Trizec Properties, Inc.

Decision

Staff is recommending relief on the basis that shareholders of Trizec Canada are receiving identical consideration in form and amount per security except that they will receive an additional US$1.96 per share reflecting the arm's length agreed value of Trizec Canada's assets other than its approximate 38% interest in Trizec Properties. In other words, but for the insertion of the Trizec Canada entity between the Canadian shareholders of Trizec Canada and Trizec Properties, the Transaction would not be regulated as a business combination under Rule 61-501 pursuant to Paragraph (e)(iii)(A) of the definition of "business combination" in Section 1.1 of Rule 61-501.

July 13, 2006

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

THE PROVINCE OF ONTARIO

AND

IN THE MATTER OF

TRIZEC PROPERTIES, INC.

 

DECISION DOCUMENT

WHEREAS the Director has received an application from Trizec Properties, Inc. ("Trizec Properties") for a decision under Ontario Securities Commission Rule 61-501 Insider Bids, Issuer Bids, Business Combinations and Related Party Transactions ("Rule 61-501") exempting Trizec Properties from the minority approval requirement set forth in Section 4.5 of Rule 61-501 in connection with the merger of Trizec Properties with a wholly-owned subsidiary of Grace Holdings LLC ("Grace Parent"), an affiliate of Brookfield Properties Corporation ("Brookfield").

AND WHEREAS Trizec Properties has represented to the Decision Maker as follows:

Trizec Properties

1. Trizec Properties was incorporated and is existing under the laws of the State of Delaware.

2. Trizec Properties is a "domestically-controlled" REIT within the meaning of Section 897(h)(4)(B) of the Internal Revenue Code of 1986, as amended (the "Code").

3. Trizec Properties is a reporting issuer in all provinces of Canada and is not on the list of defaulting reporting issuers maintained under the Securities Act (Ontario).

4. Trizec Properties' authorized share capital consists of 500,000,000 shares of common stock ("Common Shares") of which, as of June 2, 2006, approximately 157,199,870 Common Shares were issued and outstanding; 100 shares of special voting stock ("Special Shares") of which 100 Special Shares were issued and outstanding; 100,000 shares of Class F convertible stock ("Class F Shares") of which 100,000 Class F Shares were issued and outstanding; and 50,000,000 shares of preferred stock ("Preferred Shares") of which no Preferred Shares were issued and outstanding.

5. The Common Shares are listed on the New York Stock Exchange (the "NYSE") under the symbol "TRZ".

6. Neither the Special Shares nor the Class F Shares carry any voting rights with respect to the Trizec Merger.

7. Trizec Canada Inc. ("Trizec Canada"), directly, and indirectly through a Hungarian wholly-owned subsidiary, beneficially owns: (i) approximately 59,992,379 Common Shares, representing approximately 38% of the Common Shares; and (ii) 100% of the Special Shares and the Class F Shares. Trizec Canada owns one Common Share of Trizec Properties for each outstanding share of Trizec Canada to mirror the interest of shareholders in Trizec Canada in Trizec Properties.

8. The Common Shares not directly or indirectly beneficially owned by Trizec Canada, representing approximately 62% of the Common Shares, are held by the public and are publicly traded on the NYSE.

9. Trizec Properties' certificate of incorporation (the "Trizec Incorporation Certificate") contains an ownership limitation that is required to enable Trizec Properties to qualify as a "domestically-controlled" REIT within the meaning of the Code. This limitation restricts any person that is not a qualifying "U.S. person" (as defined in the Trizec Incorporation Certificate) (a "Qualifying U.S. person") from beneficially owning Trizec Properties' capital stock if that person's holdings, when aggregated with shares of Trizec Properties' capital stock beneficially owned by all other persons that are not "Qualifying U.S. persons", would exceed 45% by value of all Trizec Properties' issued and outstanding capital stock. Under the Trizec Incorporation Certificate, any acquisition of beneficial ownership of shares of Trizec Properties capital stock by a person that is not a "Qualifying U.S. person" is presumed to cause a violation of this ownership limit. Given Trizec Canada's ownership interest in Trizec Properties, a result of the enforcement of this ownership limitation is that persons other than persons qualifying as "Qualifying U.S. persons" are effectively excluded from owning Common Shares.

10. Other than Trizec Canada (i) persons or companies whose last address as shown on the books of Trizec Properties is in Ontario hold less than two per cent of the outstanding securities of each class of securities of Trizec Properties, including the Common Shares; and (ii) Trizec Properties reasonably believes that persons or companies who are in Ontario beneficially own less than two per cent of the outstanding securities of each class of securities of Trizec Properties, including the Common Shares.

11. Prior to May 8, 2002, Trizec Properties was a subsidiary of TrizecHahn Corporation ("THC"), a corporation incorporated under the laws of Canada whose shares were listed and traded on the Toronto Stock Exchange ("TSX"). On May 8, 2002, THC adopted a plan of arrangement that was approved by THC's shareholders pursuant to which THC implemented a corporate reorganization (the "2002 Reorganization") and, as a result, Trizec Properties became a separate U.S.-based publicly traded REIT owning primarily the U.S. real estate assets previously owned by THC and its subsidiaries. As part of the reorganization, THC formed (and became a subsidiary of) Trizec Canada, a Canadian-based publicly traded company, the principal assets of which are its ownership interest in Trizec Properties along with certain limited Canadian and non-U.S. real estate assets previously owned by THC.

12. In connection with the 2002 Reorganization, each THC shareholder who elected to receive Common Shares of Trizec Properties but who did not, at the time of such election, validly certify its status as "Qualifying U.S. person", together with certain other shareholders whose share elections were subject to a pro ration adjustment, received transferable exchange certificates ("Exchange Certificates") of Trizec Properties, exchangeable on a one-for-one basis for underlying Common Shares upon certification that the holder thereof was a "Qualifying U.S. person". Holders who did not exchange their Exchange Certificates for Common Shares were entitled to receive proceeds from the sale of such Exchange Certificates to "Qualifying U.S. persons" by a custodian. As a result of the issuance of Exchange Certificates to Canadian shareholders of THC under the 2002 Reorganization, Trizec Properties became a reporting issuer in Canada. The Exchange Certificates ceased to be outstanding in August 2002 when they were sold to "Qualifying U.S. persons" and converted into Common Shares. Since the 2002 Reorganization, Trizec Properties has not endeavoured to change its status as a reporting issuer in Canada.

Trizec Canada

13. Trizec Canada was incorporated and is existing under the laws of Canada and its registered office is located in Toronto, Ontario.

14. Trizec Canada is a reporting issuer in all provinces of Canada and is not on the list of defaulting reporting issuers maintained under the Securities Act (Ontario).

15. The authorized share capital of Trizec Canada consists of an unlimited number of subordinated voting shares ("SVS") of which approximately 52,400,097 SVS are issued and outstanding; and 7,522,283 multiple voting shares ("MVS") all of which are issued and outstanding.

16. The SVS of Trizec Canada are listed on the TSX under the symbol "TZC.SV".

17. P.M. Capital Inc. ("PM Capital"), a corporation incorporated and existing under the laws of the Province of Ontario, owns all of the MVS of Trizec Canada and approximately 1.6% of the SVS of Trizec Canada. The remaining SVS of Trizec Canada, representing approximately 98.4% of the SVS, are held by the public and are publicly traded on the TSX.

Trizec Holdings Operating LLC

18. Trizec Holdings Operating LLC ("Trizec Holdings") was formed and is existing under the laws of the State of Delaware as a Delaware limited liability company.

19. Trizec Holdings was created in December 2004 as part of a reorganization of Trizec Properties' operating structure such that Trizec Properties conducts substantially all of its business and owns substantially all of its assets through Trizec Holdings.

20. Trizec Holdings is an approximately 98%-owned subsidiary of Trizec Properties and Trizec Properties is the sole managing member of Trizec Holdings. Trizec Holdings is not a reporting issuer in any province of Canada and none of the equity interests of Trizec Holdings are listed on or publicly traded over a stock exchange.

Acquisition Parties

Grace Holdings LLC ("Grace Parent") was formed and is existing under the laws of the State of Delaware as a Delaware limited liability company.

21. Grace Acquisition Corporation ("Mergerco") was incorporated and is existing under the laws of the State of Delaware and is a wholly-owned subsidiary of Grace Parent.

22. 4162862 Canada Limited ("Acquisitionco") was incorporated and is existing under the laws of Canada and is an affiliate of Grace Parent.

23. Grace OP LLC ("Merger Opco" and, together with Grace Parent, Mergerco and Acquisitionco, the "Acquisition Parties") was formed and is existing under the laws of the State of Delaware as a Delaware limited liability company and is an affiliate of Grace Parent.

24. Each of the Acquisition Parties is an affiliate of Brookfield Properties Corporation ("Brookfield") and was formed by Brookfield solely in connection with consummating the Transaction (defined below). Brookfield is a reporting issuer in all provinces of Canada and its securities are listed on the TSX and NYSE. None of the issued and outstanding securities of the Acquisition Parties are listed on or publicly traded over a stock exchange.

25. None of the Acquisition Parties nor Brookfield nor any affiliate thereof beneficially owns or exercises control or direction over voting securities of Trizec Properties, including the Common Shares, carrying more than 10 per cent of the voting rights attached to all of the outstanding voting securities of Trizec Properties, including the Common Shares.

26. None of the Acquisition Parties nor Brookfield nor any affiliate thereof is a "related party" of any of Trizec Properties, Trizec Canada or Trizec Holdings within the definition of "related party" contained in Section 1.1 of Rule 61-501.

Transaction

27. On June 5, 2006, Trizec Properties and Trizec Canada announced by press release that they had entered, along with Trizec Holdings, into a definitive agreement and plan of merger and arrangement agreement (the "Merger and Arrangement Agreement") with the Acquisition Parties pursuant to which the Acquisition Parties will acquire Trizec Properties, Trizec Canada and Trizec Holdings (the "Transaction").

28. The Merger and Arrangement Agreement was concluded after arm's length negotiations which formed part of a competitive bidding process in which several other arm's length parties participated.

29. The Transaction, if completed pursuant to the Merger and Arrangement Agreement, would effect:

(a) a merger of Mergerco with and into Trizec (the "Trizec Merger") in accordance with Section 251 of the Delaware General Corporation Law (the "DGCL");

(b) a merger of Merger Opco with and into Trizec Holdings (the "Opco Merger") in accordance with the applicable provisions of the Delaware Limited Liability Company Act pursuant to which the holders of equity interests in Trizec Holdings (other than Trizec Properties, which holds an approximate 98% interest in Trizec Holdings) would be entitled to elect to receive either a cash payment of US$29.01 per unit of equity interest held or continue to hold an equity interest in the surviving limited liability company of the Opco Merger; and

(c) an arrangement involving Trizec Canada pursuant to Section 192 of the Canada Business Corporations Act pursuant to which Acquisitionco will acquire all of the issued and outstanding shares of Trizec Canada (the "Arrangement").

30. The material elements of the Trizec Merger are as follows:

(a) each Common Share held directly or indirectly by Trizec Canada shall continue to remain an issued and outstanding common share of the surviving corporation of the Trizec Merger (the "Surviving Corporation"), without any payment or distribution in respect thereof, and each other outstanding Common Share (except any Common Shares held by Trizec Properties in treasury, which shares shall be cancelled immediately prior to the Trizec Merger) shall be converted and exchanged automatically into one fully paid and non-assessable redeemable preferred share ("Trizec Redeemable Shares") of the Surviving Corporation;

(b) each outstanding Special Share and Class F Share shall continue to remain issued and outstanding as a special share and Class F share of the Surviving Corporation;

(c) immediately after the completion of the Trizec Merger, each Trizec Redeemable Share shall be redeemed for the right to receive, in cash, US$29.01 per share plus a per share amount which represents the pro rata portion of the regular quarterly dividend payable in respect of the Common Shares in the quarter in which the Trizec Merger occurs; and

(d) all outstanding shares of common stock of Mergerco shall be converted into common stock of the Surviving Corporation in an amount equal to the aggregate number of Common Shares (other than Common Shares held directly or indirectly by Trizec Canada) outstanding immediately prior to the effective time of the merger.

31. Pursuant to the Arrangement, each outstanding SVS and MVS shall be transferred by the holder thereof to Acquisitionco in exchange for payment, in cash, of the sum of US$30.97 per share plus a per share amount which represents the pro rata portion of the regular quarterly dividend payable in respect of the SVS or MVS, as applicable, in the quarter in which the Arrangement occurs, and holders of SVS and MVS may be given the option to receive a portion of this consideration in the form of preferred shares of Brookfield.

32. The US$30.97 per share that Trizec Canada's shareholders will receive in the Arrangement represents US$29.01 per share attributable to the Common Shares held directly and indirectly by Trizec Canada plus an additional US$1.96 per share which reflects the agreed value of Trizec Canada's net assets other than its approximate 38% interest in Trizec Properties.

33. The completion of the Transaction will be subject to customary closing conditions including:

(a) with respect to the Trizec Merger, in accordance with DGCL, the approval and adoption of the Merger and Arrangement Agreement by the holders of at least a majority of the outstanding Common Shares entitled to vote thereon at a meeting (the "Trizec Shareholder Meeting") called for such purpose, which approval threshold is based on the majority approval of the votes attached to the total outstanding Common Shares, not the votes attached to just the shareholders in attendance in person or by proxy at the Trizec Shareholder Meeting;

(b) with respect to the Arrangement, in accordance with the Canada Business Corporations Act, court approval of the Arrangement and the approval of the Arrangement by at least two-thirds of the votes cast by the holders of the SVS and MVS, voting together as a single class, present or represented by proxy at a special meeting called for such purpose; and

(c) with respect to the Transaction, receipt of all other applicable regulatory, court and shareholder approvals required under applicable law.

34. Concurrently with the entering into of the Merger and Arrangement Agreement, Grace Parent and Trizec Canada entered into a support agreement (the "Trizec Canada Support Agreement") providing that Trizec Canada will vote, or cause to be voted, the Common Shares held directly or indirectly by Trizec Canada in favour of the Merger and Arrangement Agreement, the Trizec Merger and the other transactions contemplated by the Merger and Arrangement Agreement.

35. Concurrently with the entering into of the Merger and Arrangement Agreement, Grace Parent and PM Capital also entered into a support agreement (the "PM Capital Support Agreement" and, together with the Trizec Canada Support Agreement, the "Support Agreements") providing that PM Capital will vote, or will cause to be voted, the SVS and MVS held directly or indirectly by PM Capital in favour of the Arrangement.

36. To the knowledge of Trizec Properties, other than the Support Agreements, no other support agreements or other arrangements have been entered into between any Acquisition Party and any of the holders of securities of any of Trizec Properties, Trizec Canada or Trizec Holdings.

37. The board of directors of Trizec Properties (the "Trizec Properties Board"):

(a) on the recommendation of a special committee of the Trizec Properties Board, has approved the Trizec Merger, the Merger and Arrangement Agreement and the other transactions contemplated by the Merger and Arrangement Agreement and has recommended that the Merger and Arrangement Agreement be adopted by the holders of the Common Shares; and

(b) on behalf of Trizec Properties, in its capacity as the sole managing member of Trizec Holdings, has approved the Merger and Arrangement Agreement and deemed it advisable and in the best interests of Trizec Holdings and the members of Trizec Holdings for Trizec Holdings to enter into the Merger and Arrangement Agreement.

38. The board of directors of Trizec Canada has approved the Merger and Arrangement Agreement and the Arrangement and has recommended that the Arrangement be approved by the holders of SVS and MVS of Trizec Canada.

39. All documents concerning the Trizec Merger including, without limitation, the proxy circular to be prepared for the Trizec Shareholder Meeting, that will be sent to other holders of Trizec Properties' securities, will be concurrently sent to all holders of Trizec Properties' securities whose last address as shown in the books of Trizec Properties is in Ontario.

40. The Trizec Merger is a "business combination" within the meaning of Rule 61-501 in so far as it is an merger involving Trizec Properties as a consequence of which the interest of a holder of an equity security of Trizec Properties may be terminated without the holder's consent.

41. Paragraph (e)(ii) of the definition of "business combination" in Section 1.1 of Rule 61-501 may not exclude the Trizec Merger as a "business combination" as Trizec Canada, a "related party" of Trizec Properties within the definition of "related party" in Section 1.1 of Rule 61-501, may be considered to be a party to a "connected transaction" to the Trizec Merger to the extent that the Arrangement constitutes a "connected transaction" within the definition of "connected transaction" in Section 1.1 of Rule 61-501.

42. Paragraph (e)(iii)(A) of the definition of "business combination" in Section 1.1 of Rule 61-501 may not exclude the Trizec Merger as a "business combination" as Trizec Canada is not receiving identical consideration to the other shareholders of Trizec Properties (in and outside of Canada) in that Trizec Canada is receiving no consideration (although, under the Arrangement, the shareholders of Trizec Canada are receiving identical consideration to the shareholders of Trizec Properties in respect of the consideration allocated to the Common Shares of Trizec Properties owned by Trizec Canada). While there is a de minimis number of Canadian shareholders of Trizec Properties, to the extent that the existence of at least one other Canadian shareholder eliminates the application of the exclusion under paragraph (e)(iii)(A) to the Trizec Merger, this exclusion is not applicable.

43. Section 4.1 of Rule 61-501 provides that, among all the other requirements relating to business combinations under Part 4 of Rule 61-501, the minority approval requirement in Section 4.5 of Rule 61-501 does not apply to a business combination if, among other exemptions, at the time the business combination is agreed to: (i) persons or companies whose last address as shown on the books of the issuer is in Ontario hold less than two per cent of the outstanding securities of each class of affected securities of the issuer; and (ii) the issuer reasonably believes that persons or companies who are in Ontario beneficially own less than two per cent of the outstanding securities of each class of affected securities of the issuer, and all documents concerning the business combination that are sent generally to other holders of affected securities of the issuer are concurrently sent to all holders of the securities whose last address as shown on the books of the issuer is in Ontario (the "De Minimis Exemption").

44. The sole reason the Trizec Merger is not exempted by the De Minimis Exemption from the requirements under Part 4 of Rule 61-501, including the minority approval requirement, is that Trizec Canada beneficially owns greater than two per cent of the outstanding Common Shares of Trizec Properties.

45. Unless discretionary relief is granted, Trizec Properties would be required to hold a minority vote under Section 4.5 of Rule 61-501 in connection with the Trizec Merger resulting in the votes attaching to the securities in Trizec Properties beneficially held directly or indirectly by Trizec Canada being excluded from determining minority approval of the Trizec Merger.

AND WHEREAS the Director is satisfied that the decision requested by Trizec Properties may be granted pursuant to Rule 61-501.

THE DECISION of the Director is that, in connection with the Trizec Merger, Trizec Properties is exempt from the requirement under Section 4.5 of Rule 61-501 to hold a minority vote.

"Naizam Kanji"
Manager, Mergers & Acquisitions