UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION
STATEMENT UNDER
SECTION 14(d)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
Quadra Realty Trust,
Inc.
(Name of Subject Company)
Quadra Realty Trust, Inc.
(Names of Persons Filing Statement)
Common Stock, par value $.001 per share
(Title of Class of Securities)
746945104
(CUSIP Number of Class of
Securities)
Evan F. Denner
President and Chief Executive Officer
622 Third Avenue, 30th Floor
New York, New York 10017
(212) 671-6400
(Name, Address and Telephone Number
of Person
Authorized to Receive Notices and
Communications
on Behalf of the Persons Filing
Statement)
COPY TO:
John A. Good, Esq.
Bass, Berry & Sims PLC
100 Peabody Place, Suite 900
Memphis, Tennessee 38103
(901) 543-5901
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Check the box if the filing relates solely to preliminary
communications made before the commencement of a tender offer.
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Item 1.
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Subject
Company Information.
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The name of the subject company to which this
solicitation/recommendation statement on
Schedule 14D-9
(this
Schedule 14D-9)
relates is Quadra Realty Trust, Inc., a Maryland corporation
(the Company). The address of the Companys
principal executive offices is 622 Third Avenue,
30th Floor, New York, New York 10017. The telephone number
of the Companys principal executive office is
(212) 671-6400.
The Companys website address is www.quadrarealty.com. The
information on the Companys website should not be
considered a part of this
Schedule 14D-9.
The title of the class of equity securities to which this
Schedule 14D-9
relates is the Companys Common Stock, $0.001 par
value per share (the Quadra Common Stock). As of
February 12, 2008, there were 25,725,333 shares of Quadra
Common Stock issued and outstanding. The Quadra Common Stock is
listed and trades on the New York Stock Exchange under the
symbol QRR.
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Item 2.
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Identity and
Background of Filing Person.
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The Company is the person filing this
Schedule 14D-9.
Its name, business address and business telephone number are set
forth in Item 1 above. The Company is a commercial real
estate finance company formed principally to invest in
commercial mortgage and related products. The Company is
externally managed by Hypo Real Estate Capital Corporation, a
Delaware corporation (Parent).
This
Schedule 14D-9
relates to the tender offer by HRECC Sub Inc., a Maryland
corporation (Purchaser), and a wholly-owned
subsidiary of Parent, to purchase any and all of the outstanding
shares of Quadra Common Stock (the Shares), not
already owned by Parent and its affiliates, at a purchase price
of $10.6506 per share in cash (without interest and less
applicable withholding taxes), less the amount of any dividends
declared and paid (other than the $0.3494 dividend discussed
below) with respect to the Shares prior to the date (the
Acceptance Date) Shares are accepted and paid for by
Purchaser pursuant to the Offer to Purchase (the Offer
Price) upon the terms and subject to the conditions set
forth in the Offer to Purchase dated February 13, 2008 (the
Offer to Purchase) and the related letter of
transmittal (the Letter of Transmittal and, together
with the Offer to Purchase and any supplements or amendments
thereto, collectively constitute the Offer). In
addition, as contemplated by the Merger Agreement (defined
below), on February 1, 2008 the Company declared a $0.3494
per share dividend payable to stockholders of the Company who
hold shares of Quadra Common Stock at the close of business on
the last trading day immediately preceding the Acceptance Date
(the Dividend). The Dividend will not be paid if the
Offer is not closed. This will result in stockholders of the
Company receiving $11.00 per share in the aggregate, an
approximately 38% premium to the closing price of Quadra Common
Stock on the New York Stock Exchange on January 28,
2008, the last trading day prior to the execution of the Merger
Agreement and the public announcement of the Offer and the
Merger, and an approximately 41% premium to the average closing
price of the Companys common stock for the 30 trading days
ending on January 28, 2008. The Company expects to declare
and pay an additional dividend immediately prior to the
Acceptance Date to the extent of the Companys taxable
income for the period beginning January 1, 2008 and ending
on the date immediately preceding the Acceptance Date. Such
dividend will reduce the Offer Price as described above. The
Offer is described in a combined
Schedule 13E-3/Tender
Offer Statement on Schedule TO filed by Purchaser, Parent,
Hypo International (defined below) and Hypo Holding (defined
below) with the SEC on February 13, 2008 under cover of
Schedule TO (as amended or supplemented from time to time,
the Schedule TO). The Offer to Purchase and
related letter of transmittal are filed as Exhibits (a)(1)(B)
and (a)(1)(C) hereto, respectively, and are incorporated herein
by reference. Quadra Common Stock is the only class of
securities to which the Offer relates.
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Purchaser, a wholly-owned direct subsidiary of Parent, is a
Maryland corporation that was formed on January 18, 2008,
solely for the purpose of completing the Offer and the Merger
(as defined below) and related transactions. Purchaser has not
engaged in any business except as contemplated by the Merger
Agreement and, until immediately prior to the time Purchaser
purchases Shares pursuant to the Offer, it is not anticipated
that Purchaser will have any significant assets or liabilities
or engage in activities other than those incidental to
Purchasers formation and capitalization and the
transactions contemplated by the Offer and the Merger.
Parent, a wholly-owned direct subsidiary of Hypo Real Estate
Bank International AG (Hypo International), is a
Delaware corporation and the Companys external manager.
Parent is a full service, vertically-integrated commercial real
estate finance company specializing in debt financing for
commercial real estate throughout the United States. Hypo
International, a wholly-owned direct subsidiary of Hypo Real
Estate Holding AG (Hypo Holding), is a German
corporation that is a member of the Hypo Real Estate Group, a
leading commercial real estate, public and infrastructure
finance group. Hypo International provides a wide range of
banking services in the field of commercial real estate
financing and is principally focused on markets outside of
Germany. Hypo Holding is a publicly traded German financial
holding company. Shares of Hypo Holding are widely held and
actively traded on the Frankfurt Stock Exchange and are listed
on Germanys DAX.
The Offer is being made pursuant to the Agreement and Plan of
Merger, dated as of January 28, 2008, by and among Parent,
Purchaser and the Company (the Merger Agreement).
Pursuant to the Merger Agreement, Purchaser has agreed to, and
Parent has agreed to cause Purchaser to make an offer to
purchase any and all of the outstanding shares of common stock
of the Company (other than shares owned by Parent or its
affiliates) at the Offer Price, on the terms and conditions set
forth in the Merger Agreement. Purchasers obligation to
purchase any Shares tendered in the Offer is subject to at least
55% of the outstanding Shares (other than shares owned by Parent
or its affiliates) on a fully diluted basis being validly
tendered and not properly withdrawn prior to the Expiration Date
(as defined in the Merger Agreement) and to certain other
conditions set forth in the Offer to Purchase. There is no
financing condition to the Offer. The Merger Agreement further
provides that, following completion of the Offer, subject to the
satisfaction or waiver of the conditions set forth in the Merger
Agreement and in accordance with the Maryland General
Corporation Law (the MGCL), Purchaser will be merged
with and into the Company (the Merger) and the
Company will continue as the surviving corporation (the
Surviving Corporation) as a wholly owned subsidiary
of Parent. At the effective time of the Merger (the
Effective Time), each issued and outstanding Share
(including each outstanding restricted share of Quadra Common
Stock issued under any of the Companys equity compensation
plans), will be converted into the right to receive the Offer
Price from the Purchaser (or any such higher price per Share as
may be paid in the Offer) (the Merger
Consideration). The Merger Agreement, which is summarized
in the Offer to Purchase under the heading Special
Factors The Merger Agreement, is filed as
Exhibit 2.1 to the Companys Current Report on
Form 8-K
filed with the SEC on January 29, 2008 and is incorporated
herein by reference. The summary is qualified in its entirety by
reference to the Merger Agreement. We urge you to read the full
text of the Merger Agreement because it is the legal document
that governs the Offer and the Merger.
The expiration date for the Offer is 12:00 Midnight, New York
City time, on Tuesday, March 12, 2008, subject to extension in
certain circumstances as required or permitted by the Merger
Agreement and applicable law (with extensions, the Offer
Period).
As set forth in the Schedule TO, the business address of
Purchaser and Parent is 622 Third Avenue, 31st Floor,
New York, New York 10017. The telephone number at the
principal office of Purchaser and Parent is
(212) 671-6300.
The principal office address of Hypo International is
Von-der-Tann-Str. 2, D-80539 Munich, Germany. The telephone
number at the principal address
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is +49 (0)89-2880-0. The principal office address of Hypo
Holding is Unsöldstr. 2,
D-80538,
Munich, Germany. The telephone number at the principal office is
+49 (0) 89 20 30
07-0.
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Item 3.
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Past
Contracts, Transactions, Negotiations and
Agreements.
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Except as set forth in this Item 3 or in the Information
Statement (the Information Statement) of the Company
attached to this
Schedule 14D-9
as Annex I, as of the date of this
Schedule 14D-9,
there are no material agreements, arrangements or understandings
and no actual or potential conflicts of interest between the
Company or its affiliates and (i) its executive officers,
directors or affiliates, or (ii) Parent, Purchaser or their
respective executive officers, directors or affiliates. The
Information Statement included as Annex I is being
furnished to the Companys stockholders pursuant to
Section 14(f) of the Securities Exchange Act of 1934, as
amended (the Exchange Act), and
Rule 14f-1
promulgated under the Exchange Act, in connection with
Parents right pursuant to the Merger Agreement to
designate persons to the board of directors of the Company other
than at a meeting of the Companys stockholders.
The following is a discussion of all material agreements,
arrangements, understandings and any actual or potential
conflicts of interest between the Company or its affiliates and
(i) its executive officers, directors or affiliates or
(ii) Parent, Purchaser or their respective executive
officers, directors or affiliates that relate to the Offer.
Additional material agreements, arrangements, understandings and
actual or potential conflicts of interest between the Company
and its affiliates that are unrelated to the Offer are discussed
in the Information Statement.
Interests of
Certain Persons
For purposes of this
Schedule 14D-9,
all references herein to the Quadra Board shall
refer to the entire board of directors of the Company, including
the directors who are officers, employees
and/or
affiliates of Parent, Purchaser, Hypo International
and/or
Hypo
Holding, who are referred to as Hypo-Affiliated
Directors. References to the Independent
Directors shall refer to the members of the Quadra Board
who are not Hypo-Affiliated Directors.
Certain members of management and the Quadra Board may be deemed
to have certain interests in the transactions contemplated by
the Merger Agreement that are different from or in addition to
the interests of the Companys stockholders generally. The
Quadra Board was aware of these interests and considered that
such interests may be different from or in addition to the
interests of the Companys stockholders generally, among
other matters, in approving the Merger Agreement and the
transactions contemplated thereby. Additional information about
such interests is summarized in the Offer to Purchase under the
heading Special Factors Interests of the
Companys Directors and Executive Officers in the Offer and
the Merger.
Evan F. Denner is the Companys president and chief
executive officer and serves on the Quadra Board and is a member
of the Parents board of directors. Juergen Fenk is
Parents chief executive officer and serves on the board of
directors of Parent and is vice-chairman of the Quadra Board and
a member of the management board of Hypo International. Bettina
von Oesterreich serves as the chief risk officer of Hypo
Holding, is a member of the management board of Hypo Holding and
Hypo International and is a member of the Quadra Board. Messrs.
Denner and Fenk and Ms. von Oesterreich do not serve on the
Special Committee (as defined below) of the Company nor did they
participate in the Special Committees evaluation of
strategic alternatives or the conclusions of the Special
Committee or the Quadra Board that the Offer and the Merger are
advisable, fair to and in the best interests of the Company and
its stockholders (other than Parent and its affiliates) or
otherwise vote to approve the Merger Agreement or authorize the
transactions contemplated by the Merger Agreement.
In addition, the board of directors of Parent established a
special committee of Parents board of directors to
consider and, if such special committee deemed it advisable and
in the
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best interest of Parent, to approve on behalf of the board of
directors of Parent the Merger Agreement, the Offer and the
Merger. Messrs. Denner and Fenk and Ms. von Oesterreich did
not serve on the special committee of Parent nor did they
participate in the special committees evaluation or the
conclusions of the special committee or otherwise vote to
approve the Merger Agreement or authorize the transactions
contemplated by the Merger Agreement.
For the reasons set forth above, Messrs. Denner and Fenk
and Ms. von Oesterreich do not believe that their interests in
the Offer and the Merger influenced the decision of the Special
Committee, the Quadra Board, or the special committee of Parent
with respect to the Merger Agreement, the Offer or the Merger.
Management
Agreement
In connection with the Companys initial public offering on
February 21, 2007, (the IPO), the Company
entered into a Management Agreement with Parent (the
Management Agreement), pursuant to which Parent
provides day-to-day management of the Companys operations.
The Management Agreement has an initial term expiring on
June 30, 2009, and will automatically be renewed for
one-year terms unless terminated by the Company or Parent by
notice given prior to the end of the then-current term. The
Management Agreement may not be terminated prior to the end of
its term except by the Company for cause. If the Company chooses
not to renew the Management Agreement, without cause, at the end
of its then-current term, the Company must pay Parent a
termination fee, upon expiration, equal to two times the sum of
the base management fee and the incentive fee, both as earned by
Parent during the
12-month
period immediately preceding the most recently completed
calendar quarter prior to the date of expiration. The Company
may only elect not to renew the Management Agreement without
cause with the consent of the majority of the Independent
Directors. In addition, following any termination of the
Management Agreement, the Company must pay Parent all
compensation accruing to the date of termination. Neither the
Company nor Parent may assign the Management Agreement in whole
or in part to a third party without the written consent of the
other party, except that Parent may delegate the performance of
any of its responsibilities to any of its affiliates so long as
Parent remains liable for such affiliates performance.
Pursuant to the Merger Agreement, if the Company terminates the
Merger Agreement and accepts a superior proposal involving the
payment of all cash for 100% of the Shares (including those
owned by Hypo Holding and its affiliates) and having terms
otherwise substantially similar to the Merger Agreement
(including expected timing), Parent has agreed to, among other
things, at the Companys request terminate the Management
Agreement and all other contracts between the Company on the one
hand and Parent or its affiliates on the other hand, with such
termination to be effective immediately prior to consummation of
the transaction contemplated by the superior proposal. If the
Company requests that the Management Agreement be terminated as
contemplated by the previous sentence, notwithstanding any terms
of the Management Agreement to the contrary, the Company shall,
contemporaneously with the effective date of such termination,
pay to Parent in cash 50% of the termination fee that would
otherwise be due under the Management Agreement.
The foregoing summary of the Management Agreement does not
purport to be complete and is qualified in its entirety by
reference to the form of Management Agreement, which has been
filed as Exhibit (e)(2) and is incorporated herein by
reference and is further qualified by reference to the Merger
Agreement.
Master
Delegation Agreement
To the extent that Parent, as external manager, has sold or
hereafter sells to the Company or arranges the acquisition by
the Company of (a) loans secured by mortgages on real
property and (b) subordinate interests in loans secured by
mortgages on real property and Parent has retained a pari passu
interest in these loans which, when aggregated with the
Companys
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interests, is (a) in the case of a mortgage loan,
sufficient to control the right to direct the agent to exercise
the right to foreclose the mortgage securing the loan upon a
material default and (b) in the case of a subordinate
interest in a loan, is sufficient (i) to control the right
to appoint an independent third party special
service / advisor and instruct the special
servicer / advisor with respects to all remedies
(including foreclosure), (ii) replace the special
servicer / advisor in the event that the special
servicer / advisor elects not to exercise the
remedies, and (iii) purchase the senior interest or the
entire subordinate interest and foreclose on the loan, Parent
has granted the Company, pursuant to the Master Delegation
Agreement dated February 21, 2007 (MDA) entered
into by Parent and Company at the time of the Companys
initial public offering, the unilateral right to exercise on
behalf of Parent the remedies of Parent as lender (but not as
agent) described above with respect to Parents interest
(as lender but not as agent) described above. Parent also agreed
not to sell its interests described above unless (a) doing
so shall not result in the loss of the Companys unilateral
right to control the remedies described above (b) Parent
sells to a party who assumes Parents obligations under the
MDA, or (c) Parents transfer does not result in a an
adverse impact to the Company under tax or securities laws or
regulations, subject to the limitations set forth in the
Management Agreement.
Registration
Rights Agreement
At the time of consummation of the IPO, the Company issued to
Parent 8,330,000 shares of Quadra Common Stock as partial
consideration for the contribution by Parent of the
Companys initial assets. The Company entered into a
registration rights agreement with Parent with respect to the
common stock received by Parent upon consummation of the IPO and
any shares of Quadra Common Stock which Parent may receive from
the Company as part of its incentive fee under the Management
Agreement between Parent and the Company or pursuant to the
Companys Manager Equity Plan or otherwise. Pursuant to
such registration rights agreement, the Company has granted to
Parent demand registration rights to have its shares of Quadra
Common Stock registered for sale no more than once in any six
month period and the right to piggy-back its shares
of Quadra Common Stock in registration statements that the
Company might file in connection with any future public offering
so long as Parent is the Companys manager. Notwithstanding
the foregoing, any registration will be subject to cutback
provisions and the Company will be permitted to suspend the use,
from time to time, of the prospectus that is part of the
registration statement (and therefore suspend sales under the
registration statement) for certain periods, referred to as
blackout periods. The Company does not anticipate
that Parent will exercise any of its rights under the
Registration Rights Agreement during the Offer Period.
The foregoing summary of the registration rights agreement does
not purport to be complete and is qualified in its entirety by
reference to the form of Registration Rights Agreement, which
has been filed as Exhibit (e)(4) hereto and is incorporated
herein by reference.
Initial Asset
Contribution Agreement
The Company acquired its initial assets, which consisted of
commercial mortgage loans (construction loans, bridge loans and
mezzanine loans) from Parent upon the completion of the IPO on
February 21, 2007 pursuant to a contribution agreement
between the Company and Parent (the Contribution
Agreement). The fair value of the acquired assets was
approximately $266.2 million, including approximately $5.2
million of origination fees. In exchange for these assets, the
Company issued 8,330,000 shares of common stock to Parent
at a fair value of approximately $125 million at the date
of contribution and paid approximately $141.2 million in
cash from the proceeds of the IPO.
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The foregoing summary of the Contribution Agreement does not
purport to be complete and is qualified in its entirety by
reference to the form of Contribution Agreement, which has been
filed as Exhibit (e)(6) hereto and is incorporated herein
by reference.
Restricted
Shares
Concurrently with the Companys IPO, the Company issued to
Parent 600,000 shares (the Parent Incentive
Shares) of Quadra Common Stock pursuant to the
Companys Manager Equity Plan having a fair value of
$9.0 million at date of grant. The restrictions on these
shares lapsed immediately and their fair value was expensed as
compensation in the Companys quarterly report on
Form 10-Q
for the period ended March 31, 2007.
The Company issued 120,000 shares of restricted Quadra
Common Stock to certain employees of Parent, some of whom are
also officers or directors of the Company, with a fair value of
$1.8 million at the date of grant. The shares granted vest
on February 21, 2010, three years from the date of grant.
The Merger Agreement provides that immediately prior to the
Effective Time, each outstanding restricted share of Quadra
Common Stock issued under the Companys equity compensation
plans will vest, the restrictions thereon will lapse, and each
restricted share will be cancelled and converted into the right
to receive the Merger Consideration. Messrs. Denner and
Fenk each own 33,333 restricted shares. In addition, Steven M.
Sherwyn, the Companys chief financial officer, owns 20,000
restricted shares and Susan Sangillo Bellifemine, the
Companys chief operating officer, owns 16,667 restricted
shares. At the Effective Time, Messrs. Denner and Fenk will be
entitled to an aggregate cash payment in respect of such
restricted shares in the amount of $355,016, Mr. Sherwyn
will be entitled to an aggregate cash payment of $213,012, and
Ms. Sangillo Bellifemine will be entitled to an aggregate cash
payment of $177,514. The $0.3494 per share dividend payment
being paid by the Company pursuant to the Merger Agreement
entitles Messrs. Denner and Fenk to an additional $11,647
each, Mr. Sherwyn to an additional $6,988 and
Ms. Sangillo Bellifemine an additional $5,823 in respect of
such restricted shares.
Deferred
Compensation Payments
The Merger Agreement also provides that immediately prior to the
Effective Time, (i) each Independent Director who holds any
outstanding and unsettled deferred compensation units issued
under the Companys Independent Director Deferred
Compensation Plan will become entitled to a lump sum payment in
cash, without interest, in the aggregate amount equal to the
balance credited to such holders deferred compensation
account maintained by the Company under such plan, and
(ii) each such holders deferred compensation units
will be cancelled and of no further force and effect.
Additionally, the Independent Director Deferred Compensation
Plan provides that Independent Directors who hold deferred
compensation units will be entitled to have additional units
credited to their deferred compensation account as of each date
on which cash dividends are paid with respect to the Quadra
Common Stock. Parent will pay, or direct the exchange agent for
the transaction to pay, to each such holder, his deferred
compensation payment as promptly as reasonably practicable
following the effective date of the Merger, at which time such
holder will cease to possess any rights to any compensation from
the Company or the surviving corporation. For the purpose of
determining the deferred compensation payment, the Fair
Market Value of one share of Quadra Common Stock, as such
term is used in the Companys Independent Director Deferred
Compensation Plan, is equal to the Offer Price.
Messrs. Weinbach and Mundheim each have 10,933.38 deferred
compensation units, will each receive 358.68 additional deferred
compensation units in respect of the $0.3494 per share dividend
and will each be entitled to a cash payment of $120,267.
Mr. Stuart has 8,746.70 deferred compensation units, will
receive 286.94 additional deferred compensation units in respect
of the $0.3494 per share dividend and will be entitled to a cash
payment of
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$96,214. Mr. McDevitt has 5,466.69 deferred compensation
units, will receive 179.34 additional deferred compensation
units in respect of the $0.3494 per share dividend and will be
entitled to a cash payment of $60,134. The foregoing amounts
will be reduced by any additional dividend declared and paid
prior to the Acceptance Date as described above.
The foregoing summary is qualified in its entirety by reference
to the Merger Agreement, a copy of which is attached as
Exhibit 2.1 to the Companys Current Report on
Form 8-K
filed with the SEC on January 29, 2008 and is incorporated
herein by reference.
Indemnification
of Executive Officers and Directors
The MGCL permits a Maryland corporation to include in its
charter a provision limiting the liability of its directors and
officers to the corporation and its stockholders for money
damages, except for liability resulting from:
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actual receipt of an improper benefit or profit in money,
property or services; or
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active and deliberate dishonesty established by a final judgment
and which is material to the cause of action.
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The Companys charter contains such a provision which
eliminates directors and officers liability to the
maximum extent permitted by Maryland law.
The Companys charter authorizes the Company, and the
Companys bylaws obligate the Company, to the maximum
extent permitted by Maryland law, to indemnify any present or
former director or officer or any individual who, while serving
as the Companys director or officer and at the
Companys request, serves or has served another
corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise as a
director, officer, partner or trustee and who is made, or is
threatened to be made, a party to the proceeding by reason of
his or her service in that capacity from and against any claim
or liability to which that individual may become subject or
which that individual may incur by reason of his or her service
in any such capacity and to pay or reimburse his or her
reasonable expenses in advance of final disposition of a
proceeding. The Companys charter and bylaws also permit
the Company to indemnify and advance expenses to any individual
who served the Companys predecessors in any of the
capacities described above and any of the Companys
predecessors employees or agents.
The MGCL requires a corporation (unless its charter provides
otherwise, which the Companys charter does not) to
indemnify a director or officer who has been successful, on the
merits or otherwise, in the defense of any proceeding to which
he or she is made, or threatened to be made, a party by reason
of his or her service in such capacity, or in the defense of any
claim, issue or matter in any such proceeding. The MCGL permits
a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made, or
threatened to be made, a party by reason of their service in
those or other capacities unless it is established that:
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the act or omission of the director or officer was material to
the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and
deliberate dishonesty;
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the director or officer actually received an improper personal
benefit in money, property or services; or
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in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was
unlawful.
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A court may order indemnification if it determines that the
director or officer is fairly and reasonably entitled to
indemnification, even though the director or officer did not
meet the prescribed standard of conduct or was adjudged liable
on the basis that personal benefit was improperly received.
However, under the MCGL, a Maryland corporation may not provide
indemnification with respect to an adverse judgment in a suit by
or in the right of the corporation or for a judgment of
liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MCGL permits a
corporation to advance reasonable expenses to a director or
officer upon the corporations receipt of:
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a written affirmation by the director or officer of his or her
good faith belief that he or she has met the standard of conduct
necessary for indemnification by the corporation, and
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a written undertaking by him or her or on his or her behalf to
repay the amount paid or reimbursed by the corporation if it is
ultimately determined that the standard of conduct was not met.
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The Company has obtained a policy of insurance under which its
directors and officers will be insured, subject to the limits of
the policy, against certain losses arising from claims made
against such directors and officers by reason of any acts or
omissions covered under such policy in their respective
capacities as directors or officers, including certain
liabilities under the Securities Act of 1933, as amended (the
Securities Act).
Pursuant to the Merger Agreement, from and after the Effective
Time, Parent and the Surviving Corporation will, to the fullest
extent permitted by law, indemnify, defend and hold harmless
each current and former director and officer of the Company and
its Subsidiaries (the Indemnified Parties) against
all losses, expenses, claims, damages, liabilities or amounts
arising out of actions or omissions occurring before or at the
Effective Time (including, without limitation, the transactions
contemplated by the Merger Agreement) in connection with such
persons serving as an officer, director or other fiduciary of
the Company or any of its subsidiaries or of any entity if such
service was at the request or for the benefit of the Company;
provided, however, that the indemnification will not apply to,
nor be enforceable by, any director of the Company who
voluntarily resigns from his or her position as a director of
the Company on or prior to the earlier of the Acceptance Date or
the date of termination of the Merger Agreement. Pursuant to the
Merger Agreement, all rights to indemnification or exculpation
existing in favor of the Indemnified Parties as provided in the
respective charters or by-laws, by contract, or otherwise in
effect prior to the Merger, will survive the Merger and continue
in full force and effect. Further, if Parent, the surviving
corporation in the Merger or any of their respective successors
or assigns (i) consolidates or merges with another entity
and is not the surviving entity in such merger or consolidation,
or (ii) sells or transfers substantially all of its assets,
then, in each such case, proper provision will be made for the
assumption of the indemnification obligations under the Merger
Agreement. Hypo Holding has assured Parent in writing of its
intent to support financially Parents financial
obligations under the Merger Agreement, including all
indemnification obligations.
Pursuant to the Merger Agreement, the Company maintains director
and officer liability insurance and has purchased a
tail insurance policy (which policy by its express
terms shall survive the Merger), having the same coverage and
amounts and containing terms and conditions that are no less
favorable to the directors and officers of the Company and each
Company Subsidiary as the Companys and the Company
Subsidiaries existing policy or policies, and from
insurance carriers with comparable credit ratings, for the
benefit of the current and former officers and directors of the
Company and each subsidiary with a claims period of six years
from the Effective Time with respect to directors and
officers liability insurance for claims arising from facts
or events that occurred at or prior to the Effective Time.
Parent and the
9
Surviving Company shall jointly and severally be liable for the
payment of all premiums in respect of such tail
insurance policy or policies. In addition to, and not to the
exclusion of or as an alternative to, the foregoing requirement
that the Company acquire tail insurance coverage,
prior to expiration of the Companys existing policies on
February 1, 2008, the Company elected the Extended
Reporting Period coverage available under its existing
management protection policy with ACE American Insurance Company
and both of its excess policies with Illinois National Insurance
Company and XL Specialty Insurance Company and has paid all
premiums with respect to such Extended Reporting Period
coverage. The Extended Reporting Period coverage permits the
Company and its officers and directors to make claims under the
existing policies for a period of one year after their
February 1, 2008 expiration dates with respect to acts
occurring prior to such expiration date.
The foregoing summary of the indemnification of executive
officers and directors and of the directors and
officers liability insurance does not purport to be
complete and is qualified in its entirety by reference to the
Merger Agreement, a copy of which is attached as
Exhibit 2.1 to the Companys Current Report on
Form 8-K
filed with the SEC on January 29, 2008 and is incorporated
herein by reference.
Merger
Agreement
The summary of the Merger Agreement and the description of the
conditions of the Offer contained in the sections entitled
Special Factors The Merger Agreement and
The Tender Offer Section 11. Certain
Conditions to The Offer, respectively, in the Offer to
Purchase, which is being mailed to stockholders together with
this
Schedule 14D-9
and filed as an exhibit to the Schedule TO, are
incorporated by reference herein. Such summary and description
are qualified in their entirety by reference to the Merger
Agreement, which is filed as Exhibit 2.1 to the
Companys Current Report on
Form 8-K
filed with the SEC on January 29, 2008 and is incorporated
by reference herein.
The Merger Agreement governs the contractual rights among the
Company, Parent and Purchaser in relation to the Offer and the
Merger. The Merger Agreement has been filed as an exhibit to
this
Schedule 14D-9
to provide you with information regarding the terms of the
Merger Agreement and is not intended to modify or supplement any
factual disclosures about the Company in the Companys
public reports filed with the SEC. In particular, the Merger
Agreement and this summary of terms are not intended to be, and
should not be relied upon as, disclosures regarding any facts or
circumstances relating to the Company. The representations and
warranties have been negotiated with the principal purpose of
establishing the circumstances in which Purchaser may have the
right not to consummate the Offer, or a party may have the right
to terminate the Merger Agreement, if the representations and
warranties of the other party prove to be untrue due to a change
in circumstance or otherwise, and allocate risk between the
parties, rather than establish matters as facts. The
representations and warranties may also be subject to a
contractual standard of materiality different from those
generally applicable to stockholders.
Confidentiality
Agreement
On November 16, 2007, the Company (acting through the
Special Committee) and Hypo Holding (on its own behalf and on
behalf of its subsidiaries and affiliates) entered into a
confidentiality agreement (the Confidentiality
Agreement). Under the terms of the Confidentiality
Agreement, the Company and Parent agreed to furnish the other
party on a confidential basis certain information concerning
their respective businesses in connection with the evaluation of
a possible transaction between Parent and the Company.
10
The foregoing summary of the Confidentiality Agreement does not
purport to be complete and is qualified in its entirety by
reference to the Confidentiality Agreement, which has been filed
as Exhibit (e)(5) to this
Schedule 14D-9
and is incorporated herein by reference.
Stand-by
Credit Facility
In the Merger Agreement, Parent agreed to provide a take-out
credit facility (a Stand-by Facility) to the Company
to repay Wachovia in the event Wachovia accelerated the Wachovia
Facility following the announcement of the transactions
contemplated by the Merger Agreement. Under the Stand-by
Facility, Parent would provide the Company and its subsidiary,
Quadra QRS, LLC (QRS), with funding up to an
aggregate of $450 million to finance certain of the
Companys assets to the extent that such assets are
currently financed under the Wachovia Facility and existing
unfunded commitments. The Company and QRS would not be able to
receive advances during the term of the Stand-by Facility other
than to discharge their obligations to pay the respective
repurchase prices of the assets (including any accrued and
unpaid price differential) under the Wachovia Facility and to
fund any unfunded contractual commitments as they existed as of
December 31, 2007 related to the assets under the Wachovia
Facility. The Company and QRS would only receive an initial
advance under the Stand-by Facility in an amount equal to the
full amount of the repurchase price under the Wachovia Facility
and would be able to draw additional amounts to fund unfunded
contractual commitments subject to the draw procedures set forth
in the Stand-by Facility. In the Merger Agreement, Parent agreed
to a maturity date of the Stand-by Facility of the earliest of
(a) April 30, 2008, (b) the date on which the
Merger Agreement is terminated in accordance with its terms (the
Expiration Date) and (c) the closing of the
Merger contemplated by the Merger Agreement, provided that the
facility would be extended beyond April 30, 2008, on a
day-by-day
basis, to the extent the Merger Agreement extends beyond
April 30, 2008.
The Company and QRS agreed to pay a 2.5 basis point
commitment fee on the Maximum Amount under the Stand-by
Facility. Maximum Amount means the amount of the
funds required capped at $450 million.
The Stand-by Facility has not yet been entered into and the
foregoing summary contemplates its expected terms only.
|
|
Item 4.
|
The
Solicitation or Recommendation.
|
On November 6, 2007, the Quadra Board formed a special committee
consisting solely of Independent Directors of the Quadra Board
(the Special Committee) for the purpose of
identifying, studying and evaluating strategic alternatives that
might be available to the Company and to make such
recommendations to the Quadra Board as the Special Committee, in
its judgment, determines to be appropriate and in the best
interest of the Company and its stockholders. After reviewing
strategic alternatives, the Special Committee unanimously
determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are
advisable, fair to and in the best interests of the Company and
its stockholders (other than Parent and its affiliates) and
recommended to the Quadra Board that the Merger Agreement and
the transactions contemplated by the Merger Agreement, including
the Offer and the Merger, be approved and declared advisable,
fair to, and in the best interests of the Company by the Quadra
Board.
The Quadra Board (exclusive of the Hypo-Affiliated Directors who
did not participate in the evaluation of strategic alternatives
or vote on the proposal to approve the Merger Agreement), upon
the unanimous recommendation of the Special Committee,
(i) has determined by unanimous vote of the Independent
Directors that the Merger Agreement, and the transactions
contemplated thereby, including the Offer and the Merger, are
advisable, fair to and in the best interests of the Company and
its stockholders (other than Parent and its affiliates),
(ii) has
11
approved by unanimous vote of the Independent Directors the
execution, delivery and performance of the Merger Agreement and
the consummation of the transactions contemplated thereby,
including the Offer and the Merger, and (iii) recommends
that the Companys stockholders accept the Offer, tender
their shares of the Companys common stock in response to
the Offer, and, if a vote is required under Maryland law, vote
for the consummation of the Merger.
Other than to provide information about the Company to the
Special Committee and the Independent Directors and their
respective advisors to assist them in their respective analyses
of the transactions contemplated by the Merger Agreement, the
Hypo-Affiliated Directors did not participate in the discussions
or actions taken by the Special Committee and the Independent
Directors in connection with the Merger Agreement.
Background of
the Offer and Merger
In July 2006, Parent decided that the formation of a
publicly-held and listed commercial mortgage REIT could provide
opportunities to make investments in United States commercial
real estate. The Companys business plan contemplated that
the Company could invest in any portion of a projects
capital structure and could participate in credit facilities
which Parent would originate on its behalf. Under the
externally-managed structure, Parent would manage the day-to-day
operations of the Company pursuant to the Management Agreement
and would continue to originate loans for its own account as
well as apply its infrastructure to manage and service
commercial mortgage loans both for itself and for the Company.
Parent believed such platform was highly scalable and would
allow the Company access to a strong pipeline of investment
opportunities and market knowledge without significant
additional infrastructure costs.
The Company completed its IPO on February 21, 2007, issuing
16,670,000 shares of common stock to the public at $15.00
per share. Simultaneously with the closing of the IPO, Parent
contributed to the Company 13 senior construction loans, first
mortgage loans and mezzanine loans and other assets having an
aggregate estimated fair market value of approximately
$266.2 million (including approximately $5.2 million
of origination fees) in exchange for $141.2 million of cash
and 8,330,000 shares of Quadra Common Stock having a value
of $125.0 million based on the $15.00 price at which the
Quadra Common Stock was issued to the public in the IPO. In
addition, at the time of the IPO, the Company issued to Parent
the 600,000 Parent Incentive Shares (having a value of
$9.0 million based on the IPO price) pursuant to the
Companys Managers Equity Plan. Consequently,
immediately after the completion of the IPO, Parent owned
8,930,100 shares of Quadra Common Stock, or approximately
34.7% of the Companys total outstanding common stock.
Over the longer term, the Companys financing strategy was
to utilize short-term warehouse financing to acquire commercial
mortgage and real estate related investments, including funding
construction loan commitments, and then to refinance the
short-term credit using longer-term match-funded financing
vehicles such as collateralized debt obligations, or CDOs. To
that end, on March 29, 2007 the Company entered into the
Wachovia Facility pursuant to which Wachovia agreed to fund, in
its discretion, up to $500.0 million of eligible loans at
an agreed upon advance rate, with each loan to be repurchased by
the Company not more than 364 days after sale to Wachovia,
subject to certain acceleration events as set forth in the
Wachovia Facility.
At June 30, 2007, the Company reported approximately
$312.0 million in debt owing pursuant to the Wachovia
Facility with respect to which 14 of the Companys loan
investments aggregating approximately $438.0 million in
outstanding principal amount had been pledged as collateral.
12
In July and August 2007, the well-publicized collapse of the
secondary market for subprime residential mortgages began to
adversely affect the market for CDOs, and by the beginning of
August the Quadra Board was informed by Evan F. Denner, the
chief executive officer of the Company, that the execution of a
CDO transaction was unlikely in the near term. Mr. Denner
explained that the Company was considering additional financing
strategies, including syndication of certain unencumbered loans,
and was having discussions with financial institutions,
including Hypo Holding, regarding financing alternatives. In the
Companys quarterly report on
Form 10-Q
for the period ended June 30, 2007, which was filed in
August 2007, the Company reported that the downturn in the CDO
market had made it unlikely that it could execute a CDO
transaction in the near term, that it could be required to seek
sources of potentially less attractive financing, and that the
failure of the CDO market to recover could force the Company to
change its business plan.
After the quarterly meeting of the Quadra Board on
August 1, 2007, at the direction of the other Independent
Directors, Robert H. Mundheim, Chairman of the Quadra Board,
asked senior management at Hypo Holding if it was willing to
help ease the Companys liquidity concerns caused by the
closure of the CDO market by providing a stand-by line of credit
or purchasing certain of the Companys assets so that it
could continue to meet its financial commitments. Hypo Holding
senior management informed Mr. Mundheim that Hypo Holding
was not prepared at that time to provide such financing. In
later conversations again raising the Companys liquidity
concerns, Hypo Holding senior management confirmed it was not
prepared to provide liquidity and further informed
Mr. Mundheim that Hypo Holding senior management was
unhappy about the way in which the Companys conflicted
management structure was operating. Hypo Holdings senior
management suggested that a sale of the Company might be the
best solution to the conflict issues and that Hypo Holding was
indifferent if it was a buyer or a seller in such a transaction.
After discussing the possibility of a sale with the Independent
Directors of the Company, Mr. Mundheim indicated to Hypo
Holding senior management that the Quadra Board might be willing
to entertain offers to acquire the Company at an appropriate
price. Hypo Holdings senior management indicated to
Mr. Mundheim that it was willing to execute a
confidentiality agreement if the Quadra Board elected to pursue
strategic alternatives, including a sale of the Company.
On October 12, 2007, the Quadra Board held a special
meeting to receive an update from management regarding the
Companys liquidity, credit quality of its loan portfolio
and business plan in light of turmoil in the credit markets. At
the meeting Mr. Denner informed the Quadra Board that while
Wachovia informed the Company that it would continue to fund the
construction draws on the encumbered assets, and it agreed to
fund three other assets, it was unlikely that Wachovia would
finance additional unencumbered assets of the Company since they
consisted of land, construction and/or condominium loans, for
which Wachovia had little interest in financing. He noted that
the Company was continuing to study alternatives to meet the
Companys liquidity needs, including adjusting its
portfolio by syndicating or selling outright certain
construction loans. Mr. Denner reported that the
Companys loan portfolio continued to show strong credit
quality, but that the changes in the CDO markets would likely
cause the Company to adjust its business plan, particularly with
respect to financing land purchases and construction, and would
focus on originating loans on cash flowing assets.
Prior to the Quadra Boards meeting in November 2007,
Mr. Mundheim was informed that Hypo Holding had engaged an
investment banker to evaluate the Company. Mr. Mundheim
discussed the Companys liquidity situation and necessary
changes to its business plan individually with the Independent
Directors and suggested that the Quadra Board consider
appointing a special committee to evaluate strategic
alternatives available to the Company.
During the regular quarterly meeting of the Quadra Board on
November 6, 2007, the Independent Directors heard a lengthy
report from Mr. Denner and Steven M. Sherwyn, chief
financial officer of the Company, regarding the Companys
obligations to Wachovia over the
13
ensuing 12 months and the Companys plans for paying
those obligations. The report reflected that a significant
percentage of the Wachovia obligations were due between
April 1, 2008 and July 31, 2008 and described
managements assumptions regarding cash inflows to repay
amounts owed. In his report, Mr. Denner informed the Quadra
Board that the Company had successfully syndicated one-half of
its commitment on one loan held for sale and had indications of
interest on two others, but advised that under current market
conditions he could not be fully confident that the other loans
would ultimately be sold. Mr. Denner further advised the
Quadra Board that (1) the market continued to view mortgage
REITs negatively, (2) certain other mortgage REITs were
generally not generating new product, (3) certain analysts
were predicting problems in the commercial mortgage market
similar to those in the residential sub-prime market,
(4) there was very limited CDO activity, a situation that
was not expected to change in the near term, and (5) if the
CDO market returned, it would likely return in a different
format. After managements presentation, the Quadra Board
engaged in a lengthy discussion regarding liquidity. Following
the general meeting, after excusing the non-director members of
management the Quadra Board had further discussions concerning
the Companys liquidity issues, and, after evaluating the
independence of the proposed members, appointed the Special
Committee consisting of Mr. Mundheim (Chairman), Ronald M.
Stuart and Lawrence A. Weinbach, to identify, study and evaluate
strategic alternatives available to the Company and to make such
recommendations to the Quadra Board as the Special Committee
shall, in its judgment, determine are appropriate and in the
best interests of the Company and its stockholders. The Quadra
Board authorized the Special Committee to engage financial and
legal advisors to assist the Special Committee in evaluating
strategic alternatives. After the meeting, the Special Committee
asked Bass, Berry & Sims PLC (Bass Berry),
who since before the IPO had acted as counsel to the Independent
Directors, to act as counsel to the Special Committee in its
evaluation of the Companys strategic alternatives.
After the meeting, on November 6, 2007, Mr. Mundheim
delivered to Thomas Glynn, a member of Parents board of
directors and the Management Board of Hypo Holding, a form of
Confidentiality Agreement (the Confidentiality
Agreement) pursuant to which the Company would provide
non-public information to Hypo Holding, who under the
Confidentiality Agreement could provide such information to its
financial and legal advisors, to enable them to evaluate an
acquisition of the Company. Between November 6 and
November 16, 2007, Bass Berry negotiated the terms and
conditions of the Confidentiality Agreement with Clifford Chance
US LLP (Clifford Chance), counsel to Hypo Holding,
and on November 16, 2007, the Company and Hypo Holding
executed the Confidentiality Agreement. At that time, Hypo
Holding, through its financial advisor, J.P. Morgan
Securities Inc. (JPMorgan), submitted to the Company
a due diligence request list. Mr. Mundheim at that time
informed Mr. Denner that the Confidentiality Agreement had
been executed and instructed Mr. Denner to cause the
Company to provide information to JPMorgan in response to its
due diligence request. Over the next several days, the Company
provided information to JPMorgan in response to its request.
On November 19, 2007 the Special Committee, with Bass Berry
present, conducted in person interviews of two investment
banking firms to act as financial advisor to the Special
Committee in its evaluation of the Companys strategic
alternatives. After the interviews, the Special Committee
selected Blackstone Advisory Services L.P.
(Blackstone) to act as its financial advisor and
requested that Blackstone provide the Special Committee with an
engagement letter pursuant to which it would provide its
services. Prior to inviting Blackstone to interview at the
November 19 meeting, Mr. Mundheim had verified that the
private equity group of The Blackstone Group would not be
interested in pursuing a transaction as a potential purchaser of
or financing source for the Company. On November 25, 2007
Blackstone delivered a draft engagement letter to the Special
Committee. Mr. Mundheim and representatives of Blackstone
had several telephone conferences on November 25 and 26
negotiating the terms of the engagement letter. On
November 26, 2007 the Special Committee had a telephonic
meeting with Bass Berry to discuss the terms of
Blackstones engagement and informed Bass Berry of the
14
fee structure it was willing to accept. After further
negotiation of certain terms of the letter, on November 29,
2007 the Special Committee and Blackstone executed an engagement
letter pursuant to which Blackstone would act as financial
advisor to the Special Committee.
On November 29, 2007, Mr. Mundheim had a telephone
conversation with Mr. Glynn. During the conversation,
Mr. Mundheim told Mr. Glynn that if Parent intended to
make an offer to acquire the Company, he hoped that such offer
would be based on the book value of the Company rather than on
the current trading price of the Companys common stock.
Mr. Mundheim also asked Mr. Glynn to have JPMorgan
speak with Blackstone before the submission of an offer in order
to ensure that both financial advisors had the same data and set
of assumptions.
On December 3, 2007, the Quadra Board held a special
telephonic meeting during which the Special Committee reported
to the Quadra Board that (1) the Special Committee had
engaged Bass Berry as its legal advisor and Blackstone as its
financial advisor, (2) the Special Committee believed that
Hypo Holding was considering a transaction with the Company and
had engaged JPMorgan as its financial advisor, and
(3) JPMorgan and Blackstone had engaged in some dialogue
and JPMorgan had commenced due diligence on the Company. The
members of the Special Committee were then excused, and the
remaining directors considered a proposal to fix the
compensation of the members of the Special Committee. After
receiving the report of Bass Berry regarding the compensation
paid to members of special committees in comparable
transactions, the Quadra Board determined the compensation of
the members of the Special Committee, to be paid in cash upon
completion of all their duties.
Prior to December 12, 2007, Mr. Glynn called
Mr. Mundheim to inform him that Hypo Holding was strongly
considering making or having Parent make an offer to acquire the
Company and asked Mr. Mundheim if the Special Committee
would prefer that the offer be formulated as a range of
potential prices or a single price. Mr. Mundheim informed
Mr. Glynn that Hypo Holding or Parent should consider
submitting its offer as a single price. On December 12,
2007, Mr. Glynn called Mr. Mundheim and informed him
that Hypo Holding was interested in making a non-binding cash
offer to acquire 100% of the Companys common stock not
owned by Hypo Holding or its affiliates at a price of $11.70 per
share, less any future dividends paid prior to closing the
transaction. Mr. Glynn also indicated to Mr. Mundheim
that Hypo Holding was willing to support a higher offer price
from a third party under specified circumstances. Mr. Glynn
informed Mr. Mundheim that Hypo Holding, under specified
circumstances, had formulated its potential offer based on a
discount to book value of the Company as opposed to a premium
over the current trading price of the Quadra Common Stock. Mr.
Glynn stated that the discount to book value was attributable to
spreads having significantly widened on the types of loans in
the Companys portfolio and to the credit risk inherent in
the Companys loan portfolio. Mr. Mundheim told
Mr. Glynn that the Special Committee believed that the
price was too low and that JPMorgan should discuss its valuation
methodology with Blackstone. Mr. Mundheim suggested to
Mr. Glynn that Hypo Holding should cause Parent to return
the Parent Incentive Shares, which the Independent Directors had
anticipated would be distributed among Parent employees who were
responsible for the management of the Company pursuant to the
Management Agreement, but which had not been so distributed.
Mr. Mundheim also suggested that the Special Committee
would insist on a go-shop provision in any
definitive agreement and that Hypo Holding or Parent should
consider provisions in its offer designed to encourage higher
offers from third parties, such as no
break-up
fees and provisions requiring Hypo Holding to vote in favor of
superior transactions.
On December 13, 2007, the Special Committee held a meeting
in New York. With Bass Berry and Blackstone present and actively
participating, the Special Committee engaged in a lengthy
discussion regarding the verbal indication of interest submitted
to Mr. Mundheim the day before by Mr. Glynn and the
strategic alternatives available to the Company, particularly
the possibility and feasibility of selling the Company or
selling certain assets quickly to ease liquidity
15
concerns and then allow the portfolio to self-liquidate through
principal repayments. The discussion of alternatives occurred in
the context of the Companys growing liquidity concerns.
The Special Committee directed Blackstone to meet with JPMorgan
as quickly as possible to understand the assumptions JPMorgan
had used in arriving at a valuation range.
At the request of the Special Committee, Blackstone met with
JPMorgan during the morning of December 14, 2007 to share
certain information and perspectives regarding the Company. In
the early afternoon of this day, Clifford Chance
e-mailed
to
Mr. Mundheim and Bass Berry a non-binding offer letter
indicating Hypo Holdings interest in acquiring or having
one of its designated affiliates acquire the Company for a price
of $11.70 per share, less any dividends declared and paid by the
Company after the date of the letter. The letter stated that
Hypo Holding had substantially completed its due diligence on
the Company and was prepared to execute a definitive agreement
within five business days. The indication of interest stated
that the proposed acquisition of the Company was not contingent
on financing and would include repayment of all amounts owed by
the Company to Wachovia.
After receiving the non-binding offer letter from Hypo Holding,
in the afternoon of December 14, 2007 the Special Committee
held a telephonic meeting, at which Bass Berry and Blackstone
were present. At the beginning of the meeting, Blackstone
updated the Special Committee regarding its discussions with
JPMorgan earlier in the day. The Special Committee and its
financial and legal advisors had a lengthy discussion regarding
the alternative of procuring an extension or term loan from
Wachovia or an alternative source of liquidity, followed by an
orderly liquidation, either through sale or syndication of loans
or repayments, of the Companys loan portfolio, including a
discussion of the execution risks involved with such an
approach, and the potential that alternative financing would be
very expensive if available at all. Following the discussion,
Blackstone was directed by the Special Committee to meet with
JPMorgan again in order to better understand its valuation
methodology and assumptions used in advising Hypo Holding in
connection with its non-binding offer. After the meeting, Bass
Berry and Clifford Chance had a telephone conference to discuss
the structure of the transaction and the anticipated timing for
distribution of a draft of a definitive agreement.
On the morning of December 17, 2007, at the direction of
the Special Committee, Blackstone again met with JPMorgan and
discussed a number of questions regarding the valuation of the
Company. During the meeting, Blackstone informed JPMorgan that
it was the Special Committees belief that Hypo Holding
would be justified in paying a higher price than what had been
set forth in the non-binding offer letter.
Later that day, the Special Committee held a telephonic meeting,
with Blackstone and Bass Berry present. Blackstone updated the
Special Committee regarding its meeting with JPMorgan earlier
that day and Bass Berry reported about its telephone conference
with Clifford Chance regarding the structure of the proposed
transaction. The Special Committee directed Blackstone to meet
with JPMorgan again to push for a higher price and the ability
to pay its regular quarterly dividend and a $9 million
special dividend, without any corresponding reduction in the
price that Hypo Holding would pay for the Company.
On December 19, 2007, at the direction of the Special
Committee, Blackstone had a telephone conversation with
JPMorgan. JPMorgan advised Blackstone that Hypo Holding was
unwilling to proceed without having the price it was offering
reduced by any dividend paid by the Company to its stockholders
and that Hypo Holding believed the Companys loan portfolio
had more risk in it than appeared to be included in the Special
Committees analysis.
Later that day after the telephone conversation between
Blackstone and JPMorgan, the Special Committee held a telephonic
meeting, with Blackstone and Bass Berry present. Blackstone
updated the Special Committee regarding its conversation with
JPMorgan. The Special Committee had a lengthy discussion, in
which its advisors participated, regarding the likelihood of
success of any strategic alternative that involved continuing to
operate the
16
Company, including the sale of loans and self-liquidation of the
loan portfolio through principal repayments. It was acknowledged
that any such alternative would be dependent upon obtaining
alternative financing to the Wachovia Facility, which financing
might not be available at all, or, if available, would likely be
significantly more expensive and could have a material adverse
effect on the Company. The Special Committee directed Blackstone
to work with the management of the Company to develop a list of
third parties who might be interested in acquiring the Company
or significant portions of the Companys loan portfolio and
to begin contacting those persons. Blackstone was also directed
by the Special Committee to continue discussions with JPMorgan
regarding a prospective acquisition by Hypo Holding.
On December 20, 2007 the Quadra Board had a special
telephonic meeting that began with an executive session of the
Board attended only by Independent Directors, a representative
of Bass Berry and representatives of Blackstone. At the
beginning of the executive session, Bass Berry reviewed for all
of the Independent Directors their fiduciary duties.
Mr. Mundheim reviewed with the Independent Directors the
process followed by the Special Committee to date and terms
(including the proposed offer price) contained in the
non-binding offer letter submitted by Hypo Holding on
December 14, 2007. Blackstone updated the Independent
Directors regarding the status of discussions with JPMorgan and
its work in valuing the Company. The Special Committee reported
to the Independent Directors that Blackstone had been directed
to solicit other offers to purchase the Company from a list of
prospective third party purchasers and to evaluate whether those
purchasers or others would be interested in acquiring portions
of the Companys loan portfolio. After the executive
session ended, the entire Quadra Board was informed that Hypo
Holding had submitted a non-binding offer letter to acquire the
Company, but the proposed price was not disclosed to the
Hypo-Affiliated Directors. Messrs. Denner and Sherwyn
updated the Quadra Board regarding the status of current loans
and the projected cash flows of the Company over the next
several months as well as the completed and pending loan
syndications. At the close of the meeting, the Quadra Board
declared a $0.19 per share dividend payable on January 15,
2008 to stockholders of record on December 31, 2007.
On December 21, 2007 Clifford Chance delivered by
e-mail
to
Bass Berry an initial draft of an Agreement and Plan of Merger
between the Company, Parent and a merger subsidiary wholly owned
by Parent. Bass Berry distributed the draft of the merger
agreement to the members of the Special Committee and between
December 21, 2007 and December 31, 2007 received
written and verbal comments from Special Committee members. On
December 31, 2007 Bass Berry delivered to Clifford Chance a
revised draft of the merger agreement which incorporated the
comments of Bass Berry and the Special Committee members.
On January 2, 2008 Parent, through Clifford Chance,
informed the Special Committee, through Bass Berry, that it
rejected substantially all of the substantive changes proposed
by Bass Berry in the December 31, 2007 draft of the merger
agreement. Clifford Chance informed Bass Berry that it had been
instructed by Parent not to prepare a revised draft of the
merger agreement. Clifford Chance requested that Bass Berry
prepare a list of open business and legal issues for purposes of
negotiating open terms and conditions.
On January 3, 2008, the Special Committee had a telephonic
meeting, attended by Blackstone and Bass Berry. Blackstone
updated the Special Committee regarding discussions it had had
with each of JPMorgan, Mr. Denner and certain prospective
third party purchasers of the Company since December 19,
2007. A discussion followed regarding the synergies that could
be recognized by Parent if it were to acquire the Company and
whether Hypo Holdings non-binding offer to acquire the
Company included any of the value of those synergies. The
Bass Berry representative reported on his conversation with
Clifford Chance regarding the merger agreement, including
Parents insistence that the merger agreement have a short
go-shop period,
break-up
fees, matching rights, and a more expansive definition of
material adverse effect for termination purposes. A
discussion ensued among the Special Committee
17
and its financial and legal advisors as to whether an auction of
the Company could be reasonably expected to bring greater value
to stockholders than the value proposed by the Hypo Holding
transaction, particularly in light of the potential liquidity
issues facing the Company, and whether an auction would be
likely to influence the price that Hypo Holding would pay. The
Special Committee determined that an auction was not likely to
result in a higher bid and, in fact, could result in a lower
price. The Special Committee formulated a list of issues,
desired contract provisions and justifications and directed
Mr. Mundheim to engage directly with Mr. Glynn over
these issues. The Special Committee urged Mr. Mundheim to
keep Hypo Holding interested and engaged in the process and to
seek a quick resolution, insofar as the Companys liquidity
issues provided significant downside risk to a lengthy
negotiation. The Special Committee requested that Blackstone
evaluate whether any term financing alternatives were available
to the Company to provide funding to repay the amounts owed to
Wachovia under the Wachovia Facility.
On January 4, 2008, Messrs. Mundheim and Glynn had a
meeting during which Mr. Mundheim pressed Hypo Holding for
an increased price and revised terms, such as a longer go-shop
period, no
break-up
fee
and no matching rights. Mr. Mundheim reminded
Mr. Glynn of the requests the Company had made to Hypo
Holding several months before regarding stand-by financing for
the Company to ease the Companys liquidity burden, the
negative response from Hypo Holding regarding that request and
Hypo Holdings statements that it would be as willing a
seller as a buyer under specified circumstances.
Mr. Mundheim expressed the concern that certain of the
provisions in the proposed Merger Agreement, when combined with
the termination fee equal to two years of management fees
payable to Parent pursuant to the Management Agreement upon its
termination, could have a negative effect on the Special
Committees ability to obtain competing offers to acquire
the Company. Mr. Glynn informed Mr. Mundheim that the
Hypo Holding offer was now $11.51 per share due to the
Companys declaration of a $0.19 per share dividend on
December 20, 2007. He also informed Mr. Mundheim of
his concern about Hypo Holding withdrawing its offer if a
definitive agreement was not reached promptly. Mr. Glynn
would not agree to change the offer price but agreed to
negotiate a longer go-shop period, to consider reducing the
Management Agreement termination fee to an amount equal to one
year of management fees and to consider reducing the
break-up
fees payable if the Company were to be sold to a third party
bidder during the go-shop period.
On January 7, 2008, Bass Berry delivered a revised draft of
the Merger Agreement to Clifford Chance. On January 8,
2008, representatives of Bass Berry met with representatives of
Clifford Chance at Clifford Chances offices to negotiate
various substantive provisions of the Merger Agreement. After
meeting for several hours, the legal representatives reached
agreement on many of the major issues in the Merger Agreement.
Later in the day on January 8, 2008, the Special Committee
had a telephonic meeting, with Bass Berry and Blackstone
present. Mr. Mundheim updated the Special Committee
regarding his meeting with Mr. Glynn on January 4,
2008, and reported that he had been told that Hypo
Holdings offer price was now $11.51 per share due to the
dividend declared by the Company on December 20, 2007 and
that Hypo Holdings offer to acquire the Company might be
withdrawn if a definitive agreement was not worked out quickly.
Bass Berry reported that significant progress had been made in
finalizing the Merger Agreement.
On January 9, 2008 a regular meeting of the Quadra Board
was held at the Companys offices. At the meeting the
Quadra Board received an update regarding the Companys
liquidity situation. The Independent Directors conducted an
executive session during which Mr. Mundheim and Bass Berry
informed the Independent Directors about the status of
negotiations. During the executive session, the Independent
Directors expressed a concern about the Companys potential
liquidity issues and the risk that if Hypo Holding were to
withdraw its offer to acquire the Company, the Company would be
unable to find another
18
acquirer and obtain acceptable financing to refinance the
Wachovia Facility. The Special Committee agreed to continue
pursuit of an acceptable transaction with Hypo Holding.
On January 15, 2008, Mr. Mundheim and Mr. Glynn
had a telephone conversation to negotiate the remaining open
issues in the proposed Merger Agreement. During the course of
these negotiations, Mr. Glynn indicated to
Mr. Mundheim that Parent was potentially willing to provide
a bridge credit facility to the Company in the event the Company
was unable to draw additional funds under the Wachovia Facility
or was required to repurchase all loans sold to Wachovia under
the Wachovia Facility prior to consummation of the acquisition
by Parent.
On January 16, 2008, the Special Committee had a telephonic
meeting, with Bass Berry and Blackstone present. A
representative of Bass Berry outlined the current proposed terms
in the Merger Agreement and the results of negotiations over the
past week. The Special Committee, with its advisors
participating, discussed the impact of announcing a transaction
with Hypo Holding or Parent on the Companys obligations
under the Wachovia Facility. The Special Committee directed
Mr. Mundheim to contact Mr. Glynn and request an
increase in the offer price, elimination of the termination fee
payable under the Management Agreement, funding in the event
Wachovia were to discontinue funding draws
and/or
demand the repurchase of existing loans and assurance that
directors and officers would be indemnified, and that Hypo
Holding would support such indemnification, in the event the
Company lost its director and officer liability insurance.
After the Special Committee meeting on January 16, 2008,
Mr. Mundheim contacted Mr. Glynn and requested that
Hypo Holding increase its offer price and agree to eliminate the
termination fee that would be owed pursuant to the Management
Agreement if the Company were to be sold to a third party
suitor. He also asked Hypo Holding to provide funding in the
event Wachovia were to take action adverse to the Company
pursuant to the Wachovia Facility and to provide assurance that
funds will be available to indemnify directors and officers in
the event the Companys director and officer liability
insurance expires and cannot be renewed or new coverage cannot
be obtained. While Mr. Glynn stated that Parent would agree
to reduce the termination fee payable under the Management
Agreement to one times, rather than two times, the trailing
twelve months management fee, Mr. Glynn also informed
Mr. Mundheim that Parents final, non-negotiable
position was that it would not pay a higher price and would not
agree to eliminate all termination fees under the Management
Agreement. He agreed to direct Clifford Chance to work on the
structure of a stand-by credit facility and to provide an
assurance letter with respect to director and officer
indemnification.
The Special Committee held a meeting in New York on
January 17, 2008. Representatives of Bass Berry and
Blackstone attended the meeting in person. In addition, at the
beginning of the meeting Messrs. Denner and Fenk were in
attendance at the request of Mr. Mundheim and were invited
to provide information about the Companys financial
situation and business prospects. Mr. Denner provided
information to the Special Committee regarding the
Companys liquidity situation, including the likely
syndication of two loans, and the opportunities management
believed could be available to the Company as an independent
REIT if it could obtain capital to remain independent.
Mr Denner expressed his belief that an equity infusion
together with a restructuring of the Companys debt to
Wachovia would allow the Company to adjust its business plan to
take advantage of opportunities in the debt markets. In response
to a question from a member of the Special Committee,
Mr. Fenk stated that it was his opinion that such a
strategy could not be successful as long as Parent continued to
own 35% of the Companys outstanding shares and was the
Companys external manager. After Messrs. Denner and Fenk
departed, Bass Berry advised the members of the Special
Committee of their fiduciary duties as members of the Special
Committee. A discussion followed regarding the likelihood of the
Companys obtaining long-term financing to refinance the
approximately $355 million due to Wachovia over the next six
months. The Special Committee, with input from its financial and
legal advisors, concluded that the Company would be unlikely to
obtain acceptable long-term
19
financing. Blackstone updated the Special Committee regarding
the steps it had taken to solicit competing offers to acquire
the Company, informing the Special Committee that since
December 19, 2007 Blackstone had contacted 25 potential
third-party purchasers, including other mortgage REITs,
opportunity funds and large banks/financial institutions and had
received only one bona fide indication of interest. Bass Berry
updated the Special Committee regarding the terms and conditions
of the Merger Agreement. In discussing the proposed transaction,
the following were cited as supporting a recommendation by the
Special Committee in favor of the Merger Agreement:
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The Companys original business model is not currently
sustainable because of the closure of the CDO market, the
overall disruption in the credit markets, generally, and the
increased potential cost of long-term capital;
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The cost of any long-term credit, including a renegotiated term
credit facility with Wachovia, would likely be very high;
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Any alternative involving the liquidation
and/or
sale
of existing assets carries a high risk of not producing cash
quickly enough to allow the Company to meet its obligation to
repurchase loans from Wachovia on the stated repurchase dates
pursuant to the Wachovia Facility. In addition, liquidity
projections for 2008 created the risk that the Companys
2007 audited financial statements would carry a going-concern
qualification, which would be an event of default under the
Wachovia Facility.
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Parent is the prospective buyer with the lowest cost of capital
together with the highest knowledge of the portfolio and the
greatest ability to realize the greatest synergies from the
transaction and, therefore, likely able to pay a higher price
than other prospective buyers;
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Blackstone has been in communication with other prospective
buyers since December 19, 2007 and has not received any
indication that any other prospective buyer is or will likely be
interested in paying a price as high as Hypo Holding has offered
for the Companys outstanding stock;
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The issuance of equity would likely be at a price that would be
highly dilutive to existing stockholders; and
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Credit market dislocation in Europe is likely to continue to
worsen and Hypo Holding could experience future credit losses
that could inhibit its ability to acquire the Company at a later
time.
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The Quadra Board held a special meeting on January 18, 2008
in New York. Representatives of Bass Berry and Blackstone
attended the meeting in person, and at the beginning of the
meeting, Messrs. Denner and Fenk, and Ms. von Oesterreich,
the Hypo-Affiliated Directors, were in attendance.
Mr. Denner described the current financial and liquidity
condition of the Company, as well as the prospects for
continuing to operate under the current business model. The
Independent Directors questioned Mr. Denner on the
likelihood of Wachovia extending the repurchase dates under the
Wachovia Facility or agreeing to a term loan or, in the
alternative, a third party lender providing a term loan to the
Company. Mr. Denner informed the Independent Directors that
while he had engaged in preliminary discussions with Wachovia
regarding an extension, Wachovia had not stated a position on
extending the Wachovia Facility or providing term financing, and
that financing some of the Companys construction loans on
a term basis could be difficult. Mr. Denner also informed
the Independent Directors of exploratory discussions he had with
three warehouse lenders. After providing such input and
answering the Independent Directors questions the
Hypo-Affiliated Directors left the meeting, and the Independent
Directors, Blackstone and Bass Berry engaged in a discussion
about the Companys lack of liquidity and prospects for
obtaining replacement financing. The Independent Directors, with
input from its financial and legal advisors, concluded that the
Company would be unlikely
20
to procure acceptable replacement financing for the Wachovia
Facility and that the Company faced short-term challenges in
continuing to operate as a going concern. The Independent
Directors, Bass Berry and Blackstone discussed the potential
ramifications of a default under the Wachovia Facility and the
prospect that all amounts owed to Wachovia would become
immediately payable in such event. Blackstone then reviewed with
the independent directors its financial analysis of the Hypo
Holding offer of $11.51 per share and described to the Special
Committee the steps it had taken to solicit competing offers to
acquire the Company. Bass Berry then made a presentation to the
independent directors with respect to the terms and conditions
of the Merger Agreement. After receiving reports from Blackstone
and Bass Berry, the Special Committee informed the Board that it
was in favor of entering into the Merger Agreement.
The Quadra Board held a special meeting on January 19, 2008
in New York. Representatives of Bass Berry and Blackstone
attended the meeting in person. The Hypo-Affiliated Directors,
Messrs. Denner and Fenk and Ms. von Oesterreich, did not
attend the meeting. Mr. Mundheim informed the Independent
Directors that he had been informed by the chairman of Hypo
Holdings supervisory board that Hypo Holdings
supervisory board had not yet approved the transaction and that
there was some opposition to Hypo Holdings acquisition of
the Company. The Independent Directors discussed alternatives if
Parent did not execute the Merger Agreement and go forward with
the transaction. Bass Berry reminded the Independent Directors
of some unresolved issues in the Merger Agreement and the
parameters for resolution of those issues. The Independent
Directors then decided to continue to pursue the transactions
contemplated by the Merger Agreement, with authority granted to
Mr. Mundheim, in consultation with Bass Berry, to resolve
the open issues and make such other non-material changes as he
deemed appropriate. Mr. Mundheim informed Mr. Glynn
that the Independent Directors supported the Merger Agreement,
subject to finalizing disclosure schedules and approving a term
sheet with Parent for the provision of a stand-by line of credit
sufficient to cover funding deficiencies and repurchase requests
by Wachovia.
After the Quadra Board meeting on January 19, 2008, based
on his concerns about the suggestion that the Hypo Holding
supervisory board might not favor the transaction,
Mr. Mundheim called Georg Funke, chief executive
officer of Hypo Holding during which Mr. Mundheim expressed
the Independent Directors concern over liquidity and other
business issues facing the Company and their desire to reach an
agreement with Hypo Holding.
On January 21, 2008, Mr. Glynn called
Mr. Mundheim and informed him that due to continued rapid
deterioration in the United States commercial mortgage-backed
securities market and the CMBX index, Hypo Holding had revisited
its valuation of the Company and was reducing its offer price to
between $10.50 per share and $11.00 per share, less any
dividends paid prior to closing.
That evening, a telephonic special meeting of the independent
members of the Quadra Board was held, with Bass Berry present.
Mr. Mundheim informed the Independent Directors that Hypo
Holding was reducing its offer price to between $10.50 per share
and $11.00 per share. The Independent Directors expressed
concern over the price decrease at this late stage of the
negotiations but nevertheless instructed Mr. Mundheim and
Bass Berry to continue working toward a definitive agreement.
On January 24, 2008, Mr. Mundheim called
Mr. Funke. Mr. Funke informed Mr. Mundheim that
Hypo Holding had elected not to proceed with the transaction,
citing its concern over a potentially negative public reaction
with respect to such a transaction in the current market
environment. Shortly after that call, a special telephonic
meeting of the Independent Directors was held, with Bass Berry
present. The Independent Directors reacted angrily to the
precipitate withdrawal of the offer for reasons that did not
appear to reflect any loss in the net asset value of the Company
since the Quadra Boards meeting on January 19, 2008.
The Independent Directors discussed the implications of Hypo
Holdings action on the future of the Company.
21
Mr. Mundheim was directed to report to Hypo Holding the
angry reaction of the Independent Directors, which he did by
telephone after the meeting adjourned.
On January 25, 2008, Mr. Glynn called
Mr. Mundheim and expressed Hypo Holdings intention to
execute the Merger Agreement providing for a price of $11.00 per
share for the shares of Company common stock not held by Hypo
Holding, provided that the price would include a $9 million
(or approximately $0.35 per share) dividend payable at the time
of completion of the tender offer for Company shares, with the
balance of the $11.00 consideration being a cash payment in
exchange for outstanding shares. The new offer included a
stand-by credit facility to be provided by Parent, but
Mr. Glynn stated that as a condition to executing the
Merger Agreement, Parent would require a discussion with
Wachovia to gain information as to its plans regarding the
Wachovia Facility. Mr. Mundheim instructed Bass Berry to
finalize the Merger Agreement and informed the Independent
Directors that they would meet in executive session in New York
on Sunday morning, January 27, 2008. Mr. Mundheim
instructed Bass Berry to obtain from Hypo Holding a letter
stating its proposed offer and indicating that it was
irrevocable and could be accepted at any time prior to the close
of business on January 29, 2008. Bass Berry communicated
this request to Clifford Chance, and shortly thereafter Clifford
Chance communicated to Bass Berry that Hypo Holding was
unwilling to sign such a letter until it had discussed the
prospective transaction with Wachovia. Over the next two days,
Bass Berry continued to ask Clifford Chance to deliver such a
letter, which Bass Berry agreed could be subject to a
qualification allowing Hypo Holding to withdraw its offer if
Wachovia threatened to demand immediate repurchase of loans held
under the Wachovia Facility. Hypo Holding refused to sign any
such letter. Despite Hypo Holdings refusal to deliver such
a letter, Mr. Mundheim, after consulting other Independent
Directors, stated his intention to allow the Companys
Independent Directors to consider the new offer in executive
session the next day.
On the morning of January 27, 2008, the Quadra Board held a
special meeting in New York. Representatives of Bass Berry and
Blackstone were both present at the meeting. The Hypo-Affiliated
directors were not present at the meeting. Mr. Mundheim
updated the Quadra Board regarding the discussions that had
occurred over the past few days and informed the Independent
Directors that Hypo Holding had refused to submit a binding
offer to acquire the Company absent a clear understanding of
Wachovias plans. A discussion ensued regarding the
liquidity issues facing the Company and the risk that it would
be unable to refinance its obligations to Wachovia and continue
operating as a going concern. Blackstone updated the Quadra
Board regarding its efforts to solicit competing offers to
acquire the Company. Blackstone then reviewed with the
Independent Directors its financial analysis of the aggregate
consideration of $11.00 per share to be received in the proposed
transaction, consisting of a dividend in the approximate amount
of $0.35 per share and a payment for the outstanding Quadra
Common Stock not owned by Parent of approximately $10.65 per
share, and rendered to the Special Committee its oral opinion,
which was confirmed by delivery of a written opinion, dated
January 27, 2008, to the effect that, as of that date and
based on and subject to the various assumptions and limitations
described in the opinion, the aggregate consideration of $11.00
per share in cash to be received pursuant to the Merger
Agreement by the holders of the Companys common stock
(other than Parent and its affiliates) was fair, from a
financial point of view, to such holders. The full text of the
written opinion of Blackstone, dated January 27, 2008,
which sets forth the assumptions made, procedures followed,
matters considered and the qualifications and limitations on the
scope of the review undertaken in connection with the Blackstone
opinion, is attached to this statement as Annex II and is
incorporated herein by reference. Neither the Special Committee
nor the Quadra Board took any action with respect to the Parent
proposal or the Merger Agreement but agreed to meet on Monday,
January 28, 2008 at 5:00 p.m. Eastern Standard
Time to consider approving the Merger Agreement if Hypo Holding
delivered the binding offer letter requested. Finally, the
Independent Directors directed Mr. Mundheim to call
Mr. Glynn and inform him that Hypo Holding had a deadline
of 5:00 p.m. Eastern Standard Time on Monday,
January 28, 2008 to notify the Quadra Board that
22
it had signed a binding offer letter or was prepared to sign a
definitive agreement. Certain Independent Directors indicated
that if by the deadline no firm offer was delivered, they
intended to resign from the Quadra Board. They asked
Mr. Mundheim to communicate that information to
Mr. Glynn.
Later in the day on January 27, 2008, Mr. Mundheim
called Mr. Glynn and informed him that the Independent
Directors had instructed him to notify Mr. Glynn that Hypo
Holding faced a 5:00 p.m. Eastern time deadline on
Monday, January 28, 2008 to deliver a binding offer letter
and that three members of the Quadra Board had indicated that
they would resign if that letter was not received.
On January 28, 2008, Clifford Chance contacted Bass Berry
and asked if the Quadra Board would execute the Merger Agreement
with a modification to certain disclosures in the disclosure
schedules pertaining to the Wachovia Facility which allocated a
greater portion of the risk of a default in the Wachovia
Facility to the Company. Bass Berry informed Clifford
Chance that it would discuss this proposed change with the
Independent Directors. After discussing the proposed change
individually with each Independent Director, Bass Berry informed
Clifford Chance that it believed the Independent Directors would
approve the Merger Agreement with that change and a further
change, requested by Parent, eliminating any indemnification
obligation of Parent to any director who voluntarily resigned
other than by reason of death, disability or physical inability
prior to completion of the tender offer contemplated by the
Merger Agreement. Bass Berry and Clifford Chance continued
working on the Merger Agreement so that it would be ready for
execution shortly after the Boards 5:00 p.m. meeting.
The Quadra Board had a telephonic meeting at
5:00 p.m. Eastern Standard Time on January 28,
2008. Bass Berry and Blackstone were present, and the
Hypo-Affiliated Directors were not present. Bass Berry advised
the Independent Directors of their fiduciary duties in
considering the proposed Merger Agreement. Mr. Mundheim
asked Blackstone to provide an update with respect to its
solicitation of competing proposals, and Blackstone reported
that shortly before the meeting began, it had received a written
indication of interest from an interested third party to effect
a stock-for-stock merger with the Company at a price of
approximately $9.00 per share of Quadra Common Stock, with
appropriate collars. The Special Committee noted that the
indication of interest was substantially lower than the price
offered by Parent in the proposed merger agreement. Bass Berry
then made a presentation to the Independent Directors with
respect to the terms and conditions of the Merger Agreement,
placing particular emphasis on the provisions that had changed
since the Independent Directors had considered the Merger
Agreement on January 19, 2008. Bass Berry informed the
Independent Directors that Hypo Holding had agreed to stand
behind the indemnification provisions in the Merger Agreement
except to the extent a director voluntarily resigned prior to
closing of the tender offer other than by reason of death,
disability or physical inability. Blackstone stated that it had
no knowledge of any facts that had arisen since the delivery of
its fairness opinion on January 27, 2008 to cause it to
withdraw or modify its opinion. After hearing from its advisors
and discussing the proposed terms and conditions of the Merger
Agreement, the Special Committee unanimously recommended that
the Quadra Board approve the Merger Agreement and the
transactions contemplated thereby and recommend that
stockholders of the Company validly tender their shares of the
Companys common stock pursuant to the tender offer
described in the Merger Agreement and otherwise vote to approve
any merger transaction for which their approval is required
pursuant to the Merger Agreement. After receiving the
recommendation of the Special Committee, the Quadra Board (by
unanimous vote of the Independent Directors but with the
Hypo-Affiliated Directors not present or otherwise participating
in the vote) resolved that the Merger Agreement and transactions
contemplated thereby are advisable, fair to and in the best
interests of the Company and its stockholders, approved the
execution and delivery of the Merger Agreement and recommended
that the stockholders of the Company tender their shares of the
Companys common stock
23
pursuant to the tender offer described in the Merger Agreement
and otherwise vote to approve any merger transaction for which
their approval is required pursuant to the Merger Agreement. The
transaction was announced before the markets opened for trading
on Tuesday, January 29, 2008.
Reasons for
the Recommendation of the Special Committee and the Quadra
Board.
In evaluating the Merger and the Merger Agreement, the Special
Committee and the Quadra Board (excluding the Hypo-Affiliated
Directors) received information from the Companys
executive officers and consulted with the Special
Committees legal counsel and financial advisor and, in
reaching the recommendation described in this Item 4
regarding the Offer, the Merger and the Merger Agreement, the
Special Committee and the Quadra Board (excluding the
Hypo-Affiliated Directors) considered a number of factors,
including the following:
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The Companys Operating and Financial Condition;
Prospects of the Company
. The Special Committee
and the Quadra Board considered the Companys financial
plan and prospects if it were to remain an independent company
and the Companys short-term and long-term capital needs.
The Special Committee and the Quadra Board discussed the
Companys current financial plan, including the risks
associated with achieving and executing upon the Companys
business plan. The Special Committee and the Quadra Board
considered, among other factors, that the holders of Shares
would continue to be subject to the risks and uncertainties of
the Companys business plans, capital needs and prospects
unless the Shares were acquired for cash. These risks and
uncertainties included the risks outlined below as well as the
other risks and uncertainties discussed in the Companys
filings with the SEC:
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The Companys original business model is not currently
sustainable because of the closure of the CDO market, the
overall disruption in the credit markets, generally, and the
increased potential cost of long-term capital;
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The cost of any long-term credit, including a renegotiated term
credit facility with Wachovia, would likely be very high;
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Any alternative involving the liquidation
and/or
sale
of existing assets carries a high risk of not producing cash
quickly enough to allow the Company to meet its obligation to
repurchase loans from Wachovia on the stated repurchase dates
pursuant to the Wachovia Facility. In addition, liquidity
projections for 2008 created the risk that the Companys
2007 audited financial statements would carry a going-concern
qualification, which would be an event of default under the
Wachovia Facility.
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Parent is the prospective buyer with the lowest cost of capital
together with the highest knowledge of the portfolio and the
greatest ability to realize the greatest synergies from the
transaction and, therefore, likely able to pay a higher price
than other prospective buyers;
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Blackstone has been in communication with other prospective
buyers since December 19, 2007 and has not received any
indication that any other prospective buyer is or will likely be
interested in paying a price as high as Hypo Holding has offered
for the Companys outstanding stock;
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The issuance of equity would likely be at a price that would be
highly dilutive to existing stockholders; and
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Credit market dislocation in Europe is likely to continue to
worsen and Hypo Holding could experience future credit losses
that could inhibit its ability to acquire the Company at a later
time;
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24
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Strategic Alternatives.
The Special Committee
and the Quadra Board considered trends in the commercial
mortgage REIT industry and the strategic alternatives available
to the Company, including remaining an independent public
company, obtaining an extension of or replacement for the
Wachovia Facility and providing for an orderly liquidation of
its loan portfolio, potential transactions with other companies
in the industry, as well as the risks and uncertainties
associated with such alternatives.
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Transaction Financial Terms; Premium to Market
Price.
The Special Committee and the Quadra Board
considered the relationship of the Offer Price to the market
prices of the Shares. In light of the Companys activities
to date, the fact that no other person has expressed serious
interest in acquiring the Company for a higher price, and the
fact that Parent is in the best position to realize synergies in
the acquisition of the Company and, therefore, likely able to
provide the best offer, the Special Committee and the Quadra
Board determined that the Offer Price and Merger Consideration
to be paid in the Offer and the Merger represented the best per
share price currently obtainable for the Companys
stockholders. In making that determination, the Special
Committee and the Quadra Board considered that the Offer Price
and Merger Consideration, respectively, represent a premium of
an approximately 38% to the closing price of the Quadra Common
Stock on the New York Stock Exchange on January 28, 2008
(the date immediately preceding the date on which the
transaction was announced) and an approximately 41% premium to
the average closing price of the Quadra Common Stock for the 30
trading days ending on such date.
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Ability to Seek Alternative Takeover Proposals and Terminate
the Merger Agreement to Accept a Superior
Proposal
. The Special Committee and the Quadra
Board considered the fact that Blackstone began soliciting
indications of interest to acquire the Company on
December 19, 2007, as well as the provisions in the Merger
Agreement which contains a
30-day
go shop provision, beginning on the date of the
Merger Agreement, pursuant to which the Company is permitted to
solicit, encourage, or facilitate proposals for a competing
transaction from third parties (a Competing
Proposal). The period commenced on January 28, 2008
and continues until February 27, 2008 (the Go Shop
Period). Within two days after the end of the Go-Shop
Period, the Company must identify to the Purchaser any third
parties from whom the Company has received a Competing Proposal,
or whom the Quadra Board determines in good faith could
reasonably be expected to make a Competing Proposal, that would
be superior from a financial point of view to the Offer and the
Merger (an Excluded Party). The Purchaser has the
right to receive notice of, and to negotiate and match the terms
of, any Competing Proposal made by a third party that the Quadra
Board determines in its good faith judgment is superior from a
financial point of view to the transaction contemplated by the
Merger Agreement (a Superior Proposal). Following
the completion of the Go-Shop Period, the Company is bound by a
no-shop/no-talk clause which limits its ability to
solicit or encourage competing bids and to provide information
to prospective bidders. The no-shop provision is subject to
provisions that allow the Company to (a) furnish
information to, and enter into negotiations with any Excluded
Party that constitutes, or could reasonably be expected to lead
to, a Superior Proposal and (b) provide information and
participate in discussions with respect to any unsolicited
third-party proposals after the Go-Shop Period expires that the
Quadra Board, upon the recommendation of the Special Committee,
believes in good faith to be bona fide and determines in good
faith, after consultation with advisors, could reasonably be
expected to result in a Superior Proposal.
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Termination Fee Provisions.
The Merger
Agreement contains certain termination rights of the Company or
Parent. Upon termination of the Merger Agreement under specified
circumstances, the Company will be required to pay Parent a
termination fee of
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$8.9 million in cash (the
Break-Up
Fee). If the Company terminates the Merger Agreement on or
prior to the sixth business day following the end of the Go-Shop
Period (unless such date is tolled in accordance with the Merger
Agreement) in connection with a Superior Proposal made by an
Excluded Party, the Company will be required to pay Parent a
termination fee of $3.7 million in cash (the
Excluded-Party
Break-Up
Fee) upon consummation of the Superior Proposal. If the
Merger Agreement is terminated by the Company in connection with
a Superior Proposal involving the payment of all cash for 100%
of the shares of the Quadra Common Stock and having terms
otherwise substantially similar to the Merger Agreement
(including expected timing), Parent has agreed to take all
actions necessary to cause the transaction contemplated by the
Superior Proposal to be consummated including, among other
things: (i) voting the Shares owned by Parent or its
affiliates in favor of such transaction; (ii) tendering
shares into any tender offer; and (iii) reducing the
termination fee on the Management Agreement between the Company
and Parent by 50%. The Special Committee and the Quadra Board
considered the termination fee provisions of the Merger
Agreement and determined that they likely would not be a
deterrent to competing offers that might be superior to the
Offer Price and the Merger Consideration. The Special Committee
and the Quadra Board considered that the termination fee of
$8.9 million was equal to approximately 3% of the
Companys total value of the transaction (including Quadra
Shares owned by Parent and its affiliates) and that the
termination fee of $3.7 million was equal to approximately
1.25% of the Companys total value of the transaction,
which the Special Committee and the Quadra Board believed to be
a reasonable fee to be paid to Parent should a superior offer be
accepted by the Company and not a fee that would deter superior
efforts.
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Conditions to the Consummation of the Offer and the Merger;
Likelihood of Closing
. The Special Committee and
the Quadra Board considered the reasonable likelihood of the
consummation of the transactions contemplated by the Merger
Agreement in light of the nature of the conditions in the Merger
Agreement to the obligation of Purchaser to accept for payment
and pay for the Shares tendered pursuant to the Offer, including
that the consummation of the Offer and the Merger was not
contingent on Parents ability to secure financing.
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Cash Consideration; Certainty of Value.
The
Special Committee and the Quadra Board considered the form of
consideration to be paid to holders of Shares in the Offer and
the Merger and the certainty of the value of such cash
consideration compared to stock or other consideration.
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Timing of Completion.
The Special Committee
and the Quadra Board considered the anticipated timing of
consummation of the transactions contemplated by the Merger
Agreement and the structure of the transaction as a cash tender
offer for all of the Shares, which should allow stockholders to
receive the transaction consideration in a relatively short
timeframe, followed by the Merger in which stockholders would
receive the same consideration as received by stockholders who
tender their Shares in the Offer. The Special Committee and the
Quadra Board considered that the potential for closing in a
relatively short timeframe could also reduce the amount of time
in which the Companys business would be subject to the
potential uncertainty of closing and related disruption.
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Opinion of the Special Committees Financial
Advisor.
The presentation of Blackstone
(including an independent consideration by the Special Committee
of many of the factors identified in the presentation and a
review of the assumptions and methodologies underlying the
analyses in connection therewith) and the opinion of Blackstone,
delivered orally to the special committee on January 27,
2008, and subsequently confirmed in writing, that the aggregate
consideration of $11.00 per Share in cash to be received by
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holders of Shares, other than Parent and its affiliates,
pursuant to the Offer, the Merger and the Dividend was fair to
such holders from a financial point of view. The full text of
the written opinion of Blackstone, dated January 27, 2008,
which sets forth the assumptions made, procedures followed,
matters considered and the qualifications and limitations on the
scope of the review undertaken in connection with the Blackstone
opinion, is attached to this
Schedule 14D-9
as Annex II and is incorporated herein by reference.
Blackstone provided its presentation and opinion for the
information and assistance of the Special Committee in
connection with its evaluation of the Offer and the Merger. The
Blackstone opinion is not a recommendation as to how any
stockholder should vote or act with respect to the Offer, the
Merger or any other matter. For a further discussion of the
Blackstone opinion, see Item 8. Additional
Information Opinion of the Special Committees
Financial Advisor below.
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The Special Committee and the Quadra Board (excluding the
Hypo-Affiliated Directors) also considered a number of
uncertainties and risks in their deliberations concerning the
transactions contemplated by the Merger Agreement, including the
Offer and Merger, including the following:
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Failure to Close.
The Special Committee and
the Quadra Board considered that the Parents and
Purchasers obligation to accept for payment and pay for
the Shares tendered pursuant to the Offer and to consummate the
Merger were subject to conditions, and the possibility that such
conditions may not be satisfied, including as a result of events
outside of the Companys control. The Special Committee and
the Quadra Board also considered the fact that, if the Offer and
Merger are not completed, the markets perception of the
Companys continuing business could potentially result in a
loss of business partners and that the trading price of the
Shares could be adversely affected. The Special Committee and
the Quadra Board considered that, in that event, it would be
unlikely that another party would be interested in acquiring the
Company. The Special Committee and the Quadra Board also
considered the fact that, if the Offer and Merger are not
consummated, the Companys directors and officers will have
expended extensive time and effort and will have experienced
significant distractions from their work during the pendency of
the transaction, and the Company will have incurred significant
transaction costs, attempting to consummate the transaction.
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Public Announcement of the Offer and
Merger.
The Special Committee and the Quadra
Board considered the effect of a public announcement of the
execution of the Merger Agreement and the Offer and Merger
contemplated thereby, including the effect on the status of the
Wachovia Facility, including the possibility that Wachovia would
accelerate obligations owed by the Company under the Wachovia
Facility, the effects on the Companys operations and stock
price and the Companys ability to retain its executive
officers. The Special Committee and the Quadra Board also
considered the effect of these matters on Parent and the risks
that any adverse reaction to the transactions contemplated by
the Merger Agreement could adversely affect Parents
willingness to consummate the transactions contemplated by the
Merger Agreement.
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Pre-Closing Covenants.
The Special Committee
and the Quadra Board considered that, under the terms of the
Merger Agreement, the Company agreed that it will carry on its
business in the ordinary course of business consistent with past
practice and, subject to specified exceptions, that the Company
will not take a number of actions related to the conduct of its
business without the prior written consent of Parent. The
Special Committee and the Quadra Board further considered that
these terms of the Merger Agreement may limit the ability of the
Company to pursue business opportunities that it might otherwise
pursue.
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Cash Consideration.
The Special Committee and
the Quadra Board considered the fact that, subsequent to
completion of the Merger, the Company will no longer exist as an
independent public company and that the nature of the
transaction as a cash transaction would prevent the
Companys stockholders from being able to participate in
any value creation that the Company could generate going
forward, as well as any future appreciation in value of the
combined company.
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Tax Treatment.
The Special Committee and the
Quadra Board considered the fact that gains from this
transaction would be taxable to the Companys stockholders
for U.S. federal income tax purposes and that capital
losses may not be deductible immediately or in the future (to
the extent stockholders do not have sufficient future capital
gains) and may be carried over by corporate taxpayers for a
limited period of time.
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Potential Conflicts of Interest.
The Special
Committee and the Quadra Board was aware of the potential
conflicts of interest between the Company, on the one hand, and
Parent, Purchaser and certain of the Companys executive
officers and directors, on the other hand, as a result of the
transactions contemplated by the Offer and the Merger as
described in Item 3 above.
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The Special Committee and the Quadra Board believed that,
overall, the potential benefits of the Offer and the Merger to
the Companys stockholders outweigh the risks of the Offer
and the Merger and provide the maximum value to stockholders.
The foregoing discussion of information and factors considered
by the Special Committee and the Quadra Board is not intended to
be exhaustive. In light of the variety of factors considered in
connection with its evaluation of the Offer and the Merger, the
Special Committee and the Quadra Board did not find it
practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching
its determinations and recommendations. Moreover, each member of
the Special Committee and each Independent Director applied his
own personal business judgment to the process and may have given
different weight to different factors.
Intent to
Tender
To the best of the Companys knowledge, after reasonable
inquiry, each executive officer, director, affiliate (other than
Parent and Purchaser) and subsidiary of the Company who owns
Shares presently intends to tender in the Offer all Shares that
he or she owns of record or beneficially, other than any Shares
that if tendered would cause him, her or them to incur liability
under the short-swing profits recovery provisions of the
Exchange Act. The foregoing does not include any Shares over
which, or with respect to which, any such executive officer,
director or affiliate acts in a fiduciary or representative
capacity or is subject to the instructions of a third party with
respect to such tender.
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Item 5.
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Person/Assets,
Retained, Employed, Compensated or Used.
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Pursuant to a letter agreement dated November 29, 2007, the
Special Committee engaged Blackstone to act as its financial
advisor in connection with the contemplated transactions.
Pursuant to the terms of this engagement letter, the Company has
agreed to pay Blackstone a fee of $1,500,000 upon the rendering
by Blackstone of its opinion as to the fairness, from a
financial point of view, of the consideration to be received
pursuant to the Merger Agreement; and, upon the consummation of
a transaction, a fee equal to $2,500,000, net of any fees
previously paid to Blackstone pursuant to the transaction.
Blackstone is also entitled to reimbursement by the Company of
its reasonable expenses, including reasonable fees and
disbursements of legal counsel. The Company has agreed to
indemnify and hold harmless Blackstone and its affiliates and
their respective directors, officers, employees, agents and
28
controlling persons from and against any and all losses, claims,
damages and liabilities arising out of or in connection with its
engagement or the proposed transaction.
Neither the Company, nor any person acting on its behalf, has
employed, retained or agreed to compensate any person or class
of persons to make solicitations or recommendations in
connection with the Offer or the Merger.
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Item 6.
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Interest in
Securities of the Subject Company.
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Except as set forth below, no transactions in Shares have been
effected during the 60 days prior to the date of the Merger
Agreement by the Company or, to the knowledge of the Company, by
any executive officer, director, affiliate or subsidiary of the
Company:
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Lawrence A. Weinbach, a director of the Company, received a
grant of 133.22 Stock Units on November 30, 2007, 3,109.46
Stock Units on January 2, 2008 and 281.86 Stock Units on
January 16, 2008, pursuant to the Companys
Independent Director Deferred Compensation Plan.
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Robert H. Mundheim, a director of the Company, received a grant
of 133.22 Stock Units on November 30, 2007, 3,109.46 Stock
Units on January 2, 2008 and 281.86 Stock Units on
January 16, 2008, pursuant to the Companys
Independent Director Deferred Compensation Plan.
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Thomas F. McDevitt, a director of the Company, received a grant
of 66.61 Stock Units on November 30, 2007, 1,554.73 Stock
Units on January 2, 2008 and 140.93 Stock Units on
January 16, 2008, pursuant to the Companys
Independent Director Deferred Compensation Plan.
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Ronald M. Stuart, a director of the Company, received a grant of
106.57 Stock Units on November 30, 2007, 2,487.57 Stock
Units on January 2, 2008 and 225.49 Stock Units on
January 16, 2008, pursuant to the Companys
Independent Director Deferred Compensation Plan.
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Robert R. Glauber, a director of the Company, received
1,554 shares of the Companys common stock on
January 2, 2008, which represents a portion of his director
fee paid by the Company.
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Item 7.
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Purposes of
the Transaction and Plans or Proposals.
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Except as set forth in this
Schedule 14D-9,
(a) the Company is not undertaking or engaged in any
negotiations in response to the Offer that relate to, or would
result in: (i) a tender offer for or other acquisition of
the Companys securities by the Company, any of its
subsidiaries, or any other person; (ii) any extraordinary
transaction such as a merger, reorganization or liquidation,
involving the Company or any of its subsidiaries; (iii) any
purchase, sale or transfer of a material amount of assets of the
Company or any of its subsidiaries; or (iv) any material
change in the present dividend rates or policy, or indebtedness
or capitalization of the Company and (b) there are no
transactions, resolutions of the Quadra Board or agreements in
principle or signed contracts in response to the Offer that
relate to, or would result in, one or more of the events
referred to in clause (a) of this Item 7.
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Item 8.
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Additional
Information.
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Appraisal
Rights
Holders of Shares are not entitled to dissenting
stockholders appraisal rights or other similar rights in
connection with the Offer, and the Company expects that Shares
will not be entitled to dissenting stockholders appraisal
rights or other similar rights in connection with the Merger.
The MGCL does not provide appraisal rights or other similar
rights to stockholders of a
29
corporation in connection with a merger if the shares of the
corporation are listed on a national securities exchange on the
record date for determining stockholders entitled to vote on the
merger, or with respect to a short form merger, if
the shares of the corporation are listed on a national
securities exchange on the date on which notice is given. The
Shares are listed on the NYSE, which is a national securities
exchange, and the Company is hereby delivering notice pursuant
to
Section 3-106(d)
of the MGCL of the proposed Merger of Purchaser with and into
the Company, with the Company surviving the Merger, conditioned
upon the ownership by Purchaser of 90% or more of the
outstanding Shares as of the time of acceptance for record of
the articles of merger with the State Department of Assessments
and Taxation of Maryland. In addition, the Companys
charter specifically states that no stockholder will have
appraisal rights.
Regulatory
Approvals
Under the
Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the HSR
Act) and the rules that have been promulgated thereunder
by the Federal Trade Commission (the FTC), certain
acquisition transactions may not be consummated unless certain
information has been furnished to the Antitrust Division of the
Department of Justice (the Antitrust Division) and
the FTC and certain waiting period requirements have been
satisfied. The initial waiting period for a cash tender offer is
15 days, but this period may be shortened if the reviewing
agency grants early termination of the waiting
period, or it may be lengthened if the reviewing agency
determines that further investigation is required and asks the
filing person voluntarily to withdraw and refile to allow a
second
15-day
waiting period, or issues a formal request for additional
information and documentary material. Only transactions that
meet certain thresholds regarding the size of the parties and
size of the transaction require an HSR notification. The
aggregate value of the non-exempt assets being acquired pursuant
to the Offer does not meet the size of the transaction test. In
addition, various exemptions to the reporting requirements, some
of which apply to the Offer, are set forth in the HSR Act and
the rules promulgated by the FTC thereunder. Pursuant to the
applicable rules exempting certain acquisitions of securities,
the Offer does not require the filing of an HSR pre-merger
notification and report form.
The Company is not aware of any other filings, approvals or
other actions by or with any governmental authority or
administrative or regulatory agency other than the forgoing
filings under the HSR Act that would be required for
Parents or Purchasers acquisition or ownership of
the Shares.
Vote Required
to Approve the Merger; Short Form Merger
The Quadra Board (without participation of the Hypo-Affiliated
Directors) has approved the Offer, the Merger and the Merger
Agreement in accordance with the MGCL. Under
Section 3-106
of the MGCL, if Purchaser acquires, pursuant to the Offer or
otherwise, a number of Shares representing at least 90% of the
outstanding Shares, Purchaser will be able to effect the Merger
after consummation of the Offer without a vote by the
Companys stockholders. If Purchaser acquires, pursuant to
the Offer or otherwise, a number of Shares representing less
than 90% of the outstanding Shares, the affirmative vote of the
holders of a number of Shares representing a majority of the
outstanding Shares will be required under the MGCL to effect the
Merger. In the event the minimum tender condition required to be
met under the Merger Agreement has been satisfied, after the
purchase of the Shares by Purchaser pursuant to the Offer,
Purchaser will own a number of Shares representing a majority of
the outstanding Shares and be able to effect the Merger without
the affirmative vote of any other stockholder of the Company. As
described below, the Company has granted an option to Purchaser
to purchase additional Shares if, after the exercise of the
option, Purchaser would hold enough shares to effect a short
form merger pursuant to Section 3-106 of the MGCL.
30
Top-Up
Option
Subject to the terms of the Merger Agreement, the Company has
granted the Purchaser an assignable and irrevocable option to
purchase from the Company, at a per share price equal to the
Offer Price, that number of newly-issued Shares that is equal to
one Share more than the number of Shares needed to give the
Purchaser ownership of more than 90% of the number of Shares of
the Company then outstanding on a fully diluted basis. This
top-up
option is exercisable only if, among other things, the issuance
of Shares pursuant to the exercise of such
top-up
option would not require approval of the Companys
stockholders under applicable law and the Minimum Condition (as
defined in the Merger Agreement) is satisfied.
The
top-up
option may be exercised by Purchaser, in whole but not in part,
at any time on or after the Acceptance Date and on or prior to
the fifth business day after such date or the expiration date of
any subsequent offering period, in compliance with applicable
law any applicable securities exchange listing rules and
regulations. The Purchaser may pay the exercise price for the
top-up
option, at its election, either in cash or by delivering to the
Company a promissory note having a principal amount equal to the
exercise price (or by a combination of these methods). The
foregoing summary is qualified in its entirety by reference to
the Merger Agreement, a copy of which is attached as
Exhibit 2.1 to the Companys Current Report on
Form 8-K
filed with the SEC on January 29, 2008 and is incorporated
herein by reference.
Section 14(f)
Information Statement
The Information Statement attached as Annex I hereto is
being furnished in connection with the possible designation by
Purchaser, pursuant to the Merger Agreement, of certain persons
to be appointed to the Quadra Board, other than at a meeting of
the Companys stockholders as described in Item 3
above and in the Information Statement, and is incorporated
herein by reference.
Legal
Proceedings
On February 7, 2008, a purported
class-action
lawsuit captioned Swope et al. v. Quadra Realty Trust, et
al., was filed in New York State Supreme Court in the County of
New York. The lawsuit names as defendants Quadra Realty Trust,
Inc. and each member of the Quadra Board, Robert H. Mundheim,
Juergen Fenk, Evan F. Denner, Robert R. Glauber, Thomas F.
McDevitt, Bettina von Oesterreich, Ronald M. Stuart, and
Lawrence A. Weinbach. The complaint alleges, among other things,
that the defendants breached their fiduciary duties owed to the
Companys stockholders in connection with, among other
things, the Companys entry into the Merger Agreement. The
complaint alleges that the members of the Quadra Board violated
their fiduciary duties to take all necessary steps to ensure
that the stockholders receive the maximum value for their shares
and to provide stockholders with full and ample disclosure
concerning the Merger Agreements material terms. The
complaint seeks class certification of the lawsuit, a
declaration that the proposed merger transaction is unfair,
unjust and inequitable, that the Merger Agreement was entered
into in breach of the fiduciary duties of the defendants, and an
injunction preventing the defendants from proceeding with the
Merger at a price that is allegedly not fair and equitable. The
complaint also seeks compensation for all losses and damages as
a result of the action and transaction complained of, including
attorneys, accountants, and experts fees.
Opinion of the
Special Committees Financial Advisor
The Special Committee retained Blackstone, by agreement dated
November 29, 2007, to provide it with financial advisory
services in connection with the Special Committees
consideration of strategic alternatives available to the
Company. The Special Committee selected Blackstone to act as its
financial advisor based on Blackstones qualifications,
expertise, and
31
reputation as a financial advisor to special committees. At the
meeting of the Special Committee on January 27, 2008,
Blackstone rendered its oral opinion, subsequently confirmed in
writing, that as of January 27, 2008, the aggregate
consideration of $11.00 per Share in cash to be received by
holders of Shares, other than Parent and its affiliates,
pursuant to the Offer, the Merger and the Dividend was fair to
such holders from a financial point of view.
The full text of the written opinion of Blackstone, dated as of
January 27, 2008, is attached to this statement as
Annex II and is incorporated herein by reference. The
opinion sets forth, among other things, the assumptions made,
procedures followed, matters considered and qualifications and
limitations on the scope of the review undertaken in connection
with the Blackstone opinion. You are encouraged to read the
entire opinion carefully. Blackstones opinion is directed
to the Special Committee and addresses only the fairness as of
the date of the opinion, from a financial point of view, of the
aggregate consideration of $11.00 per share cash consideration
to be received by the holders of shares of Quadra Common Stock,
other than Parent and its affiliates, pursuant to the Offer, the
Merger and the Dividend. Blackstones opinion does not
address any other aspects of the Merger Agreement or the
transactions contemplated thereby. The opinion, and the other
views and analysis of Blackstone referenced throughout this
Schedule 14D-9,
do not constitute a recommendation as to how any stockholder
should vote or act with respect to the Offer, the Merger or any
other matter. The summary of the opinion of Blackstone set forth
in this
Schedule 14D-9
is qualified in its entirety by reference to the full text of
the opinion.
In connection with rendering its opinion, Blackstone, among
other things:
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reviewed certain publicly available information concerning the
business, financial condition and operations of the Company that
Blackstone believed to be relevant to its inquiry;
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reviewed certain internal information concerning the business,
financial condition and operations of the Company that
Blackstone believed to be relevant to its inquiry;
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reviewed certain internal financial analyses relating to the
Company prepared by, and furnished to Blackstone by, the Company;
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reviewed analyses relating to certain of the Companys
investments prepared by, and furnished to Blackstone by, the
Company;
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held discussions with members of the Company concerning the
Companys business, operating environment, financial
condition, prospects and strategic objectives;
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reviewed the publicly reported historical prices and trading
activity of the Quadra Common Stock;
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reviewed publicly available financial and stock market data with
respect to certain other companies in lines of businesses
Blackstone believed to be generally comparable to those of the
Company;
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reviewed the publicly available financial terms of a recent
unsolicited offer for a comparable U.S. company;
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reviewed the January 25, 2008 draft of the merger agreement;
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reviewed the premiums paid on certain recent acquisitions of
U.S. companies, the securities of which were publicly
traded;
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performed discounted cash flow analyses utilizing certain pro
forma financial information prepared by, and furnished to
Blackstone by, the Company;
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compared certain financial information for the Company with
similar public information for certain other comparable
companies, the securities of which are publicly traded;
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reviewed the results of Blackstones efforts to solicit
indications of interest and definitive proposals from third
parties with respect to an acquisition of the Company; and
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participated in certain discussions and negotiations among
representatives of the Company and Parent and their financial
and legal advisors.
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In preparing its opinion, Blackstone relied, without assuming
responsibility or liability for independent verification, upon
the accuracy and completeness of all financial and other
information that is available from public sources and all
projections and other information provided to Blackstone by or
on behalf of the Company or otherwise discussed with or reviewed
by or for Blackstone. With respect to financial and other
projections and pro forma financial information prepared by the
Company and the assumptions underlying those projections and
such pro forma information, Blackstone assumed that they were
reasonably prepared and represented the Companys best
estimates and judgments as of the date of their preparation and
Blackstone assumed no responsibility for, and expressed no
opinion as to, such analyses or forecasts or the assumptions on
which they are based. In preparing its opinion, Blackstone
further relied upon the assurances of the Company that it was
not aware of any facts that would make the information provided
by them to Blackstone inaccurate, incomplete or misleading.
Blackstone also assumed that the definitive Merger Agreement
would not differ in any respect material to Blackstones
analysis from the draft thereof furnished to Blackstone.
In preparing its opinion, Blackstone was not asked to undertake,
and did not undertake, an independent verification of any
information, nor was Blackstone furnished with any such
verification, and Blackstone did not conduct a physical
inspection of any of the Companys properties or assets.
Except to the extent described below, Blackstone did not make
any independent evaluation or appraisal of the assets and
liabilities (contingent, derivative, off-balance sheet or
otherwise) of the Company, nor did Blackstone obtain any such
appraisals.
In preparing its opinion, Blackstone assumed that the
consummation of the Offer and the Merger, including the
declaration and payment of the Dividend, will be effected in
accordance with the terms and conditions of the Merger Agreement
and that, in the course of obtaining the necessary regulatory or
third party approvals, agreements or consents for such
transactions, no delay, limitation, restriction or condition
will be imposed that would have an adverse effect on the Company
or the contemplated benefits of such transactions material to
Blackstones analyses. Blackstone is not a legal, tax or
regulatory advisor and relied upon, without independent
verification, the assessment of the Company and its legal, tax
and regulatory advisors with respect to such matters.
Blackstones opinion addressed only the fairness, from a
financial point of view, to the holders of Shares, other than
Parent and its affiliates, of the aggregate consideration per
Share in cash to be received by such holders pursuant to the
Offer, the Merger and the Dividend. Blackstones opinion
did not address any other aspect or implication of the Merger
Agreement or the transactions contemplated thereby or any other
agreement, arrangement or understanding entered into in
connection with such transactions or otherwise. Blackstone
expressed no opinion as to the fairness of the amount or nature
of the compensation to any of the Companys officers or
directors, or class of such persons, relative to the
compensation to the public shareholders (other than Parent and
its affiliates). Blackstone did not express any opinion as to
the impact of the Offer, the Merger and the Dividend on the
solvency or viability of the Company or the ability of the
Company to pay its obligations when they become due.
Blackstones opinion did not address the relative merits of
the Offer, the Merger and the Dividend as compared to other
business strategies or transactions that might be available to
the Company or the Companys underlying business decision
to enter into the Merger Agreement or consummate the
transactions contemplated thereby. In addition,
Blackstones opinion did not address the fairness to, or
any consideration of, the holders of any class of securities,
creditors
33
or other constituencies of the Company other than the holders of
Shares (other than Parent and its affiliates).
Blackstones opinion was necessarily based upon information
made available to Blackstone, and on market, economic, financial
and other conditions as they existed and could be evaluated, as
of January 27, 2008. Events occurring after such date may
affect Blackstones opinion and the assumptions used in
preparing it, and Blackstone did not assume any responsibility
to update, revise or reaffirm its opinion. Blackstones
opinion was approved by a fairness committee of Blackstone.
Blackstone is an internationally recognized financial advisory
firm. Blackstone, as part of its investment banking and
financial advisory business, is continuously engaged in the
valuation of businesses and securities in connection with
mergers and acquisitions and restructurings, and valuations for
corporate and other purposes. In addition, Blackstone and its
affiliates may in the ordinary course of business actively trade
or hold the securities of the Company for their own account or
for others and may at any time hold a long or short position in
such securities.
Under the terms of Blackstones engagement letter, the
Company has agreed to pay Blackstone certain fees, substantially
all of which are payable upon consummation of any substantial
transaction or series of transactions involving the Company,
including the Offer and the Merger. These fees include: an
opinion fee of $1,500,000, which was earned at the time
Blackstone rendered its opinion; and an additional fee of
$1,000,000, which will be due upon consummation of the Merger.
The Company has also agreed to reimburse Blackstone for certain
of its expenses, including attorneys fees, incurred in
connection with its engagement and to indemnify Blackstone, its
affiliates, their respective partners, members, officers,
directors, employees and agents and each person, if any,
controlling Blackstone or any of its affiliates against certain
liabilities and expenses relating to, arising out of or in
connection with its engagement and any related transactions.
Financial
Analyses of Blackstone
The following is a summary of the material analyses performed by
Blackstone in connection with the Blackstone opinion. The
following summary does not purport to be a complete description
of the financial analysis performed by Blackstone, nor does the
order of analysis described represent relative importance or
weight given to those analysis by Blackstone. In connection with
arriving at its opinion, Blackstone did not attribute any
particular weight to any analysis described below. Some of these
summaries of financial analyses include information presented in
tabular format. The tables must be read together with the full
text of each summary and alone are not a complete description of
Blackstones financial analysis. Except as otherwise noted,
the following quantitative information, to the extent that it is
based on market data, is based on market data as it existed on
or before January 25, 2008 and is not necessarily
indicative of current market conditions.
Discounted
Cash Flow Analysis
Loan-by-Loan
.
As the Companys management had not prepared detailed
valuation models or financial projections that, in either case,
extend beyond 2008, Blackstone performed a
loan-by-loan
discounted cash flow (DCF) analysis, which attempts
to provide insight into the present value of a companys
common shares as a function of the companys future cash
flows. In the DCF analysis, each loan was discounted at a rate
of
30-day
LIBOR plus a range of estimated interest rate spreads over
varying durations. Generally, the degree of interest rate spread
widening assumed for loans was segmented into three categories:
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loans currently held for sale were assigned spread widening
estimates of approximately 50 to 250 basis points;
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34
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loans that either the Companys management or Blackstone
believed may have greater potential for credit impairment were
assigned spread widening estimates that varied significantly
among individual loans based on stress testing and market
dynamics; and
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mezzanine, bridge and construction loans located in stronger
residential real estate markets were assigned spread widening
estimates of approximately 200 to 400 basis points based on
Wall Street estimates of the widening in commercial
mortgage-backed securities floating rate spreads for securities
with a BBB rating from the date each loan was initially funded
to the date of the opinion.
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The valuation impact of spread widening was calculated on the
basis of implied discounts to current book value, which includes
a discount on both balances that were drawn at December 31,
2007 and on commitments to fund future amounts at below-market
spreads.
In performing the DCF analysis, Blackstone created two cases
based on a review of the Companys loans and guidance
provided by the Companys management. In creating the first
case, which is referred to in this section as the Base
Case, Blackstone assumed that:
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each loan matured as scheduled in its governing contract, with
each loan that contained an option to extend being extended for
one extension period. This analysis implied that the
Companys loan portfolio has a weighted average
pre-extension maturity of 1.54 years and a weighted average
extended maturity of 2.32 years, where the weighted average
was calculated on the basis of the total dollars committed to
each loan;
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extension fees ranging from 0.125% to 0.5% of the entire
committed balance of the extended loan were assessed, per the
terms of the loan agreements;
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interest rate spreads widened by an average of 314 basis
points; and
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65% of the Companys undrawn commitments as of
December 31, 2007 were funded, on average, at 42% of the
time interval between December 31, 2007 and the loans
initial pre-extension maturity (0.65 years).
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In creating the second case, which is referred to in this
section as the Upside Case, Blackstone applied to
the Base Case managements 2008 liquidity assumptions and
managements view that construction loan spread widening
has been less severe than spread widening with respect to other,
more junior tranches of debt securities. More specifically,
Blackstone assumed that:
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the loans related to the following properties were repaid in
full on the initial scheduled maturity date without being
extended: 900 Biscayne (Miami, FL), Trump International (Las
Vegas, NV), 200 West End Ave (New York, NY), Snowmass
Village Land Portion (Snowmass, CO), Riverside H
(New York, NY) and 2075 Broadway (New York, NY);
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the loan related to the Trump Waikiki (Waikiki, HI) property was
51% syndicated in February 2008;
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the Tranche A loan related to the W Miami Beach (Miami, FL)
property was 100% syndicated in March 2008;
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every other loan matured as scheduled in its governing contract,
with each loan that contained an option to extend being extended
for one extension period;
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there would be limited interest rate spread widening on the
loans related to the following properties: W Miami Beach,
Tranches A and B (Miami, FL), Trump International (Las Vegas,
NV), Colonie Center (Albany, NY), Camelback (Phoenix, AZ), The
Edge, Tranches B-1 and B-2 (New York, NY), 86th Street and
3rd Avenue (New York, NY), 2075 Broadway (New York, NY) and
1110 Park Avenue (New York, NY); and
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35
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extension fees ranging from 0.125% to 0.5% of the entire
committed balance of the extended loan were assessed, per the
terms of the loan agreements.
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These changes resulted in an assumption that interest rate
spreads widened by an average of 278 basis points. Taking
into account the above described assumptions, this analysis
implied that the Companys loan portfolio has a weighted
average pre-extension maturity of 1.43 years and a weighted
average extended maturity of 2.02 years, where the weighted
average was calculated on the basis of the total dollars
committed to each loan, and that 44% of the Companys
undrawn commitments as of December 31, 2007 were funded, on
average, at 42% of the time interval between December 31,
2007 and the loans initial pre-extension maturity
(0.60 years).
In creating each case, based on the guidance of the
Companys management, Blackstone assumed that no credit
impairments existed and that no liquidity issues for the Company
were imminent as a result of the potential repurchase of loans
currently encumbered by the Wachovia Facility, and that the
Company would have transaction fees of $7.5 million,
fully-burdened annual operating expense of $11.46 million
and pro forma annual operating expense of $7.8 million.
Fully-burdened operating expenses were calculated on the basis
of the Companys actual 2007 annualized fully-burdened
operating expenses, including total management fees and
stock-based compensation awarded to officers and directors of
the Company, assuming that such expenses were incurred for a
period of time equal to the loan portfolios weighted
average extended maturity, and then discounted to present value
at 8%. The intent in using fully-burdened operating expenses was
to reflect a valuation of the expense that the Company would
occur on a stand-alone basis. Pro forma operating expenses were
calculated on the same basis as the fully-burdened operating
expenses, but were adjusted to exclude all stock-based
compensation and 50% of all management fees. The intent in using
pro forma operating expenses was to reflect a valuation of the
cash expense that the Company may incur without regard for
contractually mandated management fees.
Using fully-burdened operating expenses, the Base Case DCF
analysis implied a valuation range of $9.92 to $12.19 per share
of Quadra Common Stock, assuming an extended portfolio duration
of 1.70 years to 2.90 years, and implied a loan
portfolio discount of 2.35% to 11.07% to the portfolios
carrying value as of December 31, 2007, while the Upside
Case DCF analysis implied a valuation range of $10.85 to $12.56
per share of Quadra Common Stock, assuming an extended portfolio
duration of 1.50 years to 2.50 years, and implied a
loan portfolio discount of 1.36% to 7.93% to the
portfolios carrying value as of December 31, 2007.
Using pro-forma operating expenses, the Base Case DCF analysis
implied a valuation range of $10.21 to $12.48 per share of
Quadra Common Stock, assuming an extended portfolio duration of
1.70 years to 2.90 years, and implied a loan portfolio
discount of 2.35% to 11.07% to carrying value, while the Upside
Case DCF analysis implied a valuation range of $11.10 to $12.82
per share of Quadra Common Stock, assuming an extended portfolio
duration of 1.50 years to 2.50 years, and implied a
loan portfolio discount of 1.36% to 7.93% to carrying value.
Public
Comparable Companies
Analysis
.
Blackstone performed a comparable company analysis, which
attempts to provide an implied value of a company by comparing
it to similar companies. Blackstone reviewed certain financial
information of the Company with publicly available financial and
stock market information and research equity analysts reports
for five publicly traded commercial mortgage real estate
investment trusts that, based on its experience, Blackstone
considered, for purposes of this analysis, to be relevant to the
analysis of the Company. The five public companies used in this
analysis were:
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Gramercy Capital Corp.
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Northstar Realty Finance Corp.
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36
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CBRE Realty Finance, Inc.
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JER Investors Trust Inc.
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Arbor Realty Trust Inc.
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For purposes of this analysis, Blackstone analyzed the following
metrics for comparison purposes:
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2007 actual and 2008 estimated dividend yields, excluding any
special one-time dividends;
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the ratio of price per share to 2007 estimated and 2008
estimated adjusted funds from operations, defined as net income,
excluding gains/losses from debt restructurings and sales of
properties, plus real estate related depreciation and
amortization and adjustments for unconsolidated partnerships,
joint ventures and non-cash equity compensation; in the cases of
Gramercy Capital Corp. and JER Investors Trust Inc.,
adjusted funds from operations were not publicly available, so
Blackstone conducted its analysis based on funds from operations;
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the ratio of price per share to 2007 estimated and 2008
estimated book value of equity; and
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the ratio of price per share to 2007 estimated and 2008
estimated earnings per share (EPS).
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Based on this analysis, Blackstone observed the following:
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Price/
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Adjusted Funds
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Book Value
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Dividend Yield
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From Operations
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of Equity
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Earnings per Share
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2007A
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2008E
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2007E
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2008E
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2007E
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2008E
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2007E
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2008E
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High
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17.3
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%
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17.1
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%
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7.5
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x
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9.3
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x
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1.2
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x
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1.1
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x
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13.2
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x
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10.5
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x
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Mean
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14.9
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%
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15.2
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%
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6.7
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x
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6.9
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x
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1.0
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x
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0.9
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x
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7.1
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x
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8.4
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x
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Median
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15.1
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%
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15.6
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%
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7.0
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x
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6.6
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x
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0.9
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x
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1.0
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x
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5.6
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x
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7.9
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x
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Low
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10.8
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%
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11.6
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%
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5.5
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x
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5.2
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x
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0.6
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x
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0.6
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x
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4.1
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x
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6.1
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x
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Based on the analysis of the relevant metrics for each of the
selected companies, Blackstone selected the mean percentages or
financial multiples for the selected companies and applied these
percentages or financial multiples to the relevant Quadra
financial statistic using Wall Street consensus research
estimates of the Companys 2007 and 2008 performance. This
resulted in an implied per share value range of $7.31 to $13.51
per share of Quadra Common Stock. Blackstone observed that the
aggregate consideration per share to be received by holders of
Quadra Common Stock was $11.00.
No company used in the comparable company analysis is identical
or directly comparable to the Company or its business. In
evaluating the selected companies, Blackstone made judgments and
assumptions with regard to industry performance, general
business, economic, market and financial conditions and other
matters, many of which are beyond the control of the Company,
such as the impact of competition on the Companys business
and the industry generally, industry growth, and the absence of
any adverse material change in the financial condition and
prospects of the Company or the industry or in the financial
markets in general. Accordingly, an evaluation of the results of
this analysis is not entirely mathematical. Rather, this
analysis involves complex considerations and judgments
concerning differences in financial and operating
characteristics and other factors that could affect the public
trading or other values of the companies to which the Company
was compared.
37
Premiums
Paid
Analysis
.
Blackstone performed a premiums paid analysis based upon the
premiums paid in 109 precedent cash acquisitions of
U.S. publicly-traded companies with market capitalizations
of between $200 million and $500 million that had been
successfully completed since January 2005. Blackstone analyzed
the transactions to determine the premium paid for the target
company as determined using the closing stock price on the date
that was one day, one week and one month prior to the deal
announcement. Based on this analysis, Blackstone observed the
following:
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Premium to Closing Share Price Prior to Announcement
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1 Day
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1 Week
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1 Month
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Mean
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23.3
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%
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24.4
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%
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28.2
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%
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Median
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20.5
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%
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21.8
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%
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26.7
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%
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Based on this premiums paid analysis, Blackstone utilized the
median of the 1 month premium valuation of 26.7% and
applied it to the high ($8.65) and low ($6.76) closing prices of
the Quadra Common Stock over the
30-day
trading period ending on January 25, 2008. This resulted in
an implied per share equity value range of $8.57 to $10.96 per
share of Quadra Common Stock. Blackstone observed that the
aggregate consideration per share to be received by holders of
Quadras common stock was $11.00.
No company used in the premiums paid analysis is identical or
directly comparable to the Company or its business. Accordingly,
an evaluation of the results of this analysis is not entirely
mathematical. Rather, this analysis involves complex
considerations and judgments concerning differences in financial
and operating characteristics and other factors that could
affect the public trading or other values of the companies to
which Quadra was compared.
Recent
Trading
History
.
Blackstone observed that low closing price of Quadra Common
Stock over the
30-day
trading period ending on January 25, 2008 was $6.76, while
the high closing price during the same period was $8.65.
Blackstone observed that the aggregate consideration per share
to be received by holders of Quadra Common Stock was $11.00.
Miscellaneous
.
In connection with the review of the Offer and the Merger by the
Special Committee, Blackstone performed a variety of financial
and comparative analyses for purposes of rendering its opinion.
The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to a partial analysis or summary
description. In arriving at its opinion, Blackstone considered
the results of all of its analyses as a whole and did not
attribute any particular weight to any analysis or factor it
considered. Blackstone believed that selecting any portion of
its analyses, without considering all analyses as a whole, would
create an incomplete view of the process underlying the analyses
and opinions. In addition, Blackstone may have given various
analyses and factors more or less weight than other analyses and
factors, and may have deemed various assumptions more or less
probable than other assumptions. As a result, the ranges of
valuations resulting from any particular analysis described
above should not be taken to be Blackstones view of the
actual value of the Company or its business. In performing its
analyses, Blackstone made numerous assumptions with respect to
industry performance, general business and economic conditions
and other matters. Many of these assumptions are beyond the
control of the Company. Any estimates contained in
Blackstones analyses are not necessarily indicative of
future results or actual values, which may be significantly more
or less favorable than those suggested by such estimates.
Blackstone conducted the analyses described above solely as part
of its analysis of the fairness from a financial point of view,
as of January 27, 2008, of the aggregate consideration
38
per Share to be received by holders of Shares, other than Parent
and its affiliates, pursuant to the Offer, the Merger and the
Dividend and in connection with the delivery of its opinion
dated January 27, 2008 to the Special Committee. These
analyses do not purport to be appraisals or to reflect the
prices at which shares of Quadra Common Stock might actually
trade.
The aggregate consideration to be paid pursuant to the Offer,
the Merger and the Dividend was determined through negotiations
between the Company and Parent and was recommended by the
Special Committee for approval by the Quadra Board and approved
by the Quadra Board (without the participation of the
Hypo-Affiliated Directors). Blackstone provided advice to the
Special Committee during these negotiations. Blackstone did not,
however, recommend any specific merger consideration to the
Company, the Special Committee or the Quadra Board or that any
specific merger consideration constituted the only appropriate
consideration for the merger.
Blackstones opinion and its presentation to the Special
Committee were one of many factors taken into consideration by
the Special Committee in deciding to approve the Merger
Agreement. Consequently, the analyses as described above and the
other views and analyses of Blackstone referenced throughout
this
Schedule 14D-9
should not be viewed as determinative of the opinion of the
Special Committee or of the Board with respect to the aggregate
consideration or of whether the Special Committee or the Board
would have been willing to agree to different consideration.
39
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
Schedule 14D-9,
and the documents to which we refer you in this
Schedule 14D-9,
contain forward-looking statements based on estimates and
assumptions. Forward-looking statements include information
concerning possible or assumed future results of operations of
the Company, the expected consummation and timing of the Offer
and the Merger and other information relating to the Offer and
the Merger. There are forward-looking statements throughout this
Schedule 14D-9,
including, without limitation, under the headings
Item 2 Identity and Background of Filing
Person, Item 4 The Solicitation or
Recommendation and Item 8
Additional Information and in statements containing the
words believes, plans,
expects, anticipates,
intends, estimates or other similar
expressions. You should be aware that forward-looking statements
involve known and unknown risks and uncertainties. Although we
believe that the expectations reflected in these forward-looking
statements are reasonable, we cannot assure you that the actual
results or developments we anticipate will be realized or, even
if realized, that they will have the expected effects on the
business or operations of the Company. These forward-looking
statements speak only as of the date on which the statements
were made, and we undertake no obligation to update publicly or
revise any forward-looking statements made in this
Schedule 14D-9
or elsewhere as a result of new information, future events or
otherwise. In addition to other factors and matters contained or
incorporated in this document, we believe the following factors
could cause actual results to differ materially from those
discussed in the forward-looking statements: (i) changes in
economic conditions generally and the real estate market
specifically; (ii) legislative/regulatory changes,
including changes to laws governing the taxation of real estate
investment trusts, or REITs; (iii) availability of capital,
interest rates; (iv) the Companys ability to service
its debt; (iv) generally accepted accounting principles;
and (v) policies and guidelines applicable to REITs.
Certain additional factors could affect the outcome of the
matters described in this
Schedule 14D-9.
These factors include, but are not limited to: (1) the
occurrence of any event, change or other circumstances that
could give rise to the termination of the Merger Agreement;
(2) the outcome of any legal proceedings that may be
instituted against the Company and others following announcement
of the Merger Agreement; (3) the inability to complete the
Offer due to the failure to satisfy other conditions required to
complete the Offer; (4) the failure to obtain the necessary
debt financing arrangements set forth in commitment letters
received in connection with the Offer and the Merger;
(5) risks that the proposed transaction disrupts current
plans and operations and the potential difficulties in employee
retention as a result of the Offer and the Merger; (6) the
ability to recognize the benefits of the Merger; (7) the
amount of the costs, fees, expenses and charges related to the
Offer and the Merger and the actual terms of certain financings
that will be obtained for the Offer and the Merger; and
(8) the impact of the substantial indebtedness incurred to
finance the consummation of the Offer and the Merger.
The following Exhibits are filed with this
Schedule 14D-9:
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(a)(1)(A)
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Offer to Purchase, dated February 13, 2008 (incorporated by
reference to Exhibit(a)(1)(A) to the Schedule TO.
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(a)(1)(B)
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Letter of Transmittal (incorporated by reference to
Exhibit(a)(1)(B) to the Schedule TO.
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(a)(1)(C)
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Notice of Guaranteed Delivery (incorporated by reference to
Exhibit(a)(1)(C) to the Schedule TO).
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(a)(1)(D)
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Letter from the Dealer Manager to Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees (incorporated by
reference to Exhibit(a)(1)(D) to the Schedule TO).
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(a)(1)(E)
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Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees (incorporated by
reference to Exhibit(a)(1)(E) to the Schedule TO).
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40
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(a)(1)(F)
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Guidelines for Certification of Taxpayer Identification Number
on Substitute
W-9
(incorporated by reference to Exhibit(a)(1)(F) to the
Schedule TO).
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(a)(1)(G)
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Joint Press Release issued by the Company and Parent, dated
January 29, 2008 (incorporated by reference to the
Schedule 14D-9
filed by the Company on January 29, 2008).
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(a)(2)(A)
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Letter to Stockholders of the Company, dated February 13,
2008 from Robert H. Mundheim, Chairman of the Board of Directors
of the Company (incorporated by reference to Annex III
attached to this
Schedule 14D-9).
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(a)(2)(B)
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Information Statement Pursuant to Section 14(f) of the
Securities Exchange Act of 1934 and
Rule 14f-1
thereunder (incorporated by reference to Annex I attached
to this
Schedule 14D-9).
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(a)(5)
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Opinion of The Blackstone Group, financial advisor to the
special committee of the Quadra Board, dated January 27,
2008 (incorporated by reference to Annex II attached to
this
Schedule 14D-9).
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(e)(1)
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Agreement and Plan of Merger, dated January 28, 2008, by
and among Quadra Realty Trust, Inc., Hypo Real Estate Capital
Corporation and HRECC Sub Inc. (incorporated by reference to
Exhibit 2.1 to the
Form 8-K
filed by Quadra Realty Trust, Inc with the SEC on
January 29, 2008).
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(e)(2)
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Form of Management Agreement between Quadra Realty Trust, Inc.
and Hypo Capital Real Estate Capital Corporation (incorporated
by reference to Exhibit 10.2 to Amendment No. 2 to the
Registration Statement on
Form S-11
(Registration
No. 333-138591)
filed by Quadra Realty Trust, Inc. with the SEC on
February 1, 2007).
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(e)(3)
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Form of Restricted Stock Award Agreement under Quadra Realty
Trust, Inc. Manager Equity Plan between Quadra Realty Trust,
Inc. and Hypo Real Estate Capital Corporation (incorporated by
reference to Exhibit 10.9 to Amendment No. 2 to the
Registration Statement on
Form S-11
(Registration
No. 333-138591)
filed by Quadra Realty Trust, Inc. with the SEC on
February 1, 2007).
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(e)(4)
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Form of Registration Rights Agreement between Quadra Realty
Trust, Inc. and Hypo Real Estate Capital Corporation
(incorporated by reference to Exhibit 10.1 to Amendment
No. 2 to the Registration Statement on
Form S-11
(Registration
No. 333-138591)
filed by Quadra Realty Trust, Inc. with the SEC on
February 1, 2007).
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(e)(5)
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Confidentiality Agreement, between Hypo Real Estate Holding AG
and the Company, dated November 16, 2007.
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(e)(6)
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Form of Contribution Agreement between the Company and Parent
(incorporated by reference to Exhibit 10.3 to Amendment
No. 2 to the Companys Registration Statement on
Form S-11
(File
No. 333-138591)
filed by Quadra Realty Trust, Inc. on February 1, 2007)
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(g)
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None.
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(x)
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Resolution authorizing the Chairman of the Board to sign and
file certain documents.
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41
SIGNATURE
After inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is
true, complete and correct.
QUADRA REALTY TRUST, INC.
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By:
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/s/
Robert
H. Mundheim
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Robert H. Mundheim
Chairman of the Board of Directors
Date: February 13, 2008
Annex I
INFORMATION
STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND
RULE 14F-1
THEREUNDER
QUADRA
REALTY TRUST, INC.
622 Third
Avenue, 30th Floor
New York, New York 10017
GENERAL
This information statement (the Information
Statement) is being mailed on or after February 13, 2008
as part of the Solicitation/Recommendation Statement on
Schedule 14D-9
(the
Schedule 14D-9)
of Quadra Realty Trust, Inc., a Maryland corporation
(Company or Quadra), relating to the
tender offer being made by HRECC Sub Inc., a Maryland
corporation (Purchaser), a wholly-owned subsidiary
of Hypo Real Estate Capital Corporation, a Delaware Corporation
(Parent). Capitalized terms used and not otherwise
defined herein shall have the meaning set forth in the
Schedule 14D-9.
Unless the context indicates otherwise, in this Information
Statement, we use the terms us, we,
our and Quadra to refer to the Company.
You are receiving this Information Statement in connection with
the possible election of persons designated by Parent to a
majority of seats on the Board of Directors of the Company (the
Board of Directors or the Board). There
will be no vote or other action by stockholders of the Company
in connection with this Information Statement.
On January 28, 2008, the Company, Parent and Purchaser
entered into an Agreement and Plan of Merger (the Merger
Agreement), pursuant to which Parent and Purchaser, have
agreed to commence a cash tender offer for each issued and
outstanding share of the Companys common stock (not
already owned by Parent and its affiliates), at a purchase price
of $10.6506 per share in cash (without interest and less
applicable withholding taxes), less the amount of any dividends
declared and paid (other than the $0.3494 dividend discussed
below) with respect to the shares on or prior to the date (the
Acceptance Date) shares are accepted and paid for by
Purchaser pursuant to the Offer to Purchase (the Offer
Price) upon the terms and subject to the conditions set
forth in the Offer to Purchase dated February 13, 2008 (the
Offer to Purchase) and the related letter of
transmittal (which, together with the Offer to Purchase and any
supplements or amendments, collectively constitute the
Offer). In addition, as contemplated by the Merger
Agreement, on February 1, 2008, the Company declared a
$0.3494 per share dividend payable to stockholders of the
Company who hold shares of the Companys common stock at
the close of business on the last trading day immediately
preceding the Acceptance Date (the Dividend). The
Dividend will not be paid if the Offer is not closed. This will
result in stockholders of the Company receiving $11.00 per share
in the aggregate, an approximately 38% premium to the closing
price of the Companys common stock on the New York Stock
Exchange on January 28, 2008 and an approximately 41%
premium to the average closing price of the Companys
common stock for the 30 trading days ending on January 28,
2008. The Company expects to declare and pay an additional
dividend immediately prior to the Acceptance Date to the extent
of the Companys taxable income for the period beginning
January 1, 2008 and ending on the date immediately
preceding the Acceptance Date. Such dividend will reduce the
Offer Price by the per share amount of any such dividend. The
Offer is described in a combined
Schedule 13E-3/Tender
Offer Statement on Schedule TO filed under cover of
Schedule TO (as amended or supplemented from time to time,
the Schedule TO).
Copies of the Offer to Purchase and the accompanying Letter of
Transmittal have been mailed to the Companys stockholders
and are filed as exhibits to the combined
Schedule 13E-3/
Annex I-1
Tender Offer Statement on Schedule TO filed by Parent with
the Securities and Exchange Commission (the SEC) on
February 13, 2008. Following the completion of the Offer and
subject to the satisfaction or waiver of certain conditions set
forth in the Merger Agreement, the Purchaser will merge with and
into the Company and will continue as the surviving corporation
(the Surviving Corporation) and will be a
wholly-owned subsidiary of Parent (the Merger).
Upon the acceptance and payment of shares by Parent or any of
its affiliates, representing at least the Minimum Condition (as
defined in the Merger Agreement) Parent will be entitled to
designate all of the members of the Board of Directors of the
Company.
This Information Statement is being mailed to you in accordance
with Section 14(f) of the Securities Exchange Act of 1934,
as amended (the Exchange Act), and
Rule 14f-1
promulgated thereunder. The information set forth herein
supplements certain information set forth in the
Schedule 14D-9.
YOU ARE URGED TO READ THIS ENTIRE INFORMATION STATEMENT
CAREFULLY. PLEASE NOTE THAT WE ARE NOT SOLICITING YOUR
PROXY. NO VOTE OR OTHER ACTION BY OUR STOCKHOLDERS IS REQUIRED
IN RESPONSE TO THIS INFORMATION STATEMENT.
All information contained in this Information Statement
concerning Parent, Purchaser and the Parents Designees (as
defined below) has been furnished to the Company by Parent, and
the Company assumes no responsibility for the accuracy of any
such information.
PARENTS
DESIGNEES
Subject to the terms of the Merger Agreement, effective upon the
date Purchaser accepts for payment all shares of the
Companys common stock validly tendered and not properly
withdrawn, Parent shall be entitled to designate all directors
on the Companys Board.
Parent has informed the Company that its designees (the
Parent Designees) will be selected by Parent from
among the individuals listed below:
Thomas Glynn
Tom Drelles
Nancy Henderson
Chris Patronis
John Campbell
Ken Gibbs
Bradley Davidoff
Stephen Altman
Thomas Glynn
, age 46, has served as a Member of the
Board of Directors of Hypo Real Estate Capital Corporation since
May 2007. He has also served as a Member of the Management Board
of Hypo Real Estate Holding AG since February 2007, as the Head
of Portfolio Management, Trading and Securitisation and
President of HI Asset Management (now Hypo Public Finance USA,
Inc.) and HI Capital Markets (now Hypo Capital Markets, Inc.)
since 2004, as an Executive Director of Hypo Public Finance Bank
since September 2005, and the Chairman and President of Capital
Markets of Hypo Public Finance, New York, since June 2007, and
as an Executive Member of the Board of Directors of DEPFA Bank
plc. since October 2007, as the Chairman of the Administrative
Board of Collineo Asset Management GmbH since June 2007, and as
a Member of the Board of Directors of Collineo Asset Management
USA Inc since June 2007. He has previously served as the Global
Head of Credit Treasury, Head of Management Committee HVB
Americas and New York Branch Manager of HypoVereinsbank AG from
2002
Annex I-2
until 2003, and as the Deputy CEO of Hypo Public Finance Bank
and as the Head of Capital Markets of Hypo Public Finance from
2005 until 2007. Mr. Glynn is a United States citizen.
Tom Drelles,
age 49, has served since January 18,
2008 as Vice President of HRECC Sub Inc. He has served as
Managing Director of Hypo Public Finance Bank since April 2004.
He previously served as Managing Director of Hypo und
Vereinsbank from June 2000 until May 2004 and as Director of
Lion Capital Management from
2003-2004.
Mr. Drelles is a United States citizen.
Nancy Henderson,
age 37, has served since
January 18, 2008 as the Secretary of HRECC Sub Inc. She has
also served as Managing Director of Hypo Public Finance Bank and
Vice President of Hypo Public Finance USA, Inc. since March
2004. She previously served in various capacities at HVB Group
from September 1992 until March 2004. Ms. Henderson is a
United States citizen.
Chris Patronis,
age 44, has served since January 18,
2008 as Treasurer of HRECC Sub Inc. He has also served as
Managing Director of Hypo Public Finance Bank since April 2004.
He previoulsy served as Managing Director of Hypo und
Vereinsbank from June 1999 until April 2004. Mr. Patronis
is a citizen of the United States.
John Campbell
, age 47, has served as a Managing
Director of Hypo Public Finance USA Inc. since May 2006. He
previously served as the Senior Vice President, Head of
Transportation Finance of HSH Nordbank New York Branch from
August 2004 until May 2006, and as a Managing Director of PB
Capital Corporation from May 2003 until August 2004.
Mr. Campbell is a United States citizen.
Ken Gibbs
, age 50, has served as the Executive
Managing Director of DEPFA BANK since September 2007, as the
Chief Executive Officer of DEPFA First Albany Securities since
September 2007, as the Treasurer, on the Executive Committee and
as a Trustee of Citizens Budget Commission of the City of New
York since 1991, and on the Executive Committee of the
Securities Industry and Financial Markets Association since
1999. He previously served as a Member of the Board of the
Municipal Securities Rulemaking Board from 2000 until 2003, as a
Director and share owner of Dental Tribune America LLC until
2008, as a Member of the Board of 285 Central Park West
Corporation until 2007, as a 12.25% owner of Waste Solution
Group of Somerset (NJ) LLC until 2005, and as an Executive
Managing Director and in various other capacities at First
Albany Capital Lending from 1993 until September 2007.
Mr. Gibbs is a United States citizen.
Bradley Davidoff
, age 45, has served as a Managing
Director of Hypo Public Finance Bank since April 2004. He
previously served as a Managing Director of HypoVereinsbank AG
from January 1997 until March 2004. Mr. Davidoff is a
United States Citizen.
Stephen Altman,
age 48, has served as Chief Financial
Officer of Hypo Real Estate Capital Corporation since January,
2004. He previously served as Managing Director, Real Estate
Lending of Hypo Vereinsbank AG from
1998-2003.
Mr. Altman is a United States citizen.
Parent has informed the Company that each Parent Designee has
consented to serve as a director of the Company if appointed or
elected. None of the Parent Designees currently is a director
of, or holds any positions with, the Company. Parent has advised
the Company that, to the best of their knowledge, none of the
Parent Designees or any of their affiliates beneficially owns
any equity securities or rights to acquire any such securities
of the Company nor has any such person been involved in any
transaction with the Company or any of its directors, executive
officers or affiliates that is required to be disclosed pursuant
to the rules and regulations of the SEC other than with respect
to transactions between Parent, Purchaser and the Company that
have been described in the Schedule TO filed by Parent and
Purchaser with the SEC on February 13, 2008 or the
Schedule 14D-9.
In addition, Parent has informed the Company that none of the
individuals listed above has, during the past five years,
(i) been convicted in a criminal proceeding or
(ii) been a party to any judicial or administrative
proceeding that resulted in a judgment, decree or final order
enjoining the person from future
Annex I-3
violations of, or prohibiting activities subject to,
U.S. federal or state securities laws, or a finding of any
violation of U.S. federal or state securities laws.
CERTAIN
INFORMATION CONCERNING THE COMPANY
The authorized capital stock of the Company consists of
200,000,000 shares of common stock and
100,000,000 shares of preferred stock, par value $0.001 per
share. As of February 12, 2008, there were
25,725,333 shares of common stock outstanding and no shares
of preferred stock outstanding. The Companys Board
currently consists of eight members.
Only the holders of our common stock are entitled to vote at a
meeting of our stockholders. Each share of common stock entitles
the record holder to one vote on all matters submitted to a vote
of our stockholders.
CURRENT DIRECTORS
AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the names of the current directors and
executive officers of the Company, their offices in the Company,
if any, their principal occupations or employment for the past
five years, the length of their tenure as directors or officers
and the names of other public companies in which such persons
hold directorships. During the last five years, none of the
Company, its executive officers or directors has been
(i) convicted in a criminal proceeding (excluding traffic
violations and similar misdemeanors) or (ii) a party to any
judicial or administrative proceeding (except for matters that
were dismissed without sanction or settlement) that resulted in
a judgment, decree or final order enjoining such person from
future violations of, or prohibiting activities subject to,
federal or state securities laws, or a finding of any violation
of federal or state securities laws. All of the directors and
executive officers listed below are U.S. citizens, except
for Mr. Fenk and Ms. von Oesterreich, who are citizens
of Germany. The business address of each director or officer
listed below is
c/o Quadra
Realty Company, Inc., 622 Third Avenue, 30th Floor, New
York, NY 10017 and the telephone number is
(212) 671-6400.
Juergen Fenk,
age 42, has been vice chairman of our Board
of Directors since February 2007. Mr. Fenk has been the
chief executive officer of Parent since April 2006 and a member
of Parents board of directors since May 2003.
Mr. Fenk has been a member of the Board of Directors of
Hypo International since July 2003, where he served as a chief
risk officer for two years, overseeing lending activities in the
United States, Europe and Asia. From December 1999 to June 2003,
Mr. Fenk was general manager of Hypo Vereinsbank REC France,
Hypo Vereinsbanks real estate finance subsidiary in Paris.
Mr. Fenk has been involved in the real estate structured
finance business for the past 14 years and has served in
many functions in origination, underwriting, distribution and
risk management. He was actively involved in the spin-off of the
real estate lending business from Hypo Vereinsbank into Hypo
Real Estate Group.
Robert H. Mundheim,
age 74, has served as the Chairman of
the Board since February 2007. Mr. Mundheim has been of
counsel for the law firm Shearman & Sterling LLP since
March 1999. Shearman & Sterling LLP represents the
Parent, Hypo International and Hypo Real Estate Holding AG from
time to time. Mr. Mundheim formerly held the position of
senior executive vice president and general counsel of Salomon
Smith Barney Holdings Inc. Before that he was executive vice
president and general counsel of Salomon Inc., a firm which he
joined in September 1992. Prior to joining Salomon Inc.,
Mr. Mundheim was co-chairman of the New York law firm of
Fried, Frank, Harris, Shriver & Jacobson. Until 1992,
Mr. Mundheim was the University Professor of Law and
Finance at the University of Pennsylvania Law School, where he
had taught since 1965. He served as dean of that institution
from 1982 through 1989. Among his other professional activities,
Mr. Mundheim has been general counsel to the
U.S. Treasury Department
(1977-1980);
special counsel to the Securities and Exchange Commission
(1962-1963);
and vice
Annex I-4
chairman,
governor-at-large
and a member of the executive committee of the NASD
(1988-1991).
Mr. Mundheim was previously a member of the supervisory
board of Hypo Real Estate Holding AG, a position from which he
retired prior to completion of the Companys initial public
offering. He serves on the Board of Directors of
Arnhold & S. Bleichroder Holdings, Inc.
Robert R. Glauber,
age 68, has served as a director of
the Board since February 2007. Mr. Glauber is a lecturer at
the Kennedy School of Government at Harvard University. He was
chairman and chief executive officer of the National Association
of Securities Dealers, or NASD from September 2001 to August
2006. Prior to that he served as president of the NASD, from
November 2000 to September 2001. Prior to joining the NASD,
Mr. Glauber was a lecturer at the Kennedy School of
Government at Harvard University from 1992 until 2000, Under
Secretary of the Treasury for Finance from 1989 to 1992 and,
prior to that, was a professor of finance at the Harvard
Business School. Mr. Glauber is a director of Freddie Mac,
Moodys Corporation and XL Capital Ltd. Mr. Glauber
also previously served on the boards of the Federal Reserve Bank
of Boston, a number of Dreyfus mutual funds and the Investment
Company Institute.
Thomas F. McDevitt,
age 51, has served as a director of
the Board since February 2007. Mr. McDevitt is the managing
partner of Edgewood Capital Partners, an investment firm focused
on making and managing investments in the real estate and
mortgage arenas. Prior to founding Edgewood Capital Partners in
2002, Mr. McDevitt was a managing director in charge of the
large loan commercial mortgage backed securitization group at
Societe Generale. He was also a founder and partner of Meenan,
McDevitt & Co., a broker dealer and investment banking
firm, from 1991 until the company was sold to Societe Generale
in 1998. From 1988 to 1991, Mr. McDevitt ran the commercial
mortgage syndication desk at Citibank, N.A. and from 1984 to
1987 he was responsible for commercial mortgage sales in the
Mid-Atlantic region for Salomon Brothers. Mr. McDevitt is
currently an independent board member of Excelsior Buyout
Investors, LLC, the Excelsior Absolute Return Fund of Funds, LLC
and the Excelsior LaSalle Property Fund, Inc.
Bettina von Oesterreich,
age 40, has served as a director
of the Board since February 2007. Ms. von Oesterreich has been
the chief risk officer for Hypo International since September
2005 and was a member of the Board of Directors of Parent from
November 2005 until May 2007. Prior to joining Hypo
International, Ms. von Oesterreich served as a deputy chief
credit officer for Deutsche Bank AG, London where she was
responsible for credit risk management for Deutsche Banks
corporate and financial institutions counterparty risk
portfolios in Western Europe from September 2004 until September
2005. In connection with a special project, she managed hedge
fund and structured finance credits in credit risk management at
Deutsche Bank AG, New York, as managing director from February
2004 to August 2004. From March 2002 to January 2004, Ms. von
Oesterreich was chief credit officer at Eurohypo AG with credit
risk management responsibility for Eurohypos loan
portfolio, including its real estate investment banking business
in London and New York. Before joining Eurohypo in 2002, Ms. von
Oesterreich held various positions at Deutsche Bank since 1993,
including risk management for corporate, financial
institutions/capital markets business and real estate.
Ronald M. Stuart,
age 60, has served as a director of the
Board since February 2007. Mr. Stuart has over thirty years
of experience in the investment banking business. He began his
career at Salomon Brothers in 1969 where he was made a general
partner in 1979 and served as a member of the management
committee and the Board of Directors for four years until he
left the firm in 1989 to co-found his own investment firm, Voute
Coats Stuart & OGrady. After Voute Coats
Stuart & OGrady was purchased in 1990 by Credit
Suisse Securities (USA) LLC, Mr. Stuart became co-head of
the fixed income division of Credit Suisse and served as a
member of their management committee until 1991. From 1992 until
1996 Mr. Stuart was a general partner at
Oppenheimer & Co. as well as a member of that
firms management committee and a head of their fixed
income division. After leaving Oppenheimer & Co. in
1996, Mr. Stuart joined Daiwa Securities America, Inc.,
initially as an executive vice president and head of the
Annex I-5
commercial mortgage department and the fixed income division and
then as co-president and co-chief operating officer. From 1998
until he left in 2000, Mr. Stuart was a member of both the
global Board of Directors and the global management committee of
Daiwa Securities America Inc. Mr. Stuart founded and has
been president of Stuart Consulting LLC since September 2000.
Lawrence A. Weinbach,
age 68, has served as a director of
the Board since February 2007. Mr. Weinbach is a partner in
Yankee Hill Capital Management, LLC, a private equity firm. On
January 31, 2006, he retired as chairman of the Board of
Directors of Unisys Corporation, a worldwide information
services and technology company. Mr. Weinbach joined Unisys
in September 1997 as chairman, president, and chief executive
officer. In January 2004 his title changed to chairman and chief
executive officer and he held the position of chairman from
January 2005 until his retirement. He previously was managing
partner-chief executive of Andersen Worldwide, a global
professional services organization from 1989 to 1997 and had
held various senior executive positions with Andersen for a
number of years prior thereto. Mr. Weinbach is a director
of UBS, AG, Avon Products, Inc. and Discover Financial Services.
Evan F. Denner,
age 42, has served as the Companys
President and Chief Executive Officer since October 2006 and a
member of the Companys board of directors since February
2007. Mr. Denner joined Parent in February 2004 and has
served as its deputy chief executive officer since August 2005
and a director since March 2006. Mr. Denner has over
17 years of commercial real estate experience including
development, commercial appraisal, lending, securitization and
acquisition of non performing debt. Prior to joining Parent,
Mr. Denner was a director in the health care lending group
at Merrill Lynch where he was responsible for creating and
managing their real estate health care lending practice from
February 2003 to February 2004. Prior to Merrill Lynch,
Mr. Denner held various level executive positions at UBS,
GMACCM and Daiwa Securities, including a position as director of
real estate lending at UBS from February 2000 to June 2002.
Susan Sangillo Bellifemine,
age 52, has served as the
Companys Chief Operating Officer since November 2006 and
Secretary since October 2006. Ms. Sangillo Bellifemine has
been a managing director of Parent since March 2006.
Ms. Sangillo Bellifemine has over 20 years of combined
legal and financial services industry experience. Immediately
prior to joining Parent she was the principal for Susan Sangillo
Bellifemine LLC focusing on professional consulting in human
resources from October 2005 to March 2006. Ms. Sangillo
Bellifemine held various legal and executive level positions at
Prudential Financial from February 1993 to August 2004. She was
a senior vice president at Prudential Securities from January
1994 through September 1997 and a corporate vice president at
Prudential Financial from September 1997 to August 2004.
Steven M. Sherwyn,
age 47, has served as the
Companys Chief Financial Officer and Treasurer since
October 2006. Mr. Sherwyn joined Parent in May of 2004 as a
director in charge of contract finance and has served as senior
director and head of Parents strategic business
opportunities since March 2006 and was promoted to Managing
Director in March 2007. Prior to joining Parent,
Mr. Sherwyn provided legal services for The Winter Group, a
residential mortgage conduit, from July 2003 to April 2004. From
April 2000 to November 2002, Mr. Sherwyn was with SG
Cowen Securities, Inc. where he served in the capacity as a
director in the asset-backed securities and CMBS divisions and a
managing director in the sports finance division.
CORPORATE
GOVERNANCE AND BOARD MATTERS
During 2007, the Companys Board of Directors met nine
times. During 2007, the Audit Committee met five times, the
Compensation Committee met one time, the Nominating and
Corporate Governance Committee met one time and the Investment
Oversight Committee met four times. During 2007, each member of
the Board attended at least 75% of the aggregate of all Board
meetings and meetings of committees of which he or she is a
member. Pursuant to our
Annex I-6
Corporate Governance Guidelines, directors are invited and
encouraged to attend the Annual Stockholders Meeting. The
Company completed its initial public offering in February 2007,
and has not held an Annual Stockholders Meeting.
Board
Independence
The Board of Directors has determined that Robert R. Glauber,
Thomas F. McDevitt, Robert H. Mundheim, Ronald M. Stuart and
Lawrence A. Weinbach are independent under the rules
of the New York Stock Exchange (NYSE). The Board of
Directors has also determined that each of the members of each
committee of the Board of Directors meets the independence
requirements applicable to such committee under the NYSE and SEC
rules and regulations.
Committees of the
Board of Directors
Our Board of Directors has established four committees
consisting solely of independent directors, the principal
functions of which are briefly described below. Matters put to a
vote at any one of our four committees must be approved by a
majority of the directors on the committee who are present at a
meeting, in person or as otherwise permitted by our bylaws, at
which there is a quorum or by unanimous written consent of the
directors on that committee.
Audit
Committee
Our Board of Directors has established an audit committee, which
is composed of three of our independent directors:
Messrs. Weinbach, Glauber and McDevitt. Mr. Weinbach
chairs the committee and has been determined by our Board of
Directors to be an audit committee financial expert
as that term is defined by the SEC. The audit committee assists
the Board of Directors in overseeing:
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our accounting and financial reporting processes;
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the integrity and audits of our consolidated financial
statements;
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our compliance with legal and regulatory requirements;
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the qualifications and independence of our independent
registered public accounting firm; and
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the performance of our independent registered public accounting
firm and any internal auditors.
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The committee is also responsible for engaging an independent
registered public accounting firm, reviewing with the
independent registered public accounting firm the plans and
results of the audit engagement, approving professional services
provided by the independent registered public accounting firm
and considering the range of audit and non-audit fees. The audit
committee adopted a charter on February 13, 2007 and
amended it on August 1, 2007. A current copy of the
applicable committee charter is available to security holders on
the Companys Web site at www.quadrarealty.com, under
Corporate Governance at Committees.
Compensation
Committee
General.
Our Board of Directors has
established a compensation committee, which is composed of three
of our independent directors: Messrs. Mundheim, Glauber and
Stuart. Mr. Mundheim chairs the committee. The principal
functions of the compensation committee are to:
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evaluate the performance of our chief executive officer;
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evaluate the performance of Parent;
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Annex I-7
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review the compensation and fees payable to Parent under our
Management Agreement;
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administer our incentive plans; and
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produce a report on executive compensation required to be
included in our proxy statement for our annual meetings.
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The compensation committee has a charter adopted on
February 13, 2007 and amended on May 1, 2007. A
current copy of the applicable committee charter is available to
security holders on the Companys Web site at
www.quadrarealty.com, under Corporate Governance at
Committees.
Scope of Authority.
The compensation committee
has the authority to engage outside advisors to assist the
committee in the performance of its duties, however, the
compensation committee may not delegate its authority to others.
Roles of Executives in Establishing
Compensation.
The chief executive officer may
make recommendations to the compensation committee regarding the
Companys Equity Plans with respect to the Parent, its
employees, and the Companys executive officers other than
the chief executive officer and the directors.
Nominating and
Corporate Governance Committee
Our Board of Directors has established a nominating and
corporate governance committee, which is composed of three of
our independent directors: Messrs. Mundheim, Glauber and
Stuart. Mr. Mundheim chairs the committee. The nominating
and corporate governance committee is responsible for:
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identifying, recruiting and recommending to the full Board of
Directors qualified candidates for election as directors and
recommending a slate of nominees for election as directors at
the annual meeting of stockholders;
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developing and recommending to the Board of Directors corporate
governance guidelines, including the committees selection
criteria for director nominees;
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reviewing and making recommendations on matters involving
general operation of the Board of Directors and our corporate
governance;
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recommending to the Board of Directors nominees for each
committee of the Board of Directors; and
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annually facilitating the assessment of the Board of Directors
as a whole and of the individual directors and reports thereon
to the Board of Directors.
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The nominating and corporate governance committee adopted a
charter on February 13, 2007 and amended it on May 1,
2007. A current copy of the applicable committee charter is
available to security holders on the Companys Web site at
www.quadrarealty.com, under Corporate Governance at
Committees.
Investment
Oversight Committee
Our Board of Directors has also established an investment
oversight committee, which is composed of three of our
independent directors: Messrs. Stuart, McDevitt and
Mundheim. Mr. Stuart chairs the committee. The investment
oversight committee is responsible for reviewing our investments
that are in contravention of our investment guidelines as well
as certain of our investments that involve conflicts of interest
stemming from our relationship with Parent.
Annex I-8
Director
Nominations
Criteria for Board Membership.
The nominating
and corporate governance committee is responsible for assessing
the appropriate balance of qualifications required of Board
members. In selecting candidates for appointment or re-election,
at a minimum, the nominating and corporate governance committee
considers (a) whether the nominee has demonstrated, by
significant accomplishment in his or her field, an ability to
make a meaningful contribution to the Boards oversight of
the business and affairs of the Company, (b) the
nominees reputation for honesty and ethical conduct in his
or her personal and professional activities, and
(c) whether the nominee meets the independence standards
under the NYSE listing requirements. Additional factors that the
committee may consider include a candidates specific
experiences and skills, relevant industry background and
knowledge, time availability in light of other commitments,
potential conflicts of interest, material relationships with the
Company and independence from Parent and the Company.
Stockholder Nominees.
The nominating and
corporate governance committee will consider proposals from
stockholders for nominees for director. Any such nominations
should be submitted to the nominating and corporate governance
committee
c/o the
Secretary of the Company, 622 Third Avenue, 31st Floor, New
York, NY 10017, and should include the following information:
(a) all information relating to such nominee that is
required to be disclosed pursuant to Regulation 14A under
the Exchange Act (including such persons written consent
to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) the names and
addresses of the stockholders making the nomination and the
number of shares of the Companys common stock which are
owned beneficially and of record by such stockholders; and
(c) appropriate biographical information and a statement as
to the qualification of the nominee, and should be submitted in
the time frame described in the Bylaws of the Company.
Stockholder
Communication
Generally, stockholders who have questions or concerns should
contact our Investor Relations Department. Investor Relations
contact is Evan Smith, CFA, Telephone (toll free): 866 QUADRA 4,
Fax: 212 850 5790,
E-mail: ir@quadrarealty.com.
Or By mail: Quadra Realty Trust, ATTN: Investor Relations,
c/o Hypo
Real Estate Capital Corporation, 622 Third Avenue, New York, New
York 10017.
Any interested parties desiring to communicate with the Chairman
of the Board and the other independent directors regarding the
Company may directly contact such directors by delivering such
correspondence in care of the Companys Secretary at Quadra
Realty Trust, Inc.,
c/o Hypo
Real Estate Capital Corporation, 622 Third Avenue,
31st Floor, New York, NY 10017. Communications will be
distributed to the Board, or to any individual director or
directors as appropriate, depending on the facts and
circumstances outlined in the communications. Items that are
unrelated to the duties and responsibilities of the Board may be
excluded, such as:
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|
|
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junk mail and mass mailings,
|
|
|
|
resumes and other forms of job inquiries,
|
|
|
|
surveys, and
|
|
|
|
solicitations or advertisements.
|
In addition, any material that is unduly hostile, threatening,
or illegal in nature may be excluded, provided that any
communication that is filtered out will be made available to any
outside director upon request.
Annex I-9
COMPENSATION OF
DIRECTORS
Any member of the Companys Board of Directors who is also
an employee of Parent or its affiliates, and any other
non-independent directors, does not receive additional
compensation for serving on the Companys Board of
Directors. Each independent director receives an annual retainer
of $100,000 in quarterly payments in advance, with one-half of
this sum being paid in cash (the cash portion) and
one-half in the Companys common stock (the stock
portion). Directors may elect to defer the receipt of all
or any portion of the retainer fee pursuant to the
Companys Independent Director Deferred Compensation Plan,
discuss below. We also reimburse our independent directors for
their reasonable out-of-pocket expenses incurred in connection
with their performance of their duties as directors. Because of
their employment with the Parent, Juergen Fenk, Evan F. Denner
and Bettina von Oesterreich did not receive an annual retainer
for their services as a director during 2007. The table below
shows the amounts we paid our independent directors during 2007.
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|
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|
|
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|
|
|
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|
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Other(1)
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|
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Fees
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|
|
|
|
|
|
|
|
FAS 123R
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|
|
|
|
|
Earned or
|
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|
|
|
|
|
|
|
adjusted
|
|
|
Total
|
|
|
|
Paid in
|
|
|
Stock
|
|
|
Stock Units
|
|
|
value at
|
|
|
Compensation
|
|
Name
|
|
Cash
|
|
|
Award
|
|
|
Awarded
|
|
|
12/31/2007
|
|
|
Recognized
|
|
|
Robert R. Glauber
|
|
$
|
42,937
|
|
|
$
|
42,896
|
|
|
|
|
|
|
$
|
|
|
|
$
|
85,833
|
|
Thomas F. McDevitt(2)
|
|
$
|
42,917
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|
|
$
|
|
|
|
|
3,771
|
|
|
$
|
30,319
|
|
|
$
|
73,236
|
|
Robert H. Mundheim(3)
|
|
$
|
|
|
|
$
|
|
|
|
|
7,542
|
|
|
$
|
60,638
|
|
|
$
|
60,638
|
|
Ronald M. Stuart(4)
|
|
$
|
17,167
|
|
|
$
|
|
|
|
|
6,034
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|
|
$
|
48,510
|
|
|
$
|
65,677
|
|
Lawrence A. Weinbach(5)
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|
$
|
|
|
|
$
|
|
|
|
|
7,542
|
|
|
$
|
60,638
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|
|
$
|
60,638
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|
|
|
|
(1)
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Stock units awarded are a method of recording deferrals under
the Independent Director Deferred Compensation Plan. The
deferrals vest immediately and are payable solely in cash and
therefore may not be converted into any form of equity. The
amount of the deferral payable is based on the price of the
Companys common stock upon the date of eventual payment.
Therefore the amount recognized as compensation expense for such
deferrals are subject to 123R adjustments for financial
statement reporting purposes.
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(2)
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Mr. McDevitt elected to defer all of the stock portion of
his retainer fee pursuant to the Independent Director Deferred
Compensation Plan.
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(3)
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|
Mr. Mundheim elected to defer all of the cash portion and
stock portion of his retainer fee pursuant to the Independent
Director Deferred Compensation Plan.
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|
(4)
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|
Mr. Stuart elected to defer $25,750 of the cash portion and
all of the stock portion of his retainer fee pursuant to the
Independent Director Deferred Compensation Plan.
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(5)
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Mr. Weinbach elected to defer all of the cash portion and
all of the stock portion of his retainer fee pursuant to the
Independent Director Deferred Compensation Plan.
|
Independent
Director Deferred Compensation Plan
We have adopted the Quadra Realty Trust, Inc. Independent
Director Deferred Compensation Plan under which each of our
independent directors may elect to defer the receipt of all or a
portion of the retainer fees described above, whether the fees
are payable in the form of cash or shares of our common stock.
We have established a book account for each independent director
who participates in the Independent Director Deferred
Compensation Plan, which account is credited with a number of
stock units equal to the amount of compensation deferred divided
by the fair market value of one share of our common stock as of
the last business day of the prior quarter. Each stock unit
credited to an independent directors account under the
Independent Director Deferred Compensation Plan is credited with
dividend equivalents in the form of additional stock units on
the date on which dividends are paid with
Annex I-10
respect to outstanding shares of our common stock. The number of
additional units to be credited is determined by dividing the
amount of the dividend by the fair market value of one share of
our common stock as of the dividend payment date, and
multiplying that result by the number of stock units credited to
the independent directors account. All stock units
credited to an independent directors account under our
Independent Director Deferred Compensation Plan will be paid in
cash within 60 days following the termination of the
independent directors service with the Company for any
reason.
Pursuant to the Merger Agreement, immediately prior to the
Effective Time, (i) each independent director who holds any
outstanding and unsettled deferred compensation units issued
under the Companys Independent Director Deferred
Compensation Plan will become entitled to a lump sum payment in
cash, without interest, in the aggregate amount equal to the
balance credited to such holders deferred compensation
account maintained by the Company under such plan, and
(ii) each such holders stock units will be cancelled
and of no further force and effect. Parent will pay, or direct
the exchange agent for the transaction to pay, to each such
holder, his deferred compensation payment as promptly as
reasonably practicable following the Effective Time, at which
time such holder will cease to possess any rights to any
compensation from the Company or the surviving corporation. For
the purpose of determining the deferred compensation payment,
the Fair Market Value of one share of the
Companys common stock, as such term is used in the
Companys Independent Director Deferred Compensation Plan,
is equal to the Offer Price. Messrs. Weinbach and Mundheim
each have 10,933.38 deferred compensation units, will each
receive 358.68 additional deferred compensation units in respect
of the $0.3494 per share dividend and will each be entitled
to a cash payment of $120,267. Mr. Stuart has 8,746.70
deferred compensation units, will receive 286.94 additional
deferred compensation units in respect of the $0.3494 per
share dividend and will be entitled to a cash payment of
$96,214. Mr. McDevitt has 5,466.69 deferred compensation
units, will receive 179.34 additional deferred compensation
units in respect of the $0.3494 per share dividend and will
be entitled to a cash payment of $60,134.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
The Company has not paid, and we do not intend to pay, any cash
compensation to our executive officers and we do not currently
intend to adopt any policies with respect thereto. Under our
Management Agreement, Parent provides us with a management team,
including our chief executive officer, chief financial officer
and chief operating officer or similar positions. We do not have
agreements with any of our executive officers or any employees
of Parent with respect to their compensation. Parent determines
the levels of base salary and cash incentive compensation that
may be earned by our executive officers, based on the time
required for the performance of the duties of Parent under the
Management Agreement and such other factors as Parent may
determine are appropriate. Parent also determines whether and to
what extent our executive officers will be provided with
pension, deferred compensation and other employee benefits plans
and programs. Cash compensation paid to our executive officers
is paid by Parent from the fees paid by us to Parent under the
Management Agreement. We do not control how such fees are
allocated by Parent to its employees and have been advised by
Parent that none of our executive officers is entitled to any
part of such fees, except as may be determined by Parent in its
discretion.
Annex I-11
2007 Summary
Compensation
The following table summarizes the total compensation for 2007
for our chief executive officer, chief financial officer and
chief operating officer, referred to as the named
executive officers.
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Stock Awards
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Name and Principal Position
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($)(1)
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Total
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Evan F. Denner
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$
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66,180
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$
|
66,180
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President and Chief Executive Officer
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|
|
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Steven M. Sherwyn
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$
|
39,708
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|
$
|
39,708
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Chief Financial Officer and Treasurer
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|
|
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Susan Sangillo Bellifemine
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$
|
33,091
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|
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$
|
33,091
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Chief Operating Officer and Secretary
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|
|
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|
|
|
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(1)
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|
The amounts listed in this column reflect the dollar amount
recognized for financial statement reporting purposes for the
period from February 21, 2007 (commencement of operations)
to September 30, 2007, in accordance with FAS 123(R).
Assumptions used in the calculation of these amounts are
included in Note 8 Stockholders
Equity to our unaudited financial statements for the
quarter ended September 30, 2007, included in our Quarterly
Report on
Form 10-Q
filed with the SEC on November 13, 2007.
|
2007 Grants of
Plan-Based Awards
The following table summarizes grants of plan-based awards made
to our named executive officers in 2007.
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All Other
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Stock Awards:
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Grant Date Fair
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Grant
|
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Approval
|
|
Number of Shares
|
|
Value of Stock and
|
Name
|
|
Date
|
|
Date
|
|
of Stock or Units
|
|
Option Awards(1)
|
|
Evan F. Denner
|
|
|
2/21/2007
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|
|
|
2/13/2007
|
|
|
|
33,333
|
(2)
|
|
$
|
66,180
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Steven M. Sherwyn
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|
|
2/21/2007
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|
|
|
2/13/2007
|
|
|
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20,000
|
(3)
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|
$
|
39,708
|
|
Chief Financial Officer and Treasurer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Susan Sangillo Bellifemine
|
|
|
2/21/2007
|
|
|
|
2/13/2007
|
|
|
|
16,667
|
(4)
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|
$
|
33,091
|
|
Chief Operating Officer and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The amounts listed in this column reflect the dollar amount
recognized for financial statement reporting purposes for the
quarter ended September 30, 2007, in accordance with
FAS 123(R).
|
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(2)
|
|
On February 21, 2007, Mr. Denner was granted
33,333 shares of restricted common stock, which become
fully vested on February 21, 2010, the third anniversary of
the grant date.
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|
(3)
|
|
On February 21, 2007, Mr. Sherwyn was granted
20,000 shares of restricted common stock, which become
fully vested on February 21, 2010, the third anniversary of
the grant date.
|
|
(4)
|
|
On February 21, 2007, Ms. Sangillo Bellifemine was
granted 16,667 shares of restricted common stock, which
become fully vested on February 21, 2010, the third
anniversary of the grant date.
|
Because our executive officers are employees of Parent, we do
not pay cash compensation to them directly in return for their
services to us and we do not have employment agreements with any
of our executive officers.
Annex I-12
In connection with the consummation of our initial public
offering (IPO), we determined to make grants of
restricted stock to certain of our executive officers. These
awards were made in recognition of such individuals
efforts on our behalf in connection with our formation and the
IPO and to provide a retention element to their compensation.
Each restricted stock award will become fully vested on
February 21, 2010, the third anniversary of the grant date.
2007 Outstanding
Equity Awards
The following table summarizes the number of outstanding equity
award held by each of our named executive officers as of
December 31 2007.
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|
|
|
|
|
|
|
|
|
|
Number of Shares or Units of
|
|
|
Market Value of Shares or Units
|
|
|
|
Stock That Have Not Vested
|
|
|
of Stock That Have Not Vested(1)
|
|
|
Evan F. Denner
|
|
|
33,333
|
(2)
|
|
$
|
267,997
|
|
President and Chief Executive Officer
|
|
|
|
|
|
|
|
|
Steven M. Sherwyn
|
|
|
20,000
|
(3)
|
|
$
|
160,800
|
|
Chief Financial Officer and Treasurer
|
|
|
|
|
|
|
|
|
Susan Sangillo Bellifemine
|
|
|
16,667
|
(4)
|
|
$
|
134,003
|
|
Chief Operating Officer and Secretary
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Based on the closing market price of the Companys common
stock on December 31, 2007 of $8.04. The Merger Agreement
provides that immediately prior to the Effective Time, each
outstanding restricted share of the Companys common stock
will vest, the restrictions thereon will lapse and each
restricted share will be cancelled and converted into the right
to receive $10.6506 per share in cash (less applicable
withholding taxes), less the amount of any dividends declared or
paid (other than the Dividend) on or between the date of the
Offer and the Acceptance Date. Immediately prior to the
Effective Time, the restricted shares will vest and
Mr. Denner will be entitled to receive an aggregate cash
payment of $355,016, Mr. Sherwyn will receive an aggregate
cash payment of $213,012, and Ms. Sangillo Bellifemine will
receive an aggregate cash payment of $177,514. In addition, the
$0.3494 per share dividend payment being paid by the Company
pursuant to the Merger Agreement entitles Mr. Denner,
Mr. Sherwyn and Ms. Sangillo Bellifemine to an
additional $11,647, $6,988 and $5,823, respectively.
|
|
(2)
|
|
On February 21, 2007, Mr. Denner was granted
33,333 shares of restricted common stock, which become
fully vested on February 21, 2010, the third anniversary of
the grant date.
|
|
(3)
|
|
On February 21, 2007, Mr. Sherwyn was granted
20,000 shares of restricted common stock, which become
fully vested on February 21, 2010, the third anniversary of
the grant date.
|
|
(4)
|
|
On February 21, 2007, Ms. Sangillo Bellifemine was
granted 16,667 shares of restricted common stock, which
become fully vested on February 21, 2010, the third
anniversary of the grant date.
|
Potential Payment
Upon Termination or Change of Control
Unless otherwise determined by the plan administrator of our
Equity Plan, if our Management Agreement with Parent is
terminated or not renewed other than for cause (as defined in
the Management Agreement), each outstanding award under the
Equity Plan held by a participant who is not an independent
director will become immediately vested, exercisable
and/or
payable. The Merger Agreement provides that immediately prior to
the Effective Time, each outstanding restricted shares of the
Companys common stock will vest, the restrictions thereon
will lapse and each restricted share will be cancelled and
converted into the right to receive $10.6506 per share in cash
(without interest and less applicable withholding taxes), less
the amount of any dividends declared or paid (other than the
Dividend) on or between the date of the Offer and the Acceptance
Date. Immediately prior to the Effective Time, the restricted
shares will vest and Mr. Denner will be entitled to receive
an aggregate cash
Annex I-13
payment of $355,016, Mr. Sherwyn will receive an aggregate
cash payment of $213,012, and Ms. Sangillo Bellifemine will
receive an aggregate cash payment of $177,514. In addition, the
$0.3494 per share dividend payment being paid by the Company
pursuant to the Merger Agreement entitles Mr. Denner,
Mr. Sherwyn and Ms. Sangillo Bellifemine to an
additional $11,647, $6,988 and $5,823, respectively.
Equity Incentive
Plans
Equity
Plan
We have adopted the Quadra Realty Trust, Inc. Equity Plan (the
Equity Plan), which provides for the issuance of
equity-based awards, including stock options, restricted stock,
restricted stock units, unrestricted stock awards and other
awards based on our common stock that may be made by us to our
directors and officers and to our advisors and consultants who
are providing services to the Company (which may include
employees of Parent and its affiliates) as of the date of grant
of the award. Shares of common stock to be issued to our
independent directors in respect of their fees are issued under
this plan. An aggregate of 1,800,000 shares of our common
stock are reserved for issuance under the Equity Plan. As of
September 30, 2007, there were 1,677,632 shares
available for issuance under the Equity Plan.
Manager Equity
Plan
We have adopted the Quadra Realty Trust, Inc. Manager Equity
Plan, which provides for the issuance of equity-based awards,
including stock options, restricted stock, restricted stock
units, unrestricted stock awards and other awards based on our
common stock that may be made by the Company to Parent. An
aggregate of 700,000 shares of our common stock are
reserved for issuance under the Manager Equity Plan.
Upon consummation of our IPO, we granted Parent 600,000 fully
vested shares of our common stock under the Manager Equity Plan,
at fair value of $9.0 million at date of grant. These
shares are subject to Parents right to demand registration
of the shares for resale pursuant to a registration rights
agreement. Further, the registration rights agreement requires
us to register, upon request, any or all of the
600,000 shares for resale in the event we register any
other shares of our common stock for sale. The registration
rights are limited under certain conditions including
lock-up
agreements, hold back provisions and underwriters opinion
with respect to the affect of the registration of the shares on
the market for the Companys common stock. At
September 30, 2007, 100,000 shares remained available
for issuance under the Manager Equity Plan.
Annex I-14
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain ownership information
with respect to our common stock as of February 1, 2008,
for those persons known to us who directly or indirectly own,
control or hold with the power to vote 5% or more of our
outstanding common stock, and all executive officers and
directors, individually and as a group. The number of shares
owned and the ownership percentage in the following table is
based on 25,725,333 shares of common stock outstanding as
of February 1, 2008. The address of each executive officer
and director listed below is
c/o Hypo
Real Estate Capital Corporation, 622 Third Avenue, New York, New
York 10017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership
|
|
5% Beneficial Owners
|
|
Shares
|
|
|
Percentage
|
|
|
Hypo Real Estate Capital Corporation
|
|
|
8,930,100
|
(1)
|
|
|
34.7
|
%
|
622 Third Avenue, New York, New York 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thornburg Investment Management, Inc.
|
|
|
3,426,223
|
(2)
|
|
|
13.32
|
%
|
119 E. Marcy Street, Santa Fe, New Mexico 87501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third Avenue Management LLC
|
|
|
2,333,700
|
(3)
|
|
|
9.07
|
%
|
622 Third Avenue, 32nd Floor, New York, New York 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RS Investment Management Co. LLC
|
|
|
1,929,905
|
(4)
|
|
|
7.5
|
%
|
388 Market Street, Suite 1700, San Francisco,
California 94111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aberdeen Asset Management PLC
|
|
|
1,365,460
|
(5)
|
|
|
5.3
|
%
|
10 Queens Terrace, Aberdeen, Scotland X0 AB10 1YG
|
|
|
|
|
|
|
|
|
Executive Officers and
Directors
|
|
|
|
|
|
|
|
|
Juergen Fenk
|
|
|
33,333
|
(6)
|
|
|
|
*
|
Robert R. Glauber
|
|
|
5,233
|
|
|
|
|
*
|
Thomas F. McDevitt
|
|
|
-0-
|
(7)
|
|
|
|
*
|
Robert H. Mundheim
|
|
|
9,000
|
(8)
|
|
|
|
*
|
Bettina von Oesterreich
|
|
|
-0-
|
|
|
|
|
*
|
Ronald M. Stuart
|
|
|
-0-
|
(9)
|
|
|
|
*
|
Lawrence A. Weinbach
|
|
|
-0-
|
(10)
|
|
|
|
*
|
Evan F. Denner
|
|
|
33,433
|
(11)
|
|
|
|
*
|
Susan Sangillo Bellifemine
|
|
|
18,167
|
(12)
|
|
|
|
*
|
Steven M. Sherwyn
|
|
|
20,000
|
(13)
|
|
|
|
*
|
All directors and executive officers as a group
|
|
|
119,166
|
(14)
|
|
|
|
*
|
|
|
|
*
|
|
Less than 1%
|
|
(1)
|
|
Includes 600,000 shares granted pursuant to the Manager
Equity Plan, which vested immediately upon grant,
8,330,000 shares issued to Parent in connection with the
contribution of the initial assets and 100 shares issued to
Parent prior to this offering.
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|
(2)
|
|
The indicated ownership is based solely on Amendment No. 2
to the Schedule 13G filed with the SEC by the beneficial
owners on January 10, 2008.
|
|
(3)
|
|
The indicated ownership is based solely on the Schedule 13D
filed with the SEC by the beneficial owners on February 1,
2008. The Schedule 13D was filed on behalf of Third Avenue
Management LLC (TAM). TAM is a registered investment
adviser that acts as direct adviser to certain investment
companies and other funds, as a sub-adviser to certain other
institutions, and as an adviser to separately managed accounts.
|
|
(4)
|
|
The indicated ownership is based solely on the Schedule 13G
filed with the SEC by the beneficial owners on February 8,
2008, representing beneficial ownership as of
|
Annex I-15
|
|
|
|
|
December 31, 2007. The shares beneficially owned by RS
Investment Management Co. LLC are owned by a group consisting of
Guardian Life Insurance Company of America, Guardian Investor
Services LLC, RS Investment Management Co. LLC and RS Partners
Fund. The Guardian Life Insurance Company of America is an
insurance company and the parent company of Guardian Investor
Services LLC and RS Investment Management Co. LLC. Guardian
Investor Services LLC is a registered investment adviser, a
registered broker-dealer, and the parent company of RS
Investment Management Co. LLC. RS Investment Management Co. LLC
is a registered investment adviser whose clients have the right
to receive or the power to direct the receipt of dividends from,
or the proceeds from the sale of, the common stock. No
individual clients holdings of the common stock, except
for RS Partners Fund, are more than five percent of the
outstanding common stock. RS Partners Fund is a registered
investment company and has shared dispositive and voting power
of 1,472,935 shares.
|
|
(5)
|
|
The indicated ownership is based solely on the Schedule 13G
filed with the SEC by the beneficial owners on January 24,
2008. The Schedule 13G was filed on behalf of Aberdeen
Asset Management PLC, a registered investment adviser.
|
|
(6)
|
|
Represents shares of restricted stock that vest on
February 21, 2010, the third anniversary from the date of
grant.
|
|
(7)
|
|
Does not include 5,466.69 stock units granted pursuant to the
Companys Independent Director Deferred Compensation Plan,
which are fully vested and payable in cash immediately following
termination of service.
|
|
(8)
|
|
Does not include 10,933.38 stock units granted pursuant to the
Companys Independent Director Deferred Compensation Plan,
which are fully vested and payable in cash immediately following
termination of service.
|
|
(9)
|
|
Does not include 8,746.70 stock units granted pursuant to the
Companys Independent Director Deferred Compensation Plan,
which are fully vested and payable in cash immediately following
termination of service.
|
|
(10)
|
|
Does not include 10,933.38 stock units granted pursuant to the
Companys Independent Director Deferred Compensation Plan,
which are fully vested and payable in cash immediately following
termination of service.
|
|
(11)
|
|
Includes 33,333 shares of restricted stock that vest on
February 21, 2010, the third anniversary from the date of
grant.
|
|
(12)
|
|
Includes 16,667 shares of restricted stock that vest on
February 21, 2010, the third anniversary from the date of
grant.
|
|
(13)
|
|
Represents shares of restricted stock that vest on
February 21, 2010, the third anniversary from the date of
grant.
|
|
(14)
|
|
Does not include an aggregate of 36,080.15 stock units granted
pursuant to the Companys Independent Director Deferred
Compensation Plan, which are fully vested and payable in cash
immediately following termination of service.
|
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act, requires our executive
officers and directors and the holders of greater than 10% of
our common stock to file initial reports of ownership and
reports of changes in ownership with the SEC. Executive officers
and directors are required by SEC regulations to furnish us with
copies of these reports. Based solely on a review of the copies
of these reports furnished to us and written representations
from such executive officers, directors and stockholders with
respect to the period from February 16, 2007 through
December 31, 2007, we are not aware of any required
Section 16(a) reports that were not filed on a timely basis.
Annex I-16
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Management
Agreement
In connection with the IPO, the Company entered into a
Management Agreement with Parent (the Management
Agreement), pursuant to which Parent provides day-to-day
management of the Companys operations. The Management
Agreement has an initial term expiring on June 30, 2009,
and will automatically be renewed for one-year terms unless
terminated by the Company or Parent by notice given prior to the
end of the then-current term. The Management Agreement may not
be terminated prior to the end of its term except by the Company
for cause. If the Company chooses not to renew the Management
Agreement, without cause, at the end of its then-current term,
the Company must pay Parent a termination fee, upon expiration,
equal to two times the sum of the base management fee and the
incentive fee, both as earned by Parent during the
12-month
period immediately preceding the most recently completed
calendar quarter prior to the date of expiration. The Company
may only elect not to renew the Management Agreement without
cause with the consent of the majority of the Companys
independent directors. In addition, following any termination of
the Management Agreement, the Company must pay Parent all
compensation accruing to the date of termination. Neither the
Company nor Parent may assign the Management Agreement in whole
or in part to a third party without the written consent of the
other party, except that Parent may delegate the performance of
any of its responsibilities to any of its affiliates so long as
Parent remains liable for such affiliates performance.
Pursuant to the Merger Agreement, if the Company terminates the
Merger Agreement and accepts a superior proposal (as defined in
the Merger Agreement) involving the payment of all cash for 100%
of the shares (including those owned by Hypo Holding and its
affiliates) and having terms otherwise substantially similar to
the Merger Agreement (including expected timing), Parent has
agreed to, among other things, at the Companys request
terminate the Management Agreement and all other contracts
between the Company on the one hand and Parent or its affiliates
on the other hand, with such termination to be effective
immediately prior to consummation of the transaction
contemplated by the superior proposal. If the Company requests
that the Management Agreement be terminated as contemplated by
the previous sentence, notwithstanding any terms of the
Management Agreement to the contrary, the Company shall,
contemporaneously with such termination, pay to Parent in cash
50% of the termination fee that would otherwise be due under the
Management Agreement.
Registration
Rights Agreement
At the time of consummation of the IPO, the Company issued to
Parent 8,330,000 shares of the Companys common stock
as partial consideration for the contribution by Parent of the
Companys initial assets. The Company entered into a
registration rights agreement with Parent with respect to the
common stock received by Parent upon consummation of the IPO and
any shares of the Companys common stock which Parent may
receive from the Company as part of its incentive fee under the
Management Agreement between Parent and the Company or pursuant
to the Companys Manager Equity Plan or otherwise. Pursuant
to such registration rights agreement, the Company has granted
to Parent demand registration rights to have its shares of
registered for sale no more than once in any six month period
and the right to piggy-back its shares of the
Companys common stock in registration statements that the
Company might file in connection with any future public offering
so long as Parent is the Companys manager. Notwithstanding
the foregoing, any registration will be subject to cutback
provisions and the Company will be permitted to suspend the use,
from time to time, of the prospectus that is part of the
registration statement (and therefore suspend sales under the
registration statement) for certain periods, referred to as
blackout periods. The Company does not anticipate
that Parent will exercise any of its rights under the
Registration Rights Agreement during the Offer Period.
Annex I-17
Initial Asset
Contribution Agreement
The Company acquired its initial assets, which consisted of
commercial mortgage loans (construction loans, bridge loans and
mezzanine loans) from Parent upon the completion of the IPO on
February 21, 2007 pursuant to a contribution agreement
between the Company and Parent (the Contribution
Agreement). The fair value of the acquired assets was
approximately $266.2 million, including approximately $5.2
million of origination fees. In exchange for these assets, the
Company issued 8,330,000 shares of common stock to Parent
at a fair value of approximately $125 million at the date
of contribution and paid approximately $141.2 million in
cash from the proceeds of the IPO.
Restricted
Shares
Concurrently with the Companys IPO, the Company issued to
Parent 600,000 shares (the Parent Incentive
Shares) of the Companys common stock pursuant to the
Companys Manager Equity Plan having a fair value of
$9.0 million at date of grant. The restrictions on these
shares lapsed immediately and their fair value was expensed as
compensation in the Companys quarterly report on
Form 10-Q
for the period ended March 31, 2007.
The Company issued 120,000 shares of restricted shares to
certain employees of Parent, some of whom are also officers or
directors of the Company, with a fair value of $1.8 million
at the date of grant. The shares granted vest on
February 21, 2010, three years from the date of grant.
The Merger Agreement provides that immediately prior to the
Effective Time, each outstanding restricted share issued under
the Companys equity compensation plans will vest, the
restrictions thereon will lapse, and each restricted share will
be cancelled and converted into the right to receive the Merger
Consideration. Messrs. Denner and Fenk each own 33,333
restricted shares. In addition, Mr. Sherwyn, the
Companys chief financial officer, owns 20,000 restricted
shares and Ms. Sangillo Bellifemine, the Companys
chief operating officer, owns 16,667 restricted shares. At the
Effective Time, Messrs. Denner and Fenk will be entitled to an
aggregate cash payment in respect of such restricted shares in
the amount of $355,016, Mr. Sherwyn will be entitled to an
aggregate cash payment of $213,012, and Ms. Sangillo Bellifemine
will be entitled to an aggregate cash payment of $177,514. The
$0.3494 per share dividend payment being paid by the Company
pursuant to the Merger Agreement entitles Messrs. Denner
and Fenk to an additional $11,647 each, Mr. Sherwyn to an
additional $6,988 and Ms. Sangillo Bellifemine an
additional $5,823 in respect of such restricted shares.
Deferred
Compensation Payments
The Merger Agreement also provides that immediately prior to the
Effective Time, (i) each independent director who holds any
outstanding and unsettled deferred compensation units issued
under the Companys Independent Director Deferred
Compensation Plan will become entitled to a lump sum payment in
cash, without interest, in the aggregate amount equal to the
balance credited to such holders deferred compensation
account maintained by the Company under such plan, and
(ii) each such holders deferred compensation units
will be cancelled and of no further force and effect.
Additionally, the Independent Director Deferred Compensation
Plan provides that Independent Directors who hold deferred
compensation units will be entitled to have additional units
credited to their deferred compensation account as of each date
on which cash dividends are paid with respect to the the
Companys common stock. Parent will pay, or direct the
exchange agent for the transaction to pay, to each such holder,
his deferred compensation payment as promptly as reasonably
practicable following the effective date of the Merger, at which
time such holder will cease to possess any rights to any
compensation from the Company or the surviving corporation. For
the purpose of determining the deferred compensation payment,
the Fair Market Value of one share of the
Companys common stock,
Annex I-18
as such term is used in the Companys Independent Director
Deferred Compensation Plan, is equal to the Offer Price.
Messrs. Weinbach and Mundheim each have 10,933.38 deferred
compensation units, will each receive 358.68 additional deferred
compensation units in respect of the $0.3494 per share dividend
and will each be entitled to a cash payment of $120,267.
Mr. Stuart has 8,746.70 deferred compensation units, will
receive 286.94 additional deferred compensation units in respect
of the $0.3494 per share dividend and will be entitled to a cash
payment of $96,214. Mr. McDevitt has 5,466.69 deferred
compensation units, will receive 179.34 additional deferred
compensation units in respect of the $0.3494 per share dividend
and will be entitled to a cash payment of $60,134. The foregoing
amounts will be reduced by any additional dividend declared and
paid prior to the Acceptance Date as described above.
Master Delegation
Agreement
To the extent that Parent, as external manager, has sold or
hereafter sells to the Company or arranges the acquisition by
the Company of (a) loans secured by mortgages on real
property and (b) subordinate interests in loans secured by
mortgages on real property and Parent has retained a pari passu
interest in these loans which, when aggregated with the
Companys interests, is (a) in the case of a mortgage
loan, sufficient to control the right to direct the agent to
exercise the right to foreclose the mortgage securing the loan
upon a material default and (b) in the case of a
subordinate interest in a loan, is sufficient (i) to
control the right to appoint an independent third party special
service / advisor and instruct the special
servicer / advisor with respects to all remedies
(including foreclosure), (ii) replace the special
servicer / advisor in the event that the special
servicer / advisor elects not to exercise the
remedies, and (iii) purchase the senior interest or the
entire subordinate interest and foreclose on the loan, Parent
has granted the Company, pursuant to the Master Delegation
Agreement (MDA) entered into by Parent and Company
at the time of the Companys initial public offering, the
unilateral right to exercise on behalf of Parent the remedies of
Parent as lender (but not as agent) described above with respect
to Parents interest (as lender but not as agent) described
above. Parent also agreed not to sell its interests described
above unless (a) doing so shall not result in the loss of
the Companys unilateral right to control the remedies
described above (b) Parent sells to a party who assumes
Parents obligations under the MDA, or
(c) Parents transfer does not result in a an adverse
impact to the Company under tax or securities laws or
regulations, subject to the limitations set forth in the
Management Agreement.
Indemnification
of Executive Officers and Directors
The Maryland General Corporation Law (the MGCL)
permits a Maryland corporation to include in its charter a
provision limiting the liability of its directors and officers
to the corporation and its stockholders for money damages,
except for liability resulting from:
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|
|
|
|
actual receipt of an improper benefit or profit in money,
property or services; or
|
|
|
|
active and deliberate dishonesty established by a final judgment
and which is material to the cause of action.
|
The Companys charter contains such a provision which
eliminates directors and officers liability to the
maximum extent permitted by Maryland law.
The Companys charter authorizes the Company, and the
Companys bylaws obligate the Company, to the maximum
extent permitted by Maryland law, to indemnify any present or
former director or officer or any individual who, while serving
as the Companys director or officer and at the
Companys request, serves or has served another
corporation, real estate investment trust, partnership, joint
venture, trust, employee benefit plan or other enterprise as a
director, officer, partner or trustee and who is made, or is
threatened to be made, a party to the proceeding by reason of
his or her service in that capacity from and against any claim
or liability to which that individual may become subject or
which that individual may incur by
Annex I-19
reason of his or her service in any such capacity and to pay or
reimburse his or her reasonable expenses in advance of final
disposition of a proceeding. The Companys charter and
bylaws also permit the Company to indemnify and advance expenses
to any individual who served the Companys predecessors in
any of the capacities described above and any of the
Companys predecessors employees or agents.
The MGCL requires a corporation (unless its charter provides
otherwise, which the Companys charter does not) to
indemnify a director or officer who has been successful, on the
merits or otherwise, in the defense of any proceeding to which
he or she is made, or threatened to be made, a party by reason
of his or her service in such capacity, or in the defense of any
claim, issue or matter in any such proceeding. The MGCL permits
a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made, or
threatened to be made, a party by reason of their service in
those or other capacities unless it is established that:
|
|
|
|
|
the act or omission of the director or officer was material to
the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and
deliberate dishonesty;
|
|
|
|
the director or officer actually received an improper personal
benefit in money, property or services; or
|
|
|
|
in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was
unlawful.
|
A court may order indemnification if it determines that the
director or officer is fairly and reasonably entitled to
indemnification, even though the director or officer did not
meet the prescribed standard of conduct or was adjudged liable
on the basis that personal benefit was improperly received.
However, under the MGCL, a Maryland corporation may not
indemnify for an adverse judgment in a suit by or in the right
of the corporation or for a judgment of liability on the basis
that personal benefit was improperly received, unless in either
case a court orders indemnification and then only for expenses.
In addition, Maryland law permits a corporation to advance
reasonable expenses to a director or officer upon the
corporations receipt of:
|
|
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|
|
a written affirmation by the director or officer of his or her
good faith belief that he or she has met the standard of conduct
necessary for indemnification by the corporation and
|
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|
a written undertaking by him or her or on his or her behalf to
repay the amount paid or reimbursed by the corporation if it is
ultimately determined that the standard of conduct was not met.
|
The Company has obtained a policy of insurance under which its
directors and officers will be insured, subject to the limits of
the policy, against certain losses arising from claims made
against such directors and officers by reason of any acts or
omissions covered under such policy in their respective
capacities as directors or officers, including certain
liabilities under the Securities Act of 1933, as amended (the
Securities Act).
Pursuant to the Merger Agreement, from and after the Effective
Time, Parent and the Surviving Corporation will, to the fullest
extent permitted by law, indemnify, defend and hold harmless
each current and former director and officer of the Company and
its Subsidiaries (the Indemnified Parties) against
all losses, expenses, claims, damages, liabilities or amounts
arising out of actions or omissions occurring before or at the
Effective Time (including, without limitation, the transactions
contemplated by the Merger Agreement) in connection with such
persons serving as an officer, director or other fiduciary of
the Company or any of its subsidiaries or of any entity if such
service was at the request or for the benefit of the
Annex I-20
Company; provided, however, that the indemnification will not
apply to, nor be enforceable by, any director of the Company who
voluntarily resigns from his or her position as a director of
the Company on or prior to the earlier of the Acceptance Date or
the date of termination of the Merger Agreement. Pursuant to the
Merger Agreement, all rights to indemnification or exculpation
existing in favor of the Indemnified Parties as provided in the
respective charters or by-laws, by contract, or otherwise in
effect prior to the Merger, will survive the Merger and continue
in full force and effect. Further, if Parent, the surviving
corporation in the Merger or any of their respective successors
or assigns (i) consolidates or merges with another entity
and is not the surviving entity in such merger or consolidation,
or (ii) sells or transfers substantially all of its assets,
then, in each such case, proper provision will be made for the
assumption of the indemnification obligations under the Merger
Agreement. Hypo Holding has assured Parent in writing of its
intent to support financially Parents financial
obligations under the Merger Agreement, including all
indemnification obligations.
Pursuant to the Merger Agreement, the Company maintains director
and officer liability insurance and has purchased a
tail insurance policy (which policy by its express
terms shall survive the Merger), having the same coverage and
amounts and containing terms and conditions that are no less
favorable to the directors and officers of the Company and each
Company Subsidiary as the Companys and the Company
Subsidiaries existing policy or policies, and from
insurance carriers with comparable credit ratings, for the
benefit of the current and former officers and directors of the
Company and each subsidiary with a claims period of six years
from the Effective Time with respect to directors and
officers liability insurance for claims arising from facts
or events that occurred at or prior to the Effective Time.
Parent and the Surviving Company shall jointly and severally be
liable for the payment of all premiums in respect of such
tail insurance policy or policies. In addition to,
and not to the exclusion of or as an alternative to, the
foregoing requirement that the Company acquire tail
insurance coverage, prior to expiration of the Companys
existing policies on February 1, 2008, the Company elected
the Extended Reporting Period coverage available
under its existing management protection policy with ACE
American Insurance Company and both of its excess policies with
Illinois National Insurance Company and XL Specialty Insurance
Company and has paid all premiums with respect to such Extended
Reporting Period coverage. The Extended Reporting Period
coverage permits the Company and its officers and directors to
make claims under the existing policies for a period of one year
after their February 1, 2008 expiration dates with respect
to acts occurring prior to such expiration date.
Other
The Companys investments are sourced and originated by
Parent. The Company also invests in loans in which Parent either
invests along with the Company or in a position that may be
senior to the Companys investment. The Company has adopted
a conflicts of interest policy to address these situations, see
below under Conflicts of Interest in Our Relationship with
Parent and Conflicts of Interest Policy.
Mr. Mundheim, who serves as chairman of our board of
directors, is of counsel to the international law firm of
Shearman & Sterling LLP. Shearman & Sterling
performs legal services for Parent, Hypo International and Hypo
Real Estate Holding AG, which fees are, in the aggregate, less
than one percent of Shearman & Sterlings annual
revenue.
Related Party
Transactions Policy
The Company has adopted formal procedures for the review,
approval and ratification of related person transactions.
Pursuant to these written procedures, it is the Companys
policy to enter into or ratify related party transactions only
when the Board of Directors, acting through the Audit Committee
approves in advance such transactions. The policy covers
transactions with related parties that are not covered by the
Management Agreement, including our conflicts of
Annex I-21
interest policy. The policy provides that on an annual basis,
each director and executive officer shall submit to the
Companys Secretary a list of immediate family members who
are engaged in any transaction with the Company. The Secretary
will utilize these submissions to create and update this
Master List for company use and distribute it to the
Companys Chief Executive Officer, Chief Financial Officer,
the Audit Committee, and the Chief Legal Officers of the Parent.
The policy covers all transactions, arrangements or
relationships (or any series of similar transactions,
arrangements or relationships) that are not covered by our
conflicts of interest policy and in which we or our subsidiaries
were, are or will be a participant and the amount involved
exceeds $10,000, and in which any related person had, has or
will have a direct or indirect material interest. Related
persons include our directors and executive officers, or
director nominees, beneficial owners of more than 5% of any
class of our voting securities, any immediate family members of
such persons and any entity in which any such person is employed
or is a partner or a principal or in a similar position, or a 5%
or more security holder. The following steps shall be taken to
approve a related person transaction: (1) related party or
the directors, executive officer, nominee or beneficial owners
shall provide notice to the Secretary of the facts and
circumstances of the transaction; (2) if the amount exceeds
$10,000, the proposed transaction shall be submitted to the
Audit Committee for consideration; and (3) the Audit
Committee shall consider all of the relevant facts and
circumstances and approve only those transactions that are no
inconsistent with the best interests of the Company and its
stockholders as the Committee determines in good faith. The
policy contains procedures for ratification of related party
transactions and an anti-nepotism policy.
Conflicts of
Interest in Our Relationship with Parent
We, our executive officers, certain of our directors and Parent
will face conflicts of interest because of our relationships
with each other. We were formed by Parent, and the terms of our
Management Agreement, including fees payable, were not
negotiated at arms-length, and those terms may not be as
favorable to us as if the Management Agreement had been
negotiated with an unaffiliated party. The terms of the
contribution agreement relating to the contribution of our
initial assets were also not negotiated at arms-length, and
those terms, including the consideration paid for our initial
assets, may not be as favorable to us as if the contribution
agreement had been negotiated with an unaffiliated party. In
addition, each of our executive officers is also an officer of
Parent and will not devote his or her time to us exclusively.
Our chief financial officer will devote the majority of his time
to us.
We and Parent may each elect, without cause, not to renew the
Management Agreement after the completion of its initial term on
June 30, 2009 or the expiration of any automatic renewal
term. We must provide Parent 180 days prior notice of any
non-renewal without cause and pay Parent a termination fee on
the last day of the initial term or any automatic renewal term,
equal to two times the sum of the base management fee and the
incentive fee, both as earned by Parent during the
12-month
period immediately preceding the most recently completed
calendar quarter prior to the date of termination. We may elect
not to renew the Management Agreement without cause only with
the consent of the majority of our independent directors. In
addition, following any non-renewal of the Management Agreement,
we must pay Parent all compensation accruing to the date of such
termination. We also may not assign the Management Agreement in
whole or in part to a third party without the written consent of
Parent. These provisions increase the effective cost to us of
not renewing the Management Agreement, thereby adversely
affecting our ability to not renew the Management Agreement, and
thereby terminating Parent, without cause.
The compensation we pay to Parent consists of both a base
management fee that is not tied to our performance and an
incentive fee that is based entirely on our performance. In
addition, we reimburse Parent for certain overhead expenses. The
risk of the base management fee component is that it is received
regardless of performance and it may not provide sufficient
Annex I-22
incentive to Parent to seek to achieve attractive risk-adjusted
returns to our portfolio. The risk of the incentive fee
component is that it may cause Parent to place undue emphasis on
the short-term maximization of our funds from operations at the
expense of other criteria, such as preservation of capital, in
order to achieve a higher incentive fee. Investments with higher
yield potential are generally riskier or more speculative. This
could result in increased risk to the value of our investment
portfolio.
Parent and its affiliates manage and invest in real estate
related assets, including some of our targeted investments. Our
investments are sourced and originated by Parent. For
investments that are appropriate for both us and Parent, Parent
will (subject to the conflicts of interest policy discussed
below) determine which company ultimately will have the
opportunity to make which investments. As we acquire investments
from Parent or otherwise participate in investments in which
Parent or its affiliates have an interest or for which they have
a related investment, most transactions related to our
investments are not and will not be the result of arms-length
negotiations and involve conflicts between our interests and the
interest of Parent in obtaining favorable terms and conditions.
In each case, the same officers will be determining the price
and terms for the investments for both us and Parent and there
can be no assurance that any procedural protections, such as
obtaining market prices or other reliable indicators of fair
market value, will be sufficient to assure that the
consideration we pay for these investments will not exceed their
fair market value and that we would not receive more
advantageous terms for an investment had we negotiated the
purchase with an independent third party.
Parent is authorized to follow very broad investment guidelines
and has great latitude within those guidelines in determining
the types of assets it may decide are proper investments for us.
Our board of directors will periodically reviews our investment
guidelines and our investment portfolio. However, our board does
not review each proposed investment. In addition, in conducting
periodic reviews, our board of directors relies primarily on
information provided to it by Parent. Furthermore, transactions
entered into by Parent may be costly, difficult or impossible to
unwind by the time they are reviewed by our board of directors.
Conflicts of
Interest Policies
We have adopted certain policies that are designed to eliminate
or minimize certain potential conflicts of interest. Our board
of directors has established investment guidelines. Unless
otherwise approved by the investment oversight committee of our
board of directors, all of our investments must be in accordance
with our investment guidelines. We have developed a conflicts of
interest policy with Parent in an effort to address conflicts
with respect to the allocation of investment opportunities.
However, we cannot make any assurances regarding the success of
investments that are allocated to us or to Parent. This
conflicts of interest policy includes the following:
Right of First Offer.
Parent has agreed to
provide us with a right of first offer on certain commercial
real estate finance and investment opportunities which it
originates or otherwise identifies. Specifically, we will have a
right of first offer with respect to all assets with one or more
of the following characteristics, regardless of how such asset
is originated or sourced by Parent, unless otherwise specified
below:
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any commercial mortgage whole loan with a total principal amount
of $20.0 million or less, except for fixed rate loans
originated for securitization;
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any investment opportunity which constitutes equity or preferred
equity;
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any below-investment grade real estate securities, including
CDOs;
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any (i) B Notes or other subordinated loan tranches created
by Parent in whole loans originated by Parent and
(ii) mezzanine loans originated by Parent in connection
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Annex I-23
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with any mortgage loan originated by Parent, to the extent
Parent does not elect to retain such subordinated portion or
mezzanine loan;
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25% of any other B Note, subordinated loan tranche or mezzanine
loan not originated by Parent which, when aggregated with more
senior debt secured (directly or indirectly) by the applicable
underlying real estate asset, exceeds 75% of the value of such
underlying real estate asset at origination;
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a pari passu portion of any senior mortgage loan originated or
sourced by Parent, equal to 50% of the portion of the principal
amount of the mortgage loan in excess of 75% of the value of the
underlying real estate asset that secures the mortgage loan;
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50% of any discounted note or sub-performing or distressed asset
purchased or sourced by Parent; and
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the first $25.0 million (or such lesser amount as Parent
elects to syndicate) of any pari passu portion of any commercial
mortgage loan, B Note or mezzanine loan that Parent originates
and elects to syndicate.
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Further, we will have the right to invest in any commercial real
estate mortgage or real estate related asset which Parent elects
not to invest in for any reason including failure to satisfy
Parents investment criteria or concentration issues.
Parents executive officers and other personnel may be
involved in both the decision of whether an investment
opportunity is to be referred to us and the decision of whether
we will participate in the investment opportunity.
Pari-Passu Co-Investments.
The economic terms
of any co-investment with Parent or any of its affiliates made
on a pari passu basis must be at least as favorable to us as to
Parent or such affiliate making such co-investment.
Co-Investments with Debt Tranches of Different
Priorities.
We have adopted the following
policies with respect to co-investments with Parent involving
debt tranches of different priorities.
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any co-investment purchased in the secondary market from an
unaffiliated third party that results in Parent and us holding
debt tranches of different priorities must be on the same terms
as are offered by the third party.
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any co-investment that is purchased or part of a co-origination
with Parent and that results in Parent and us holding debt
tranches of different priorities must comply with the following:
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if there is one or more third party participants in our debt
tranche, be on terms no less favorable than the most favored
third party participant in our debt tranche;
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if there are no other participants in our debt tranche, be on
then current market terms for similar investments purchased in
arms-length transactions as determined by Parent based upon
third party bids received or published market data; and
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in the event that third party bids or published market data are
not available to Parent, be approved by our investment oversight
committee.
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Investments Purchased From Parent.
Investments
purchased from Parent or any of its affiliates more than one
year after the date of origination or purchase by Parent or any
of its affiliates will require the consent of our investment
oversight committee.
Participations.
We have adopted the following
policies with respect to our participating in investments in
which Parent and its affiliates are also participating.
Annex I-24
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In the event that (i) we invest in a loan, or portion of a
loan, that is directly or indirectly secured by the same
underlying real estate asset that secures a debt tranche of a
different priority held by Parent or (ii) Parent or we hold
a preferred equity interest in a real estate asset that directly
or indirectly secures a loan in which either we or Parent has an
interest, then, if each of Parent and us hold a majority of its
respective debt tranche, our investment oversight committee may,
upon the occurrence of (1) a material default in respect of
the debt tranche in which we hold an interest or (2) any
request to amend, modify or waive any material term of our debt
tranche in order to avoid a pending material default, retain a
reputable independent third party special servicer or adviser to
advise our board of directors with respect to all material
rights, remedies, enforcement actions, amendments and requests
for waivers or consents in respect of our debt tranche, and the
cost of such servicer or adviser will be deducted from any base
management fee payable to Parent in respect of our debt tranche.
However, such costs must not exceed the lesser of the special
servicer fee and the management fee allocable to our equity
allocable to such loan.
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Parent must not cause us to invest (i) in any loan directly
or indirectly secured by a real estate asset in which Parent has
an equity interest (other than preferred equity) or (ii) in
any equity interest (other than preferred equity) in any real
estate asset which directly or indirectly secures any loan held
by Parent.
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Legal Counsel.
The legal department of Parent
provide legal services to us and we and our officers and
directors are entitled to all fiduciary obligations owed by
attorneys to their clients and attorney-client privileges
available under applicable law. In order to mitigate possible
conflicts of interest, we will retain separate external counsel
with respect to the following:
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any disputes between Parent and us arising under the Management
Agreement or any other agreement between Parent and us;
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any co-investments or investments purchased from Parent
involving debt tranches of different priorities;
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any investment for which our investment oversight committee has
retained a special servicer or advisor in accordance with the
Management Agreement; and
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at our option or the option of Parent or any of our independent
directors, with respect to any other matter.
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COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following non-employee directors are the current members of
the Compensation Committee of the Board of Directors:
Messrs. Mundheim, Glauber and Stuart. During 2007, none of
the Companys executive officers served as a director or
member of the Compensation Committee of any other entity whose
executive officers served on the Companys Board of
Directors or Compensation Committee.
Annex I-25
LEGAL
PROCEEDINGS
On February 7, 2008, a purported
class-action
lawsuit captioned Swope et al. v. Quadra Realty Trust,
et al., was filed in New York State Supreme Court in the
County of New York. The lawsuit names as defendants Quadra
Realty Trust, Inc. and each member of the Companys Board
of Directors. The complaint alleges, among other things, that
the defendants breached their fiduciary duties owed to the
Companys stockholders in connection with, among other
things, the Companys entry into the Merger Agreement. The
complaint alleges that the directors violated their fiduciary
duties to take all necessary steps to ensure that the
stockholders receive the maximum value for their shares and to
provide stockholders with full and ample disclosure concerning
the Merger Agreements material terms. The complaint seeks
class certification of the lawsuit, a declaration that the
proposed merger transaction is unfair, unjust and inequitable,
that the Merger Agreement was entered into in breach of the
fiduciary duties of the defendants, an injunction preventing the
defendants from proceeding with the Merger at a price that is
allegedly not fair and equitable. The complaint also seeks
compensation for all losses and damages as a result of the
action and transaction complained of, including attorneys,
accountants, and experts fees. We believe that this
lawsuit is entirely without merit and intend to defend against
it vigorously.
Annex I-26
Annex II
The Blackstone
Group
January 27, 2008
To the Special Committee of the Board of Directors
Quadra Realty Trust, Inc.
622 Third Avenue, 31st Floor
New York, New York 37212
Members of the Special Committee of the Board of Directors:
Quadra Realty Trust, Inc., a Maryland corporation (the
Company), proposes to enter into an Agreement and
Plan of Merger, to be dated as of January 28, 2008 (the
Merger Agreement), with Hypo Real Estate Capital
Corporation, a Delaware corporation (Parent), and
HRECC Sub Inc., a Maryland corporation and wholly-owned
subsidiary of Parent (Merger Sub). The actions
referred to herein as the Transaction are as
follows: pursuant to the Merger Agreement, (i) Merger Sub
would commence an offer (the Offer) to purchase for
cash all of the issued and outstanding share of common stock,
par value $0.001 per share, of the Company (the
Company Common Stock) at a price of
$10.6506 per share in cash; (ii) following
consummation of the Offer, Merger Sub would be merged with and
into the Company (the Merger), with the Company
continuing as the surviving corporation in the merger (the
Surviving Corporation), and each remaining
outstanding share of Company Common Stock will be converted into
a right to receive $10.6506 in cash; and (iii) the Company
will declare a cash dividend of $0.3494 per share (the
Dividend) payable to stockholders who hold shares of
Company Common Stock on the close of business on the last
trading day immediately preceding the initial expiration date of
the Offer, to be paid immediately prior to the consummation of
the Offer. The aggregate cash amount of $11.00 per share to
be paid pursuant to the Offer, the Merger and the Dividend are
referred to herein as the Consideration. The terms
and conditions of the Transaction are set forth in more detail
in the Merger Agreement.
You have asked us whether, in our opinion, the Consideration is
fair to the holders of Company Common Stock, other than Parent
and its affiliates, from a financial point of view.
In arriving at the opinion set forth below, we have, among other
things:
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Reviewed certain publicly available information concerning the
business, financial condition and operations of the Company that
we believe to be relevant to our inquiry;
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Reviewed certain internal information concerning the business,
financial condition and operations of the Company that we
believe to be relevant to our inquiry;
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Reviewed certain internal financial analyses relating to the
Company prepared by, and furnished to us by, the management of
the Company;
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Reviewed analyses relating to certain of the Companys
investments prepared by, and furnished to us by, the management
of the Company;
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Held discussions with members of the Companys management
concerning the business, operating environment, financial
condition, prospects and strategic objectives;
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Reviewed the publicly reported historical prices and trading
activity of the Company Common Stock;
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Reviewed publicly available financial and stock market data with
respect to certain other companies in lines of businesses we
believe to be generally comparable to those of the Company;
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Reviewed the publicly available financial terms of a recent
unsolicited offer for a comparable U.S. company;
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Reviewed the January 25, 2008 draft of the Merger Agreement;
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Reviewed the premia paid on certain recent acquisitions of
U.S. companies, the securities of which were publicly
traded;
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Performed discounted cash flow analyses utilizing certain pro
forma financial information prepared by, and furnished to us by,
management of the Company;
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Compared certain financial information for the Company with
similar public information for certain other comparable
companies, the securities of which are publicly traded;
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Reviewed the results of our efforts to solicit indications of
interest and definitive proposals from third parties with
respect to an acquisition of the Company; and
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Participated in certain discussions and negotiations among
representatives of the Company and Parent and their financial
and legal advisors.
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In preparing this opinion, at your direction, we have relied,
without assuming responsibility or liability for independent
verification, upon the accuracy and completeness of all
financial and other information that is available from public
sources and all projections and other information provided to us
by or on behalf of the Company or otherwise discussed with or
reviewed by or for us. We have assumed, with your consent, that
the financial and other projections and pro forma financial
information prepared by the Company and the assumptions
underlying those projections and such pro forma information,
including the amounts and the timing of all financial and other
performance data, were reasonably prepared and represent
managements best estimates and judgments as of the date of
their preparation. We assume at your direction no responsibility
for and express no opinion as to such analyses or forecasts or
the assumptions on which they are based. We have further relied
upon the assurances of the management of the Company that they
are not aware of any facts that would make the information
provided by them inaccurate, incomplete or misleading. We have
also assumed that the definitive Merger Agreement will not
differ in any respects material to our analysis from the draft
thereof furnished to us.
We have not been asked to undertake, and have not undertaken, an
independent verification of any information, nor have we been
furnished with any such verification and we do not assume any
responsibility for the accuracy or completeness thereof. We did
not conduct a physical inspection of any of the properties or
assets of the Company. Except to the extent reflected in the
materials provided to the Special Committee, we have not made
any independent evaluation or appraisal of the assets and
liabilities (contingent, derivative, off-balance sheet or
otherwise) of the Company, nor have we obtained any such
appraisals.
We have assumed that the consummation of the Transaction will be
effected in accordance with the terms and conditions of the
Merger Agreement and that, in the course of obtaining the
necessary regulatory or third party approvals, agreements or
consents for the Transaction, no delay, limitation, restriction
or condition will be imposed that would have an adverse effect
on the Company or the contemplated benefits of the Transaction
material to our analyses. We are not legal, tax or regulatory
advisors and have relied upon, without independent verification,
the assessment of the Company and its legal, tax and regulatory
advisors with respect to such matters.
Our opinion addresses only the fairness, from a financial point
of view, to the holders of Company Common Stock, other than
Parent and its affiliates, of the Consideration to be received
by such stockholders in the Transaction. Our opinion does not
address any other aspect or implication of the Transaction, the
Merger Agreement or any other agreement, arrangement or
understanding entered into in connection with the Transaction or
otherwise. We also express no opinion as to the fairness of any
consideration to be received by Parent and its affiliates or the
fairness of the amount or nature of the compensation to any of
the Companys officers,
Page 2 of 3
directors or employees, or class of such persons, relative to
the compensation to the public shareholders (other than Parent
and its affiliates). We are not expressing any opinion as to the
impact of the Transaction on the solvency or viability of the
Surviving Corporation or the ability of the Surviving
Corporation to pay its obligations when they become due.
Our opinion does not address the relative merits of the
Transaction as compared to other business strategies or
transactions that might be available to the Company or the
Companys underlying business decision to effect the
Transaction nor does our opinion constitute a recommendation to
any stockholder of the Company as to how such shareholder should
vote or act with respect to the Transaction or any other matter.
In addition, you have not asked us to address, and this opinion
does not address, the fairness to, or any consideration of, the
holders of any class of securities, creditors or other
constituencies of the Company other than the holders of Company
Common Stock other than Parent and its affiliates.
This opinion is necessarily based upon information made
available to us as of the date hereof and on market, economic,
financial and other conditions as they exist and can be
evaluated as of the date hereof only. We assume no
responsibility to update or revise our opinion based on
circumstances or events occurring after the date hereof. This
opinion has been approved by a fairness committee in accordance
with established procedures.
This letter is provided to the Special Committee of the Board of
Directors (the Special Committee) in connection with
and for the purpose of its evaluation of the Transaction. It is
understood that this letter is for the information and
assistance of the Special Committee and, without our prior
written consent, is not to be quoted, summarized, paraphrased or
excerpted, in whole or in part, in any registration statement,
prospectus or proxy statement, or in any other report, document,
release or other written or oral communication prepared, issued
or transmitted by the Company or the Board of Directors of the
Company, including the Special Committee. However, Blackstone
Advisory Services L.P. (Blackstone) understands that
the existence of any opinion may be disclosed by the Company in
a press release and a description of this opinion will be
contained in, and a copy of this opinion will be filed as an
exhibit to, the disclosure documents that the Company is
required to file with the Securities and Exchange Commission in
connection with the Transaction if such inclusion is required by
applicable law and Blackstone agrees to not unreasonably
withhold its written approval for such use as appropriate
following Blackstones review of, and reasonable
opportunity to comment on, any description or reference to us or
copy of this opinion in such document.
We have acted as financial advisor to the Special Committee with
respect to the Transaction and will receive a fee from the
Company for our services, a significant portion of which is
contingent upon the consummation of the Transaction. A portion
of our fees will also be payable upon delivery of this opinion.
In addition, the Company has agreed to reimburse us for
out-of-pocket
expenses and to indemnify us for certain liabilities arising out
of the performance of such services (including the rendering of
this opinion). In the ordinary course of our and our
affiliates businesses, we and our affiliates may actively
trade or hold the securities of the Company for our own account
or for others and, accordingly, may at any time hold a long or
short position in such securities.
Based on the foregoing and subject to foregoing, we are of the
opinion that, as of the date hereof, the Consideration to be
received by the holders of Company Common Stock, other than
Parent and its affiliates, is fair to such holders from a
financial point of view.
Very truly yours,
/s/ Blackstone Advisory Services L.P.
Blackstone Advisory Services L.P.
Page 3 of 3
February 13,
2008
Dear Stockholder:
We are pleased to inform you that on January 28, 2008,
Quadra Realty Trust, Inc. (the Company) entered into
an Agreement and Plan of Merger (the Merger
Agreement) with Hypo Real Estate Capital Corporation
(Parent) and HRECC Sub Inc., a wholly-owned
subsidiary of Parent (Purchaser).
Pursuant to the terms of the Merger Agreement, Purchaser has
agreed to commence a cash tender offer for each issued and
outstanding share of the Companys common stock (not
already owned by Parent and its affiliates), at a purchase price
of $10.6506 per share in cash (without interest and less
applicable withholding taxes) less the amount of any dividends
declared and paid (other than the $0.3494 dividend discussed
below) with respect to the shares prior to the date (the
Acceptance Date) shares are accepted and paid for by
Purchaser pursuant to the Offer to Purchase (the Offer
Price) upon the terms and subject to the conditions set
forth in the Offer to Purchase dated February 13, 2008 (the
Offer to Purchase) and the related letter of
transmittal (which, together with the Offer to Purchase and any
supplements or amendments, collectively constitute the
Offer). In addition, on February 1, 2008, the
Company declared a $0.3494 per share dividend (the
Dividend) payable to stockholders of the Company who
hold shares of the Companys common stock at the close of
business on the last trading day immediately preceding the
Acceptance Date. The Dividend will not be paid if the Offer is
not closed. This will result in stockholders of the Company
receiving $11.00 per share in the aggregate, an
approximately 38% premium to the closing price of the
Companys common stock on the New York Stock Exchange on
January 28, 2008 and an approximately 41% premium to the
average closing price of the Companys common stock for the
30 trading days ending on January 28, 2008. The Company
expects to declare and pay an additional dividend immediately
prior to the Acceptance Date to the extent of the Companys
taxable income for the period beginning January 1, 2008 and
ending on the date immediately preceding the Acceptance Date.
Such dividend will reduce the Offer Price by the per share
amount of any such dividend.
Unless extended by the Purchaser, the Offer is currently
scheduled to expire at 12:00 midnight, New York time, on
March 12, 2008. Following the consummation of the Offer,
Purchaser will merge (the Merger) with and into the
Company and all shares of the Companys common stock not
purchased in the Offer will automatically be canceled and
converted into the right to receive the Offer Price in cash.
Purchasers obligation to purchase shares tendered in the
Offer is subject to at least 55% of the Companys
outstanding shares of common stock (other than shares owned by
Parent or any of its affiliates) being validly tendered and not
properly withdrawn in the Offer and to certain other conditions
described in the Offer to Purchase.
There is no financing condition to the Offer. The Companys
board of directors (the Board) established a special
committee of directors unaffiliated with Parent to review and
evaluate, negotiate and make a recommendation to the Board with
respect to a potential transaction.
THE COMPANYS BOARD (EXCLUDING MEMBERS AFFILIATED WITH
PARENT AND THE PURCHASER), BASED ON THE UNANIMOUS RECOMMENDATION
OF THE SPECIAL COMMITTEE, RECOMMENDS THAT THE HOLDERS OF COMMON
STOCK ACCEPT THE OFFER AND TENDER THEIR SHARES OF COMMON STOCK
INTO THE OFFER.
Annex III-1
In making their determinations and arriving at their
recommendations, the special committee and the Board carefully
considered a number of factors which are described in the
enclosed Solicitation/Recommendation Statement on
Schedule 14D-9,
which we urge you to read carefully.
Also accompanying this letter is a copy of the Offer to Purchase
and related materials, including a letter of transmittal for use
in tendering your shares to Purchaser pursuant to the Offer.
These documents set forth the terms and conditions of the Offer
and provide instructions as to how to tender your shares of the
Companys common stock to the Purchaser pursuant to the
Offer.
We urge you to read each of the enclosed materials
carefully before making a decision with respect to the Offer.
Very truly yours,
/s/ Robert H. Mundheim
Robert H. Mundheim
Chairman of the Board of Directors
Securities Law Disclosure:
The description
contained herein is neither an offer to purchase nor a
solicitation of an offer to sell shares of Quadra Realty Trust,
Inc. HRECC Sub Inc. and Hypo Real Estate Capital Corporation
have filed with the Securities and Exchange Commission a
combined
Schedule 13E-3/Tender
Offer Statement on Schedule TO, and have mailed an offer to
purchase, forms of letter of transmittal and related documents
to Quadras stockholders. Quadra has filed with the
Securities and Exchange Commission, and has mailed to
Quadras stockholders, a solicitation/recommendation
statement on
Schedule 14D-9
with respect to the tender offer. These documents contain
important information about the tender offer, including the
terms of the tender offer, and stockholders of Quadra are urged
to read them carefully. Stockholders of Quadra may obtain a free
copy of these documents and other documents filed by Quadra or
Hypo Real Estate Capital Corporation with the Securities and
Exchange Commission at the website maintained by the Securities
and Exchange Commission at
http://www.sec.gov
or by contacting the information agent for the tender offer,
Georgeson Inc., banks and brokers call collect at (212) 440
9800, all others call toll free at
(866) 873-6981.
Annex III-2
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