ 5,308 $33,223 $ 34,078 $ (18,498) $ 48,803
======= ======= ======= ========== ========= ==========
Pro forma income before
extraordinary items per
Listed Share -- basic and
diluted...................... $ 1.33 $ 1.45
========== ==========
Pro forma weighted average
number of Listed Shares
outstanding -- basic and
diluted...................... 25,596,793 8,000,000(11) 33,596,793
========== ========= ==========
</TABLE>
See accompanying notes to pro forma condensed consolidated statements of income.
F-9
<PAGE> 76
W.P. CAREY & CO. LLC
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS(2)
HISTORICAL(1) -------------- PRO FORMA(3) HISTORICAL(1)
------------- ASSIGNMENT ------------ ------------- PRO FORMA
AND ADJUSTMENTS
W.P. CAREY & ASSUMPTION CAREY CAREY ----------- PRO FORMA
CO., INC. AGREEMENT MANAGEMENT DIVERSIFIED MERGER CONSOLIDATED
------------- -------------- ------------ ------------- ----------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental Income................ $ 12,743 $ 12,743
Interest from direct
financing leases........... 8,324 8,324
Structuring and financing
fees....................... $2,060 $2,060 2,060
Management fees from
affiliates................. 5,538 5,538 $ (1,377)(4) 4,161
Marketing reimbursements from
affiliates................. 519 519 519
Other interest and dividend
income..................... 385 $ (385) 35 35
Other income................. 211 (40) 171 852 1,023
Revenue of hotel
operations................. 1,322 1,322
------ ------- ------ ---------- --------- ----------
Total Revenues......... 8,713 (425) 8,288 23,276 (1,377) 30,187
------ ------- ------ ---------- --------- ----------
Expenses:
Interest..................... 6,010 6,010
Depreciation and
amortization............... 3,127 1,567(5) 5,632
938(6)
General and administrative... 7,341 (2,517) 4,824 1,913 (401)(4) 7,006
694(7)
(24)(8)
Property expenses............ 1,666 (957)(9) 709
Writedown to fair value......
Operating expenses of hotel
operations................. 1,171 1,171
------ ------- ------ ---------- --------- ----------
7,341 (2,517) 4,824 13,887 1,817 20,528
------ ------- ------ ---------- --------- ----------
Income before income from
equity investments, net
gains, taxes, minority
interest in income and
extraordinary items........ 1,372 2,092 3,464 9,389 (3,194) 9,659
Income from equity
investments.................. 1,657 (906) 751 1,222 (739)(9) 1,234
------ ------- ------ ---------- --------- ----------
Income before net gains,
taxes, minority interest
in income, and
extraordinary items...... 3,029 1,186 4,215 10,611 (3,933) 10,893
Gains (loss) on sales of real
estate and securities, net... (116) --(4) (116)
------ ------- ------ ---------- --------- ----------
Income before taxes,
minority
interest in income and
extraordinary items...... 3,029 1,186 4,215 10,495 (3,933) 10,777
Benefit (provision) for
taxes........................ 202 202 (737)(10) (535)
Minority interest in income.... (870) 739(9) (131)
------ ------- ------ ---------- --------- ----------
Income before extraordinary
items attributable to
Listed Share............... $3,231 $ 1,186 $4,417 $ 9,625 $ (3,931) $ 10,111
====== ======= ====== ========== ========= ==========
Pro forma income before
extraordinary items per
Listed Share -- basic and
diluted...................... $ .38 $ .30
========== ==========
Pro forma weighted average
number of Listed Shares
outstanding -- basic and
diluted...................... 25,624,346 8,000,000(11) 33,624,346
========== ========= ==========
</TABLE>
See accompanying notes to pro forma condensed consolidated statements of income.
F-10
<PAGE> 77
W.P. CAREY & CO. LLC
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999 AND THE THREE MONTHS ENDED MARCH 31, 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
(1) Reflects the historical statements of income of the W.P. Carey & Co., Inc.
and Carey Diversified for the year ended December 31, 1999 and the three
months ended March 31, 2000.
(2) Reflects elimination of income and expenses related to assets and
liabilities that will not be acquired by Carey Diversified pursuant to the
Assignment and Assumption Agreement and the merger.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
<S> <C> <C>
Other interest and dividend income....................... $1,441 $ 385
====== ======
Other income............................................. $ 162 $ 40
====== ======
General and administrative expenses:
Expenses related to international operations (exclusive
of France & England)................................ $ 125 --
Deferred and other compensation expenses............... 8,907 $2,423
Other.................................................. 371 94
------ ------
Total............................................... $9,403 $2,517
====== ======
Equity income............................................ $2,408 $ 906
====== ======
</TABLE>
(3) Reflects the pro forma operations of Carey Management that will be acquired
by Carey Diversified pursuant to the merger.
(4) Reflects elimination of structuring and financing fee income related to
transaction and disposition fees on Carey Diversified properties. Upon
completion of the merger, the Management Agreement with Carey Diversified,
which provides for these fees, will be terminated.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
<S> <C> <C>
Structuring fees......................................... $2,170 --
Disposition fees......................................... 695 --
------ ------
Total............................................... $2,865 --
====== ======
Management fees.......................................... $5,344 $ 976
General and administrative expense reimbursements........ 1,457 401
------ ------
Total............................................... $6,801 $1,377
====== ======
</TABLE>
Structuring and disposition fees related to properties owned by Carey
Diversified are recognized as revenues by Carey Management. Structuring
fees are capitalized to the cost of properties acquired by Carey
Diversified. Disposition fees are included in the calculation of net gains
or losses from the sales of properties by Carey Diversified. The
disposition fees for the year ended December 31, 1999 were included in the
determination of net gains from sales of real estate during that period and
such gains have been adjusted accordingly.
General and administrative expense reimbursements consist primarily of the
actual cost of personnel needed for Carey Management to provide
administrative services to Carey Diversified. Such reimbursements are
classified under management fee income in the financial statements of Carey
F-11
<PAGE> 78
W.P. CAREY & CO. LLC
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME -- (CONTINUED)
Management, and the related expense is classified under general and
administrative expenses on the income statement of Carey Diversified.
(5) Reflects amortization of Advisory Contracts as follows:
<TABLE>
<CAPTION>
AMORTIZATION EXPENSE
---------------------------
THREE MONTHS
YEAR ENDED ENDED
FAIR MARKET DECEMBER 31, MARCH 31,
VALUE 1999 2000
----------- ------------ ------------
<S> <C> <C> <C>
CPA(R) REIT Advisory Contracts................. $50,242 $6,268 $1,567
======= ====== ======
</TABLE>
The value of the Advisory Contracts with the CPA(R) REITs was determined by
projecting the future fees to be derived from each agreement over the
expected remaining life of each agreement and discounting such fees at a
rate commensurate with their risk. The fees used for the valuation include
asset management fees, performance fees, acquisition fees and disposition
fees. Such fees were determined in accordance with the provisions of each
agreement. The purchase price allocated to Advisory Contracts will be
amortized on a straight-line basis over their estimated remaining lives
which range from three to eleven years. The remaining lives of the CPA(R)
REIT Advisory Contracts were estimated assuming a property holding period of
nine years, and an estimated liquidation period not to exceed two years,
after full investment of the net proceeds in each REIT. This is consistent
with the estimated property holding periods disclosed in connection with
each REIT's initial offering of shares. The Advisory Contracts have one-year
terms and are renewable annually.
Projected fees are assumed to grow at a rate consistent with historical
growth rates which range from 1.5% to 2.5% per year. The projected
disposition fees derived from each CPA(R) REIT were determined by
calculating excess cash proceeds generated from an assumed sale of the
assets in each portfolio at the time of liquidation, after deducting
projected mortgage debt balances, transaction costs and deducting amounts to
be returned to shareholders to recover their initial investment and their
preferred return, in accordance with provisions of each Advisory Contract.
Fees from CPA(R):14 which is currently in offering stage, were estimated by
assuming two years of capital raising which is the anticipated term of
CPA(R):14's offering. Estimated capital raised for CPA(R):14 and related
offering costs were projected based on CPA(R):14's offering history.
Projected fees were discounted at rates ranging from 8.5% to 20% based on a
review of the interest rate environment including long-term corporate bond
yields and their yield to maturity based on various maturities and debt
ratings. Profit margins were applied to the present value of the discounted
fees to determine their net present value. These margins reflect the
approximate profits realized on such fees, after providing for the estimated
cost of rendering services required by each contract. The profit margins
were determined based on the combined historical operations of W.P. Carey &
Co. and its affiliates.
(6) Reflects amortization of the value of Carey Management's workforce and
goodwill as follows:
<TABLE>
<CAPTION>
AMORTIZATION EXPENSE
----------------------------------
YEAR ENDED THREE MONTHS ENDED
FAIR MARKET DECEMBER 31, MARCH 31,
VALUE 1999 2000
----------- ------------ ------------------
<S> <C> <C> <C>
Assembled workforce and expertise...... $ 4,000 $ 800 $200
Goodwill............................... 26,568 2,952 738
------- ------ ----
$30,568 $3,752 $938
======= ====== ====
</TABLE>
F-12
<PAGE> 79
W.P. CAREY & CO. LLC
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF INCOME -- (CONTINUED)
The value of Carey Management's workforce and expertise is estimated to
equal $4,000 which includes special expertise in the process of raising
capital, structuring net lease investments, managing assets to achieve
stable returns and disposing of assets. Carey Management employs a unique
approach to the structuring of net lease investments that is intended to
minimize exposure to ownership risks and provide stable cash flows
throughout the life of the investment. Senior executives with extensive
experience in the net lease business, have managed the business operations
of Carey Management for over 15 years. The workforce and related expertise
will be amortized over an estimated useful life of five years based on
Carey Management's historical employee turnover levels.
The amount recorded as goodwill will be amortized on a straight line basis
over the nine year weighted average life of the Advisory Agreements.
(7) Represents additional compensation expense as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------------
<S> <C> <C>
Vesting of restricted stock......................... $1,790 $448
Vesting of options.................................. 984 246
------ ----
Total..................................... $2,774 $694
====== ====
</TABLE>
Upon completion of the merger, W.P. Carey & Co. LLC will grant 475,000
restricted Listed Shares and approximately 329,000 options with an exercise
price of $7.69 per Listed Share, to employees of Carey Management. The
restricted Listed Shares will be charged to compensation expense over their
four-year vesting period. The options are exercisable over a period of ten
years and will vest ratably over a period of three years. The excess of the
fair value of the Listed Shares over the option exercise price will be
charged to compensation expense over the vesting period.
(8) Reflects elimination of transaction costs incurred by Carey Management in
connection with the merger.
(9) Reflects elimination of minority interest expense resulting from
acquisition of Carey Management interests in subsidiaries of Carey
Diversified and certain property and general and administrative expenses.
These expenses correlate to the management fee and related income
eliminated above.
(10) Reflects adjustment of the tax provision due to the effects of the merger.
The administrative operations of the Carey Group and certain contracts for
the CPA(R) REITs will be transferred to a taxable subsidiary of Carey
Diversified upon consummation of the merger. The taxable subsidiary will
realize a portion of the non-qualifying income derived from providing
services to managed affiliates. Merger adjustments to the tax provision
have been determined based on a 47% tax rate including Federal, state and
local income taxes.
(11) Reflects initial issuance of 8,000,000 Listed Shares in connection with the
merger.
F-13
<PAGE> 80
REPORT OF INDEPENDENT ACCOUNTANTS
To the Managing Directors of
W.P. Carey & Co., Inc. and Subsidiaries
and Certain Affiliated Companies:
In our opinion, the accompanying combined balance sheets and the related
combined statements of income, stockholder's equity and cash flows present
fairly, in all material respects, the combined financial position of W.P. Carey
& Co., Inc. and Subsidiaries and Certain Affiliated Companies (collectively, the
"Carey Group") as described in Note 1 at December 31, 1999, 1998 and 1997, and
the combined results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Carey Group's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 11, 2000
F-14
<PAGE> 81
W.P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents........................... $ 2,217,204 $ 2,002,483 $ 2,054,205
Marketable securities............................... 2,063,801 2,710,996 2,534,209
Receivables from Affiliates......................... 8,444,956 8,117,348 12,351,486
Notes receivable from Affiliates.................... 387,294 345,337 405,655
Prepaid income taxes................................ 485,516 505,311 499,193
Other current assets................................ 166,453 156,514 168,962
----------- ----------- -----------
Total current assets........................ 13,765,224 13,837,989 18,013,710
----------- ----------- -----------
Long-term investments and receivables:
Investments in Affiliates, net...................... 57,919,708 39,044,818 20,926,376
Other assets........................................ 553,679 811,511 152,233
Acquisition fees receivable from Affiliates......... 17,684,093 13,133,189 5,748,276
----------- ----------- -----------
Total long-term investments and
receivables............................... 76,157,480 52,989,518 26,826,885
----------- ----------- -----------
Fixed assets, net of accumulated depreciation of
$2,432,877, $2,905,720 and $2,591,413 at December
31, 1999, 1998 and 1997............................. 1,638,656 1,616,648 1,575,371
----------- ----------- -----------
Total assets................................ $91,561,360 $68,444,155 $46,415,966
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accrued expenses.................................... $ 5,024,681 $ 5,674,600 $ 3,832,453
Accrued taxes....................................... 864,271 610,528 235,620
Other current liabilities........................... 3,767,184 1,094,644 898,830
Dividends payable................................... 3,000,000
----------- ----------- -----------
Total current liabilities................... 9,656,136 10,379,772 4,966,903
----------- ----------- -----------
Other:
Other liabilities................................... 9,487,948 10,575,123 8,538,167
Deferred income taxes............................... 3,806,422 3,772,996 2,868,228
----------- ----------- -----------
Total long-term liabilities................. 13,294,370 14,348,119 11,406,395
----------- ----------- -----------
Commitments and contingencies
Minority interest................................... (4,981)
----------- ----------- -----------
Stockholder's equity:
Common stock........................................ 3,212 3,212 3,111
Additional paid-in capital.......................... 483,635 482,635 487,717
Retained earnings................................... 67,992,808 42,605,555 29,168,020
Accumulated other comprehensive income.............. 406,199 899,862 663,801
----------- ----------- -----------
68,885,854 43,991,264 30,322,649
Less, Treasury stock, at cost....................... 275,000 275,000 275,000
----------- ----------- -----------
Total stockholder's equity.................. 68,610,854 43,716,264 30,047,649
----------- ----------- -----------
Total liabilities and stockholder's
equity.................................... $91,561,360 $68,444,155 $46,415,966
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-15
<PAGE> 82
W.P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
COMBINED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES:
Management fees from Affiliates....................... $31,202,491 $17,159,984 $11,514,633
Structuring and financing fees from Affiliates........ 16,355,745 26,329,754 14,359,590
Equity in earnings of Affiliates...................... 4,687,256 5,228,549 2,422,128
Marketing reimbursements from Affiliates.............. 1,573,535 1,128,077 848,745
Fees realized on appreciation of properties of
Affiliates......................................... 13,098,137
Interest and dividends................................ 1,440,625 1,332,477 671,360
Other income, net..................................... 1,445,081 695,295 1,469,014
----------- ----------- -----------
Total revenues................................ 56,704,733 51,874,136 44,383,607
----------- ----------- -----------
EXPENSES:
Salaries and other compensation....................... 23,660,610 25,962,179 14,395,362
Professional fees..................................... 1,321,928 1,218,225 645,876
Office expenses....................................... 619,794 396,398 444,364
Business development expenses......................... 647,707 717,866 682,989
Other general and administrative expenses............. 252,739 272,676 246,454
Directors' deferred compensation...................... 368,896 558,110 6,405,364
Charitable contributions.............................. 331,453 370,990 659,472
Depreciation and amortization......................... 529,784 328,293 308,328
Interest expense...................................... 110,910 50,860 7,534
----------- ----------- -----------
Total expenses................................ 27,843,821 29,875,597 23,795,743
----------- ----------- -----------
Income before income taxes and minority
interest.................................... 28,860,912 21,998,539 20,587,864
Provision for income taxes............................ 945,569 1,520,554 1,118,000
Minority interest..................................... 7,278
----------- ----------- -----------
Net income......................................... $27,915,343 $20,477,985 $19,462,586
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-16
<PAGE> 83
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL EARNINGS INCOME STOCK TOTAL
------ ---------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996........... $3,111 $487,717 $11,705,434 $ 398,658 $(275,000) $12,319,920
Dividends paid......................... (2,000,000) (2,000,000)
Comprehensive income:
Unrealized gain on marketable
securities during 1997, net of
deferred income taxes of $33,247... 265,143 265,143
Net income........................... 19,462,586 19,462,586
------ -------- ----------- --------- --------- -----------
Total comprehensive income......... 19,727,729
-----------
Balance at December 31, 1997........... 3,111 487,717 29,168,020 663,801 (275,000) 30,047,649
Dividends declared..................... (7,040,450) (7,040,450)
Acquisition of minority interest....... 101 (5,082) (4,981)
Comprehensive income:
Unrealized gain on marketable
securities during 1998, net of
deferred income taxes of $16,287... 236,061 236,061
Net income........................... 20,477,985 20,477,985
------ -------- ----------- --------- --------- -----------
Total comprehensive income......... 20,714,046
-----------
Balance at December 31, 1998........... 3,212 482,635 42,605,555 899,862 (275,000) 43,716,264
Dividends paid......................... (2,528,090) (2,528,090)
Capital contribution................... 1,000 1,000
Comprehensive income:
Change in unrealized gain resulting
from sale of securities, net of
taxes of $8,975.................... (144,976) (144,976)
Unrealized loss on marketable
securities during 1999, net of
deferred tax benefit of $54,389.... (348,687) (348,687)
Net income........................... 27,915,343 27,915,343
------ -------- ----------- --------- --------- -----------
Total comprehensive income......... (493,663) 27,421,680
--------- -----------
Balance at December 31, 1999........... $3,212 $483,635 $67,992,808 $ 406,199 $(275,000) $68,610,854
====== ======== =========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-17
<PAGE> 84
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 27,915,343 $ 20,477,985 $ 19,462,586
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Fees received in warrants of Affiliates..... (1,273,200) (7,348,973)
Fees received in securities of Affiliates... (17,541,244) (14,187,668)
Fees realized on appreciation of properties
of Affiliates received in securities of
Affiliates............................... (13,098,137)
Depreciation and amortization............... 529,784 328,293 308,328
Equity in earnings of Affiliates............ (4,687,256) (5,228,549)
Cash distributions from investment in
Affiliates............................... 3,218,224 2,898,281
Gain on sale of marketable securities....... (153,951) (47,363) (203,763)
Deferred income tax expense................. 87,815 888,481 771,444
Increase in receivables from Affiliates.......... (4,875,522) (2,265,275) (6,499,607)
Increase in accrued interest on notes
receivable.................................... (41,957)
Decrease (increase) in other current assets...... 9,856 6,330 (67,877)
Decrease (increase) in other assets.............. 257,832 (255,966)
Increase in other investments.................... (505,000)
(Decrease) increase in accrued expenses
payable....................................... (536,718) 1,842,147 1,516,941
Increase in other liabilities.................... 1,585,365 2,232,770 6,411,271
Increase (decrease) in accrued taxes payable..... 253,743 374,908 (5,280)
Other............................................ 6,027 4,088
------------ ------------ ------------
Total adjustments........................ (21,894,029) (15,185,784) (18,211,565)
------------ ------------ ------------
Net cash provided by operating
activities............................. 6,021,314 5,292,201 1,251,021
------------ ------------ ------------
Cash flows from investing activities:
Cash distributions in excess of earnings of
Affiliates.................................... 288,053
Purchase of fixed assets......................... (551,792) (370,614) (423,493)
Purchase of marketable securities................ (149,811) (50,000)
Proceeds from redemption of debt securities...... 100,000 102,113 153,529
Proceeds from sale of marketable securities...... 302,905 172,498 704,716
Loans to affiliates.............................. 60,318 97,897
Contribution to Affiliates....................... (7,786) (208,748)
Acquisition of shares in Affiliates.............. (41,055) (615,020)
Proceeds from redemption of shares in
Affiliate..................................... 60,250
Acquisition of minority interest................. (594,982)
------------ ------------ ------------
Net cash (used in) provided by investing
activities............................. (279,503) (1,303,473) 611,954
------------ ------------ ------------
Cash flows from financing activities:
Dividends paid................................... (5,528,090) (4,040,450) (2,000,000)
Capital contribution............................. 1,000
------------ ------------ ------------
Net cash used in financing activities.... (5,527,090) (4,040,450) (2,000,000)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents............................ 214,721 (51,722) (137,025)
Cash and cash equivalents at beginning of year..... 2,002,483 2,054,205 2,191,230
------------ ------------ ------------
Cash and cash equivalents at end of
year................................... $ 2,217,204 $ 2,002,483 $ 2,054,205
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid.................................... $ 110,910 $ 50,860 $ 7,534
============ ============ ============
Income taxes paid................................ $ 638,605 $ 246,996 $ 330,568
============ ============ ============
Non-Cash Investing Activities:
Distributions from investments in Affiliates
received in shares of common stock............ $ 1,698,394 $ 668,431 $ 0
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-18
<PAGE> 85
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION:
The combined financial statements include the accounts of W. P. Carey &
Co., Inc. ("W. P. Carey"), its subsidiaries, including Wm. Polk Carey's minority
interest in those subsidiaries, and certain affiliated companies (collectively,
the "Carey Group"). The affiliated companies are as follows: Carey Property
Advisors, L.P., Carey Fiduciary Advisors, Inc., Eighth Carey Corporate Property,
Inc. ("Eighth Carey"), Ninth Carey Corporate Property, Inc. ("Ninth Carey") and
W. P. Carey International LLC (collectively, "certain Affiliated Companies").
Wm. Polk Carey owns 100% of the common stock of each of these Affiliated
Companies, except for Carey Property Advisors, LP, in which he owns a 99%
interest.
The subsidiaries of W. P. Carey are as follows: Carey-Fairview Corporation,
Carey Corporate Property, Inc., Seventh Carey Corporate Property, Inc., Carey
Financial Corporation, W. P. Carey Advisors, L.P., W. P. Carey Advisors, Inc.
and Carey Management LLC (collectively, the "Subsidiaries"). Wm. Polk Carey owns
all of the outstanding common stock of W. P. Carey. Additionally, either
directly or indirectly through his ownership of W. P. Carey, Wm. Polk Carey owns
100% of the stock of the Subsidiaries.
W. P. Carey was organized by Wm. Polk Carey in 1973 for the purpose of
providing investment banking services. The Carey Group sponsors and manages a
publicly traded limited liability company and four public real estate investment
trusts (collectively the "Affiliated Public Entities") which are engaged in the
acquisition and net leasing of corporate real property (see Note 10).
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Combination and Consolidation:
The accompanying combined financial statements of the Carey Group, which
have been prepared in accordance with accounting principles generally accepted
in the United States, include the consolidated accounts of W. P. Carey and
Subsidiaries, including Wm. Polk Carey's minority interest in those
Subsidiaries, combined with the accounts of certain Affiliated Companies, as
described in Note 1. All significant intercompany accounts and transactions
among W. P. Carey and its Subsidiaries and certain Affiliated Companies have
been eliminated in consolidation and combination. The combined statements of
income include 100% of the earnings of Affiliated Companies, as a 1% minority
interest ownership in one Affiliated Company is deemed to be immaterial.
Management's Use of Estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents:
The Carey Group considers all short-term, highly liquid investments that
are both readily convertible to cash and have a maturity of generally three
months or less at the time of purchase to be cash equivalents. Items classified
as cash equivalents include commercial paper and money market funds.
Substantially all of the cash equivalents at December 31, 1999, 1998 and 1997
were held in the custody of two financial institutions.
F-19
<PAGE> 86
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Marketable Securities:
Marketable securities consist of investments in common and preferred
stocks, U.S. Treasury notes and commercial paper. Substantially all of the
marketable securities at December 31, 1999, 1998 and 1997 were held in the
custody of one financial institution. Investments in debt and equity securities
are categorized as held to maturity or available for sale. At December 31, 1999,
1998 and 1997, investments in equity securities available for sale are carried
at fair value, with unrealized gains and losses excluded from income and
recorded as a separate component of stockholder's equity (other comprehensive
income), net of related deferred income taxes, until realized; debt securities
categorized as held to maturity are carried at amortized cost.
Investments in Affiliates:
Investments in Affiliates consist primarily of an interest in a publicly
traded limited liability company and ownership of common stock in four public
real estate investment trusts. The limited liability company was formed for the
purpose of merging with nine public real estate limited partnerships sponsored
and managed by the Carey Group. The merger of the limited liability company and
the nine limited partnerships was consummated on January 1, 1998 (see Note 10).
These investments are accounted for under the equity method of accounting
because of the significant influence the Carey Group exercises through its
ownership interests and management and advisory agreements. Under the equity
method of accounting, investments are recorded at their original cost, increased
or decreased by the entity's share of earnings or losses, and reduced by cash
distributions or dividends received. This approximates the book equity in the
underlying net assets of the Affiliates.
Fixed Assets:
Fixed assets are carried at their original cost and depreciated primarily
using the straight-line method. Leasehold improvements are being amortized over
the remaining estimated useful lives of the assets or the lease term, whichever
is shorter. The estimated useful lives of the assets are as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 15 - 31 years
Furniture, fixtures and equipment........................... 3 - 7 years
Leasehold improvements...................................... 5 - 12 years
</TABLE>
Long-lived assets and certain identifiable intangible assets are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. The Company assesses the
recoverability of its long-lived assets, including residual interests of real
estate assets and investments, based on projections of undiscounted cash flows
over the life of such assets. In the event that such cash flows are
insufficient, the assets are adjusted to their estimated fair value. Long-lived
assets and certain identifiable intangibles to be disposed of, will be reported
at the lower of cost or fair value less cost to sell.
Revenue Recognition:
Structuring and financing fees are earned for investment banking services
provided in connection with the analysis, negotiation and structure of
transactions, including acquisitions, and the placement of mortgage financing
obtained by the Affiliated Public Entities. 1997 includes $6,568,973 relating to
warrants received in connection with the merger of Carey Diversified with and
into the CPA(R) Partnerships (see note 10) and 1997 and 1998 include $780,000
and $1,273,200, respectively, relating to warrants received in
F-20
<PAGE> 87
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
connection with raising equity capital from institutional investors for Carey
Institutional Properties Incorporated ("CIP(R)"), an affiliated public real
estate investment trust. Revenue recognized for such transactions is based on
the value of the services rendered and an independent valuation of the warrants.
W. P. Carey is entitled to receive a fee of up to 4.5% of the aggregate
total property cost of all properties purchased by the Affiliated Public
Entities. A portion of this fee, up to 2.0% due from certain affiliates, is
subordinated to the achievement of specified cumulative return requirements. The
unpaid fees shall bear interest at the rate of 7% per annum for Corporate
Property Associates 12 ("CPA(R):12") and 6% per annum for Corporate Property
Associates 14 ("CPA(R):14") and Carey Diversified LLC from the date the property
is purchased until the fee has been paid. The unpaid fee and accrued interest
thereon are payable in eight equal annual installments beginning on January 1
following the first anniversary of the property purchase date only if specified
cumulative return requirements are achieved.
Management fees consist of property management, leasing and advisory fees
and reimbursement of certain expenses in accordance with the separate management
agreements with each Affiliated Public Entity for administrative services
provided for the operation of such entities. Receipt of the incentive fee
portion of management fees, however, is subordinated to the achievement of
specified cumulative return requirements by the shareholders of the Affiliated
Public Entities. The incentive portion of management fees may be collected in
cash or in stock of the Affiliated Public Entities at the option of W. P. Carey
& Co., Inc. In the event W. P. Carey & Co., Inc. elects to receive the incentive
fees in stock, the income recognized is based on the value of the services
rendered. The number of shares received is based upon either public market price
of the stock or independent valuations. During 1999, the cumulative incentive
portion of management fees from CIP(R) of approximately $12.4 million, of which
$9.8 million related to prior years, was recognized in income as CIP(R) achieved
the required cumulative return. W. P. Carey & Co., Inc. elected to receive these
fees in shares of CIP(R).
All fees are recognized as earned. Transaction fees are earned upon
consummation of a transaction and management fees are earned when services are
performed. Fees subject to subordination are recognized on a cash basis until
contingencies affecting the payment of such fees are resolved. Such
contingencies primarily involve the achievement of certain performance criteria
by the Affiliated Public Entities as defined in contractual agreements with each
entity. Contingencies involving the achievement of designated returns by the
Affiliated Public Entities are generally resolved when it is determined that
cash flows from the Entity are sufficient to achieve the specified cumulative
return.
The Carey Group also receives reimbursement of certain marketing costs
incurred in connection with the sponsorship of an Affiliated Public Entity.
Reimbursement income is recorded as the expenses are incurred.
Income Taxes:
Certain of the Carey Group companies have elected S corporation status for
Federal income tax purposes. In addition, these same companies have elected S
corporation status for state income tax purposes in those states in which the
companies are required to file tax returns and S corporation status is
recognized.
F-21
<PAGE> 88
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Under the S corporation election, each company passes through to its
stockholder, as an individual taxpayer, its share of income or loss, deduction
or credit. Accordingly, the net income for the period is computed without regard
to income tax provisions which will be reported on the tax returns of the
individual stockholder. State and local income taxes have been provided for
those jurisdictions which do not recognize S corporation status. Certain
companies have not elected, or are not eligible for, S corporation status and,
accordingly, all tax liabilities incurred by these companies do not pass through
to the stockholder.
Income taxes are provided based on earnings reported for financial
statement purposes. The provision for income taxes differs from the amounts
currently payable because of temporary differences in the recognition of certain
income and expense items for financial reporting and tax reporting purposes.
Income taxes are computed under the asset and liability method. The asset
and liability method requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
tax bases and financial reporting bases of assets and liabilities.
Other:
Certain prior year accounts have been reclassified to conform with the
current year presentation.
NOTE 3 -- MARKETABLE SECURITIES:
Aggregate cost or amortized cost and fair value of securities at December
31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
EQUITY DEBT EQUITY DEBT EQUITY DEBT
SECURITIES SECURITIES SECURITIES SECURITIES SECURITIES SECURITIES
AVAILABLE HELD TO AVAILABLE HELD TO AVAILABLE HELD TO
FOR SALE MATURITY FOR SALE MATURITY FOR SALE MATURITY
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Aggregate fair value........... $2,013,723 $97,654 $2,610,728 $152,991 $2,433,515 $258,937
Aggregate cost or amortized
cost (see Note 2)............ 1,582,371 98,756 1,631,325 150,813 1,706,460 252,926
---------- ------- ---------- -------- ---------- --------
Unrealized holding gain...... 431,352 (1,102) 979,403 2,178 727,055 6,011
Deferred tax................... 25,153 79,541 63,254
---------- ------- ---------- -------- ---------- --------
Unrealized gain, net......... $ 406,199 $(1,102) $ 899,862 $ 2,178 $ 663,801 $ 6,011
========== ======= ========== ======== ========== ========
</TABLE>
The unrealized holding gains for equity securities available for sale as of
December 31, 1999, December 31, 1998 and December 31, 1997 includes gross
unrealized holding gains of $480,434, $1,033,393 and $787,789, respectively, and
gross unrealized holding losses of $49,082, $53,990, and $60,734 respectively.
F-22
<PAGE> 89
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- MARKETABLE SECURITIES -- (CONTINUED)
Maturities of securities classified as held-to-maturity at December 31,
1999, 1998 and 1997 and total marketable securities are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
AMORTIZED AMORTIZED AMORTIZED
COST COST COST
---------- ---------- ----------
<S> <C> <C> <C>
Current............................................ $ 50,078 $ 100,268 $ 100,694
Due after one year through five years.............. 48,678 50,545 152,233
---------- ---------- ----------
Held-to-maturity securities........................ 98,756 150,813 252,927
Available for sale securities...................... 2,013,723 2,610,728 2,433,515
---------- ---------- ----------
Total.................................... $2,112,479 $2,761,541 $2,686,442
========== ========== ==========
</TABLE>
During 1999, 1998 and 1997, gross gains of $154,000, $47,400 and $203,800,
respectively, were realized upon the sale of equity securities classified as
available for sale, using the specific identification cost method. Unrealized
holding gains decreased in 1999 by $493,663, net of deferred taxes of $54,389,
increased in 1998 by $236,061, net of deferred taxes of $16,287, and increased
in 1997 by $265,143, net of deferred taxes of $33,247.
NOTE 4 -- FIXED ASSETS:
Fixed assets at December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Land............................................... $ 24,050 $ 24,050 $ 24,050
Buildings and improvements......................... 1,338,297 1,336,297 1,332,240
Furniture, fixtures and equipment.................. 2,563,118 3,021,687 2,734,888
Leasehold improvements............................. 146,068 140,334 75,606
---------- ---------- ----------
4,071,533 4,522,368 4,166,784
Less, Accumulated depreciation and
amortization.................................. 2,432,877 2,905,720 2,591,413
---------- ---------- ----------
$1,638,656 $1,616,648 $1,575,371
========== ========== ==========
</TABLE>
NOTE 5 -- NOTES RECEIVABLE FROM AFFILIATES:
At December 31, 1997, notes receivable from Affiliates consist of loans to
Corporate Property Associates 9 ("CPA(R):9") of $200,000 and Bismarck Paradise
Associates ("Bismarck") of $204,035. The notes are payable on demand and accrue
interest monthly at interest rates ranging from 8.5% to 13.5%. At December 31,
1999 and 1998, notes receivable from Affiliates consist of the loan to Bismarck.
The general partner of Bismarck was a board member of W. P. Carey until
September 30, 1998. Accrued interest of $79,358, $37,402 and $156 as of December
31, 1999, 1998 and 1997, respectively, is included in notes receivable from
affiliates. The fair value of the notes receivable from affiliates approximates
their carrying amounts.
NOTE 6 -- INVESTMENTS IN AFFILIATES:
The Carey Group's investment in affiliates, recorded under the equity
method, at December 31, 1999, 1998 and 1997 is indicated below (see Note 1 and
Note 2).
F-23
<PAGE> 90
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INVESTMENTS IN AFFILIATES -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Corporate Property Associates............................. $ (67,538) $ (73,958) $ (85,082)
Corporate Property Associates 2........................... 46,487 27,957 6,122
Corporate Property Associates 3........................... 105,556 67,207 14,269
Corporate Property Associates 4........................... (50,134) 123,964 84,662
Corporate Property Associates 5........................... (121,280) (79,015) (157,430)
Corporate Property Associates 6........................... 405,650 227,180 4,254
Corporate Property Associates 7........................... 186,289 132,074 54,921
Corporate Property Associates 8........................... 165,145 173,961 (25,934)
Corporate Property Associates 9........................... 188,122 73,311 (1,345,215)
Corporate Property Associates 10 Incorporated............. 4,648,167 4,635,053 161,280
Carey Institutional Properties Incorporated............... 14,389,388 2,741,975 951,185
Corporate Property Associates 12 Incorporated............. 5,796,170 3,942,523 179,975
Corporate Property Associates 14 Incorporated............. 201,537 205,000 200,000
Carey Diversified LLC..................................... 32,013,157 26,823,514 20,873,786
Other..................................................... 12,992 24,072 9,583
----------- ----------- -----------
$57,919,708 $39,044,818 $20,926,376
=========== =========== ===========
</TABLE>
In accordance with the respective amended agreements of limited partnership
(the "Agreements") for those affiliates organized as limited partnerships, the
Carey Group as Partners, are allocated percentages of profits and losses as well
as distributions of Distributable Cash From Operations, ranging from 9/10 of 1%
to 9%, as defined in the respective Agreements. In addition, the Carey Group are
also entitled to receive net proceeds from the sale of the partnership
properties, allocated as defined in the respective Agreements.
In 1998 the Carey Group acquired a minority interest in one of its members
from an unaffiliated third party for $594,000. The acquisition was recorded at
cost and the purchase price capitalized to investments in affiliates.
The investments above include $2,053,000 for warrants to purchase common
stock of Carey Institutional Properties Incorporated and warrants of $6,569,000
for the purchase of shares of Carey Diversified LLC. The CIP(R) warrants provide
for the purchase of 3,090,000 shares at an exercise price ranging from $11.50 to
$12.80 per share. The Carey Diversified warrants provide for the purchase of
3,011,000 shares at an exercise price ranging from $21 to $23 per share. The
terms of the warrants are for 10 years.
Members of the Carey Group own approximately 1,266,000 shares, representing
approximately 5% of the of Listed Shares of Carey Diversified at December 31,
1999. The Listed Shares are traded on the New York Stock Exchange. As of
December 31, 1999 the carrying value of such shares was equal to $25,444,000 and
their fair market value approximated $21,364,000 based on the quoted market
price.
F-24
<PAGE> 91
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- INVESTMENTS IN AFFILIATES -- (CONTINUED)
As of December 31, 1999, 1998 and 1997 and for the years then ended, the
aggregate assets, liabilities and net income of the Affiliates and the Carey
Group's equity in earnings approximated the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Total assets........................ $2,207,358,000 $1,862,041,000 $1,343,095,000
============== ============== ==============
Total liabilities................... $ 958,173,000 $ 774,116,000 $ 598,730,000
============== ============== ==============
Net income.......................... $ 81,486,000 $ 70,433,000 $ 74,612,000
============== ============== ==============
Equity in earnings of affiliates.... $ 4,687,256 $ 5,228,549 $ 2,422,128
============== ============== ==============
</TABLE>
NOTE 7 -- PROFIT-SHARING AND DEFERRED COMPENSATION PLANS:
A. W. P. Carey sponsors a qualified profit-sharing plan and trust covering
substantially all of its full-time employees who have attained age
twenty-one, worked a minimum of 1,000 hours and completed one year of
service. W. P. Carey is under no obligation to contribute to the plan and the
amount of any contribution is determined by and at the discretion of W. P.
Carey's Board of Directors. The Board of Directors can authorize
contributions to a maximum of 15% of an eligible participant's total
compensation, limited to $24,000 annually per participant. For the years
ended December 31, 1999, 1998 and 1997, W. P. Carey accrued contributions
payable to the trust of $734,300, $689,700 and $576,000, respectively, which
represent an amount equivalent to 15% of each eligible participant's total
eligible compensation for the period. W. P. Carey has funded all contribution
obligations to the trust.
The Company also has an incentive compensation plan with certain key
employees which provides for annual incentive compensation payments based
upon the performance of the Company. Such incentive compensation amounted to
$10,200,000, $11,852,000 and $5,705,000 for the years ended December 31,
1999, 1998 and 1997, respectively.
B. The Company entered into two non-qualified deferred compensation plans in
April 1997 with certain key employees. Both plans allow participants to share
in the value of the equity of the Company. The equity participation plan
provides for the grant of equivalent shares of common stock of the Company to
participants. Holders of equivalent shares are entitled to receive
compensation equal to a pro rata share of the dividends paid by the Company
and proceeds from the liquidation or other disposition of the Company. The
participants' interest in equivalent shares vest ratably over a period of
five years. The equity participation plan replaces a non-qualified deferred
compensation plan established for certain key employees in 1989 and the
Company's obligations under the prior plan have been assumed by the revised
plan at their historical cost basis.
The stock appreciation rights plan provides for the grant of options to
purchase equivalent shares of the common stock of the Company. Options
granted under the stock appreciation rights plan will vest ratably over a
period of five years and will expire ten years from the date of grant.
Equivalent shares issued pursuant to the exercise of an option will be
subject to the provisions of the equity participation plan. Participants
shall pay the exercise price of their options in cash or, under certain
circumstances, through the issuance of a non-recourse promissory note.
F-25
<PAGE> 92
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- PROFIT-SHARING AND DEFERRED COMPENSATION PLANS -- (CONTINUED)
Participants may realize the value of their vested interest in the equity
participation and stock appreciation plans upon the occurrence of certain
distribution events, as defined, including the liquidation of the Company,
the death or disability of a participant, the retirement of a participant
after having reached the age of 59 1/2, and the termination of a
participant's employment under certain circumstances. In addition, the
Company may elect to declare a distribution event upon the issuance of a
publicly traded equity security. Amounts due to participants for their vested
interests under the equity participation and stock appreciation plans may be
paid in the form of publicly traded equity securities issued by the Company,
publicly traded equity securities received from the sale or other disposition
of the Company or in cash, at the discretion of the Company. Such
distribution amounts will generally be paid to participants over a period of
five years. In 1999 and 1998, the Company recorded charges of $429,000 and
$4,200,000, respectively, in connection with the termination of employment of
participants in the equity participation and stock appreciation rights plans.
The charges are included under salaries and other compensation costs.
The value of equivalent shares will be determined annually based on the
average adjusted net income of the Company, as defined by both plans. Such
value will be adjusted to fair market value upon the occurrence of certain
events including the issuance of a publicly traded equity security by the
Company or a sale or other disposition of the Company. Liabilities
outstanding in connection with the equity participation and stock
appreciation plans, excluding the effect of the charges related to
termination of employment described above, are approximately $3,500,000,
$1,700,000 and $1,200,000 as of December 31, 1999, 1998 and 1997,
respectively. The plans are being accounted for as cash deferred compensation
plans and accordingly the Company's liability with respect to both plans
represents the present value of the participants' vested interests assuming
such interests are distributed to participants after their having reached
retirement age. If a distribution event occurs prior to the participant's
retirement, the full liability will be recorded at the time such event
becomes probable.
C. In 1999, 1998 and 1997 the Company recorded charges of $368,896, $558,110 and
$6,405,364, respectively, (including interest expense of $368,896 in 1999,
$558,110 in 1998 and $162,235 in 1997) in connection with a one-time grant of
deferred compensation to key directors of the Company not covered by the
equity participation and stock appreciation rights plans. Such compensation
will be paid in equal annual installments over a period of ten years. The
deferred compensation was granted in connection with the directors' prior
years of service to the Company and the present value of the future payments
was recorded in full in the year of grant. During 1999, 1998 and 1997
principal payments of $685,777, $945,401 and $287,027, respectively, reduced
the liability to $6,898,968 which is classified as other liabilities, current
and long-term.
NOTE 8 -- COMMITMENTS AND RELATED-PARTY TRANSACTIONS:
The following transactions have been entered into with Affiliates and
affiliated individuals:
W. P. Carey and certain Affiliates are participants in a joint venture
formed for the purpose of sharing the costs associated with the subleasing of
office space used for the administration of the Affiliates and the Carey Group.
The joint venture entered into a long-term lease for office space which expires
in September 2006. Aggregate minimum future rentals as of December 31, 1999
under the lease amount to approximately $8,418,000 (of which 21.99% or
$1,851,000 is the Carey Group's share).
F-26
<PAGE> 93
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- COMMITMENTS AND RELATED-PARTY TRANSACTIONS -- (CONTINUED)
Based on the Carey Group's current share of office occupancy costs,
aggregate minimum rental commitments under noncancellable leases are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 254,865
2001........................................................ 254,865
2002........................................................ 263,033
2003........................................................ 287,539
2004........................................................ 287,539
Balance through 2006........................................ 503,194
----------
$1,851,035
==========
</TABLE>
W. P. Carey is obligated under various noncancellable operating leases
including the joint venture sublease for aggregate minimum rentals plus
escalation in real estate taxes and maintenance costs through September, 2006.
Total rent expense for the years ended December 31, 1999, 1998 and 1997 amounted
to approximately $310,000, $151,000 and $135,000, respectively.
As general partners of the affiliated limited partnerships, certain of the
Carey Group companies have an obligation to fund any remaining deficits in their
capital accounts upon a partnership's liquidation (Note 6). Additionally, as
general partners of the affiliated limited partnerships, certain companies in
the Carey Group have been named as defendants in litigation which has resulted
in the ordinary course of business. Under the various partnership agreements,
the general partners are indemnified by the respective limited partnership to
the extent of each limited partnership's net assets. In addition, the affiliated
limited partnerships maintain general partners liability insurance. Management
believes the liabilities, if any, resulting from such litigation will not have a
material adverse effect on the Carey Group's financial condition or results of
operations.
NOTE 9 -- INCOME TAXES:
The components of the Carey Group's provision (benefit) for income taxes
for the years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ---------- ----------
<S> <C> <C> <C>
FEDERAL:
Current........................................... $220,011 $ 79,016 $ (4,975)
Deferred.......................................... (96,312) 512,082 (40,344)
-------- ---------- ----------
123,699 591,098 (45,319)
-------- ---------- ----------
STATE AND LOCAL:
Current........................................... 628,918 523,180 272,067
Deferred.......................................... 192,952 406,276 891,252
-------- ---------- ----------
821,870 929,456 1,163,319
-------- ---------- ----------
Total provision........................... $945,569 $1,520,554 $1,118,000
======== ========== ==========
</TABLE>
F-27
<PAGE> 94
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- INCOME TAXES -- (CONTINUED)
Deferred income taxes as of December 31, 1999, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
DEFERRED TAX ASSETS:
Other long-term liabilities...................... $ 579,664 $ 754,169 $ 778,101
Investments...................................... 550,044 7,172 205,449
Other............................................ 29,462 37,280 198,372
---------- ---------- ----------
$1,159,170 $ 798,621 $1,181,922
---------- ---------- ----------
DEFERRED TAX LIABILITIES:
Investments...................................... $2,213,480 1,734,224 1,902,583
Receivables from affiliates...................... 1,204,049 1,727,361 1,028,330
Other............................................ 1,548,063 1,110,032 1,119,237
---------- ---------- ----------
4,965,592 4,571,617 4,050,150
---------- ---------- ----------
Net deferred tax liability............... $3,806,422 $3,772,996 $2,868,228
========== ========== ==========
</TABLE>
There is no valuation allowance for deferred tax assets as of December 31,
1999. In assessing whether the deferred tax assets are realizable, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent on the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversals of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods during which the deferred tax assets are deductible,
management believes it is more likely than not that the Carey Group will realize
the benefits of these deductible differences. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
NOTE 10 -- CAREY DIVERSIFIED LLC:
During 1997, the CPA(R) Partnerships approved a merger with Carey
Diversified LLC, a limited liability company formed by W. P. Carey for this
purpose. As a result of the merger, a fee of approximately $13,100,000 was
realized based on the increase in the value of the properties owned by the
CPA(R) Partnerships. Such fees were payable pursuant to the CPA(R) Partnership
Agreements. The fees were received in the form of shares of Carey Diversified.
The value of the shares of Carey Diversified was derived from an independent
appraisal of the real estate assets of the CPA(R) Partnerships assuming a
liquidation of such partnerships. Non-real estate assets and liabilities were
assumed to be settled in cash at their book values.
The Carey Group has retained direct ownership interests in the CPA(R)
Partnerships in the form of special limited partnership interests consisting of
a share of the income, losses and operating cash flows of each partnership
ranging from .9% to 9% and a share of the liquidating distributions of such
partnerships in an amount not to exceed $262,882.
In connection with structuring the merger, the Carey Group received an
investment banking fee of $6,568,973 in the form of warrants to purchase
2,284,800 shares of Carey Diversified at $21 per share and 725,930 shares at $23
per share. The warrants may be exercised over a period of 10 years, beginning
January 1, 1999. The fee has been included in structuring and financing fee
income for the year ended
F-28
<PAGE> 95
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- CAREY DIVERSIFIED LLC -- (CONTINUED)
December 31, 1997. The shares of Carey Diversified are listed and commenced
trading on the New York Stock Exchange on January 21, 1998. Carey Management LLC
has been retained to provide asset management and administration services on
behalf of Carey Diversified and will be compensated in accordance with the
provisions of the Management Agreement.
NOTE 11 -- PROPOSED ACQUISITION:
On December 20, 1999 the principal shareholder and certain members of the
Carey Group entered into an Agreement and Plan of Merger (the "Agreement") with
Carey Diversified, an Affiliate. Pursuant to the Agreement, Carey Diversified
will acquire substantially all of the business operations of the Carey Group in
exchange for eight million Listed Shares of Carey Diversified stock. In
addition, up to two million additional Listed Shares will be paid to members of
the Carey Group over the next four years if specified performance criteria for
Carey Diversified are satisfied.
The assets and liabilities to be acquired by Carey Diversified include but
are not limited to all of the stock of Carey Management and Carey Financial
Corporation, the Advisory Agreements with the CPA(R) REITs, the Management
Agreement with Carey Diversified and the employees and related assets and
liabilities required to carry on the business operations of the Carey Group.
Assets and liabilities which will be excluded from the acquisition are
primarily: excess cash, marketable securities and receivables; investments in
shares and warrants to acquire shares of Carey Diversified and the CPA(R) REITs,
other miscellaneous assets not directly related to the business operations to be
acquired by Carey Diversified; net deferred tax liabilities of W. P. Carey &
Co., Inc. and the liability for deferred compensation.
During 1999, the Carey Group expensed approximately $370,000 relating to
the proposed acquisition.
F-29
<PAGE> 96
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
CONDENSED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................. $ 4,752,043 $ 2,217,204
Marketable securities..................................... 2,003,320 2,063,801
Receivables from Affiliates............................... 5,639,141 8,444,956
Notes receivable from Affiliates.......................... 397,768 387,294
Prepaid income taxes...................................... 485,516 485,516
Other current assets...................................... 179,565 166,453
----------- -----------
Total current assets.............................. 13,457,353 13,765,224
----------- -----------
Long-term investments and receivables:
Investments in Affiliates, net............................ 60,961,824 57,919,708
Other assets.............................................. 505,000 553,679
Acquisition fees receivable from Affiliates............... 18,728,056 17,684,093
----------- -----------
Total long-term investments and receivables....... 80,194,880 76,157,480
----------- -----------
Fixed assets, net of accumulated depreciation of $2,569,372
at March, 31, 2000 and $2,432,877 at December 31, 1999.... 1,664,490 1,638,656
----------- -----------
Total assets...................................... $95,316,723 $91,561,360
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY:
Current liabilities:
Accrued expenses.......................................... $ 5,422,420 $ 5,024,681
Accrued taxes............................................. 2,345,729 864,271
Other current liabilities................................. 3,675,346 3,767,184
----------- -----------
Total current liabilities......................... 11,443,495 9,656,136
----------- -----------
Other:
Other liabilities......................................... 8,738,769 9,487,948
Deferred income taxes..................................... 3,301,266 3,806,422
----------- -----------
Total long-term liabilities....................... 12,040,035 13,294,370
----------- -----------
Commitments and contingencies
Stockholder's equity:
Common stock.............................................. 3,212 3,212
Additional paid-in capital................................ 483,635 483,635
Retained earnings......................................... 71,223,772 67,992,808
Accumulated other comprehensive income.................... 397,574 406,199
----------- -----------
72,108,193 68,885,854
Less, Treasury stock, at cost.......................... 275,000 275,000
----------- -----------
Total stockholder's equity........................ 71,833,193 68,610,854
----------- -----------
Total liabilities and stockholder's equity........ $95,316,723 $91,561,360
=========== ===========
</TABLE>
Note: The condensed combined balance sheet at December 31, 1999 has been derived
from the audited financial statements at that date.
The accompanying notes are an integral part of the condensed combined financial
statements.
F-30
<PAGE> 97
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
REVENUES:
Structuring and financing fees from Affiliates.............. $ 2,059,935 $ 3,813,677
Management fees from Affiliates............................. 5,537,998 14,661,647
Equity in earnings of Affiliates............................ 1,657,358 1,414,365
Marketing reimbursements from Affiliates.................... 518,980 375,549
Interest and dividends...................................... 384,928 329,682
Other income, net........................................... 211,065 216,155
----------- -----------
Total revenues.................................... 10,370,264 20,811,075
----------- -----------
EXPENSES:
Salaries and other compensation............................. 6,337,021 5,461,536
Professional fees........................................... 239,675 231,632
Office expenses............................................. 190,383 78,704
Business development expenses............................... 291,203 132,801
Other general and administrative expenses................... 108,205 121,952
Depreciation and amortization............................... 136,494 82,077
Interest expense............................................ 38,672 0
----------- -----------
Total expenses.................................... 7,341,653 6,108,702
----------- -----------
Income before taxes............................... 3,028,611 14,702,373
Provision (benefit) for income taxes........................ (202,353) 328,824
----------- -----------
Net income........................................ $ 3,230,964 $14,373,549
=========== ===========
</TABLE>
The accompanying notes are an integral part at the combined financial
statements.
F-31
<PAGE> 98
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
CONDENSED COMBINED STATEMENTS OF
COMPREHENSIVE INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
---------- -----------
<S> <C> <C>
Net income.................................................. $3,230,964 $14,373,549
Other comprehensive income (loss):
Change in unrealized appreciation of marketable
securities............................................. (9,161) (131,622)
---------- -----------
Comprehensive income........................................ $3,221,803 $14,241,927
========== ===========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-32
<PAGE> 99
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
2000 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $3,230,964 $14,373,549
---------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Fees received in securities of Affiliates.............. (2,288,878) (10,794,218)
Depreciation and amortization.......................... 136,494 82,077
Equity in earnings of Affiliates....................... (1,657,358) (1,414,365)
Cash distributions from investment in Affiliates....... 904,120 686,258
Decrease in receivables from Affiliates................... 1,751,378 512,589
Increase in accrued expenses.............................. 397,739 610,167
Increase in accrued and deferred taxes.................... 967,675 1,207,859
Decrease in other liabilities............................. (841,017) (338,527)
Other..................................................... (3,950) (12,995)
---------- -----------
Total adjustments................................. (633,797) (9,461,155)
---------- -----------
Net cash provided by operating activities......... 2,597,167 4,912,394
---------- -----------
Cash flows from investing activities:
Purchase of fixed assets.................................. (162,328) (175,232)
Sale of marketable securities available for sale.......... 100,000 50,000
Acquisition of shares in Affiliates....................... 19,195
---------- -----------
Net cash used in investing activities............. (62,328) (106,037)
---------- -----------
Cash flows from financing activities:
Additional paid in capital................................ 1,000
---------- -----------
Net cash provided by financing activities......... 1,000
---------- -----------
Net increase in cash and cash equivalents......... 2,534,839 4,807,357
Cash and cash equivalents at beginning of year.............. 2,217,204 2,002,483
---------- -----------
Cash and cash equivalents at end of year.......... $4,752,043 $ 6,809,840
========== ===========
</TABLE>
Supplemental disclosure of cash flow information for the period:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
2000 1999
---------- ----------
<S> <C> <C>
Interest paid............................................... $ 38,672 $ --
======== ========
Income taxes paid........................................... $639,034 $546,031
======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-33
<PAGE> 100
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. All significant inter-entity balances and transactions
have been eliminated. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the results of the interim periods presented have been included. The results of
operations for the interim periods are not necessarily indicative of results for
the full year. For further information, refer to the financial statements and
footnotes thereto included in the Carey Group's accompanying financial
statements for the year ended December 31, 1999.
The combined financial statements include the accounts of W. P. Carey &
Co., Inc. ("W. P. Carey"), its subsidiaries, including Wm. Polk Carey's minority
interest in those subsidiaries, and certain affiliated companies (collectively,
the "Carey Group"). The affiliated companies are as follows: Carey Property
Advisors, L.P., Carey Fiduciary Advisors, Inc., Eighth Carey Corporate Property,
Inc. ("Eighth Carey") and Ninth Carey Corporate Property, Inc. ("Ninth Carey")
and W. P. Carey International LLC (collectively, "certain Affiliated
Companies"). Wm. Polk Carey owns 100% of the common stock of each of these
Affiliated Companies, except for Carey Property Advisors, LP, in which he owns a
99% interest.
The subsidiaries of W. P. Carey are as follows: Carey-Fairview Corporation,
Carey Corporate Property, Inc., Seventh Carey Corporate Property, Inc., Carey
Financial Corporation, W. P. Carey Advisors, L.P., W. P. Carey Advisors, Inc.
and Carey Management LLC (collectively, the "Subsidiaries"). Wm. Polk Carey owns
all of the outstanding common stock of W. P. Carey. Additionally, either
directly or indirectly through his ownership of W. P. Carey, Wm. Polk Carey owns
100% of the Subsidiaries.
W. P. Carey was organized by Wm. Polk Carey in 1973 for the purpose of
providing investment banking services. The Carey Group sponsors and manages a
publicly traded limited liability company and four public real estate investment
trusts (collectively the "Affiliated Public Entities") which are engaged in the
acquisition and net leasing of corporate real property.
NOTE 2 -- INVESTMENTS IN AFFILIATES:
The Carey Group's investment in affiliates, recorded under the equity
method, at March 31, 2000 and December 31, 1999 is indicated below.
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Corporate Property Associates............................. $ (67,817) $ (67,538)
Corporate Property Associates 2........................... 51,391 46,487
Corporate Property Associates 3........................... 114,903 105,556
Corporate Property Associates 4........................... (57,696) (50,134)
Corporate Property Associates 5........................... (130,002) (121,280)
Corporate Property Associates 6........................... 456,968 405,650
Corporate Property Associates 7........................... 205,572 186,289
Corporate Property Associates 8........................... 286,938 165,145
Corporate Property Associates 9........................... 226,347 188,122
Corporate Property Associates 10 Incorporated............. 4,657,896 4,648,167
Carey Institutional Properties Incorporated............... 15,052,743 14,389,388
Corporate Property Associates 12 Incorporated............. 6,450,655 5,796,170
Corporate Property Associates 14 Incorporated............. 201,500 201,537
Carey Diversified LLC..................................... 33,493,438 32,013,157
Other..................................................... 18,988 12,992
----------- -----------
$60,961,824 $57,919,708
=========== ===========
</TABLE>
F-34
<PAGE> 101
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the respective amended agreements of limited partnership
(the "Agreements") for those affiliates organized as limited partnerships, the
Carey Group as Partners, are allocated percentages of profits and losses as well
as distributions of Distributable Cash From Operations, ranging from 9/10 of 1%
to 9%, as defined in the respective Agreements. In addition, the Carey Group are
also entitled to receive net proceeds from the sale of the partnership
properties, allocated as defined in the respective Agreements.
The investments above include $2,053,000 for warrants to purchase common
stock of Carey Institutional Properties Incorporated and warrants of $6,569,000
for the purchase of shares of Carey Diversified LLC. The CIP(R) warrants provide
for the purchase of 3,090,000 shares at an exercise price ranging from $11.50 to
$12.80 per share. The Carey Diversified warrants provide for the purchase of
3,011,000 shares at an exercise price ranging from $21 to $23 per share. The
terms of the warrants are for 10 years.
Cumulative incentive fees of $9,833,000 from CIP for the period from
December 19, 1991 to December 31, 1998 were recorded in 1999 upon satisfaction
of the subordination requirement. Such fees were collected in the stock of CIP
and has been included in investments in affiliates as of December 31, 1999.
Members of the Carey Group own approximately 1,348,000 shares, representing
approximately 5.2% of the of Listed Shares of Carey Diversified. The Listed
Shares are traded on the New York Stock Exchange. As of March 31, 2000 the
carrying value of such shares was equal to $26,924,000 and their fair market
value approximated $22,411,000.
As of March 31, 2000 and December 31, 1999, the aggregate assets,
liabilities and for the three months ended March 31, 2000 and 1999, the net
income of the Affiliates and the Carey Group's equity in earnings approximated
the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
-------------- --------------
<S> <C> <C>
Total assets......................................... $2,280,303,000 $2,207,358,000
-------------- --------------
Total liabilities.................................... $1,018,148,000 $ 958,173,000
-------------- --------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Net income........................................... $ 24,279,000 $ 19,591,000
-------------- --------------
Equity in earnings of affiliates..................... $ 1,657,358 $ 1,414,365
-------------- --------------
</TABLE>
NOTE 3 -- PROPOSED ACQUISITION:
On December 20, 1999 the principal shareholder and certain members of the
Carey Group entered into an Agreement and Plan of Merger (the "Agreement") with
Carey Diversified LLC, an affiliate. Pursuant to the Agreement, Carey
Diversified will acquire substantially all of the business operations of the
Carey Group in exchange for eight million Listed Shares of Carey Diversified
stock. In addition, up to two million additional Listed Shares will be paid to
members of the Carey Group over the next four years if specified performance
criteria for Carey Diversified are satisfied.
The assets and liabilities to be acquired by Carey Diversified include but
are not limited to all of the stock of Carey Management LLC and Carey Financial
Corporation, the Advisory Agreements with the Corporate Property Associates
REITs, the Management Agreement with Carey Diversified LLC and the employees and
related assets and liabilities required to carry on the business operations of
the Carey Group.
F-35
<PAGE> 102
W. P. CAREY & CO., INC. AND SUBSIDIARIES AND
CERTAIN AFFILIATED COMPANIES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Assets and Liabilities which will be excluded from the acquisition are
primarily: excess cash, marketable securities and receivables not required to
satisfy the Net Working Capital requirement as defined in the Agreement;
investments in shares and warrants to acquire shares of Carey Diversified LLC
and the CPA REITs, other miscellaneous assets not directly related to the
business operations to be acquired by Carey Diversified LLC; deferred tax
liabilities of W. P. Carey & Co., Inc. and the liability for the vested
interests of participants in certain non-qualified deferred compensation plans
of the Carey Group.
During 2000 the Carey Group expensed approximately $24,000 relating to the
proposed acquisition.
F-36
<PAGE> 103
APPENDIX I
MERGER AGREEMENT
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, amended and restated as
of March 15, 2000 (this "Agreement"), among Carey Diversified LLC, a Delaware
limited liability company ("CD"), WPC Acquisition LLC, a Delaware limited
liability company and wholly-owned subsidiary of CD ("Newco"), Carey Management
LLC, a Delaware limited liability company ("CM"), W.P. Carey & Co., Inc., a New
York corporation ("WPC"), Carey Corporate Property, Inc., a Delaware corporation
("CCPI"), Seventh Carey Corporate Property, Inc., a Delaware corporation
("Seventh"), Eighth Carey Corporate Property, Inc., a Delaware corporation
("Eighth"), and Ninth Carey Corporate Property, Inc., a Delaware corporation
("Ninth"), amending and restating the Agreement and Plan of Merger, dated as of
December 21, 1999, among the parties hereto (the "Original Agreement"). WPC,
CCPI, Seventh, Eighth, and Ninth join in and are made a party to this Agreement
solely for undertaking the indemnification obligations and related procedures
set forth in Section 6.9 hereof.
WHEREAS, in connection with the Original Agreement, the parties hereto
negotiated certain FFO Targets (as defined in Section 2.5(a) hereof) for the
Surviving Company (as defined in Section 1.1 hereof) to be used to determine
whether FFO Additional Shares (as defined in Section 2.5(a) hereof) would be
issued to holders of CM Company Interests (as defined below), which FFO Targets
assumed that the Merger (as defined below) would be consummated before the end
of April, 2000, so that under generally accepted accounting principles the FFO
Target for the Target Year 2000 would reflect the contribution of CM to the
Surviving Company for a significant portion of the year;
WHEREAS, it appears possible that, contrary to the expectations of the
parties hereto, without the fault of any party, the consummation of the Merger
may be delayed as a result of which the FFO Target for the Target Year 2000 set
forth in the Original Agreement is a less reasonable measure of performance than
the parties hereto had assumed;
WHEREAS, the parties hereto do not wish to unfairly penalize any party
hereto as a result of this delay and wish to incentivize all parties to
consummate the Merger as promptly as possible and believe this can be
accomplished by reducing pro rata the FFO Target for the Target Year 2000 if the
Merger is consummated after April, 2000 but prior to the end of June, 2000;
WHEREAS, the parties hereto desire hereby to amend and restate the Original
Agreement in its entirety;
WHEREAS, prior to the date of the Original Agreement, certain CM Affiliates
(as defined below) contributed certain assets and liabilities relating to the
management of real property to CM (the "Affiliate Contribution") pursuant to the
Assignment and Assumption Agreement, dated as of December 21, 1999, between WPC,
CPA (as defined below), WPCA (as defined below), and CM (the "Contribution
Agreement"). References to the "CM Affiliates" include William P. Carey, WPC,
CCPI, Seventh, Eighth, Ninth, Carey Financial Corporation, a Delaware
Corporation ("CFC"), Carey Fiduciary Advisors, Inc., a Pennsylvania Corporation
("CFA"), Carey Property Advisors, a Pennsylvania limited partnership ("CPA"),
and W.P. Carey Advisors, L.P., a Delaware limited partner-ship ("WPCA").
WHEREAS, the respective Boards of Directors of CD, Newco and CM have each
approved the merger of Newco with and into CM (the "Merger"), upon the terms and
subject to the conditions set forth herein, whereby each issued and outstanding
limited liability company interest of CM ("CM Company Interest") will be
converted into the right to receive the Merger Consideration (as defined in
Section 2.1(a) hereof), subject to any Initial Share Adjustment (as defined in
Section 2.1(c) hereof) and any Net Working Capital Adjustment (as defined in
Section 2.1(d)(i) hereof), and such Additional Payments (as defined in Section
2.5(a) hereof) as shall be payable in accordance with Section 2.5 hereof;
WHEREAS, the respective Boards of Directors of CD, Newco and CM and the
holders of CM Company Interests have each determined that the Merger and the
other transactions contemplated hereby are consistent with, and in furtherance
of, their respective business strategies and goals and are in the best interests
of their respective members;
<PAGE> 104
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will constitute a contribution of property to CD pursuant to Section 721 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, the parties agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions set
forth herein, and in accordance with the Delaware Limited Liability Company Act
("DLLCA"), Newco shall be merged with and into CM at the Effective Time (as
defined in Section 1.3 hereof). Following the Effective Time, CM shall be the
surviving entity (the "Surviving Company") and shall succeed to and assume all
the rights and obligations of Newco in accordance with the DLLCA. In connection
with the Merger, the name of CD shall be amended to become "W.P. Carey & Co.
LLC."
SECTION 1.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., New York time, on a date to be specified by the parties,
which shall be no later than the second business day after satisfaction or
waiver of the conditions set forth in Article VII, unless another time or date
is agreed to by the parties hereto (the "Closing Date"). The Closing will be
held at the offices of Skadden, Arps, Slate, Meagher & Flom LLP at either 919
Third Avenue, New York, New York or 4 Times Square, New York, New York, unless
otherwise agreed to by CD and CM.
SECTION 1.3 Effective Time. The Merger shall become effective at the time
of filing of, or at such later time specified in, a properly executed
Certificate of Merger, in the form required by and executed in accordance with
the DLLCA, filed with the Secretary of State of the State of Delaware in
accordance with the provisions of Section 18-209 of the DLLCA. Such filing shall
be made as soon as practicable after the Closing. When used herein, the term
"Effective Time" shall mean the date and time at which the Merger shall become
effective.
SECTION 1.4 Effects of the Merger. The Merger shall have the effects set
forth in the DLLCA.
SECTION 1.5 Limited Liability Company Agreement and Bylaws of the Surviving
Company. The Limited Liability Company Agreement and Bylaws of Newco, as in
effect immediately prior to the Effective Time, shall be the Limited Liability
Company Agreement and Bylaws of the Surviving Company until thereafter changed
or amended as provided therein or by applicable law.
SECTION 1.6 Directors and Officers. The board of directors of CD
immediately prior to the Effective Time shall, from and after the Effective
Time, be the board of directors and officers, respectively, of the Surviving
Company until their successors shall have been duly elected or appointed or
qualified or until their earlier death, resignation or removal in accordance
with the Limited Liability Company Agreement and Bylaws of the Surviving
Company.
ARTICLE II
EFFECT OF THE MERGER ON THE LIMITED LIABILITY INTERESTS OF THE CONSTITUENT
COMPANIES; EXCHANGE OF CERTIFICATES; ADDITIONAL PAYMENTS
SECTION 2.1 Limited Liability Interests. As of the Effective Time, by
virtue of the Merger and without any action on the part of the holders of CM
Company Interests:
(a) Conversion of CM Company Interests. Subject to Section 2.2(c),
all the issued and outstanding CM Company Interests shall be converted into
the right to receive an aggregate of eight million (8,000,000) fully paid
and nonassessable Listed Shares of CD ("CD Shares"), subject to any
2
<PAGE> 105
Initial Share Adjustment and any Net Working Capital Adjustment, and the
Additional Shares, if applicable, in accordance with Section 2.5 hereof.
Each holder of CM Company Interests shall be entitled to its proportionate
share of the CD Shares issuable pursuant to this Section 2.1, based upon
the percentage membership interests set forth in Schedule 2.1 of the
Disclosure Schedules (as defined herein). The consideration to be issued to
holders of CM Company Interests is referred to herein as the "Merger
Consideration." As of the Effective Time, all such CM Company Interests
shall no longer be outstanding and shall automatically be cancelled and
retired and shall cease to exist, and each holder of a CM Company Interest
shall cease to have any rights with respect thereto, except the right to
receive the Merger Consideration, and the Net Working Capital Adjustment,
the Additional Payments and any cash in lieu of fractional interests in CD
Shares to be issued or paid in consideration therefor in accordance with
Section 2.1(d), Section 2.2 and Section 2.5, without interest.
(b) Limited Liability Interests of Newco. Each outstanding limited
liability interest of Newco shall be converted into and become one limited
liability company interest in the Surviving Company and shall constitute
the only outstanding limited liability company interests in the Surviving
Company.
(c) Adjustments to Merger Consideration. The eight million
(8,000,000) CD Shares to be issued initially as Merger Consideration (the
"Initial Shares") will be adjusted at the time of closing of the Merger if
the Pro Forma Adjusted Net Income (as defined below) for the year ending
December 31, 1999 of CM (the "1999 Income") is less than $26,112,000 (the
"Base Income"). Any adjustment to the Initial Shares issued will not affect
the amount of Additional Payments which may be made to holders of CM
Company Interests subject to Section 2.5.
To the extent that 1999 Income is less than the Base Income (the
amount by which such 1999 Income is less than the Base Income being
referred to herein as the "Shortfall Amount"), then the number of Initial
Shares to be issued as part of the Merger Consideration will be reduced
(the "Initial Share Adjustment") pursuant to the following calculation: The
Initial Share Adjustment will equal the product of : (A) 8,000,000 and (b)
a number the numerator of which is the total Shortfall Amount and the
denominator of which is the Base Income. The number of CD Shares to be
issued at the Effective Time will be the Initial Shares reduced by the
Initial Share Adjustment.
For example, if the Shortfall Amount equals $100,000, then the Initial
Share Adjustment equals 8,000,000 X (100,000/26,112,000), or 30,637 shares.
The CD Shares issued at the Effective Time will be 8,000,000 minus 30,637
or 7,969,363 shares.
For the purpose of determining the Shortfall Amount and the Initial
Share Adjustment, 1999 Income is defined as the Pro Forma Net Income for CM
for the year ending December 31, 1999 as determined and audited by
PricewaterhouseCoopers LLP (the "Independent Accountants") adjusted by the
Independent Accountants for the following: (i) elimination of the provision
for income taxes of CM; (ii) elimination of revenue from Equity in Earnings
of Affiliates relating to interests in affiliates which will not be
contributed to CM, and indirectly to CD in the Merger; (iii) elimination of
management fee and performance fee revenues relating to services rendered
in years prior to 1999 for the Public REITs (as defined in Section
3.16(b)), (iv) elimination of revenue from interest and dividends; (v)
elimination of all revenues and Direct Expenses (as defined below)
associated with any other businesses or assets of the CM Affiliates which
are not being contributed to CM, and indirectly to CD, in the Merger; (vi)
elimination of compensation, if any, which will not be incurred by CD after
the Merger, and (vii) the subtraction of any positive amounts of Pro Forma
Incremental Subsidiary Taxes (as defined below) ("Pro Forma Adjusted Net
Income").
For the purpose of determining 1999 Income, the following definitions
apply:
"Direct Expenses" are expenses directly relating to the business or
asset which is not being contributed to CM, and indirectly to CD, in the
Merger, which expenses will not be incurred by CM or CD directly or
indirectly after the Merger. Direct Expenses do not include expenses
relating to overhead, general and administrative charges and salaries
and compensation allocated
3
<PAGE> 106
to such businesses or assets from any CM Affiliates which businesses or
assets will be contributed to CM, and indirectly to CD in the Merger.
"Pro Forma Subsidiary Incremental Taxes" is defined as the pro
forma tax for the year ending December 31, 1999 payable by the taxable
subsidiary of CD to be formed in connection with the Merger to conduct
the business of CM after the Merger minus $94,000.
Schedule 2.1(c) of the Disclosure Schedules sets forth a list of
transactions scheduled to close in 1999 upon the closing of which CM
expects to receive the transaction or structuring fee included on the
Schedule. Before calculating the Shortfall Amount, the Base Income shall
be reduced by the amount of fees attributable to each transaction (not
to exceed a total of $2,000,000 for all transactions), if any, set forth
on Schedule 2.1(c) of the Disclosure Schedules, which does not, in fact,
close during 1999 (the "Delayed Acquisition Fees"). To the extent that
between January 1, 2000 and the closing of the Merger, CM does not earn
acquisition fees equal to the total Delayed Acquisition Fees, then the
difference between actual acquisition fees earned between January 1,
2000 and the closing of the Merger and the total Delayed Acquisition
Fees will be excluded from all calculations relating to CD's FFO Per
Common Share for the year 2000 as defined in Section 2.5.
(d) Working Capital Adjustment.
(i) As of the Closing Date, Net Working Capital (defined as (x) cash,
cash equivalents, marketable securities (excluding the securities
associated with the restricted stock agreements and securities and notes
executive stock purchase agreements referenced in Schedule 1 of the
Contribution Agreement), prepaid expenses and unsubordinated cash
receivables of CM (including, but not limited to, any unsubordinated cash
receivables of CM from CD) less (y) accrued expenses, accrued taxes, all
other current liabilities (including current installments of long term
liabilities) and all long-term indebtedness of CM (but excluding all
liabilities associated with the restricted stock agreements and executive
stock purchase agreements referenced in Schedule 2 of the Contribution
Agreement) shall be $0 and to the extent that Net Working Capital is not
$0, the parties shall make a cash payment after the Closing Date as
specified in this Section 2.1(d) (the "Net Working Capital Adjustment").
(ii) Within 60 days following the Closing Date, William P. Carey,
acting on behalf of the former holders of CM Company Interests for purposes
of this Section 2.1(c)(ii) only (the "Representative"), shall cause to be
prepared and delivered to CD a statement setting forth the Net Working
Capital of CM as of the Closing Date (the "Statement"), which shall be
submitted to PricewaterhouseCoopers LLP, CD's independent certified public
accountants, for review and modification as promptly as practicable. The
Statement, as so modified by CD's independent certified public accountants,
absent manifest error or bad faith, shall become the "Final Statement."
(iii) In the event the amount by which the Net Working Capital as set
forth in the Final Statement exceeds $0, CD shall, within ten business days
after delivery of the Final Statement, make payment to the Representative,
by wire transfer of immediately available funds, of the amount of such
excess, together with interest thereon at a rate equal to the prime rate
per annum as quoted in the Wall Street Journal from the Closing Date to the
date of payment. In the event the amount by which the Net Working Capital
as set forth in the Final Statement is less than $0, the Representative
shall, within ten business days after delivery of the Final Statement, make
payment to CD, by wire transfer of immediately available funds, the amount
of such shortfall, together with interest thereon at a rate equal to the
prime rate per annum as quoted in the Wall Street Journal from the Closing
Date to the date of payment. Notwithstanding the foregoing, the parties
acknowledge that it is their intent to minimize, to the extent practicable,
the amount by which the Net Working Capital exceeds or is less than $0.
SECTION 2.2 Delivery of Certificates. (a) As of the Effective Time, CD
shall deliver to the holders of CM Company Interests the certificates
representing the CD Shares issuable pursuant to Section 2.1.
4
<PAGE> 107
(b) No Further Ownership Rights in CM Company Interests. All CD Shares
issued in accordance with the terms of this Article II and any cash paid
pursuant to this Article II shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to the CM Company Interests and there
shall be no further registration of transfers in the records of the Surviving
Company of the CM Company Interests which were outstanding immediately prior to
the Effective Time.
(c) No Fractional Interests. No certificates or scrip representing
fractional interests in CD Shares shall be issued, no dividend or distribution
of CD shall relate to such fractional interests and such fractional interests
will not entitle the owner thereof to vote or to any rights of a holder of CD
Shares. In lieu of issuing fractional interests, CD shall convert a holder's
right to receive CD Shares pursuant to Section 2.1(a) into a right to receive
the highest whole number of CD Shares constituting the Merger Consideration plus
cash equal to the fraction of a CD Share to which the holder would otherwise be
entitled multiplied by the per share closing price for CD Shares on the NYSE on
the last trading day preceding the date of the Effective Time, and the Merger
Consideration to which a holder is entitled shall be deemed to be such number of
shares of CD Shares plus cash in lieu of the fractional interest. It is
understood that the payment of cash in lieu of fractional interests in CD Shares
is solely for the purpose of avoiding the expense and inconvenience to CD of
issuing fractional interests and does not represent separately bargained-for
consideration and that no holder of CM Company Interests will receive cash in
lieu of fractional CD Shares in an amount greater than the value of one full CD
Share.
(d) No Liability. None of CD, CM, or the Surviving Company shall be liable
to any person in respect of any CD Shares, any dividends or distributions with
respect thereto, or any cash in lieu of fractional CD Shares, in each case
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
SECTION 2.3 Employee Benefit Plans. As of the Effective Time, each person
identified on Schedule 2.3 of the Disclosure Schedules (the "Interest Holders"),
each Interest Holder having an interest (an "Equity Interest") under the WPC
Partnership Equity Plan (the "PEP Plan") and the WPC Stock Appreciation Rights
Plan (the "SAR Plan"), shall, subject to the prior consent of such Interest
Holder, automatically have their Equity Interest in the PEP Plan and the SAR
Plan cancelled and retired and such interest shall cease to exist. In
consideration of such cancellation, each Interest Holder will receive an
incentive award under a CD benefit plan as set forth in Section 6.4 hereof.
SECTION 2.4 Certain Adjustments. If between the date hereof and the
Effective Time, the outstanding CM Company Interests or CD Shares shall be
changed into a different number of interests or shares by reason of any
reclassification, recapitalization, split-up, combination or exchange of shares,
or any dividend payable in stock or other securities shall be declared thereon
with a record date within such period, the Merger Consideration shall be
adjusted accordingly to provide to the holders of CM Company Interests the same
economic effect as contemplated by this Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or dividend.
SECTION 2.5 Additional Payments. (a) In addition to the Merger
Consideration provided for under Section 2.1(a) hereof and any payments made
pursuant to the Net Working Capital Adjustment, the holders of CM Company
Interests shall be entitled to receive such additional consideration in respect
of the Merger as shall be payable in accordance with this Section 2.5. For each
of the four calendar years 2000 through 2003 (each a "Target Year") that CD's
FFO Per Common Share (as defined herein) exceeds the target level of FFO Per
Common Share set forth below for such year (the "FFO Targets") CD shall issue
four hundred thousand (400,000) fully paid and nonassessable CD Shares (the "FFO
Additional Shares") to the holders of CM Company Interests (the "FFO Additional
Payments"), in proportion to the percentage membership interests set forth in
Schedule 2.1(b) of the Disclosure Schedules, and for each of the four calendar
years 2000 through 2003 that CD's Total Return (as defined herein) exceeds the
Total Return Target (as defined herein, and together with the FFO Targets, the
"Additional Payments Targets"), CD shall issue one hundred thousand (100,000)
fully paid and nonassessable CD Shares (the "Total Return Additional Shares"
and, together with the FFO Additional Shares, the "Additional Shares") to the
holders of CM Company Interests (the "Total Return Additional
5
<PAGE> 108
Payments" and, together with the FFO Additional Payments, the "Additional
Payments"), in proportion to the percentage membership interests set forth in
Schedule 2.1 of the Disclosure Schedules. In the event that the Effective Time
is after June 30, 2000, then (i) the FFO Targets utilized for the purpose of
determining whether or not the FFO Additional Shares are to be issued shall be
those indicated for the years 2001 through 2004 as set forth below, and the
Target Years shall be moved forward one year and commence in the year 2001, and
(ii) the Total Return Targets utilized for the purpose of determining whether or
not the Total Return Additional Shares are to be issued shall be based on Total
Returns calculated for the years 2001 through 2004, and the Target Years shall
be moved forward one year and commence in the year 2001.
THE TARGET YEARS AND FFO TARGETS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
TARGET YEAR FFO TARGETS
- ----------- ---------------
<S> <C>
2000..................................................... $2.31 per share
2001..................................................... $2.41 per share
2002..................................................... $2.45 per share
2003..................................................... $2.55 per share
2004..................................................... $2.65 per share
</TABLE>
Notwithstanding the foregoing, if the Effective Time occurs after April 30, 2000
but prior to July 1, 2000, the amount of the per share FFO Target for the Target
Year 2000 shall be reduced in accordance with the following schedule:
after April 30, 2000 but prior to May 16, 2000, $2.29 per share;
after May 15, 2000 but prior to June 1, 2000, $2.28 per share;
after May 31, 2000 but prior to June 16, 2000, $2.27 per share; and
after June 15, 2000 but prior to July 1, 2000, $2.26 per share.
"FFO Per Common Share" shall mean net income (loss) (computed in accordance
with generally accepted accounting principles and consistent with the accounting
principles applied by CD in its prior fiscal years), excluding gains (or losses)
from debt restructuring and sales of properties, plus depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures, divided by the weighted average CD Shares outstanding on a
fully-diluted basis during the prior twelve months. Adjustments for
unconsolidated partnerships and joint ventures shall be calculated to reflect
funds from operations on the same basis. FFO Per Common Share shall be
calculated in a manner that is consistent with the accounting principles applied
by CD in its prior fiscal years.
"Total Return Target" shall mean the product of (i) the average Total
Return (as defined herein) of the Net-lease REIT Total Return Index Companies
(as defined herein) and (ii) 1.05 if the average Total Return of the Net-Lease
REIT Total Return Index Companies is a number greater than zero, or .95 if the
average Total Return of the Net-Lease REIT Total Return Index Companies is a
number less than zero.
"Total Return" shall mean 1.00 subtracted from: (i) the sum of (a) the
average closing price of the company's common shares during the last twenty
trading days of the subject year, and (b) the distributions paid per common
share during such year; divided by (ii) the average daily closing price of the
company's shares during (a) the twenty trading days preceding the Effective Time
of the Merger if such Effective Time occurs on or before June 30, 2000 for the
Target Year 2000, and during the last twenty trading days of the prior calendar
year for the Target Years 2001 through 2003, or (b) the last twenty trading days
of the prior calendar year if such Effective Time occurs after June 30, 2000 for
the Target Years 2001 through 2004; provided, however, that for purposes of
clause (i)(b) above, if the Effective Time occurs on or before June 30, 2000 the
amount of distributions paid per common share in Target Year 2000 to be utilized
in the above calculation for the Target Year 2000 shall be equal to the actual
distributions paid per common share in such year multiplied by a fraction the
numerator of which is
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<PAGE> 109
the number of days from the Effective Time to the end of Target Year 2000 and
the denominator of which is 365.
"Net-lease REIT Total Return Index Companies" shall initially consist of
the following companies: Franchise Finance Corporation of America (NYSE:FFA);
Realty Income Corporation (NYSE:O); Lexington Corporate Properties Trust
(NYSE:LXP); Commercial NET Lease Realty (NYSE:NNN); Captec Net Lease Realty,
Inc. (Nasdaq:CRRR); US Restaurant Properties Inc. (NYSE:USV); Entertainment
Properties Trust (NYSE:EPR); Capital Automotive REIT (Nasdaq:CARS); AMB Property
Corp. (NYSE:AMB); Cabot Industrial Trust (NYSE:CTR); Prologis Trust (NYSE:PLD);
and First Industrial Realty Trust (NYSE:FR). If a Fundamental Change (as defined
herein) occurs with respect to any of the Net-lease REIT Return Index Companies,
such company shall no longer be considered a Net-lease REIT Total Return Index
Company. Notwithstanding the foregoing, the Net-lease REIT Total Return Index
Companies shall always be comprised of at least five publicly-traded companies.
In the event that the Net-lease REIT Total Return Index Companies would be
reduced to less than five companies, CD and the holders of a majority of CM
Company Interests shall mutually agree upon the designation of one or more
publicly-traded companies to be added to the Net-lease REIT Total Return Index
Companies. If CD and the holders of a majority of CM Company Interests are not
able to agree on such designation, CD, on the one hand, and the holders of a
majority of CM Company Interests, on the other, shall each, in good faith,
designate one publicly-traded company to be added to the Net-lease REIT Total
Return Index Companies so that such index consists of six publicly-traded
companies after such designations.
"Fundamental Change" with respect to any Net-lease REIT Total Return Index
Company shall mean the occurrence of any of the following events: (a) the sale,
lease, transfer, conveyance or other disposition, in one or a series of related
transactions, of all or substantially all of the assets of the company and its
subsidiaries, taken as a whole, (b) the consummation of any transaction the
result of which is that any "person" or "group" (as such terms are used in
Section 13(d)(3) of the Exchange Act) becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly thorough one or more intermediaries, of 50% or more of the voting
power of the outstanding voting stock of the company, (c) the consolidation
with, or merger with or into, another person, or any person consolidates with,
or merges with or into, the company, in any such event pursuant to a transaction
in which the outstanding voting stock of the company is converted into or
exchanged for cash, securities or other property, or (d) the company is
liquidated or dissolves or adopts a plan relating to the liquidation or
dissolution of the company.
(b) If CD shall fail to satisfy the FFO Targets with respect to any Target
Year, the FFO Additional Shares shall not be issued with respect to such Target
Year. If CD shall fail to satisfy the Total Return Targets with respect to any
Target Year, the Total Return Additional Shares shall not be issued with respect
to such Target Year. Notwithstanding the foregoing, should CD satisfy the Total
Return Target with respect to a subsequent Target Year and if CD's Cumulative
Total Return (as defined herein) exceeds the Cumulative Total Return Target (as
defined herein), any unissued installments of Total Return Additional Shares for
prior years shall be issued to the holders of CM Company Interests together with
the Total Return Additional Payment due with respect to such subsequent Target
Year.
"Cumulative Total Return" shall mean 1.00 subtracted from the product of
the series of numbers resulting from adding 1.00 to the Total Return for the
first Target Year and for each subsequent Target Year through and including the
current Target Year. For example, if the Total Return for the first Target Year
is 5% and the Total Return for the second Target Year is 6%, then the Cumulative
Total Return shall be 1.05 multiplied by 1.06, or 1.113, less 1.00, which equals
0.113 or 11.3%.
"Cumulative Total Return Target" shall mean 1.00 subtracted from the
product of the series of numbers resulting from adding 1.00 to the Total Return
Target for the first Target Year and for each subsequent Target Year through and
including the current Target Year. For example, if the Total Return Target for
the first Target Year is 5% and the Total Return Target for the second Target
Year is 6%, then
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the Cumulative Total Return Target shall be 1.05 multiplied by 1.06, or 1.113,
less 1.00, which equals 0.113 or 11.3%.
(c) If following the Effective Time a CD Change of Control (as defined
herein) occurs, all unissued Additional Shares (including Additional Shares
attributable to future Target Years) shall immediately be issued to the holders
of CM Company Interests, irrespective of whether CD has satisfied the Additional
Payments Targets.
"CD Change of Control" shall mean the occurrence of any of the following
events: (a) the sale, lease, transfer, conveyance or other disposition, in one
or a series of related transactions, of all or substantially all of the assets
of CD and its subsidiaries, taken as a whole, to any person other than William
P. Carey or his affiliates, (b) the consummation of any transaction the result
of which is that any "person" or "group" (as such terms are used in Section
13(d)(3) of the Exchange Act) (other than William P. Carey or his affiliates)
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Exchange Act), directly or indirectly thorough one or more
intermediaries, of 50% or more of the voting power of the outstanding voting
shares of CD, (c) the consolidation with, or merger with or into, another person
(other than William P. Carey or his affiliates), or any person (other than
William P. Carey or his affiliates) consolidates with, or merges with or into,
the company, in any such event pursuant to a transaction in which the
outstanding voting shares of CD is converted into or exchanged for cash,
securities or other property, (d) the first day on which the individuals who as
of the Effective Date constitute the board of directors of CD (together with any
new directors whose election by such board of directors or whose nomination for
election by the shareholders of CD was approved by a vote of 66 2/3% of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute at least 50% of the board of
directors of the company then in office, or (e) CD is liquidated or dissolves or
adopts a plan relating to the liquidation or dissolution of the company.
(d) Any Additional Shares to be issued pursuant to an Additional Payment
shall be issued within ten business days following the completion of audited
financials for the Target Year giving rise to such Additional Payments (the
"Additional Payment Date"). If between the date hereof and the end of the
Additional Payment period, the outstanding CD Shares shall be changed into a
different number of shares by reason of any reclassification, recapitalization,
split-up, combination or exchange of shares, or any dividend payable in stock or
other securities shall be declared thereon with a record date within such
period, the number of shares to be issued as Additional Shares shall be
correspondingly adjusted to reflect such reclassification, recapitalization,
split-up, combination, exchange or dividend.
(e) If a majority of the holders of CM Company Interests have any objection
to the calculation of CD's FFO Per Common Share, CD's Total Return or the
average Total Return of the Net-lease REIT Total Return Index Companies with
respect to any Target Year, then a representative of the holders of CM Company
Interests shall deliver a detailed statement describing such objections to CD
within thirty business days following the determination of whether CD had
satisfied the Additional Payments Targets with respect to such Target Year. CD
and the holders of CM Company Interests will use their reasonable efforts to
resolve any such objections themselves. If the parties do not resolve such
objections within 10 business days after CD has received the statement of
objections, then the parties will select an accounting firm mutually acceptable
to them to resolve the remaining objections (a "Referee"). If CD and the holders
of CM Company Interests are unable to agree on the choice of Referee, they will
select a nationally-recognized accounting firm by lot (after excluding their
respective regular outside accounting firms) as the Referee. The determination
of any Referee so selected will be conclusive and binding upon the parties.
(f) No certificates or scrip representing fractional interests in CD Shares
shall be issued, no dividend or distribution of CD shall relate to such
fractional interests and such fractional interests will not entitle the owner
thereof to vote or to any rights of a holder of CD Shares. In lieu of issuing
fractional interests, CD shall convert a holder's right to receive CD Shares
pursuant to Section 2.5(a) into a right to receive the highest whole number of
CD Shares constituting the Additional Payment plus cash equal to the
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fraction of a CD Share to which the holder would otherwise be entitled
multiplied by the per share closing price for CD Shares on the NYSE on the last
trading day preceding the date of the Additional Payment Date. It is understood
that the payment of cash in lieu of fractional interests in CD Shares is solely
for the purpose of avoiding the expense and inconvenience to CD of issuing
fractional interests and does not represent separately bargained-for
consideration and that no holder of CM Company Interests will receive cash in
lieu of fractional CD Shares in an amount greater than the value of one full CD
Share.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CM
Except as set forth in the disclosure schedules delivered by the parties
hereto simultaneously with the execution hereof (the "Disclosure Schedules"), CM
represents and warrants to CD and Newco as follows:
SECTION 3.1 Organization, Standing and Requisite Power. (a) CM is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite power and
authority to carry on its business as now being conducted. CM is duly qualified
or licensed to do business and is in good standing (with respect to
jurisdictions which recognize such concept) as a foreign limited liability
company in each jurisdiction in which the nature of its business or the
ownership, leasing or operation of its properties makes such qualification or
licensing necessary, except for those jurisdictions where the failure to be so
qualified or licensed or to be in good standing, individually or in the
aggregate, would not have a material adverse effect on the business, properties,
assets, financial condition or results of operations of CM and its subsidiaries,
taken as a whole (a "CM Material Adverse Effect"). A "CM Material Adverse
Change" shall mean any change or event which, individually or in the aggregate,
has or would reasonably likely have a CM Material Adverse Effect.
(b) CM has delivered to CD prior to the execution hereof complete and
correct copies of its limited liability company agreement, bylaws and other
organizational documents, in each case as amended to date and has made available
to CD prior to the execution hereof complete and correct copies of the articles
of incorporation, bylaws, limited liability company agreement or comparable
organizational documents, in each case as amended to date, of each of its
subsidiaries.
SECTION 3.2 Subsidiaries. Schedule 3.2 of the Disclosure Schedules lists
each subsidiary of CM (the "CM Subsidiaries"), together with the jurisdiction of
incorporation or organization of each such subsidiary. Except as set forth on
Schedule 3.2 of the Disclosure Schedules, (a) all the outstanding shares of
capital stock of each subsidiary that is a corporation have been validly issued
and are fully paid and nonassessable, are owned by CM or by a CM Subsidiary free
and clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind whatsoever ("Liens"), or other restrictions and
limitations on voting rights and (b) all equity interests in each subsidiary
that is a limited liability company or partnership, are owned by CM or by a CM
Subsidiary free and clear of all Liens, or other restrictions and limitations on
voting rights. Except for the capital stock of or other equity or ownership
interests in a CM Subsidiary, and except as set forth on Schedule 3.2 of the
Disclosure Schedules, CM does not own, directly or indirectly, any capital stock
or other equity or ownership interest in any individual, corporation,
partnership, limited liability company, joint venture, association, trust,
unincorporated organization or other entity ("Person"). Each CM Subsidiary that
is a corporation is duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has the requisite
corporate power and authority to carry on its business as now being conducted,
and each CM Subsidiary that is a limited liability company or partnership is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite power and authority to carry
on its business as now being conducted. Each CM Subsidiary is duly qualified or
licensed to do business and is in good standing (with respect to jurisdictions
which recognize such concept) as a foreign corporation, limited liability
company or partnership, as the case may be, in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of its properties
makes such qualification or licensing necessary, except for those jurisdictions
where the failure to be so qualified or licensed or to be in good standing,
individually or in the aggregate, would not have a CM Material Adverse Effect.
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SECTION 3.3 Capitalization. CM has an authorized capitalization consisting
solely of CM Company Interests, of which such CM Company Interests are held by
the members and in the percentages reflected on Schedule 3.3 of the Disclosure
Schedules. All outstanding CM Company Interests are duly authorized, validly
issued and not subject to preemptive rights. Except as set forth in this Section
3.3 or in Schedule 3.3 of the Disclosure Schedules, (x) there are not issued,
reserved for issuance or outstanding (A) any CM Company Interests or other
evidence of ownership of CM, or any subsidiary of CM, (B) any securities of CM
convertible into or exchangeable or exercisable for CM Company Interests or
evidence of ownership of CM, or any subsidiary of CM, (C) any warrants, calls,
options or other rights to acquire from CM, and any obligation of CM to issue,
any CM Company Interests, evidence of ownership or securities convertible into
or exchangeable or exercisable for CM Company Interests or evidence of ownership
of CM, or any subsidiary of CM and (y) there are no outstanding obligations of
CM or any subsidiary of CM to repurchase, redeem or otherwise acquire any such
securities or to issue, deliver or sell, or cause to be issued, delivered or
sold, any such securities. Except as set forth in Schedule 3.3 of the Disclosure
Schedules, neither CM nor any subsidiary of CM is a party to any agreement
restricting the transfer of, relating to the voting of, requiring registration
of, or granting any preemptive or, antidilutive rights with respect to, any
securities of the type referred to in the preceding sentence.
SECTION 3.4 Authority; Noncontravention; Consents and Approvals. CM has
all requisite power and authority to enter into this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by CM and the consummation by CM of the transactions contemplated by
this Agreement have been duly authorized by all necessary action on the part of
CM. This Agreement has been duly executed and delivered by CM and, assuming the
due authorization, execution and delivery by CD and Newco, constitutes the
legal, valid and binding obligation of CM, enforceable against CM in accordance
with its terms. Except for the consents to the Merger required under the
Advisory Agreements (as defined in Section 3.16) (the "Consents") and except as
set forth in Schedule 3.4 of the Disclosure Schedules, the execution, delivery
and performance of this Agreement do not, and the consummation of the
transactions contemplated by this Agreement, will not, conflict with, or result
in any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under, or result in the
creation of any Lien upon any of the properties or assets CM or any CM
Subsidiaries under, (i) the limited liability company agreement of CM, or the
comparable charter or organizational documents of any CM Subsidiary, (ii) any
loan or credit agreement, note, bond, mortgage, indenture, guarantee, lease,
agreement or other instrument, permit, concession, franchise, license or similar
authorization applicable to CM or any CM Subsidiary or their respective
properties or assets or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to CM or any CM
Subsidiary or their respective properties or assets, other than, in the case of
clauses (ii) and (iii), any such conflicts, violations, defaults, rights, losses
or Liens that individually or in the aggregate would not (x) have a CM Material
Adverse Effect or (y) reasonably be expected to materially delay or prevent CM
from performing its obligations under this Agreement. No consent, approval,
order or authorization of, action by or in respect of, or registration,
declaration or filing with, any federal, state or local government, any court,
administrative, regulatory or other governmental agency, commission or authority
or any non-governmental self-regulatory agency, commission or authority (a
"Governmental Entity") is required by or with respect to CM in connection with
the execution and delivery of this Agreement by CM or the consummation by CM of
the transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware; (ii)
such filings with Governmental Entities to satisfy the applicable requirements
of state securities or "blue sky" laws; (iii) as may be required pursuant to the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, and the rules and
regulations thereunder, or any successor law, rules or regulations (the "HSR
Act"), (iv) as may be required pursuant to the rules of the National Association
of Securities Dealers, Inc. (the "NASD"); and (v) such consents, approvals,
orders or authorizations the failure of which to be made or obtained
individually or in the aggregate would not (x) have a CM
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Material Adverse Effect or (y) reasonably be expected to materially delay or
prevent CM from performing its obligations under this Agreement.
SECTION 3.5 Financial Statements; Undisclosed Liabilities. True, correct
and complete copies of the Financial Statements (as defined below), together
with the related auditors reports, are included in Schedule 3.5 of the
Disclosure Schedules. The Financial Statements have been prepared from, and are
in accordance with, the books and records of CM and its affiliates and their
respective predecessors, comply in all material respects with applicable
accounting requirements, have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be stated in the notes thereto) and fairly
present the consolidated financial position and the consolidated results of
operations and cash flows (and changes in financial position, if any) of CM and
its affiliates and their respective predecessors as of the times and for the
periods referred to therein. Except (i) as reflected in such Financial
Statements or in the notes thereto, or (ii) for liabilities and obligations
incurred in connection with this Agreement or the transactions contemplated
hereby, CM has no liabilities or obligations of any nature (contingent or
otherwise) which, individually or in the aggregate, would have a CM Material
Adverse Effect. "Financial Statements" shall mean (i) the consolidated balance
sheets of WPC, its subsidiaries and its affiliates as of December 31, 1998
together with consolidated statements of income, members' equity and cash flows
for the period then ended, all certified by PricewaterhouseCoopers LLP,
independent certified public accountants, whose reports thereon are included
therein, and (ii) the pro forma interim consolidated balance sheets of CM and
the CM Subsidiary as of the date hereof, giving effect to the Affiliate
Contribution (the "CM Balance Sheet"), together with pro forma interim
consolidated statements of income, members' equity and cash flows for the period
then ended.
SECTION 3.6 Absence of Certain Changes or Events. Except for liabilities
and obligations incurred in connection with this Agreement, the Affiliate
Contribution or the transactions contemplated hereby and thereby and except as
permitted by Section 5.1(a) or set forth in Schedule 3.6 of the Disclosure
Schedules, since September 30, 1999, CM and the CM Affiliates have conducted
their businesses only in the ordinary course and there has not been (i) any CM
Material Adverse Change, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, securities or property) with
respect to any CM Company Interest or any issued and outstanding equity interest
in any of the CM Affiliates ("CM Affiliate Interest"), (iii) any split,
combination or reclassification of any CM Company Interest or any issuance or
the authorization of any issuance of any other securities in respect of, in lieu
of or in substitution for any CM Company Interest, (iv)(A) any granting by CM or
any CM Affiliate to any current or former director, executive officer or other
key employee of any increase in compensation, bonus or other benefits, except
for normal increases as a result of promotions, normal increases of base pay in
the ordinary course of business or as was required under any employment
agreements in effect as of the date hereof, (B) any granting by CM or any CM
Affiliate to any such current or former director, executive officer or key
employee of any increase in severance or termination pay, or (C) any entry by CM
or any CM Affiliate into, or any amendment of, any employment, deferred
compensation, consulting, severance, termination or indemnification agreement
with any such current or former director, executive officer or key employee, (v)
except insofar as may have been required by a change in GAAP, any change in
accounting methods, principles or practices by CM or any CM Affiliate materially
affecting the assets, liabilities or business of CM or any CM Affiliate, (vi)
any tax election that, individually or in the aggregate, would have a CM
Material Adverse Effect or have a material adverse effect on any of the tax
attributes of CM or any CM Affiliate or any settlement or compromise of any
material income tax liability, or (vii) any cancellation of any debts or waived
any claims or rights of substantial value.
SECTION 3.7 Compliance with Applicable Laws; Litigation. (a) CM, the CM
Subsidiaries and their respective employees hold all permits, licenses,
variances, exemptions, orders, registrations and approvals of all Governmental
Entities which are required for the operation of the businesses of CM and the CM
Subsidiaries (the "CM Permits") substantially in the manner heretofore
conducted, except where the failure to have any such CM Permits, individually or
in the aggregate, would not have a CM Material Adverse Effect. CM and the CM
Subsidiaries are in compliance with the terms of the CM Permits and all
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applicable statutes, laws, ordinances, rules and regulations (including, without
limitation, laws relating to environmental or occupational health and safety
conditions or standards), except where the failure so to comply, individually or
in the aggregate, would not have a CM Material Adverse Effect. None of CM, the
CM Subsidiaries nor the CM Affiliates has received notice that any CM Permit
will be terminated or modified or cannot be renewed in the ordinary course of
business, and CM has no knowledge of any reasonable basis for any such
termination, modification or nonrenewal, except for such terminations,
modifications or nonrenewals as would not, individually or in the aggregate,
have a CM Material Adverse Effect. The execution, delivery and performance
hereof and the consummation of the transactions contemplated hereby do not and
will not violate any CM Permit, or result in any termination, modification or
nonrenewals thereof, except for such violations, terminations, modifications or
nonrenewals thereof as would not, individually or in the aggregate, have a CM
Material Adverse Effect.
(b) As of the date hereof, except as set forth in Schedule 3.7(b) of the
Disclosure Schedules, no action, demand, requirement or investigation by any
Governmental Entity and no suit, action or proceeding by any Person, in each
case with respect to CM, any of the CM Subsidiaries, any of the CM Affiliates or
any of their respective properties which, individually or in the aggregate, is
reasonably likely to result in a CM Material Adverse Effect is pending or, to
the knowledge of CM, threatened.
SECTION 3.8 Absence of Changes in Benefit Plans. Schedule 3.8 of the
Disclosure Schedules lists (i) all written severance, retirement and employment
agreements of CM and the CM Affiliates with respective directors, executive
officers or key employees, (ii) all written severance programs and policies of
CM and the CM Affiliates, and (iii) all written plans or arrangements of CM and
the CM Affiliates relating to its respective employees which contain change in
control provisions, and CM has delivered or made available to CD true and
complete copies thereof. Except as set forth in Schedule 3.8 of the Disclosure
Schedules, since September 30, 1999 there has not been any adoption or amendment
in any material respect by CM or any CM Affiliate of any collective bargaining
agreement, employment agreement, consulting agreement, severance agreement or
any material bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other plan, arrangement or understanding providing benefits to any
current or former employee, officer or director of CM or any of the CM
Affiliates (collectively, the "CM Benefit Plans"), or any material change in any
actuarial or other assumption used to calculate funding obligations with respect
to any CM or CM Affiliate pension plans, or any material change in the manner in
which contributions to any CM or CM Affiliate pension plans are made or the
basis on which such contributions are determined.
SECTION 3.9 ERISA Compliance. (a) With respect to the CM Benefit Plans, no
event has occurred and, to the knowledge of CM, there exists no condition or set
of circumstances, in connection with which CM, any of the CM Subsidiaries or any
of the CM Affiliates could be subject to any liability under the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Code or any
other applicable law that would, individually or in the aggregate, have a CM
Material Adverse Effect.
(b) Each CM Benefit Plan has been administered in accordance with its
terms, except for any failures so to administer any CM Benefit Plan that,
individually or in the aggregate, would not have a CM Material Adverse Effect.
CM, the CM Affiliates and all the CM Benefit Plans are in compliance with the
applicable provisions of ERISA, the Code and all other applicable laws and the
terms of all applicable collective bargaining agreements, except for any
failures to be in such compliance that, individually or in the aggregate, would
not have a CM Material Adverse Effect. Each CM Benefit Plan that is intended to
be qualified under Section 401(a) or 401(k) of the Code has received a favorable
determination letter from the IRS that it is so qualified and each trust
established in connection with any CM Benefit Plan that is intended to be exempt
from federal income taxation under Section 501(a) of the Code has received a
determination letter from the IRS that such trust is so exempt. To the knowledge
of CM, no fact or event has occurred since the date of any determination letter
from the IRS which is reasonably likely to affect adversely the qualified status
of any such CM Benefit Plan or the exempt status of any such trust.
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(c) Neither CM nor any of the CM Affiliates have incurred any unsatisfied
liability under Title IV of ERISA (other than liability for premiums to the
Pension Benefit Guaranty Corporation arising in the ordinary course). No CM
Benefit Plan has incurred an "accumulated funding deficiency" (within the
meaning of Section 302 of ERISA or Section 412 of the Code) whether or not
waived. To the knowledge of CM, there are not any facts or circumstances that
would materially change the funded status of any CM Benefit Plan that is a
"defined benefit" plan (as defined in Section 3(35) of ERISA) since the date of
the most recent actuarial report for such plan. No CM Benefit Plan is a
"multiemployer plan" within the meaning of Section 3(37) of ERISA.
(d) With respect to each of the CM Benefit Plans (other than a
multiemployer plan) that is subject to Title IV of ERISA, the present value of
accrued benefits under each such plan, based upon the actuarial assumptions used
for funding purposes in the most recent actuarial report prepared by such plan's
actuary with respect to such plan, did not, as of its latest valuation date,
exceed the then current value of the aggregate assets of such plans allocable to
such accrued benefits in any material respect.
(e) No CM Benefit Plan provides medical benefits (whether or not insured),
with respect to current or former employees after retirement or other
termination of service (other than coverage mandated by applicable law or
benefits, the full cost of which is borne by the current or former employee)
other than individual arrangements the amounts of which are not material.
(f) As of the date hereof, neither CM nor any CM Affiliate is a party to
any collective bargaining or other labor union contract applicable to persons
employed by CM or any CM Affiliate and no collective bargaining agreement is
being negotiated by CM or any CM Affiliate. As of the date hereof, there is no
labor dispute, strike or work stoppage against CM or any CM Affiliate pending
or, to the knowledge of CM, threatened which may interfere with the business
activities of CM or any CM Affiliate, except where such dispute, strike or work
stoppage, individually or in the aggregate, would not have a CM Material Adverse
Effect. As of the date hereof, to the knowledge of CM, neither CM nor any CM
Affiliate nor any of their respective representatives or employees has committed
any material unfair labor practice in connection with the operation of the
business of CM or any CM Affiliate and there is no material charge or complaint
against CM or any CM Affiliate by the National Labor Relations Board or any
comparable governmental agency pending or threatened in writing.
(g) No employee of CM or the CM Affiliates will be entitled to any material
payment, additional benefits or any acceleration of the time of payment or
vesting of any benefits under any CM Benefit Plan as a result of the
transactions contemplated hereby (either alone or in conjunction with any other
event such as a termination of employment), except as provided in Section 6.4
hereof.
SECTION 3.10 Taxes. Except as set forth in Schedule 3.10 of the Disclosure
Schedules, (a) CM, each of the CM Subsidiaries and each of the CM Affiliates
have (i) timely filed all material Tax Returns (as defined herein) required to
be filed by it and all such Tax Returns are true, complete and correct in all
material respects, and (ii) timely paid all Taxes (as defined herein) shown as
due on such Tax Returns. None of CM, the CM Subsidiaries nor the CM Affiliates
has requested an extension of time within which to file any material Tax Return
in respect of any taxable period which Tax Return has not since been filed;
(b) No deficiencies for any material Taxes have been assessed in writing
against CM, any CM Subsidiary or any CM Affiliate that have not been paid in
full or which are not adequately reserved for, except for deficiencies that,
individually or in the aggregate, would not have a CM Material Adverse Effect.
No federal, state, local or foreign audits or other administrative proceedings
or court proceedings are presently pending with regard to any material Taxes of
CM, any of the CM Subsidiaries or any of the CM Affiliates;
(c) Except as reflected in the Financial Statements, CD shall have no
liability with respect to CM, any CM Subsidiary or any CM Affiliate for Taxes
due for the 1999 tax year and for that portion of the 2000 tax year that ends on
the Closing Date, and the CM Affiliates shall be solely responsible for any such
liability;
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(d) There are no material Liens for Taxes upon the assets or properties of
CM, any of the CM Subsidiaries or any of the CM Affiliates, except for statutory
Liens for Taxes not yet due or contested in good faith; and
(e) As used herein, "Taxes" shall include all (x) federal, state, local or
foreign income, property, sales, use, excise, withholding, transfer, recording
and other taxes or similar governmental charges, including any interest,
penalties or additions with respect thereto, and (y) "Tax Return" shall mean any
report, return, document, declaration, information, return or filing (including
any related or supporting information) with respect to Taxes.
SECTION 3.11 Certain Contracts. Except for contracts and agreements set
forth in Schedule 3.11 of the Disclosure Schedules and its agreement with BT
Alex Brown, a copy of which has been provided to CD, CM is not a party to or
bound by (i) any agreement relating to indebtedness (including sale and
leaseback and capitalized lease transactions and other similar financing
transactions), or guarantees of indebtedness, providing for payment or repayment
in excess of $25,000, (ii) any agreements providing for the indemnification by
CM or any of the CM Subsidiaries of any person, except those entered into in the
ordinary course of business, (iii) any agreements relating to the purchasing of
goods by, or furnishing of services to, CM or any of the CM Subsidiaries (A)
requiring financial commitments in excess of $25,000 or (B) having a term which
is greater than six months and an aggregate commitment in excess of $25,000 and
which is not terminable by CM or any of the CM Subsidiaries on less than ninety
(90) days' notice without the payment of any termination fee or similar payment,
(iv) any contracts, agreements and other arrangements for the sale of
inventories, goods or assets or for the furnishing of services by CM or any of
the CM Subsidiaries (A) with firm commitments having a value in excess of
$25,000 or (B) having a term which is greater than six months and which is not
terminable by CM or any of the CM Subsidiaries on less than ninety (90) days'
notice without payment of any termination fee or similar payment, (v) any
material joint venture, partnership or similar documents or agreements, (vi) any
agreements that limit or purport to limit the ability of CM or any of the CM
Subsidiaries to own, operate, sell, transfer, pledge or otherwise dispose of any
assets having an aggregate value in excess of $25,000, (vii) any non-competition
agreement or any other agreement or obligation which purports to limit in any
respect the manner in which, or the localities in which, any business may be
conducted, (viii) contracts or agreements providing for future payments that are
conditioned in whole or in part, on a change of control of CM and the CM
Subsidiaries taken as a whole or which would reasonably be expected to
materially delay or prevent the consummation of any of the transactions
contemplated hereby (all contracts of the type described in clauses (i) through
(viii) being referred to herein as "CM Material Contracts"). Each CM Material
Contract is valid and binding on CM (or, to the extent a CM Subsidiary is a
party, such subsidiary) and is in full force and effect, and CM and each CM
Subsidiary have in all material respects performed all obligations required to
be performed by them to date under each CM Material Contract. Neither CM nor any
CM Subsidiary knows of, or has received notice of, any material violation or
default under (nor, to the knowledge of CM, does there exist any condition which
with the passage of time or the giving of notice or both would result in such a
material violation or default under) any CM Material Contract.
SECTION 3.12 Title to Properties; Encumbrances. CM and each CM Subsidiary
has good, valid and marketable title to all the properties and assets that it
purports to own (tangible and intangible) free and clear of all Liens (except
for such Liens or defects that, individually or in the aggregate, would not have
a CM Material Adverse Effect), including all the properties and assets reflected
in the CM Balance Sheet (except for property sold since the date of the CM
Balance Sheet in the ordinary course of business and consistent with past
practice) and all such properties and assets purchased by CM or any CM
Subsidiary since the date of the CM Balance Sheet. The rights, properties and
other assets presently owned, leased or licensed by the CM and the CM
Subsidiaries and described elsewhere herein include all such rights, properties
and other assets necessary to permit CM and the Subsidiaries to conduct their
respective businesses in all material respects in the same manner as such
businesses have been conducted prior to the date hereof.
SECTION 3.13 Lease. Schedule 3.13 of the Disclosure Schedules lists each
lease pursuant to which CM or any CM Subsidiary leases any real or personal
property (excluding leases relating solely to personal
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property calling for rental or similar periodic payments not exceeding $25,000
per annum) (each a "Lease"). Each Lease is valid, binding and enforceable in
accordance with their terms and is in full force and effect. The leasehold
estate created by each Lease is free and clear of all Liens, except for such
Liens that, individually or in the aggregate, would not have a CM Material
Adverse Effect. There are no existing defaults by CM or any CM Subsidiary under
any of the Leases. No event has occurred that (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default under any Lease. Each lessor under each Lease has consented
(where such consent is necessary) to the consummation of the transactions
contemplated hereby without requiring modification in the rights or obligations
of the lessee thereunder.
SECTION 3.14 Real Property. CM does not own any real property.
SECTION 3.15 Brokers. No broker, investment banker, financial advisor or
other person, other than Deutsche Bank Securities Inc., the fees and expenses of
which will be paid by CM prior to the Closing Date, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated hereby based upon arrangements made by or on
behalf of CM or any member of CM.
SECTION 3.16 Relationship with Certain Public REITs. (a) Each of the
advisory agreements listed on Schedule 3.16(a) of the Disclosure Schedules (the
"Advisory Agreements") is in full force and effect; none of CM, the CM
Subsidiaries nor the CM Affiliates has received any notice of cancellation or
termination of any Advisory Agreement; and there exists no event of default or
occurrence, condition or act on the part of CM, the CM Subsidiaries or the CM
Affiliates or, to the knowledge of CM, on the part of the other parties to the
Advisory Agreements, which constitutes or would constitute (with notice or lapse
of time or both) a breach of or default under any of the Advisory Agreements
except for such breach or defaults that would not, individually or in the
aggregate, result in a CM Material Adverse Effect.
(b) To the knowledge of CM, (i) each of the entities for which CM provides
advisory services pursuant to the advisory agreements listed on Schedule 3.16(a)
of the Disclosure Schedules (the "Public REITs") is duly qualified or licensed
to do business and is in good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which the nature of its business
or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing would not,
individually or in the aggregate, have a material adverse effect on the
business, properties, assets, financial condition or results of operations of
such Public REIT, and (ii) since September 30, 1999, there has not been any
material adverse change in the business, properties, assets, financial condition
or results of operations of the Public REITs.
SECTION 3.17 Affiliate Contribution. The Affiliate Contribution and the
transactions contemplated thereby have been duly authorized by all necessary
action on the part of CM and the CM Affiliates and have been consummated prior
to the date hereof in accordance with their terms.
SECTION 3.18 Information Supplied. None of the information supplied or to
be supplied by CM specifically for inclusion or incorporation by reference in
the Consent Solicitation (as defined herein) will, at the date it is first
mailed to CD's shareholders or at the time of the CD Shareholder Approval (as
defined in Section 4.8), contain any untrue statement of material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CD
Except as set forth in the Disclosure Schedules, CD represents and warrants
to CM as follows:
SECTION 4.1 Organization, Standing and Requisite Power. (a) Each of CD and
Newco is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
power and authority to carry on its business as now being conducted. Each of CD
and Newco is duly qualified or licensed to do business and is in good standing
(with respect to jurisdictions which recognize such concept) as a foreign
limited liability company in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing, individually
or in the aggregate, would not have a material adverse effect on the business,
properties, assets, financial condition or results of operations of CD and its
subsidiaries, taken as a whole (a "CD Material Adverse Effect"). A "CD Material
Adverse Change" shall mean any change or event which, individually or in the
aggregate, has or would reasonably likely have a CD Material Adverse Effect.
Newco has not engaged in any business (other than in connection with this
Agreement and the transactions contemplated hereby) since the date of its
organization.
(b) CD has delivered to CM prior to the execution hereof complete and
correct copies of its limited liability company agreement and other
organizational documents, in each case as amended to date.
SECTION 4.2 Subsidiaries. Except as set forth on Schedule 4.2 of the
Disclosure Schedules, (i) all the outstanding shares of capital stock of each
subsidiary of CD that is a corporation have been validly issued and are fully
paid and nonassessable, are owned by CD or by subsidiary of CD free and clear of
all Liens, other restrictions and limitations on voting rights and (ii) all
equity interests in each subsidiary of CD that is a limited liability company or
partnership are owned by CD or by a subsidiary of CD free and clear of all
Liens, other restrictions and limitations on voting rights. Each subsidiary of
CD that is a corporation is duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has the
requisite corporate power and authority to carry on its business as now being
conducted, and each subsidiary of CD that is a limited liability company or
partnership is duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization and has the requisite power and
authority to carry on its business as now being conducted. Each subsidiary of CD
is duly qualified or licensed to do business and is in good standing (with
respect to jurisdictions which recognize such concept) as a foreign corporation,
limited liability company, partnership, joint venture or trust, as the case may
be, in each jurisdiction in which the nature of its business or the ownership,
leasing or operation of its properties makes such qualification or licensing
necessary, except for those jurisdictions where the failure to be so qualified
or licensed or to be in good standing would not, individually or in the
aggregate, have a CD Material Adverse Effect.
SECTION 4.3 Capitalization. (a) At the close of business on December 20,
1999: (i) 25,682,017 CD Shares were issued and outstanding; and (ii) no CD
Shares were held by CD in its treasury. All outstanding shares of CD Shares are,
and all shares which may be issued, pursuant to this Agreement or otherwise will
be, when issued, duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. Except as set forth in this Section 4.3,
in the CD SEC Documents or in Schedule 4.3 of the Disclosure Schedules, and
except as contemplated by Section 2.5 and Section 6.4 hereof, as of the date
hereof, (x) there are not issued, reserved for issuance or outstanding (A) any
CD Shares, shares of capital stock or other voting securities of CD, or any
subsidiary of CD, (B) any securities of CD or any Subsidiary of CD convertible
into or exchangeable or exercisable for shares of capital stock or voting
securities of CD, or any subsidiary of CD, (C) any warrants, calls, options or
other rights to acquire from CD or any Subsidiary of CD, and any obligation of
CD or any Subsidiary of CD to issue, any capital stock, voting securities or
securities convertible into or exchangeable or exercisable for capital stock or
voting securities of CD, or any subsidiary of CD, and (y) there are no
outstanding obligations of CD or any Subsidiary of CD to repurchase, redeem or
otherwise acquire any such securities or to issue, deliver or sell, or cause to
be issued, delivered or sold, any such securities.
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(b) All of the authorized and outstanding limited liability company
interests of Newco are owned by CD and are duly authorized, validly issued,
fully paid and nonassessable.
SECTION 4.4 Authority; Noncontravention; Consents and Approvals. CD and
Newco have all requisite power and authority to enter into this Agreement and,
subject to the approval of holders of CD Shares as contemplated by Section 6.1
hereof, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by each of CD and Newco and the consummation by each
of CD of the transactions contemplated hereby have been duly authorized by all
necessary action on the part of CD and Newco except for the approval of holders
of CD Shares as contemplated by Section 6.1 hereof. This Agreement has been duly
executed and delivered by each of CD and Newco and, assuming the due
authorization, execution and delivery by CM, constitutes the legal, valid and
binding obligations of each of CD and Newco, enforceable against each of CD and
Newco in accordance with its terms, subject, in the case of the Merger, to the
approval of the shareholders of CD to be sought in connection with the consent
solicitation contemplated by Section 6.1. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated hereby
and compliance with the provisions hereof will not, conflict with, or result in
any violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under, or result in the creation of any Lien
upon any of the properties or assets of CD or any of its subsidiaries under, (i)
the limited liability company agreement of CD or the comparable organizational
documents of any of its subsidiaries, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, guarantee, lease, agreement or other instrument,
permit, concession, franchise, license or similar authorization applicable to CD
or any of its subsidiaries or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to CD or any of its subsidiaries or their respective
properties or assets, other than, in the case of clauses (ii) and (iii), any
such conflicts, violations, defaults, rights, losses or Liens that, individually
or in the aggregate, would not (x) have a CD Material Adverse Effect or (y)
reasonably be expected to materially delay or prevent CD or Newco from
performing their obligations under this Agreement. No consent, approval, order
or authorization of, action by, or in respect of, or registration, declaration
or filing with, any Governmental Entity is required by or with respect to CD or
any of its subsidiaries in connection with the execution and delivery of this
Agreement by each of CD and Newco or the consummation by CD and Newco of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger with the Secretary of State of the State of Delaware, (ii) such
filings with Governmental Entities to satisfy the applicable requirements of
state securities or "blue sky" laws; (iii) as may be required pursuant to the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, and the rules and
regulations thereunder, or any successor law, rules or regulations (the "HSR
Act"), (iv) as may be required pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), (v) as may be required pursuant to the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), (vi) such
filings with and approvals of the NYSE to permit the CD Shares that are to be
issued in the Merger to be authorized for quotation on the NYSE and (vii) such
consents, approvals, orders or authorizations the failure of which to be made or
obtained, individually or in the aggregate, would not (x) have a CD Material
Adverse Effect or (y) reasonably be expected to materially delay or prevent CD
or Newco from performing their obligations under this Agreement.
SECTION 4.5 SEC Documents; Undisclosed Liabilities. CD has timely filed
all required registration statements, prospectuses, reports, schedules, forms,
statements and other documents (including exhibits and all other information
incorporated therein) with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Act and the Exchange Act, (the "CD SEC Documents").
As of their respective dates, the CD SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such CD SEC Documents, and none of the CD SEC Documents when filed
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of CD included in the CD SEC
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Documents comply as to form, as of their respective dates of filing with the
SEC, in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of CD and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except (i) as
reflected in such financial statements or in the notes thereto or (ii) for
liabilities and obligations incurred in connection with this Agreement or the
transactions contemplated hereby, neither CD nor any of its subsidiaries has any
liabilities or obligations of any nature which, individually or in the
aggregate, would have a CD Material Adverse Effect.
SECTION 4.6 Absence of Certain Changes or Events. Except as set forth in
Schedule 4.6 of the Disclosure Schedules, and except for liabilities and
obligations incurred in connection with this Agreement or the transactions
contemplated hereby, and except as set forth in the CD SEC Documents or as
permitted by Section 5.1(b), CD and its subsidiaries have conducted their
business only in the ordinary course and there has not been (i) any CD Material
Adverse Change, (ii) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock or property) with respect to any
of CD's capital stock, (iii) any split, combination or reclassification of any
of CD's capital stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for shares of
CD's capital stock, except for issuances of CD Common Stock upon exercise of CD
employee stock options, in each case, awarded prior to the date hereof in
accordance with their present terms or issued pursuant to Section 5.1(b), (iv)
except insofar as may have been required by a change in GAAP, any change in
accounting methods, principles or practices by CD materially affecting its
assets, liabilities or business or (v) any tax election that, individually or in
the aggregate, would have a material adverse effect on CD or any of its tax
attributes or any settlement or compromise of any material income tax liability.
SECTION 4.7 Brokers. No broker, investment banker, financial advisor or
other person, other than Robert A. Stanger & Co. Inc., is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of CD.
SECTION 4.8 Voting Requirements. The affirmative vote of the holders of at
least a majority of all outstanding CD Shares to adopt the terms of this
Agreement (the "CD Shareholder Approval") is the only vote of the holders of any
class or series of the Company's securities necessary to approve and adopt this
Agreement and the transactions contemplated hereby, including the Merger.
SECTION 4.9 Opinion of Financial Advisor. CD has received the opinion of
Robert A. Stanger & Co., Inc., dated the date hereof, to the effect that, as of
such date the payment of the Merger Consideration in the Merger is fair from a
financial point of view to CD.
SECTION 4.10 Information Supplied. None of the information supplied or to
be supplied by CD for inclusion or incorporation by reference in the consent
solicitation to be delivered to holders of CD Shares in connection with the CD
Shareholder Approval (the "Consent Solicitation") will, at the date it is first
mailed to the holders of CD Shares or at the time of the CD Shareholder
Approval, contain any untrue statement of material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statement therein, in light of the circumstances under which they were made, not
misleading. The Consent Solicitation will comply as to form in all material
respects with the applicable provisions of the Exchange Act, and the rules and
regulations promulgated thereunder, except that no representation is made by CD
with respect to statements made therein based on information supplied by CM or
its representatives for inclusion in the Consent Solicitation or with respect to
information concerning CM or any of the CM Subsidiaries incorporated by
reference in the Consent Solicitation.
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SECTION 4.11 Taxes. Except as set forth in Schedule 4.11 of the Disclosure
Schedules: (a) CD and each of the subsidiaries have (i) timely filed all
material Tax Returns required to be filed by it and all such Tax Returns are
true, complete and correct in all material respects, and (ii) timely paid all
Taxes shown as due on such Tax Returns. Neither CD nor any of its subsidiaries
has requested an extension of time within which to file any material Tax Return
in respect of any taxable period which Tax Return has not since been filed;
(b) Except as disclosed in Schedule 4.11 of the Disclosure Schedules, no
deficiencies for any material Taxes have been assessed in writing against CD or
any of its subsidiaries that have not been paid in full or which are not
adequately reserved for, except for deficiencies that, individually or in the
aggregate, would not have a CD Material Adverse Effect. No federal, state, local
or foreign audits or other administrative proceedings or court proceedings are
presently pending with regard to any material Taxes of CD or any of its
subsidiaries; and
(c) There are no material Liens for Taxes upon the assets or properties of
CD or any of its subsidiaries, except for statutory Liens for Taxes not yet due
or contested in good faith.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business. (a) Interim Operations. Except as set
forth in Schedule 5.1(a) of the Disclosure Schedules, as otherwise expressly
contemplated by this Agreement or as consented to by CD in writing, such consent
not to be unreasonably withheld or delayed, during the period from the date
hereof to the Effective Time, CM and the CM Subsidiaries shall carry on their
business in the ordinary course consistent with past practice and in compliance
in all material respects with all applicable laws and regulations and, to the
extent consistent therewith, use all reasonable efforts to preserve intact their
current business organizations, use reasonable efforts to keep available the
services of their current officers and other key employees and preserve their
relationships with those persons having business dealings with them to the end
that their goodwill and ongoing businesses shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing (but subject to the above
exceptions), during the period from the date hereof to the Effective Time, CM
shall not, and CM shall not permit any of the CM Subsidiaries to:
(i) other than dividends and distributions by a direct or indirect
wholly-owned subsidiary of CM to its parent, (x) declare, set aside or pay
any dividends on, make any other distributions in respect of, or enter into
any agreement with respect to the voting of, any of its limited liability
company interests or capital stock, (y) split, combine or reclassify any of
its limited liability company interests or capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for its limited liability company interests or capital
stock, except for issuances of CM Company Interests upon the exercise of
options pursuant to any CM Benefit Plan outstanding as of the date hereof
in accordance with their present terms, or (z) purchase, redeem or
otherwise acquire any of its limited liability company interests or capital
stock or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise encumber or subject to
any Lien any of its limited liability company interests or capital stock,
any other voting securities or any securities convertible into, or any
rights, warrants or options to acquire, any such interests or stock, voting
securities or convertible securities;
(iii) amend its limited liability company agreement, articles of
organization, by-laws or other comparable organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any person (except Newco);
(v) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien other than liens which, individually or in the aggregate, do not
or cannot be reasonably anticipated to have a CM
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Material Adverse Effect or otherwise dispose of any of its properties or
assets (including securitizations), other than in the ordinary course of
business consistent with past practice;
(vi) take any action that would cause the representations and
warranties set forth in Section 3.6 to no longer be true and correct;
(vii) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for the obligations of any person for
borrowed money;
(viii) other than for normal merit increases and for payment of any
year-end bonus, increase the compensation of, or pay any bonus to, any
employee of CM or the CM Subsidiaries, agree to do any of the foregoing, or
enter into any other agreement or arrangement with respect to employment or
compensation;
(ix) change its methods of accounting (or underlying assumptions) in
effect at December 31, 1998, except as required by changes in GAAP, or
change any of its methods of reporting income and deductions for federal
income tax purposes from those employed in the preparation of the federal
income tax returns of the Company for the taxable year ending December 31,
1998 except as required by changes in law or regulation;
(x) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business consistent with past practice or in accordance with their terms,
of liabilities reflected or reserved against in the CM Balance Sheet or
incurred in the ordinary course of business with past practice since the
date thereof;
(xi) create, renew, amend, terminate or cancel, or take any other
action that may result in the creation, renewal, amendment, termination or
cancellation of any CM Material Contract except in the ordinary course of
business;
(xii) pay, loan or advance any amount to, or sell, transfer or lease
any properties or assets (real, personal or mixed, tangible or intangible)
to, or enter into any agreement or arrangement with, any of its officers,
directors or partners or any affiliates or the immediate family members or
associates of any of its officers, directors or partners other than
compensation advances in the ordinary course of business consistent with
past practice; or
(xiii) authorize, or commit or agree to take, any of the foregoing
actions;
provided that the limitations set forth in this Section 5.1(a) shall not
apply to any transaction between CM and any wholly-owned subsidiary or
between any wholly-owned subsidiaries of CM.
(b) Other Actions. Except as required by law, CM, CD and Newco shall not
voluntarily take any action that would, or that could reasonably be expected to,
result in (i) any of the representations and warranties of such party set forth
herein that are qualified as to materiality becoming untrue at the Effective
Time, (ii) any of such representations and warranties that are not so qualified
becoming untrue in any material respect at the Effective Time, or (iii) any of
the conditions to the Merger set forth in Article VII not being satisfied.
(c) Advice of Changes. CM and CD shall promptly advise the other party
orally and in writing to the extent it has knowledge of (i) any representation
or warranty made by it contained herein that is qualified as to materiality
becoming untrue or inaccurate in any respect or any such representation or
warranty that is not so qualified becoming untrue or inaccurate in any material
respect, (ii) the failure by it to comply in any material respect with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement and (iii) any change or
event having, or which, insofar as can reasonably be foreseen, could reasonably
be expected to have a material adverse effect on such party or on the truth of
their respective representations and warranties or the ability of the conditions
set forth in Article VII to be satisfied; provided, however, that no such
notification shall
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affect the representations, warranties, covenants or agreements of the parties
(or remedies with respect thereto) or the conditions to the obligations of the
parties under this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 CD Shareholder Approval. CD shall as promptly as practicable
prepare, file and mail to the holders of CD Shares the Consent Solicitation for
the purpose of obtaining the CD Shareholder Approval and shall, through its
Board of Directors and subject to the fiduciary duties of the Board of
Directors, recommend to the holders of CD Shares the approval and adoption of
this Agreement, the Merger and the other transactions contemplated hereby.
SECTION 6.2 Access to Information. Each of CM and CD shall, and shall
cause each of their respective subsidiaries to, afford to the other party and to
the officers, employees, accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours during the period prior to the Effective Time to all their respective
properties, books, contracts, commitments, personnel and records and, during
such period, each of CM and CD shall, and shall cause each of their respective
subsidiaries to, furnish promptly to the other party (a) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal or state securities laws and (b)
all other information concerning its business, properties and personnel as such
other party may reasonably request. No review pursuant to this Section 6.2 shall
affect any representation or warranty given by the other party hereto.
SECTION 6.3 Reasonable Efforts. (a) Upon the terms and subject to the
conditions set forth herein, each of the parties agrees to use reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated hereby,
including (i) the obtaining of all necessary actions or nonactions, waivers,
consents and approvals from Governmental Entities and the making of all
necessary registrations and filings and the taking of all steps as may be
necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and (iv)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated hereby, and to fully carry out the purposes
hereof.
(b) In connection with and without limiting the foregoing, CM and CD shall
(i) take all reasonable action necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to the Merger,
this Agreement, or any of the other transactions contemplated hereby and (ii) if
any state takeover statute or similar statute or regulation becomes applicable
to the Merger, this Agreement, or any other transaction contemplated hereby,
take all reasonable action necessary to ensure that the Merger and the other
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated hereby and otherwise to minimize the effect of such
statute or regulation on the Merger and the other transactions contemplated
hereby.
SECTION 6.4 Stock Options; Certain Employee Matters. As of the Effective
Time, each person identified on Schedule 6.4 (the "Interest Holders"), each
Interest Holder having an interest an Equity Interest under the PEP Plan and the
SAR Plan, shall, subject to the prior consent of such Interest Holder,
automatically have their Equity Interest in the PEP Plan and the SAR Plan
cancelled and retired and such interest shall cease to exist. In exchange for
consenting to such cancellation, each consenting Interest Holder shall receive
at the Effective Time an incentive award under CD's 1997 Share Incentive Plan
(the "CD Incentive Plan") in the form of an option (the "CD Option(s)") to
purchase from CD (i) the
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number of CD Shares as specified on Schedule 6.4 at the exercise price set forth
in such schedule, which shall vest ratably over a period of three years, and
(ii) the number of restricted CD Shares as specified on Schedule 6.4, at the
exercise price set forth in such schedule which shall vest ratably over a period
of four years. CD covenants and agrees to issue the CD Options, to reserve and
make available for issuance upon exercise of the CD Options all CD Listed Shares
covered thereby and to amend its Registration Statement on Form S-8, if
required, or file a new registration statement to cover the additional CD Listed
Shares subject to the CD Options, if required.
SECTION 6.5 Indemnification, Exculpation and Insurance. (a) CD agrees to
maintain in accordance with their terms all rights to indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time now existing in favor of the current or former directors or
officers of CM as provided in its limited liability company agreement or
by-laws, any indemnification agreements of CM and existing directors and
officers insurance policies. In addition, from and after the Effective Time,
directors and officers of CM who become directors or officers of CD will be
entitled to the same indemnity rights and protections as are afforded to other
directors and officers of CD.
(b) In the event that CD or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, proper provision will be made so that
the successors and assigns of CD assume the obligations set forth in this
Section 6.5.
(c) The provisions of this Section 6.5 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives, (ii) are in addition to, and not in substitution
for, any other rights to indemnification or contribution that any such person
may have by contract or otherwise and (iii) will survive the Effective Time.
SECTION 6.6 Fees and Expenses. All fees and expenses incurred in
connection with the Merger, this Agreement, and the transactions contemplated by
this Agreement shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
SECTION 6.7 Public Announcements. CD and CM will consult with each other
before issuing, and provide each other the opportunity to review, comment upon
and concur with and use reasonable efforts to agree on, any press release or
other public statements with respect to the transactions contemplated hereby,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as either party may
determine is required by applicable law, court process or by obligations
pursuant to any listing agreement with the NYSE. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
hereby shall be in the form heretofore agreed to by the parties.
SECTION 6.8 NYSE Listing. As promptly as practical after the date hereof
and, in any event, prior to the Closing Date, CD shall use best efforts to cause
the CD Shares issuable under Article II to be approved for listing on the NYSE,
subject to official notice of issuance. This section shall survive the Effective
Time.
SECTION 6.9 Indemnification. (a) From and after the Closing, WPC, CCPI,
Seventh, Eighth and Ninth shall jointly and severally indemnify and hold
harmless CD, the Surviving Company and its subsidiaries (collectively, the "CD
Indemnified Parties") from and against all liabilities or expenses, judgments,
fines, losses, claims, damages and amounts paid in settlement, including
consequential, incidental and punitive damages ("Damages") to the extent they
are the result of, arise in connection with, or relate to (i) any inaccuracy in
or breach of any representation or warranty contained in Article III hereof or
(ii) the failure of CM to duly perform or observe any term, provision, covenant
or agreement required to be performed or observed by CM pursuant to this
Agreement.
(b) From and after the Closing, CD shall indemnify and hold harmless WPC,
CCPI, Seventh, Eighth and Ninth and (collectively, the "WPC Indemnified
Parties") from and against any Damages to the extent they are the result of,
arise in connection with, or relate to (i) any inaccuracy in or breach of
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any representation or warranty contained in Article IV hereof, (ii) the failure
of CD or Newco to duly perform or observe any term, provision, covenant or
agreement required to be performed or observed by CD or Newco pursuant to this
Agreement or (iii) any claim arising after the Closing Date for which WPC, CCPI,
Seventh, Eighth and Ninth are not obligated to indemnify CD.
(c) Notwithstanding anything herein to the contrary, no indemnification
shall be available under Section 6.9(a)(i) or 6.9(b)(i) hereof unless and until
the aggregate amount of Damages that would otherwise be subject to
indemnification exceeds $250,0000 (such aggregate amount of Damages that would
otherwise be subject to indemnification calculated without giving effect to any
limitation as to "materiality" or "CM Material Adverse Effect" or "CD Material
Adverse Effect" set forth in any representation or warranty contained in Article
III or Article IV hereof) (the "Basket Amount"); provided that in the event such
Damages exceed the Basket Amount, the indemnifying party shall indemnify the CD
Indemnified Parties in the case of Section 6.9(a)(i) hereof or the WPC
Indemnified Parties in the case of Section 6.9(b)(i) hereof only for those
Damages in excess of such Basket Amount.
(d) Notwithstanding anything herein to the contrary, the maximum aggregate
liability of WPC, CCPI, Seventh, Eighth and Ninth under Section 6.9(a)(i) hereof
or CD under Section 6.9(b)(i) hereof shall not exceed $30 million. WPC, CCPI,
Seventh, Eighth and Ninth hereby agree that they will, in the aggregate, hold
assets having a fair market value equal to at least $30 million for so long as
they shall have indemnification obligations under this Section 6.9.
(e) No action, claim or set-off for Damages subject to indemnification
under this Section 6.9 shall be brought or made with respect to claims for
Damages resulting from a breach of any agreement, covenant, representation or
warranty contained herein after the date on which such covenant, representation
or warranty shall terminate pursuant to Section 9.1 hereof; provided, however,
that any claim made with reasonable specificity by the party seeking
indemnification (the "Indemnified Party") to the party from which
indemnification is sought (the "Indemnifying Party") within the time periods set
forth above shall survive (and be subject to indemnification) until it is
finally and fully resolved.
(f) Upon receipt by the Indemnified Party of notice of any action, suit,
proceeding, claim, demand or assessment against such Indemnified Party which
might give rise to a claim for Damages, the Indemnified Party shall give prompt
written notice thereof to the Indemnifying Party indicating the nature of such
claim and the basis therefore, provided that the failure to give such prompt
notice shall not relieve the Indemnifying Party of its obligations hereunder
except to the extent the Indemnifying Party or the defense of any such claim is
prejudiced thereby. A claim to indemnity hereunder may, at the option of the
Indemnified Party, be asserted as soon as Damages have been threatened by a
third party orally or in writing, regardless of whether actual harm has been
suffered or out-of-pocket expenses incurred, provided the Indemnified Party
shall reasonably determine that it may be liable or otherwise incur such
Damages. However, payments for Damages by the Indemnifying Party in respect of
third party claims against the Indemnified Party shall not be required except to
the extent that the Indemnified Party has expended out-of-pocket sums. The
Indemnifying Party shall have the right, at its option, to assume the defense
of, at its own expense and by its own counsel, any such matter involving the
asserted liability of the Indemnified Party so long as the Indemnifying Party
has acknowledged and agreed in writing that if the same is adversely determined,
the Indemnifying Party will have an obligation to provide indemnification to the
Indemnified Party in respect thereof. If any Indemnifying Party shall undertake
to compromise or defend any such asserted liability, it shall promptly notify
the Indemnified Party of its intention to do so, and the Indemnified Party
agrees to cooperate fully with the Indemnifying Party and its counsel in the
compromise of, or defense against, any such asserted liability; provided,
however, that the Indemnifying Party shall not settle any such asserted
liability without the written consent of the Indemnified Party (which consent
will not be unreasonably withheld). No Indemnified Party shall have any right to
settle or compromise any asserted liability in respect of any claim or
proceeding of which the Indemnifying Party has assumed the defense as set forth
above. Notwithstanding an election by the Indemnifying Party to assume the
defense of such action or proceeding as set forth above, such Indemnified Party
shall have the right to employ separate counsel and to participate in the
defense of such action or proceeding, and the Indemnifying Party shall bear the
reasonable fees, costs and expenses of such separate counsel (and shall pay such
fees, costs
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and expenses at least quarterly), if (A) the use of counsel chosen by the
Indemnifying Party to represent such Indemnified Party would present such
counsel with a conflict of interest; (B) the defendants in, or targets of, any
such action or proceeding include both an Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have reasonably concluded that there may
be legal defenses available to it or to other Indemnified Parties which are
different from or additional to those available to the Indemnifying Party (in
which case the Indemnifying Party shall not have the right to direct the defense
of such action or proceeding on behalf of the Indemnified Party); (C) the
Indemnifying Party shall not have employed counsel reasonably satisfactory to
such Indemnified Party to represent such Indemnified Party within a reasonable
time after notice of the institution of such action or proceeding; or (D) the
Indemnifying Party shall authorize such Indemnified Party to employ separate
counsel at the Indemnifying Party's expense. In any event, the Indemnified Party
and its counsel shall cooperate with the Indemnifying Party and its counsel and
shall not assert any position in any proceeding materially inconsistent with
that asserted by the Indemnifying Party.
SECTION 6.10 Use of W.P. Carey Name. Notwithstanding Section 1.3 hereof,
in the event that William P. Carey no longer serves as a member of the Board of
Directors of CD, other than as a result of his voluntary resignation or
retirement, disability due to physical or mental illness, or death, CD shall
immediately cease to use, and shall cause its subsidiaries to cease to use, the
name "W.P. Carey" or similar names in the operation of its business, it being
understood, however, that CD shall be permitted to use the name "Carey
Diversified".
SECTION 6.11 Non-competition. (a) For five years following the Closing
Date (the "Restricted Period") without the permission of the Independent
Committee of the CD Board which will not be unreasonably withheld if there is an
insignificant impact on CD, none of the CM Affiliates or any other entity
affiliated with William P. Carey (other than CD) shall directly or indirectly,
(i) engage in the business of owning, operating or managing net lease commercial
real estate properties (the "Net Lease Business") anywhere in the United States
of America, England or France; or (ii) enter the employ or agency of, or render
any services to or for, any entity that is engaged in the Net Lease Business
anywhere in the United States of America, England or France other than CD;
provided, however, any of the CM Affiliates or any other entity affiliated with
William P. Carey may own, directly or indirectly, solely as a passive
investment, securities of any publicly traded entity if it is not a controlling
person of, or a member of a group which controls, such entity and does not,
directly or indirectly, "beneficially own" (as defined in Rule 13d-3 of the
Securities Exchange Act of 1934, as amended, without regard to the 60 day period
referred to in Rule 13d-3(d)(1)(i)) 5% or more of any class of securities of
such entity; and provided further that William P. Carey may own directly or
indirectly one or more net lease assets provided that the acquisition of any
such asset shall have been approved by the Investment Committee of CD prior to
its acquisition.
(b) Each of the CM Affiliates acknowledges and agrees that the restrictive
covenants and agreements contained herein are reasonable and valid in
geographic, temporal and subject matter scope and in all other respects, and do
not impose limitations greater than are necessary to protect the goodwill,
confidential information, and other business interests of CD, its subsidiaries
and its affiliates. If, however, any court subsequently determines that any of
such covenants or agreements, or any part thereof, is invalid or unenforceable,
the remainder of such covenants and agreements shall not thereby be affected and
shall be given full effect without regard to the invalid portions.
SECTION 6.12 Letter Agreement. At or prior to the Effective Time, William
P. Carey and CD will enter into a letter agreement in the form of Exhibit A
hereto.
SECTION 6.13 Accountants' Letter. CM shall use its reasonable best efforts
to cause to be delivered to CD "comfort" letters from PricewaterhouseCoopers
LLP, independent public accountants for WPC, dated (i) as of the date of the
Consent Solicitation and (ii) as of the Effective Time, and addressed to CD and
its Board of Directors, in form and substance reasonably satisfactory to CD and
customary for "comfort" letters delivered by independent accountants in
accordance with Statement of Financial Accounting Standards No. 72 (SFAS 72)
concerning the procedures undertaken by
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PricewaterhouseCoopers LLP with respect to the financial statements and
information of CM and the CM Affiliates included in the Consent Solicitation
(including, without limitation, the pro forma financial information included in
the Consent Solicitation) and other matters contemplated by SFAS 72.
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) CD Shareholder Approval. The CD Shareholder Approval shall have
been obtained.
(b) Governmental and Regulatory Approvals. Other than the filing
provided for under Section 1.3, all consents, approvals and actions of,
filings with and notices to any Governmental Entity required of CM, CD,
Newco or any of their respective subsidiaries to consummate the Merger and
the other transactions contemplated hereby, the failure of which to be
obtained or taken, individually or in the aggregate, (i) is reasonably
expected to have a CD Material Adverse Effect or a CM Material Adverse
Effect, or (ii) will result in a violation of any laws, shall have been
obtained, all in form and substance reasonably satisfactory to CM and CD.
(c) No Injunctions or Restraints. No judgment, order, decree,
statute, law, ordinance, rule or regulation, entered, enacted, promulgated,
enforced or issued by any court or other Governmental Entity of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect (i) preventing the consummation of the
Merger, or (ii) which, individually or in the aggregate, otherwise is
reasonably likely to have a CM Material Adverse Effect or CD Material
Adverse Effect, as applicable; provided, however, that each of the parties
shall have used all reasonable efforts to prevent the entry of any such
Restraints and to appeal as promptly as possible any such Restraints that
may be entered.
(d) NYSE Listing. The CD Shares issuable to holders of CM Company
Interests as contemplated by Article II hereof shall have been approved for
listing on the NYSE, subject to official notice of issuance.
SECTION 7.2 Conditions to Obligations of CD and Newco. The obligation of
CD and Newco to effect the Merger is further subject to satisfaction or waiver
of the following conditions:
(a) Representations and Warranties. The representations and
warranties of CM set forth herein shall be true and correct both when made
and at and as of the Closing Date, as if made at and as of such time(except
to the extent expressly made as of an earlier date, in which case as of
such date), except where the failure of such representations and warranties
to be so true and correct (without giving effect to any limitation as to
"materiality" or "CM Material Adverse Effect" set forth therein) does not
have, and is not likely to have, individually or in the aggregate, a CM
Material Adverse Effect.
(b) Performance of Obligations of CM. CM shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date.
(c) No Material Adverse Change. At any time after the date hereof
there shall not have occurred any CM Material Adverse Change.
(d) CM Stock Options. As of the Effective Time, the CM Employee Stock
Options shall have been amended pursuant to Section 6.4.
(e) Consents. The Consents shall have been obtained.
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SECTION 7.3 Conditions to Obligations of CM. The obligation of CM to
effect the Merger is further subject to satisfaction or waiver of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of CD set forth herein shall be true and correct both when made
and at and as of the Closing Date, as if made at and as of such time
(except to the extent expressly made as of an earlier date, in which case
as of such date), except where the failure of such representations and
warranties to be so true and correct (without giving effect to any
limitation as to "materiality," or "CD Material Adverse Effect" set forth
therein) does not have, and is not likely to have, individually or in the
aggregate, a CD Material Adverse Effect.
(b) Performance of Obligations of CD. CD shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date.
(c) No Material Adverse Change. At any time after the date hereof
there shall not have occurred any CD Material Adverse Change.
SECTION 7.4 Frustration of Closing Conditions. Neither CD nor CM may rely
on the failure of any condition set forth in Section 7.1, 7.2 or 7.3, as the
case may be, to be satisfied if such failure was caused by such party's failure
to use reasonable efforts to consummate the Merger and the other transactions
contemplated hereby, as required by and subject to Section 6.3.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after the CD Shareholder
Approval:
(a) by mutual written consent of CD and CM;
(b) by either CD or CM:
(i) if the Merger shall not have been consummated by June 30, 1999;
provided, however, that the right to terminate this Agreement pursuant
to this Section 8.1(b)(i) shall not be available to any party whose
failure to perform any of its obligations under this Agreement results
in the failure of the Merger to be consummated by such time; provided,
however, that this Agreement may be extended not more than 30 days by
either party by written notice to the other party if the Merger shall
not have been consummated as a direct result of CD or CM having failed
to receive all regulatory approvals required to be obtained with respect
to the Merger;
(ii) if the CD Shareholder Approval shall not have been obtained in
connection with the Consent Solicitation; or
(iii) if any Restraint having any of the effects set forth in
Section 7.1(c) shall be in effect and shall have become final and
nonappealable.
(c) by CD or Newco, if CM shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or
other agreements contained herein, which breach or failure to perform would
give rise to the failure of a condition set forth in Section 7.2(a) or (b).
(d) by CM, if CD or Newco shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants or
other agreements contained herein, which breach or failure to perform would
give rise to the failure of a condition set forth in Section 7.3(a) or (b).
SECTION 8.2 Effect of Termination. In the event of termination of this
Agreement by either CM or CD as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of CD or CM, other than the provisions of Section 3.15, Section 4.7,
Section 6.7, this Section 8.2 and Article IX, which provisions survive such
termination, and except to the
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extent that such termination results from the willful and material breach by a
party of any of its representations, warranties, covenants or agreements set
forth herein.
SECTION 8.3 Amendment. This Agreement may be amended by the parties at any
time before or after the CD Shareholder Approval; provided, however, that after
any such approval, there shall not be made any amendment that by law requires
further approval by the CD Shareholder without the further approval of such
shareholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 8.4 Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in any
document delivered pursuant hereto or (c) subject to the proviso of Section 8.3,
waive compliance by the other party with any of the agreements or conditions
contained herein. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder or otherwise shall not constitute a waiver of such rights.
SECTION 8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require, in the case of CD or CM, action by
its Board of Directors (including in the case of CD approval by the Independent
Committee established for purposes of consideration and approval of the Merger)
or, with respect to any amendment to this Agreement, the Independent Committee
of its Board of Directors to the extent permitted by law.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Survival of Representations and Warranties. All of the
representations and warranties contained herein or in any instrument delivered
pursuant hereto shall survive the Closing and remain in full force and effect
until the first anniversary of the Closing Date. Notwithstanding the foregoing,
the representations and warranties in Section 3.10 and Section 4.11 shall
survive the Closing and remain in full force and effect until the applicable
statute of limitations expire. This Section 9.1 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time.
SECTION 9.2 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to CM, WPC, CCPI, Seventh, Eighth or Ninth, to:
Carey Management LLC
50 Rockefeller Plaza
New York, New York 10020
Telecopy No.: 212-977-3022
Attention: William P. Carey
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with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telecopy No.: (212) 735-2000
Attention: J. Gregory Milmoe
(b) if to CD or Newco, to
Carey Diversified LLC
50 Rockefeller Plaza
New York, New York 10022
Telecopy No.: (212) 997-3022
Attention: Francis J. Carey
with a copy to:
Reed Smith Shaw & McClay LLP
2500 One Liberty Place
1650 Market Street
Philadelphia, PA 19103
Telecopy No. (215) 851-1420
Attention: Michael B. Pollack
SECTION 9.3 Certain Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person, where "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management policies of a person, whether through the
ownership of voting securities, by contract, as trustee or executor, or
otherwise; and
(b) a "subsidiary" of any person means another person, an amount of
the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect at least a majority of its Board
of Directors or other governing body (or, if there are no such voting
interests, 50% or more of the equity interests of which) is owned directly
or indirectly by such first person.
SECTION 9.4 Interpretation. When a reference is made herein to an Article,
Section or Exhibit, such reference shall be to an Article or Section of, or an
Exhibit to, this Agreement unless otherwise indicated. The table of contents and
headings contained herein are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used herein, they shall be deemed to be
followed by the words "without limitation". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision hereof. All
terms defined herein shall have the defined meanings when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained herein are applicable to the singular
as well as the plural forms of such terms and to the masculine as well as to the
feminine and neuter genders of such term. Any agreement, instrument or statute
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
SECTION 9.5 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
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SECTION 9.6 Entire Agreement; No Third-Party Beneficiaries. This Agreement
(including the documents and instruments referred to herein) (a) constitutes the
entire agreement, and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (b) except for the provisions of Article II and Section 6.5, is not intended
to confer upon any person other than the parties any rights or remedies.
SECTION 9.7 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware without regard
to applicable principles of conflict of laws thereof.
SECTION 9.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by either of the parties hereto without
the prior written consent of the other party. Any assignment in violation of the
preceding sentence shall be void. Subject to the preceding two sentences, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 9.9 Consent to Jurisdiction. Each of the parties hereto (a)
consents to submit itself to the personal jurisdiction of any federal court
located in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions contemplated
hereby, (b) agrees that it will not attempt to deny or defeat such personal
jurisdiction by motion or other request for leave from any such court, and (c)
agrees that it will not bring any action relating to this Agreement or any of
the transactions contemplated hereby in any court other than a federal court
sitting in the State of Delaware or a Delaware state court.
SECTION 9.10 Headings; Schedules. The headings contained herein are for
reference purposes only and shall not affect in any way the meaning or
interpretation hereof. Any matter disclosed pursuant to any Schedule to the
Disclosure Schedules shall be deemed to be disclosed for all purposes under this
Agreement but such disclosure shall not be deemed to be an admission or
representation as to the materiality of the item so disclosed.
SECTION 9.11 Severability. If any term or other provision hereof is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions hereof shall nevertheless remain in
full force and effect. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
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IN WITNESS WHEREOF, CD, Newco, CM, WPC, CCPI, Seventh, Eighth and Ninth
have caused this Agreement to be signed by their respective officers thereunto
duly authorized, all as of the date first written above.
Carey Diversified LLC
By /s/ FRANCIS J. CAREY
------------------------------------
Name: Francis J. Carey
Title: Chief Executive Officer
WPC Acquisition LLC
By: /s/ JOHN J. PARK
------------------------------------
Name: John J. Park
Title: Managing Director
Carey Management LLC
By: /s/ JOHN J. PARK
------------------------------------
Name: John J. Park
Title: Managing Director
W.P. Carey & Co., Inc.
By: /s/ JOHN J. PARK
------------------------------------
Name: John J. Park
Title: Managing Director
Carey Corporate Property, Inc.
By: /s/ JOHN J. PARK
------------------------------------
Name: John J. Park
Title: Managing Director
Seventh Carey Corporate Property, Inc.
By: /s/ JOHN J. PARK
------------------------------------
Name: John J. Park
Title: Managing Director
30
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Eighth Carey Corporate Property, Inc.
By: /s/ JOHN J. PARK
------------------------------------
Name: John J. Park
Title: Managing Director
Ninth Carey Corporate Property, Inc.
By: /s/ JOHN J. PARK
------------------------------------
Name: John J. Park
Title: Managing Director
31
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EXHIBIT A
WILLIAM P. CAREY
W.P. CAREY & CO. INC.
50 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10022
, 2000
Carey Diversified LLC
50 Rockefeller Plaza
New York, New York 10022
Dear Ladies and Gentlemen:
All terms not otherwise defined in this letter agreement shall have the
same meanings as in the Merger Agreement. At the Effective Time, the undersigned
will be issued CD Shares (the "WPC CD Shares") as Merger Consideration.
In recognition of the benefit that such the Merger will confer upon him as a
stockholder of CD and for other good and valuable consideration including the
registration rights granted under the Registration Rights Agreement in
substantially the form annexed hereto, the receipt and sufficiency of which are
hereby acknowledged, the undersigned agrees with CD that, during a period of
three years from the Effective Time, he will not, without the prior written
consent of the Board of Directors of CD, directly or indirectly, offer, offer to
sell, sell, contract to sell or grant any option to purchase or otherwise
dispose of or transfer any WPC CD Shares.
Notwithstanding the foregoing, (i) one-third of the WPC CD Shares shall
cease to be subject to this letter agreement and become freely transferable on
each anniversary of the Effective Time. Unless otherwise agreed to in writing by
the parties hereto, this letter agreement shall terminate on the earliest of (i)
the date of the third anniversary of the Effective Time, (ii) the date on which
the undersigned ceases to be a director or officer of CD and (iii) the date of
his death.
Notwithstanding anything herein to the contrary, the undersigned may
transfer all or a portion of the WPC CD Shares (i) to immediate family members
and trusts or similar entities for their benefit or for purposes of estate
planning, (ii) to entities controlled by the undersigned or (iii) as a bona fide
gift(s) provided, however, that in each case, any such transferee (other than
transferees who are tax exempt organizations who are qualified under Section
501(c)(3) of the Internal Revenue Code who shall not be subject to this
requirement) shall execute an agreement substantially identical to this letter
agreement with respect to such WPC CD Shares.
Very truly yours,
--------------------------------------
William P. Carey
The foregoing is accepted and agreed to
as of the date first above written:
CAREY DIVERSIFIED LLC
By:
- ----------------------------------------------------
Name:
Title:
<PAGE> 135
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as of
, 2000, by and between CAREY DIVERSIFIED LLC, a limited liability
company under the laws of the State of Delaware ("CD") and WILLIAM P. CAREY
(together with his successors, affiliates and all other persons who from and
after the date hereof acquire or are otherwise the transferee of any Registrable
Securities (as hereinafter defined), herein referred to collectively as the
"Members" and each individually as a "Member").
WHEREAS, William P. Carey as of the Effective Time (as hereinafter defined)
will beneficially own an aggregate of CD shares;
WHEREAS, in connection with the Merger Agreement (as hereinafter defined),
such Member is willing to enter into a lock-up agreement dated the date hereof
(the "Lock-up Agreement") with CD; and
WHEREAS, CD wishes to provide the Members with certain registration rights
with respect to the Registrable Securities.
NOW, THEREFORE, in consideration of the foregoing and the respective
covenants and agreements set forth herein, the parties hereby agree as follows.
Section 1. Definitions. In this Agreement, all terms not otherwise defined
shall have the same meanings as in the Merger Agreement. As used in this
Agreement, the following terms shall have the following respective meanings:
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which the SEC is not open to receive filings.
"CD Offering" shall mean any public offering of securities (other than in
connection with employee benefit and similar plans or on Form S-4 or any
successor form in connection with a merger) by CD.
"Effective Time" shall mean the date and time at which the merger of WPC
Acquisition LLC with and into Carey Management LLC pursuant to the Merger
Agreement shall become effective.
"Information Blackout" shall have the meaning specified in Section
5.3(a)(ii).
"Lock-up Agreement" means the letter agreement, dated the date hereof, by
and between William P. Carey and CD, whereby William P. Carey agreed to certain
restrictions on the sale and transfer of CD Shares beneficially owned by him.
"Merger Agreement" means the Agreement and Plan of Merger by and among CD,
WPC Acquisition LLC, Carey Management LLC, W.P. Carey & Co. Inc., Carey
Corporate Property, Inc., Seventh Carey Corporate Property Inc., Eighth Carey
Corporate Property, Inc. and Ninth Carey Corporate Property, Inc.
"NASD" shall mean the National Association of Securities Dealers.
"Other Securities" shall mean any of CD's equity securities having the
ordinary power to vote in the election of directors of CD, other than securities
having such power only upon the occurrence of a default or any other
extraordinary contingency.
"Person" shall mean a corporation, association, partnership, joint venture,
organization, business, individual, trust or any other entity or organization,
including a government or any subdivision or agency thereof.
"Registrable Securities" means all CD Shares and all other equity
securities of CD acquired by the Members pursuant to the Merger Agreement or by
transfers permitted under the Lock-up Agreement, provided that any such
securities shall cease to be Registrable Securities when: (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act, and such securities shall have been disposed
of in accordance with such registration statement; (b) all such securities
<PAGE> 136
shall have been distributed pursuant to Rule 144 (or any successor provision to
such Rule) under the Securities Act; (c) all such securities are freely
tradeable pursuant to Rule 144(k) (or any successor provision to such Rule)
under the Securities Act; or (d) all such securities shall have ceased to be
outstanding.
"Registration Expenses" shall have the meaning specified in Section 3.2.
"Sales Blackout Period" shall mean the number of days from a suspension of
sales of the Members under Section 5.3(a) until the day when such sales may be
resumed hereunder.
"SEC" shall mean the U.S. Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Transaction Blackout" shall have the meaning specified in Section
5.3(a)(i).
Section 2. Exercisability of Registration Rights.
2.1 Effectiveness of Registration Rights. The registration rights set
forth in Sections 3 and 4 hereof shall be effective on and from the Effective
Time, provided that nothing herein shall affect the current Members' obligations
to comply with the terms of the Lock-up Agreement.
2.2 Joint Exercise of Rights. Except to the extent expressly set forth
herein, the Members may jointly exercise the registration rights granted
hereunder in such manner and in such proportion as they shall agree among
themselves, provided that all Members who are transferees of Registrable
Securities after the date hereof shall be subject to and bound by all of the
terms and conditions hereof applicable to the Members transferring the
Registrable Securities.
Section 3. Demand Registrations.
3.1 Notice. Subject to the terms and conditions set forth herein, upon
written notice by the Member (or if there is more than one Member, the Member(s)
holding a majority of Registrable Securities) requesting that CD effect the
registration under the Securities Act of some or all of the Registrable
Securities held by it, which notice shall specify the intended method or methods
of disposition of such Registrable Securities, CD will use its best efforts to
effect (at the earliest possible date) the registration, under the Securities
Act, of such Registrable Securities for disposition in accordance with the
intended method or methods of disposition stated in such request, provided that:
(a) if CD shall have previously effected a registration with respect
to Registrable Securities pursuant to Sections 3 or 4 hereof, CD shall not
be required to effect a registration pursuant to this Section 3 until the
earlier of (i) 45 days from the effective date of the most recent such
previous registration or (ii) the termination of any "black-out" or
"lock-up" period required by the underwriters to be applicable to the
Members in connection with such previous registration;
(b) if, upon receipt of a registration request pursuant to this
Section 3, CD is advised in writing (with a copy to the Members) by a
recognized independent investment banking firm selected by CD and
reasonably acceptable to each Member making such request that, in such
firm's reasonable opinion, a registration at the time and on the terms
requested would adversely affect in a significant manner any CD Offering
that had been contemplated (as evidenced by resolutions of CD's Board of
Managers duly adopted prior to the date of each Member's written notice
requesting registration under this Section 3.1) by CD prior to the
aforesaid written notice from such Member requesting registration, CD shall
not be required to have declared effective a registration pursuant to this
Section 3 until the earliest of (i) 90 days after the completion of such CD
Offering, (ii) the termination of any "black-out" or "lock-up" period
required by the underwriters, if any, to be applicable to Members of CD in
connection with such CD Offering, or (iii) promptly after abandonment of
such CD Offering;
(c) if, within 10 days after the date of the aforesaid written notice
from each Member requesting registration under this Section 3.1, CD
determines (based on the advice of counsel to CD) that the filing of a
registration statement would require the disclosure of material
information, which disclosure would
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have a material adverse impact on CD's business or on a contemplated
financing or strategic acquisition, CD shall not be required to effect a
registration pursuant to this Section 3 until the earlier of (i) the date
upon which such material information is disclosed to the public or ceases
to be material or (ii) 60 days after CD makes such good faith
determination, provided that this clause (c) may not be invoked by CD more
than once in any consecutive 12 month period; and
(d) subject to Section 5.3, CD shall not be obligated to effect more
than three registrations pursuant to this Section 3.1.
3.2 Registration Expenses.
(a) As used in this Agreement, "Registration Expenses" shall include all
expenses incident to CD's performance of or compliance with the registration
requirements set forth in this Agreement including, without limitation, the
following: (i) the fees, disbursements, and expenses of CD's counsel (United
States and foreign, including local counsel) and accountants in connection with
the registration of Registrable Securities to be disposed of under the
Securities Act; (ii) all expenses in connection with the preparation, printing
and filing of the registration statement, any preliminary prospectus or final
prospectus, any other offering document and amendments and supplements thereto
(including SEC filing fees) and the mailing and delivering of copies thereof to
the underwriters and dealers; (iii) the cost of printing or producing any
agreement(s) among underwriters, underwriting agreement(s), and blue sky or
legal investment memoranda, any selling agreements and any other documents in
connection with the offering, sale or delivery of Registrable Securities to be
disposed of; (iv) all expenses in connection with the qualification of
Registrable Securities to be disposed of for offering and sale under state
securities laws, (v) the filing fees incident to securing any required review by
the NASD of the terms of the sale of Registrable Securities to be disposed of;
(vi) all fees and expenses incident to listing the Registrable Securities on the
New York Stock Exchange or any national securities exchange or quotation system
through or on which any equity securities of CD are then quoted or listed; and
(vii) all transfer taxes and other costs and expenses incidental to the transfer
of Registrable Securities by the Members.
(b) CD will pay, as incurred, all Registration Expenses in connection with
any registration pursuant to this Section 3.
(c) Members will be responsible for payment of any and all other expenses
incurred by them in connection with the registration of their Registrable
Securities pursuant to this Section 3, including, without limitation,
underwriting discounts, brokerage and sales commissions, and fees and
disbursements of Members' counsel.
3.3 Third Person Shares. CD shall have the right to include securities for
sale for the account of any Person in any registration of Registrable Securities
requested pursuant to this Section 3; provided that if the Members requesting
registration under this Section 3 are advised in writing (with a copy to CD) by
a recognized independent investment banking firm selected by such Members and
reasonably acceptable to CD that, in its opinion, the amount of securities
requested to be included in such registration exceeds the amount which can be
sold in (or during the time of) such offering without adversely affecting the
success of the distribution of the Registrable Securities being offered, then CD
will include in such registration first, all the Registrable Securities and,
second, the amount of other securities requested to be included in such
registration that the Members are so advised can be sold in (or during the time
of) such offering, allocated, if necessary, pro rata among the Persons
requesting such registration on the basis of the number of the securities
beneficially owned at the time by the Persons requesting inclusion of their
securities and which are subject of such request for inclusion.
3.4 Underwriting. Subject to the terms and conditions set forth herein, in
connection with a registration with respect to Registrable Securities pursuant
to this Section 3, the selling Members holding a majority of the Registrable
Securities shall have the right to select the underwriter(s) of such Registrable
Securities.
Section 4. Piggyback Registration.
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4.1 Notice and Registration. If CD proposes to register for sale under the
Securities Act (whether proposed to be offered for sale by CD or any other
Person) Other Securities, on a form and in a manner which would permit
registration of Registrable Securities for sale to the public under the
Securities Act, CD will give prompt written notice to the Members of its
intention to do so, and upon the written request of any Member delivered to CD
within 20 Business Days after the giving of any such notice (which request shall
specify Registrable Securities intended to be disposed of by the Member and the
intended method of disposition thereof), CD will use its best efforts to effect,
in connection with the registration of the Other Securities, the registration
under the Securities Act of all Registrable Securities which CD has been so
requested to register by such Member, to the extent required to permit the
disposition (in accordance with the intended method or methods thereof as
aforesaid) of Registrable Securities so to be registered; provided that:
(a) If a registration pursuant to this Section 4 involves an
underwritten offering of the securities so being registered, whether or not
for sale for the account of CD, and the sole underwriter or the lead
managing underwriter, as the case may be, of such underwritten offering
shall advise CD in writing (with a copy to the Members requesting
registration) on or before the date five days prior to the date then
scheduled for such offering that, in its opinion, the amount of securities
(including Registrable Securities) requested to be included in such
registration exceeds the amount which can be sold in (or during the time
of) such offering without adversely affecting the success of the
distribution of the securities being offered, then CD will include in such
registration first, all the securities entitled to be sold pursuant to such
Registration Statement without reference to the incidental registration
rights of the Members and, second, the amount of other securities
(including Registrable Securities) requested to be included in such
registration that CD is so advised can be sold in (or during the time of)
such offering, allocated, if necessary, pro rata among the holders thereof
(including the Members) requesting such registration on the basis of the
number of the securities (including Registrable Securities) beneficially
owned at the time by the holders (including the Members) requesting
inclusion of their securities and which are subject of such request for
inclusion; provided, however, that in the event CD determines, by virtue of
this paragraph, not to include in any such registration all of the
Registrable Securities requested to be included in such registration, such
holder(s) of Registrable Securities not included in such registration may,
upon written notice to CD given within three days of the time such holder
(including the Members) first is notified of such matter, reduce the amount
of Registrable Securities it desires to have included in such registration,
whereupon only the Registrable Securities, if any, it desires to have
included will be so included and the holders not so reducing shall be
entitled to a corresponding increase in the amount of Registrable
Securities to be included in such registration.
(b) CD shall not be required to effect any registration of Registrable
Securities under this Section 4 on any registration statement filed on Form
S-8 (or any successor form) in connection with a stock option or other
employee benefit plan, or on Form S-4 (or any successor form) in connection
with a merger.
CD may withdraw any registration statement under this Section 4 at any time
before it becomes effective, or postpone or cancel the offering of securities
pursuant to such registration statement, without obligation or liability to the
holders of Registrable Securities.
No registration of Registrable Securities effected under this Section 4
shall relieve CD of its obligation to effect a registration of Registrable
Securities pursuant to Section 3.
4.2 Registration Expenses. CD will pay, as incurred, all Registration
Expenses in connection with any registration pursuant to this Section 4. Members
will be responsible for payment of any and all other expenses incurred by them
in connection with the registration of their Registrable Securities pursuant to
this Section 4, including, without limitation, underwriting discounts, brokerage
and sales commissions, and fees and disbursements of Members' counsel.
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Section 5. Registration Procedures.
5.1 Registration and Qualification. If and whenever CD is required to use
its best efforts to effect the registration of any Registrable Securities under
the Securities Act as provided in Sections 3 and 4 hereof, CD will promptly as
is practicable:
(a) prepare, file and use its best efforts to cause to become
effective a registration statement under the Securities Act with respect to
the Registrable Securities to be offered;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and to
comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities until such time as all of such
Registrable Securities have been disposed of in accordance with the
intended methods of disposition by each selling Member set forth in such
registration statement or, in the case of registration statements not
governed by Rule 415 under the Securities Act, the expiration of nine
months after such registration statement becomes effective, if earlier;
(c) furnish to each selling Member and to any underwriter of such
Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included
in such registration statement (including each preliminary prospectus and
any summary prospectus) in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such
registration statement or prospectus and such other documents as each
selling Member or such underwriter may reasonably request;
(d) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such United States jurisdictions as each
selling Member or any underwriter of such Registrable Securities shall
reasonably request and do any and all other acts and things which may be
necessary or advisable to enable each selling Member or any such
underwriter to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement; provided
that CD shall not for any such purpose be required to register as a broker
or dealer in any jurisdiction or qualify generally to do business as a
foreign corporation in any jurisdiction where it is not so qualified or to
subject itself to taxation in any such jurisdiction or to consent to
general service of process in any such jurisdiction;
(e) (i) furnish to each selling Member, addressed to it, an opinion of
counsel for CD, dated the date of the closing under the underwriting
agreement, covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) as are
customarily covered in opinions of issuer's counsel delivered to
underwriters in underwritten public offerings of securities and such other
matters as each selling Member may reasonably request and (ii) use its best
efforts to furnish to each selling Member, addressed to it, a "cold
comfort" letter signed by the independent public accountants who have
certified CD's financial statements included in such registration
statement, covering substantially the same matters with respect to such
registration statement (and the prospectus included therein), and with
respect to events subsequent to the date of such financial statements, as
are customarily covered in accountants' letters delivered to underwriters
in underwritten public offerings of securities and such other matters as
each selling Member may reasonably request; and
(f) (i) immediately notify each selling Member at any time when a
prospectus relating to a registration pursuant to Sections 3 or 4 hereof is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading and (ii) at the request of each
selling Member, prepare and furnish to each selling Member a reasonable
number of copies of a supplement to or an amendment of such prospectus as
may be necessary so that, as thereafter delivered to the purchaser of such
Registrable
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Securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
CD may require each selling Member to furnish to CD such information regarding
the Member and the distribution of such securities as CD may from time to time
reasonably request in writing and as shall be required by law or by the SEC or
the NASD in connection with any registration.
5.2 Underwriting.
(a) If requested by the underwriters for any underwritten offering of
Registrable Securities pursuant to a registration requested hereunder, CD
will enter into an underwriting agreement with such underwriters for such
offering, such agreement to contain such representations and warranties and
covenants by CD and such other terms and provisions as are customarily
contained in underwriting agreement with respect to secondary
distributions, including without limitation indemnities and contribution to
the effect and to the extent provided in Section 7 hereof and the provision
of opinions of counsel and accountants' letters to the effect and to the
extent provided in Section 5.1(e). Each selling Member shall be a party to
any such underwriting agreement, and the representations and warranties by,
and the other agreements on the part of, CD to and for the benefit of such
underwriters shall also be made to and for the benefit of such Member.
(b) In the event that any registration pursuant to Section 4 hereof
shall involve, in whole or in part, an underwritten offering, CD may
require Registrable Securities requested to be registered pursuant to
Section 4 to be included in such underwriting on the same terms and
conditions as shall be applicable to the Other Securities being sold
through underwriters under such registration. In such case, each selling
Member shall be a party to any such underwriting agreement. Such agreement
shall contain such representations and warranties by each selling Member
and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution to the effect and to the
extent provided in Section 7 hereof. The representations and warranties in
such underwriting agreement by, and the other agreements on the part of, CD
to and for the benefit of such underwriters shall also be made to and for
the benefit of each such selling Member.
5.3 Blackout Periods. (a) Except as restricted below, at any time when a
registration statement effected pursuant to Sections 3 or 4 hereunder relating
to Registrable Securities is effective, upon written notice from CD to each
selling Member that either:
(i) CD has determined to engage in a CD Offering and has been advised
in writing (with a copy to each selling Member) by a recognized independent
investment banking firm selected by CD and reasonably acceptable to each
selling Member that, in such firm's opinion, the selling Member's sale of
Registrable Securities pursuant to the registration statement would
adversely affect to a significant extent CD's own immediately planned CD
Offering (a "Transaction Blackout"); or
(ii) CD determines (based on advice of counsel to CD) that each
selling Member's sale of Registrable Securities pursuant to the
registration statement would require disclosure of material information,
which disclosure would have a material adverse impact on CD's business or
on a contemplated financing or strategic transaction (an "Information
Blackout"),
each selling Member shall suspend sales of Registrable Securities pursuant to
such registration statement until the earlier of:
(A) (1) in the case of a Transaction Blackout, the earliest of (a) 90
days after the completion of such CD Offering, (b) the termination of any
"black-out" or "lock-up" period required by the underwriters, if any, to be
applicable to members of CD in connection with CD Offering; or (c) promptly
after abandonment of such CD Offering; or (2) in the case of an Information
Blackout, the earlier of (a) the date upon which such material information
is disclosed to the public or ceases to be material or (b) 60 days after CD
makes such determination; or
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(B) such time as CD notifies each selling Member that sales pursuant
to such registration statement may be resumed;
provided, that CD may not impose a Transaction Blackout during any underwritten
public offering and CD shall only be permitted to deliver one notice of a
Transaction Blackout within any consecutive 365 day period and, provided
further, that the suspension of sales of Registrable Securities pursuant to
Information Blackouts shall not exceed an aggregate of 90 days in any
consecutive 365 day period.
(b) Any delivery by CD of notice of a Transaction Blackout or Information
Blackout during the 90 days immediately following effectiveness of any
registration statement effected pursuant to Section 3 hereof shall give the
Members the right, by notice to CD within 20 Business Days after the end of the
applicable Sales Blackout Period, to cancel such registration and obtain one
additional registration right for purposes of Section 3.1(d).
(c) If there is a Transaction Blackout or an Information Blackout and each
selling Member does not exercise its cancellation right, if any, pursuant to
paragraph (b) of this Section 5.3, or if such cancellation right is not
available, the nine-month time period set forth in Section 5.1(b), if
applicable, shall be extended for a number of days equal to the number of days
in the Sales Blackout Period.
5.4 Public Trading. In connection with the registration of any offering of
Registrable Securities under this Agreement, CD agrees to use its best efforts
to effect the listing of such Registrable Securities on the New York Stock
Exchange or any national securities exchange or quotation system through or on
which any equity securities of CD are then quoted or listed.
5.5 CD Lock-up. If any registration of Registrable Securities under the
Securities Act pursuant to Section 3 or Section 4 involves an underwritten
offering, CD agrees, if so required by the lead or managing underwriter, not to
effect any public sale or distribution of any of its equity securities or
securities convertible into or exchangeable or exercisable for any of such
equity securities during a period commencing on the effective date of such
registration and ending not more than 90 days thereafter, except (i) as part of
and pursuant to such underwritten offering and (ii) pursuant to any registration
statement that is effective as of the Effective Date.
Section 6. Preparation; Reasonable Investigation.
6.1 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Registrable
Securities under the Securities Act, CD will give each selling Member and the
underwriters, if any, and their respective counsel and accountants, such
reasonable and customary access to its books and records and such opportunities
to discuss the business of CD with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of each selling Member and such underwriters or their respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
Section 7. Indemnification and Contribution.
7.1 Indemnification and Contribution.
(a) In the event of any registration of any Registrable Securities
hereunder, CD will enter into customary indemnification arrangements to
indemnify and hold harmless each selling Member, its directors and officers,
each Person who participates as an underwriter in the offering or sale of such
securities, each officer and director of each underwriter and each Person, if
any, who controls such Member or any such underwriter within the meaning of the
Securities Act against any losses, claims, damages, liabilities and expenses,
joint or several, to which such Person may be subject under the Securities Act
or otherwise insofar as such losses, claims, damages, liabilities or expenses
(or actions or proceedings in respect thereof) arise out of are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any registration statement under which such securities were registered under
the Securities Act, any preliminary prospectus or final prospectus included
therein, any amendment or supplement thereto or any document incorporated by
reference therein or (ii) any omission or alleged omission to state therein a
material fact
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required to be stated therein or necessary to make the statements therein not
misleading, and CD will reimburse each such Person for any legal or any other
expenses reasonably incurred by such Person in connection with investigating or
defending any such loss, claim, liability, action or proceeding; provided that
CD shall not be liable in any such case to such selling Member or underwriter,
as applicable, to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus or
final prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to CD by each selling Member or
such underwriter, as applicable, for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of each selling Member or any such Person and shall survive
the transfer of such securities by each selling Member. CD also shall agree to
provide for contribution as shall be reasonably requested by each selling Member
or any underwriters in circumstances where such indemnity is held unenforceable.
(b) Each selling Member, by virtue of exercising its registration rights
hereunder, agrees and undertakes to enter into customary indemnification
arrangements to indemnify and hold harmless (in the same manner and to the same
extent as set forth in clause (a) of this Section 6) CD, each director of CD,
each officer of CD who shall sign such registration statement, each Person who
participates as an underwriter in the offering or sale of such securities, each
officer and director of each underwriter, and each Person, if any, who controls
CD or any such underwriter within the meaning of the Securities Act, with
respect to any statement in or omission from such registration statement, any
preliminary prospectus or final prospectus included therein, or any amendment or
supplement thereto, if such statement or omission was made in reliance upon and
in conformity with written information furnished by each selling Member to CD
for inclusion in such registration statement or prospectus. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of CD or any such director, officer or controlling Person and shall
survive the transfer of the Registrable Securities by each selling Member. Each
selling Member also shall agree to provide for contribution as shall reasonably
be requested by CD for any underwriters in circumstances where such indemnity is
held unenforceable.
(c) Indemnification and contribution similar to that specified in the
preceding subdivisions of this Section 6 (with appropriate modifications) shall
be given by CD and each selling Member with respect to any required registration
or other qualification of such Registrable Securities under any federal or state
law or regulation of governmental authority other than the Securities Act.
Section 8. Miscellaneous.
8.1 Governing Law. This agreement shall be construed, performed and
enforced in accordance with, and governed by, the laws of the State of New York,
without giving effect to the principles of conflicts of law thereof.
8.2 Severability. In the event that any part of this Agreement is declared
by any court or other judicial or administrative body to be null, void or
unenforceable, said provision shall survive to the extent it is not so declared,
and all of the other provisions of this Agreement shall remain in full force and
effect.
8.3 Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given:
(a) on the date of service if served personally on the party to whom notice is
to be given; (b) on the day of transmission if sent by facsimile transmission to
the facsimile number given below and telephonic confirmation of receipt is
obtained promptly after completion of transmission; (c) on the day after
delivery to FedEx or similar overnight courier or the Express Mail service
maintained by the United States Postal Service; or (d) on the fifth day after
mailing, if mailed to the party to
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whom notice is to be given, by first class mail, registered or certified,
postage prepaid and properly addressed, to the party as follows:
If to CD:
Carey Diversified LLC
50 Rockefeller Plaza
New York, NY 10022
Telecopy No.: (212) 997-3022
Attention: Francis J. Carey
If to any Member:
William P. Carey
50 Rockefeller Plaza
New York, NY 10022
Telecopy No.: (212) 997-3022
Any party may change its address for the purpose of this Section 8.3 by
giving the other party written notice of its new address in the manner set forth
above.
8.4 Amendments; Waivers. This Agreement may be amended or modified, and
any of the terms, covenants or conditions hereof may be waived, only by a
written instrument executed by or on behalf of the parties hereto, or in the
case of a waiver, by the party waiving compliance. Any waiver by any party of
any condition, or of the breach of any provision, term or covenant contained in
this Agreement, in any one or more instances, shall not be deemed to be, nor
construed as, a further or continuing waiver of any such condition, or of the
breach of any other provision, term or covenant of this Agreement.
8.5 Headings and Interpretation. The headings in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement. Terms such as "herein," "hereof," "hereunder" and "hereinafter"
refer to this Agreement as a whole and not to the particular sentence or
paragraph where they appear, unless the context otherwise requires. References
in this Agreement to Sections shall be to Sections of this Agreement, unless
otherwise indicated. Unless the context otherwise requires, (i) terms used in
the plural include the singular, and vice versa, (ii) words in the masculine
gender include the feminine and neuter, and vice versa, and (iii) the use of
"or" is intended to be inclusive.
8.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute the same
instrument.
8.7 Transferability. Each Member may transfer the registration rights
granted hereunder by transferring all or a portion of the Registrable Securities
and sending a written notice thereof to CD. The written notice shall comply with
Section 8.3, be signed by both the Member transferring the registration rights
and the transferee and include an undertaking by the transferee to comply with
the terms and conditions of this Agreement applicable to the Member transferring
the registration rights (or its transferee).
8.8 No Inconsistent Agreements. CD will not on or after the date of this
Agreement enter into any agreement which conflicts with the provisions of this
Agreement or which grants registration or similar rights inconsistent with the
rights herein. Without limiting the generality of the foregoing, CD will not
grant incidental or piggyback registration rights to any Person giving such
person priority over the Members for the purposes of the provisions of Section
4.1(a) hereof.
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<PAGE> 144
The parties hereto have caused this Agreement to be executed by their
respective officers thereunto duly authorized as of the date first above
written.
CAREY DIVERSIFIED LLC
By:
--------------------------------------
Name:
Title:
By:
------------------------------------
WILLIAM P. CAREY
10
<PAGE> 145
APPENDIX II
FAIRNESS OPINION
The Independent Committee of
The Board of Directors of
Carey Diversified LLC
50 Rockefeller Plaza
New York, New York 10020
Gentlemen:
We have been advised that Carey Diversified LLC ("CD", or the "Company") is
entering into a transaction (the "Merger") in which Carey Management LLC ("CM"),
a Delaware limited liability company into which certain assets and liabilities
of certain affiliated companies (the "CM Affiliates") will be contributed as
described in the Amended and Restated Agreement and Plan of Merger dated March
15, 2000 (the "Merger Agreement"), will be merged with and into WPC Acquisition
LLC, a wholly owned subsidiary of the Company. In the Merger, the shareholders
of the Company will be asked to approve the merger of CM into the Company and
the issuance of common shares of CD ("CD Shares"), which will initially be
subject to certain restrictions, to the holders of CM interests (the "CM
Shareholders") in exchange for all the issued and outstanding limited liability
company interests of CM (the "CM Company Interests"), as described below.
We have been further advised that in connection with the Merger, the CM
Company Interests will be converted into the right to receive an aggregate of
eight million (8,000,000) CD Shares (the "Initial Shares") subject to certain
downward adjustments relating to the audited 1999 net income of CM, and
additional CD Shares ("Additional Shares" and together with the "Initial Shares"
the "Merger Consideration"). We have been advised that the issuance of the
Additional Shares is conditioned upon achievement of specific target levels of
Funds From Operations per common share of CD as defined in the Merger Agreement
("FFO Targets") and the Total Return on CD Shares relative to the average Total
Return produced by a defined group of twelve public real estate companies (the
"Net-Lease REIT Total Return Index Companies") as defined in the Merger
Agreement (the "Total Return Targets").
With respect to the FFO Targets we have been advised that for each of four
calendar years, including the year of the Merger (assuming the Merger takes
place before July 1, 2000) and the three years following closing of the Merger
in which CD's FFO Per Common Share, as defined in the Merger Agreement, exceeds
the following FFO Targets for such year, four hundred thousand (400,000)
additional CD Shares will be issued to the CM Shareholders: 2001 -- $2.41 per
share; 2002 -- $2.45 per share, and 2003 -- $2.55 per share. In the event the
Merger closes after April 30, 2000 but before July 1, 2000, the FFO Target for
the year 2000 will be based on the closing date as follows: June 1 through June
15 -- $2.27; and June 16 through June 30 -- $2.26. In the event the Merger
closes on or after July 1, 2000, the four annual FFO Targets will commence with
the 2001 target and a 2004 FFO Target of $2.65 per share will be utilized. If CD
fails to satisfy the FFO Targets with respect to any Target Year, the Additional
Shares associated with that FFO Target will not be issued and will be
permanently foregone.
With respect to the Total Return Targets we have been advised that for each
of four calendar years, including the year of the Merger (assuming the Merger
takes place before July 1, 2000) and the three years following closing of the
Merger in which CD's Total Return, as defined in the Merger Agreement, exceeds
105% of the average positive Total Return of the Net-lease REIT Total Return
Index Companies (or 95% in the event the average Total Return of the Net Lease
REIT Index Companies is negative), one hundred thousand (100,000) additional CD
Shares will be issued to the CM Shareholders. In the event the Merger closes
after July 1, 2000, the four annual Total Return Targets will commence with the
calendar year 2001. If CD fails to satisfy the Total Return Target with respect
to any Target Year, the Additional Shares associated with that Total Return
Target will not be issued in that year, but will be
<PAGE> 146
issued in any subsequent year in which CD's cumulative compounded Total Return
during the Target years exceeds 105% of the cumulative compounded Total Return
during the Target years for the Net-lease REIT Total Return Index Companies.
The Company has formed a Special Committee of the Board of Directors to
consider certain matters relating to the Merger, and the Special Committee has
requested that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion as
to the fairness to the public shareholders of Carey Diversified, LLC (other than
the shareholders and officers of CM), from a financial point of view, of the
Merger Consideration.
In the course of our review to render this opinion, we have, among other
things:
- Reviewed a draft of the Consent Solicitation Statement related to the
Merger, which draft management of the Company and CM have indicated to be
in substantially the form intended to be finalized and filed with the
Securities and Exchange Commission;
- Reviewed the Agreement and Plan of Merger and related schedules between
the Company and CM dated December 21, 1999 and the Amended and Restated
Agreement and Plan of Merger dated March 15, 2000;
- Reviewed the Company's annual report to shareholders filed with the SEC
on Form 10-K for the fiscal year ending December 31, 1998, and for the
fiscal year ending December 31, 1999, which report the Company's
management has indicated to be the most current financial statements
available;
- Reviewed the audited financial statements of W.P. Carey & Co., Inc. and
Subsidiaries and Certain Affiliated Companies for the fiscal year ending
December 31, 1998, interim financial statements prepared by management
for the nine-month period ending September 30, 1999, pro forma financial
statements prepared by management for the full year ending December 31,
1999, and audited financial statements for the year ending December 31,
1999, which report management has indicated to be the most current
financial statements available;
- Reviewed the proposal submitted to the Independent Committee of the Board
of Directors of CD by W.P. Carey & Co., Inc. dated October 20, 1999 and
related schedules thereto relating to the proposed Merger;
- Reviewed summaries of the fee structures and key provisions of the
advisory agreements between CM or the CM Affiliates and CD and four
public real estate investment trusts (the "Advised Entities");
- Reviewed summary internal historical and pro forma financial information
and forecasts prepared by the management of the Company and management of
CM of the results of operations of the Company and W.P. Carey & Co., Inc.
and its subsidiaries and affiliates which will be contributed in the
Merger, respectively (i) on a standalone basis without giving effect to
the Merger, and (ii) on a consolidated basis pro forma the Merger;
- Discussed with management of the Company conditions in the marketplace
for net lease property transactions, conditions in current capital
markets, current and projected operations and performance, financial
condition, and future prospects of the Company and the combined company
after the Merger;
- Discussed with management of CM conditions in the marketplace for net
leased investments, recent and prospective trends in fundraising and
assets under management, the operations, financial condition, future
prospects and projected operations and performance of CM and its
affiliates and the combined company after the Merger;
2
<PAGE> 147
- Reviewed certain publicly available information relating to selected
companies and/or transactions deemed relevant to our reviews regarding
CD, CM and the Merger;
- Reviewed historical market prices, trading volume and dividends for the
CD Shares; and
- Conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
In conducting our review and in rendering this fairness opinion, we have
assumed that the definitive consent solicitation statement will not, when filed,
differ in any material respect from the drafts thereof which we have reviewed.
We have relied upon and assumed, without independent verification, the accuracy
and completeness of all financial and other information that was publicly
available, contained in the consent solicitation statement, or that was
furnished or otherwise communicated to us by the Company and CM or the CM
Affiliates, including without limitation the internal analyses and forecasts of
the results of operations of the Company and CM on a standalone basis and giving
effect to the Merger and we do not assume responsibility for such information.
We have not performed an independent review or audit of these analyses and
forecasts or of the assets and liabilities (contingent or otherwise) of CM or
the CM Affiliates, and we have relied upon and assumed the accuracy of the
internal analyses and forecasts. We have also relied on the assurance of the
Company and CM and the CM Affiliates that any pro forma financial statements,
projections, budgets, or information contained in the consent solicitation
statement or otherwise provided to us were reasonably prepared on bases
consistent with actual historical experience and reflect the best currently
available estimates and good faith judgments of the managements of the Company,
CM and the CM Affiliates as to the future performance of the Company, CM and the
CM Affiliates, and the Company pro forma the Merger; that the determination of
all fees, charges and reimbursements earned or forecast to be earned by CM and
or the CM Affiliates from the Advised Entities is consistent with the provisions
of the Advisory/Management Agreements between CM or the CM Affiliates and the
Advised Entities and the such agreements remain in full force and effect; that
any material liabilities (contingent or otherwise) of the Company, CM and the CM
Affiliates are as set forth in the consolidated financial statements of the
Company, CM and the CM Affiliates respectively; that no material changes have
occurred in the terms of the Advisory/Management Agreements, broker/dealer
agreements, any other agreements material to the operations of CM or the CM
Affiliates, or the information reviewed between the date of the information
provided and the date of this letter; and that CD, CM and the CM Affiliates are
not aware of any information or facts that would cause the information supplied
to us to be inaccurate, incomplete or misleading in any material respect.
We have not been requested to, and therefore did not: (i) select the method
of determining the Consideration offered in the Merger; (ii) make any
recommendation to the shareholders of CD or CM with respect to whether to
approve or reject the Merger; or (iii) express any opinion as to: (a) the
business decision to effect the Merger or alternatives to the Merger; (b) tax
factors resulting from the Merger; (c) the price or trading range at which CD
Shares may trade in the future on a stand-alone basis or following the Merger;
(d) the impact, if any, of the relative share ownership of the CM Shareholders
on future business decisions of the Company or its shareholders; (e) the
forecasts or the assumptions on which they were based; (f) the terms of
employment agreements, grants or other compensation between CD and the officers
of CM; or (g) any terms of the Merger other than the Merger Consideration.
Although we evaluated the Merger Consideration and participated in discussions
concerning the consideration to be paid, we did not propose the specific form or
amount of Merger Consideration or terms related thereto. The Merger
Consideration was determined by the Special Committee and CM in arms-length
negotiations.
Based upon and subject to the foregoing, and in reliance thereon, it is our
opinion that as of the date of our analysis the Merger Consideration is fair to
the public shareholders of Carey Diversified LLC (other than the shareholders
and officers of CM, to whom no opinion is being expressed), from a financial
point of view.
This letter does not purport to be a complete description of the analyses
performed or the matters considered in rendering this opinion. The preparation
of a fairness opinion is a complex process and is not
3
<PAGE> 148
necessarily susceptible to partial analysis or summary description. We have
advised the Board of Directors of the Company that our entire analysis must be
considered as a whole and that selecting any portions of our analysis and the
factors considered by us, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying this opinion. In
rendering this opinion, judgment was applied to a variety of complex analyses
and assumptions. The assumptions made and the judgments applied in rendering the
opinion are not readily susceptible to partial analysis or summary description.
The fact that any specific analysis is referred to herein is not meant to
indicate that such analysis was given greater weight than any other analysis.
Any estimates contained in these analyses are not necessarily indicative of
actual values or predictive of future results or values, which may be
significantly more or less favorable than as set forth therein. In addition,
analyses relating to the values of businesses may not reflect the prices at
which businesses may actually be sold. Accordingly, such analyses and estimates
are inherently subject to substantial uncertainty and Stanger does not assume
responsibility for any future variations from such analyses or estimates.
Our opinion is based on business, economic, real estate and securities
markets, and other conditions as they existed and could be evaluated as of the
date if our analysis and addresses the Merger Consideration in the context of
information available as of the date of our analysis. Events occurring after
that date may materially affect the financial results or values of the Company
or CM or the assumptions used in preparing the opinion.
Yours truly,
/s/ ROBERT A. STANGER & CO., INC.
Robert A. Stanger & Co., Inc.
Shrewsbury, NJ
May 5, 2000
4
<PAGE> 149
REVOCABLE PROXY
CAREY DIVERSIFIED LLC
Proxy for Annual Meeting of Shareholders June 28, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Carey Diversified LLC appoints John J. Park and
Claude Fernandez, and each of them, with full power of substitution, as proxy to
vote all shares of the undersigned in Carey Diversified LLC at the Annual
Meeting of Shareholders to be held on June 28, 2000 and at any adjournment
thereof, with like effect and as if the undersigned were personally present and
voting, upon the following matters:
PROPOSAL ONE:
To Elect Directors for the Three-Year Term Expiring in 2003
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
- --- (except as marked to the --- (to vote for all nominees
contrary below) listed below)
(INSTRUCTION: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list below)
William P. Carey
Dr. Lawrence R. Klein
Charles C. Townsend, Jr.
Donald E. Nickelson
PROPOSAL TWO:
To approve the acquisition of the asset management FOR AGAINST ABSTAIN
business of W.P. Carey & Co., Inc. and affiliates [ ] [ ] [ ]
(which also serves as advisor to Carey
Diversified), and the issuance of up to 10,000,000
Listed Shares in connection therewith all as
described in the Proxy.
PROPOSAL THREE:
To approve the amendment to the 1997 Listed Share FOR AGAINST ABSTAIN
Incentive Plan of Carey Diversified (the "Plan") [ ] [ ] [ ]
to increase the number of Listed Shares eligible
to be awarded under the Plan from 700,000 to
2,600,000 Listed Shares, as described in the
Proxy.
To approve such other matters as may properly come before the meeting at the
discretion of the proxy holders
PROXIES WILL BE VOTED AS DIRECTED OR SPECIFIED. IF THIS PROXY CARD IS SIGNED AND
RETURNED, THIS PROXY WILL BE VOTED FOR NOMINEES, FOR PROPOSALS TWO AND THREE,
AND FOR OR AGAINST ANY OTHER MATTERS THAT PROPERLY COME BEFORE THE MEETING AT
THE DISCRETION OF THE PROXY HOLDER. IF YOU DO NOT SIGN AND RETURN THIS PROXY
CARD, YOUR INACTION WILL HAVE THE SAME EFFECT AS A VOTE AGAINST PROPOSALS TWO
AND THREE.
You are not required to vote for all proposals, nor are you required to vote
the same way for each proposal. The results of the voting on one proposal is not
conditioned upon the success or failure of any other proposal.
Please note our records indicate you have the ownership position as indicated to
the right of your name and address below.
SIGNATURE_____________________________________________ Dated__________, 2000
Please sign exactly as your name appears above. PLEASE MARK, SIGN, DATE AND MAIL
THIS CONSENT CARD PROMPTLY, USING THE ENCLOSED ENVELOPE.
DATED: ________________________ , 2000
______________________________________
Signature of Shareholder
______________________________________
Signature of Shareholder
SIGNATURE(S) MUST CORRESPOND EXACTLY WITH NAME(S) AS
IMPRINTED HEREON. When signing in a representative
capacity, please give title. When shares are held
jointly, only one holder need sign.
<PAGE> 150
CONSENT CARD INSTRUCTIONS
(Please read carefully and follow instructions)
How to vote:
There are three easy ways to vote:
By Telephone:
1. Call the toll free number listed on your proxy card 24 hours a day,
7 days a week.
2. You will be asked to enter a Control Number, which is located on your
proxy card.
3. Follow the simple recorded instructions.
There is no charge for this call--Have your proxy card in hand.
By Internet:
1. Follow the instructions at the Website address on your proxy card.
2. You will be asked to enter a Control Number, which is located on your
proxy card.
3. Follow the simple instructions.
By Mail:
Please complete, sign and date the accompanying proxy card and return it in the
enclosed postage-paid return envelope.
By marking the proxy card, you may:
- vote "FOR" or "WITHHOLD AUTHORITY" for all four director nominees
as Directors of Carey Diversified LLC
- "WITHHOLD AUTHORITY" as to any one or more individual director
nominees by striking through the name of the nominee for which you wish to
withhold authority
- vote either "FOR", "AGAINST" or "ABSTAIN" as to the merger of Carey
Diversified LLC with W.P. Carey & Co., Inc.
- vote either "FOR", "AGAINST" or "ABSTAIN" as to the amendment to the
1997 Listed Share Incentive Plan
If you sign and return your proxy card without indicating your choices, you
will be deemed to have voted as follows:
- unmarked proxy cards will be counted as votes "FOR" all four director
nominees, merger and plan amendment; and
- if you vote "ABSTAIN" with respect to the merger or plan amendment, you
will be deemed to have voted "AGAINST" them.
IF YOU FAIL TO VOTE ON THE MERGER AND PLAN AMENDMENT, YOUR INACTION WILL HAVE
THE SAME EFFECT AS A VOTE AGAINST THEM.
Additional detailed information about the election of directors, merger and the
plan amendment is available by reference to the accompanying Proxy Statement.
If you have any questions or need assistance in completing your proxy card,
please call Shareholder Communications Corporation, the Information Agent for
the merger, toll-free at 1-800-611-9976.
YOUR VOTE IS IMPORTANT. PLEASE ACT PROMPTLY.
Carey Diversified LLC
50 Rockefeller Plaza
New York, NY 10020
Information Agent:
1-800-611-9976
-2-
<PAGE> 151
[W.P. CAREY LOGO]
[CAREY DIVERSIFIED LOGO]
<PAGE> 152
- - America West Holdings Corp. [Photo of Building]
- - Bell South Telecommunications, Inc. [Photo of Building]
- - United Space Alliance LLC [Photo of Building]
W.P. CAREY FAMILY OF PROPERTIES
- - PROPERTIES OWNED BY CDC
- - PROPERTIES OWNED BY CPA(R) REITs (managed by Carey Management)
[MAP OF USA]
<PAGE> 153
DEAR FELLOW SHAREHOLDERS,
The board of directors requests your approval of a proposal to acquire the
management businesses of W.P. Carey & Co., Inc. and its affiliates, which
consists primarily of the management business of our investment advisor, Carey
Management LLC, and the business of managing four real estate investments
trusts. If the transaction is completed, the combined entity, which will be
renamed W.P. Carey & Co. LLC, will be a fully integrated investment company and
one of the nation's premier net lease firms. Changing the company's name to W.P.
Carey & Co. LLC will capitalize on the strong corporate identity that W.P. Carey
has built amount its clients and the investment community for over 25 years. The
acquisition will be achieved through the merger of Carey Management LLC and a
wholly-owned subsidiary of Carey Diversified LLC. W.P. Carey & Co., Inc. (and
certain of its affiliates) has transferred to Carey Management LLC, all of the
assets used for the management of Carey Diversified and the four real estate
investment trusts. This merger is described in detail in the accompanying proxy
solicitation statement, which you are urged to read carefully.
Carey Diversified's board of directors voted unanimously in favor of this
transaction because it believes the proposed merger will provide many benefits
to shareholders, including an immediate increase in funds from operations (FFO),
increased access to capital, enhanced growth from the asset management business,
a strengthened credit profile and future growth potential.
A special committee consisting of three independent members of Carey
Diversified's board of directors carefully reviewed, considered and negotiated
the terms of the proposed merger. Based on its review, the special committee has
unanimously determined that the terms of the merger agreement, the related
agreements and the merger are fair to and in the best interests of Carey
Diversified and its public shareholders. In making this determination, the
special committee considered, among other things, an opinion received from
Robert A. Stanger & Co., Inc., the special committee's independent financial
advisor, as to the fairness, from a financial point of view, of the
consideration to be paid by Carey Diversified in the merger from the perspective
of Carey Diversified's public shareholders.
PROPOSED COMPANY STRUCTURE
- --------------------------------------------------------------------------------
PRE-MERGER PRE-MERGER
---------- ----------
W.P. Carey & Co., Inc. (Private) W.P. Carey & Co., LLC (Public)
manages owns and manages
net lease assets net lease assets
- --------------------------------- ---------------------------------
MANAGES MANAGES OWNS MANAGES
------- ------- ------- -------
CDC $850 million $1.6 billion
CPA (R) (Public) net lease assets net lease assets
REITs CDC CPA (R)/CIP
assets assets
Information Agent: 1-800-611-9976 (continued)
<PAGE> 154
REVENUES
The exhibit below shows
actual revenues and pro forma
revenues for the year ended
December 31, 1999. These
results would not necessarily
have occurred even if the
merger had occurred last year.
- MANAGEMENT REVENUES
FROM CAREY MANAGEMENT
(excluding fees for CDC)
- RENTAL REVENUES FROM
PROPERTIES OWNED BY CDC
(in millions)
[Bar Graph showing Pre-Merger of $81
and Post-Merger (pro forma) of $120]
Taking into account the unanimous recommendation of the special committee, the
board of directors of Carey Diversified has unanimously determined (with two
directors affiliated with Carey Management, Messrs. Wm. Polk Carey and DuGan,
abstaining) that the merger agreement and the transactions contemplated by the
merger agreement, including the merger, are fair to and in the best interests
of Carey Diversified and its unaffiliated shareholders and has approved the
merger agreement and the transactions contemplated by the merger agreement.
The merger is expected to reduce Carey Diversified's operating expenses by
eliminating the management fees it currently pays to Carey Management and is
expected to provide Carey Diversified with an additional source of revenue
through fees for the management of four real estate investment trusts currently
managed by Carey Management. These REITs own 201 properties with a total of
over 18 million square feet of space. These additional management fees will be
accretive during the first year of combined operations.
In effect, we will be uniting the business functions that are integral to the
operation of the company. Carey Management personnel will become employees of
the merged entity and will be responsible for acquisitions, financing,
investment analysis, asset management, accounting and shareholder relations
functions. In addition, we believe the merger will eliminate any actual or
perceived conflicts of interest between Carey Diversified and Carey Management
in the management of Carey Diversified, and potentially improve the company's
valuation, as the investment community generally views internally managed
companies more favorably.
In the merger, the shareholders of Carey Management will receive eight million
shares ($133,000,000 based on a share price of $16.625) of W.P. Carey & Co.
LLC. Carey Management shareholders may earn up to an additional two million
shares of W.P. Carey & Co. LLC over a period of four years, if W.P. Carey & Co.
LLC meets certain performance criteria. Wm. Polk Carey will receive 7,275,514
shares $120,955,420). Mr. Carey and Mr. DuGan, who will also receive shares,
are directors of Carey Diversified.
While there can be no assurance that shareholders will ultimately benefit from
the merger, the board believes the transaction is in the best interest of the
shareholders. There are also potential conflicts of interests in the operation
of W.P. Carey & Co. LLC as a result of the contingent consideration.
Furthermore, current officers of Carey Diversified will receive all of the
consideration being paid for W.P. Carey & Co., Inc.
<PAGE> 155
W.P. Carey & Co. LLC will trade publicly on the New York Stock Exchange and on
the Pacific Stock Exchange under the symbol "WPC". There will be no change in
the total number of shares currently owned by each Carey Diversified
shareholder. Immediately after the merger, public shareholders of Carey
Diversified will own approximately 72% of the combined company. In general, the
merger will not be a taxable event for Carey Diversified shareholders; however
investors will have a lower tax basis than they had before the transaction. The
change in tax basis will only effect the tax treatment of distributions from
W.P. Carey & Co. LLC, and will not affect the gain or loss recognized on the
sale of shares.
You are also being asked to approve an amendment to the 1997 Listed Share
Incentive Plan to increase the number of shares eligible for issuance from
700,000 to 2,600,000 shares. This increase is necessary to allow for the
granting of awards under the plan to the new employees of W.P. Carey & Co. LLC
following the merger, to attract and retain executive officers and employees,
to provide for management continuity and to create incentives for management
performance and to align the interests of management and the shareholders.
In addition, you are being asked to re-elect directors for the three-year term
expiring in 2003. The directors nominated for re-election are William P. Carey,
Dr. Lawrence R. Klein, Charles C. Townsend, Jr. and Donald E. Nickelson.
We have been committed over the years to serving the best interests of our
shareholders. We believe that this new structure will insure our ability to
generate increasing growth and shareholder value.
Your board urges you to evaluate carefully the proposed merger, plan amendment
and the directors nominated for re-election and to vote FOR the merger, plan
amendment and the nominated directors.
Please vote for the proposals and return your election card today or vote by
phone or on the internet. We have attempted to anticipate any questions you may
have and to answer them in the pages that follow. However, if you have any
additional questions regarding this proxy solicitation statement or the
proposed merger, or if you need assistance with completing the proxy card,
please feel free to contact Shareholder Communications Corporation, which has
been retained to answer any questions you may have, at 1-800-611-9976.
With best regards,
/s/ Gordon F. DuGan /s/ Francis J. Carey
---------------------- -----------------------
Gordon F. DuGan Francis J. Carey
President Chairman and Chief Executive Officer
Information Agent: 1-800-611-9976
<PAGE> 156
FUNDS FROM OPERATIONS
The exhibit below shows the per share accretion resulting from the merger:
(per share)
[BAR GRAPH showing Pre-Merger of $2.08 and Post-Merger of $2.26]
The Benefits
The merger will enable Carey Diversified to control all of the functions
necessary for its operation and growth. Carey Diversified believes this will
enable it to provide better service to its clients and provide its shareholders
with substantial benefits. These benefits may include:
IMMEDIATE INCREASE IN FFO. Expected to increase the company's per share FFO
during the first year of combined operations and thereafter;
UNIQUE ACCESS TO CAPITAL. Capitalize on W.P. Carey's ability to raise funds
in the private equity sector;
ENHANCED GROWTH THROUGH ASSET MANAGEMENT. Add the greater growth potential of
W.P. Carey's asset management business to the stability of CDC's net lease
investment revenues;
STRENGTHENED CREDIT PROFILE. By acquiring W.P. Carey without indebtedness,
the credit-worthiness of the company will improve; and
FUTURE GROWTH POTENTIAL. Leverage the W.P. Carey's solid brand image to
provide new means of growth in the future.
and the risks of the Merger
CONTROL BY WILLIAM P. CAREY. William P. Carey will exercise significant
control over W.P. Carey & Co. LLC as owner of 26% of its shares.
COST OF MANAGEMENT SERVICES. The cost of internalizing the management function
may exceed the cost of the fees and expense reimbursements previously payable
to the advisor.
VOLATILITY OF PERFORMANCE. The management business may increase the volatility
of Carey Diversified's financial performance and stock price.
NO APPRAISAL RIGHTS. Shareholders will not be entitled to appraisal or
similar rights.
The above is a summary of the potential disadvantages, risks and benefits of
the Merger. This summary is qualified in its entirety by the more detailed
discussions in the section entitled "RISK FACTORS" and "BACKGROUND AND REASONS
FOR THE MERGER" contained in the Proxy Solicitation Statement.
Information Agent: 1-800-611-9976
<PAGE> 157
- - Eagle Hardware & Garden, Inc. [Photo]
- - Sprint Spectrum, Inc. [Photo]
- - Federal Express Corporation [Photo]
Q: What vote is required to approve the merger?
The merger must be approved by the affirmative vote of shareholders owning a
majority of Carey Diversified shares. You are being asked to approve the
merger, the issuance of up to 10,000,000 shares of Carey Diversified as
consideration for the merger and an amendment to the 1997 Listed Share Plan. If
any material amendment to the terms of the merger is made, we will re-solicit
your consent to the merger.
Q: When do you expect the merger to be completed?
We are working towards completing the merger as quickly as possible. We hope to
complete the merger in June 2000 or thereafter, assuming shareholders approve
the merger.
Q: What do I need to do now?
You may register your vote by telephone or you may vote on the Internet using
the telephone number or web address on your proxy card. You may also fill out
and sign your proxy solicitation card and mail it to us in the enclosed return
envelope. THE BOARD OF DIRECTORS OF CAREY DIVERSIFIED UNANIMOUSLY RECOMMENDS
VOTING IN FAVOR OF THE PROPOSED MERGER AND THE AMENDMENT TO THE 1997 LISTED
SHARE INCENTIVE PLAN. If you fail to vote on the merger or the amendment to
the incentive plan, your inaction will have the same effect as a vote against
each proposal. If you sign and return your proxy without indicating your vote,
you will be treated as having voted for the merger and for the amendment of the
incentive plan.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
No. Your broker will vote your shares only if you provide instructions on how to
vote. You should instruct your broker to vote your shares by following the
directions provided by your broker. Without instructions, your shares will not
be voted.
Q: May I revoke or change my vote?
Yes. You may change or revoke your vote at any time before the end of the
solicitation period. To do so, you must advise the Secretary of Carey
Diversified in writing before June 15, 2000; or deliver later dated
instructions.
Who Can Help Answer My Questions?
If you have more questions about the merger or if you need additional copies of
this proxy solicitation statement, please contact:
Carey Diversified LLC
50 Rockefeller Plaza
New York, NY 10020
Attention: Investor Relations
Telephone Number: 1-800-611-9976
<PAGE> 158
How to vote.
There are three easy ways to vote:
BY TELEPHONE:
1. Call the toll free number listed on your proxy card 24 hours a day, 7 days
a week.
2. You will be asked to enter a Control Number, which is located on your proxy
card.
3. Follow the simple recorded instructions.
There is no charge for this call-Have your proxy card in hand.
BY INTERNET:
1. Follow the instructions at the Web address on your proxy card.
2. You will be asked to enter a Control Number, which is located on your proxy
card.
3. Follow the simple instructions.
BY MAIL:
Please complete, sign and date the accompanying proxy card and return it in the
enclosed postage-paid return envelope.
By marking the proxy card, you may:
- vote "FOR" or "WITHHOLD AUTHORITY" for all four director nominees as
Directors of Carey Diversified LLC
- "WITHHOLD AUTHORITY" as to any one or more individual director nominees
by striking through the name of the nominee for which you wish to
withhold authority
- vote either "FOR", "AGAINST" or "ABSTAIN" as to the merger of Carey
Diversified LLC with W.P. Carey & Co., Inc.
- vote either "FOR", "AGAINST" or "ABSTAIN" as to the amendment to the 1997
Listed Share Incentive Plan
If you sign and return your proxy card without indicating your choices, you
will be deemed to have voted as follows:
- unmarked proxy cards will be counted as votes "FOR" all four director
nominees, merger and plan amendment; and
- If you vote "ABSTAIN" with respect to the merger or plan amendment, you
will be deemed to have voted "AGAINST" them.
IF YOU FAIL TO VOTE ON THE MERGER AND PLAN AMENDMENT, YOUR INACTION WILL HAVE
THE SAME EFFECT AS A VOTE AGAINST THEM.
Additional detailed information about the election of directors, merger and the
plan amendment is available by reference to the accompanying Proxy Statement.
If you have any questions or need assistance in completing your proxy card,
please call Shareholder Communications Corporation, the Information Agent for
the merger, toll-free at 1-800-611-9976.
YOUR VOTE IS IMPORTANT. PLEASE ACT PROMPTLY.
Carey Diversified LLC
[CAREY DIVERSIFIED LOGO] 50 Rockefeller Plaza [W.P. CAREY LOGO]
New York, NY 10020
Information Agent: 1-800-611-9976
