UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

Filed by the Registrant þ

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

o Preliminary Proxy Statement

o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ Definitive Proxy Statement

o Definitive Additional Materials

o Soliciting Material Pursuant to §240.14a-12

 

COLUMBIA EQUITY TRUST, INC.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

 

Common Stock, par value $0.001 per share

 

 

13,863,334 shares of Common Stock; and 1,359,973 shares of Common Stock reserved for issuance upon redemption of units of limited partnership interest and LTIP units.

 

 

$19.00 per share of Common Stock, including shares of Common Stock issuable with respect to the redemption of units of limited partnership interest and LTIP units.

 

 

$289,242,833

 

 

$30,949

 

 

 

 

 

 

 

 

 

 

 

Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

 

Dear Stockholder:

 

You are cordially invited to attend a special meeting of stockholders of Columbia Equity Trust, Inc. to be held Tuesday, February 27, 2007, at 8:30 a.m., Eastern time. The meeting will take place at the Occidental located at 1475 Pennsylvania Avenue, N.W., Washington, D.C.

 

At the special meeting, we will ask our stockholders to approve the merger of Columbia Equity Trust, Inc. with and into SSPF/CET OP Holding Company LLC, a direct and wholly owned subsidiary of SSPF/CET Operating Company LLC, an affiliate of the Commingled Pension Trust Fund (Special Situation Property) of JPMorgan Chase Bank, N.A. If the merger is completed, each holder of our common stock will be entitled to receive $19.00 in cash, without interest, for each outstanding share of common stock held on the effective date of the merger.

 

Our Board of Directors and an independent committee comprised solely of independent directors each has unanimously determined that the merger is advisable on the terms set forth in the merger agreement and unanimously approved the merger agreement. Accordingly, our Board of Directors unanimously recommends that you vote “FOR” the merger.

 

We cannot complete the merger unless holders of a majority of our outstanding shares of common stock that are entitled to vote at the special meeting vote to approve the merger. The accompanying notice of special meeting of stockholders provides specific information concerning the special meeting. The enclosed proxy statement provides you with a summary of the merger, the merger agreement and the other transactions contemplated by the merger agreement and additional information about the parties involved. We encourage you to read carefully the enclosed proxy statement and the merger agreement, a copy of which is included in the proxy statement as Exhibit A.

 

Some of our directors and executive officers and certain other persons have interests and arrangements that may be different from, or in addition to, and may conflict with, your interests as a stockholder of our company. These interests are summarized in the section entitled “The Merger — Interests of Our Directors, Executive Officers and Other Persons in the Mergers” on page 31 of the enclosed proxy statement.

 

Your vote is very important. Whether or not you plan to attend the special meeting, please either complete and sign the enclosed proxy card and return it as promptly as possible, or authorize a proxy to vote your shares via the Internet or by calling the toll-free telephone number on the proxy card. The enclosed proxy card contains instructions regarding all three methods of proxy authorization. If you attend the special meeting, you may continue to have your shares of common stock voted as instructed on the proxy card, via the Internet or by telephone or you may withdraw your proxy or your authorization for a proxy via the Internet, by telephone or at the special meeting and vote your shares of common stock in person. If you fail to vote by proxy card, via the Internet or by telephone or in person, or fail to instruct your broker on how to vote or abstain from voting, it will have the same effect as a vote against the merger.

 

Sincerely,

 

Oliver T. Carr, III

Chairman of the Board, President and

Chief Executive Officer

 

1750 H Street, N.W., Suite 500

Washington, D.C. 20006

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON FEBRUARY 27, 2007

 

 

Dear Stockholder:

 

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Columbia Equity Trust, Inc. will be held on Tuesday, February 27, 2007, at 8:30 a.m., Eastern time, at the Occidental located at 1475 Pennsylvania Avenue, N.W., Washington, D.C. The meeting will take place at for the purpose of acting upon the following proposals:

 

1. To consider and vote upon a proposal to approve the merger of Columbia Equity Trust, Inc. with and into SSPF/CET OP Holding Company LLC pursuant to the Agreement and Plan of Merger, dated as of November 5, 2006, by and among SSPF/CET Operating Company LLC, SSPF/CET OP Holding Company LLC, SSPF/CET OP Holding Company Subsidiary L.P., Columbia Equity Trust, Inc. and Columbia Equity, LP; and

 

2. To consider and act upon any other matters that may properly be brought before the special meeting or at any adjournments or postponements thereof.

 

All stockholders of record as of the close of business on January 16, 2007, are entitled to notice of, and to vote at, the special meeting or any postponements or adjournments of the special meeting. Such stockholders are entitled to one vote per share of Columbia common stock held on the record date. Regardless of the number of shares of common stock you own, your vote is important. Approval of the merger will require the affirmative vote of the holders of a majority of the shares of Columbia common stock outstanding on the record date. Whether or not you plan to attend the meeting and vote your common stock in person, please authorize a proxy to vote your stock in one of the following ways: (i) use the toll-free telephone number shown on the proxy card; (ii) go to the Internet website address shown on the proxy card; or (iii) mark, sign, date and promptly return the enclosed proxy card in the postage-paid envelope. If you hold your shares in “street name” through a broker or other nominee and you want your vote counted, you must instruct your broker or nominee to vote.

 

Any proxy may be revoked at any time prior to its exercise by delivery of a later-dated proxy, by using the toll-free telephone number or Internet website address or by attending the special meeting in person and notifying the chairman of the meeting that you would like your proxy revoked. By authorizing your proxy promptly, you can help us avoid the expense of further proxy solicitations.

 

Each of our Board of Directors and an independent committee thereof comprised solely of independent directors unanimously determined that the merger is advisable on the terms set forth in the merger agreement and unanimously approved the merger agreement. Accordingly, our Board of Directors unanimously recommends that you vote “FOR” approval of the merger.

 

Your attention is directed to the proxy statement accompanying this notice (including the exhibits thereto) for a more complete statement regarding the matters proposed to be acted on at the special meeting. We encourage you to read this proxy statement carefully. If you have any questions or need assistance voting your shares, please call the firm assisting in the solicitation of proxies, Innisfree M&A Incorporated, toll-free at 877-456-3463 (banks and brokers may call collect at 212-750-5833).

 

The attached proxy statement is dated January 18, 2007 and is expected to be first mailed to stockholders on or about January 22, 2007.

 

By Order of the Board of Directors,

 

John A. Schissel

Executive Vice President,

Chief Financial Officer, Secretary and Treasurer

TABLE OF CONTENTS

 

 

1750 H Street, N.W., Suite 500
Washington, D.C. 20006

 

 

PROXY STATEMENT

 

 

 

This summary highlights selected information contained elsewhere in this proxy statement relating to the merger and may not contain all of the information that is important to you. We refer in this proxy statement to the merger of our company with and into SSPF/CET OP Holding Company LLC as the “merger.” To understand the merger and related transactions fully and for a more complete description of the merger and other transactions contemplated by the merger agreement, you should carefully read this entire proxy statement as well as the additional documents to which it refers, including the Agreement and Plan of Merger by and among us, Columbia Equity, LP, SSPF/CET Operating Company LLC, SSPF/CET OP Holding Company LLC and SSPF/CET OP Holding Company Subsidiary L.P. (referred to in this proxy statement as the “merger agreement”). A copy of the merger agreement is attached to this proxy statement as Exhibit A. For instructions on obtaining more information, see “— Who Can Answer Other Questions” on page 10.

 

This proxy statement is being furnished by the Board of Directors of our company to holders of shares of our common stock for use at the special meeting, and at any adjournments or postponements of that meeting. At the special meeting, stockholders will be asked to consider and approve the merger pursuant to the terms of the merger agreement, and to consider and act upon any other matters that may be properly brought before the special meeting or at any adjournments or postponements thereof. The special meeting will be held on Tuesday, February 27, 2007, at the Occidental located at 1475 Pennsylvania Avenue, N.W., Washington, D.C., at 8:30 a.m., Eastern time.

 

We have set the close of business on January 16, 2007 as the record date for determining those stockholders who are entitled to notice of, and to vote at, the special meeting. As of the record date, 13,863,334 shares of our common stock were outstanding.

 

The presence at the special meeting, in person or by proxy, of holders of a majority of the aggregate number of shares of our common stock outstanding and entitled to vote on the record date will constitute a quorum, allowing us to conduct the business of the special meeting.

 

A properly executed proxy marked ABSTAIN and a broker non-vote will be counted for purposes of determining whether a quorum is present at the special meeting but will not be voted. As a result, abstentions and broker non-votes will have the same effect as a vote against the proposal to approve the merger.

 

The proposal to approve the merger requires the affirmative vote of holders of a majority of our outstanding shares of common stock entitled to vote at the special meeting. Each share of common stock is entitled to one vote. If you hold your common stock in “street name” (that is, through a broker or other nominee), your broker or

nominee will not vote your shares unless you provide instructions to your broker or nominee on how to vote your shares. You should instruct your broker or nominee how to vote your shares by following the directions provided by your broker or nominee.

 

Because the required vote to approve the merger is based on the number of shares of our common stock outstanding rather than on the number of votes cast, if you fail to authorize a proxy to vote your shares by completing and returning the enclosed proxy card, by telephone, or on the Internet, fail to vote in person or fail to instruct your broker or nominee on how to vote or abstain from voting, it will have the same effect as a vote against the merger.

 

Even after you have properly submitted your proxy card or authorized a proxy by telephone or using the Internet, you may change your vote at any time before the proxy is voted by delivering to our Secretary either a notice of revocation or a duly executed proxy bearing a later date or by using the toll-free telephone number or Internet website address indicated on the proxy card. In addition, the powers of the proxy holders will be suspended with respect to your proxy if you attend the special meeting in person and notify the chairman of the meeting that you would like your proxy revoked. Attendance at the special meeting will not by itself revoke a previously granted proxy. If you have instructed a broker or nominee to vote your shares, you must follow the directions received from your broker or nominee to change your proxy instructions. Also, if you elect to vote in person at the special meeting and your shares are held by a broker or nominee, you must bring to the special meeting a legal proxy from the broker or nominee authorizing you to vote your shares of common stock.

 

Columbia Equity Trust, Inc.  Columbia Equity Trust, Inc., which we refer to in this proxy statement as “we,” “us,” “our,” “our company” or “Columbia”, is a self-advised and self-managed real estate company whose primary focus is on the acquisition, development, renovation, repositioning, ownership, management and operation of commercial office properties located predominantly in the Greater Washington, D.C. area. As of September 30, 2006, we owned or maintained interests in 21 commercial office properties, directly and through joint ventures, containing an aggregate of approximately 2.9 million net rentable square feet, and two properties under development or pre-development that, upon completion, will contain an aggregate of approximately 225,000 net rentable square feet. We were formed as a Maryland corporation in September 2004 and commenced operations upon completion of our initial public offering on July 5, 2005. We elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes beginning with our short taxable year ended December 31, 2005. Our executive offices are located at 1750 H Street, N.W., Suite 500, Washington, D.C. 20006, telephone number (202) 303-3080. Our common stock currently is listed on the New York Stock Exchange, or “NYSE,” under the symbol “COE.” We currently have no shares of preferred stock outstanding.

 

Columbia Equity, LP.  Columbia Equity, LP, which we refer to in this proxy statement as “Columbia OP”, is a Virginia limited partnership through which we conduct substantially all of our business. Columbia OP owns, either directly or indirectly through subsidiaries, substantially all of our assets. We serve as the sole general partner of, and as of September 30, 2006 owned a 92.83% interest in, Columbia OP. The remaining 7.17% interest in Columbia OP is held by third parties, some of whom are, or are affiliated with, our directors and officers.

 

SSPF/CET Operating Company LLC.  SSPF/CET Operating Company LLC, which we refer to in this proxy statement as “SSPF/CET”, is a Delaware limited liability company and the parent of SSPF/CET OP Holding Company, LLC. SSPF/CET is a subsidiary of the Commingled Pension Trust Fund (Special Situation Property) of JPMorgan Chase Bank, N.A. (“SSPF”). SSPF is a bank collective investment fund of which JPMorgan Chase Bank, N.A. is the trustee, and the Bank’s Assets Management business group, which we refer to in this proxy statement as JPMAM, is the advisor.

 

SSPF/CET OP Holding Company LLC.  SSPF/CET OP Holding Company LLC, which we refer to in this proxy statement as “Merger Sub”, is a Delaware limited liability company and a direct and wholly owned subsidiary of SSPF/CET. Merger Sub will become the general partner of Columbia OP following completion of the OP merger.

SSPF/CET OP Holding Company Subsidiary L.P.  SSPF/CET OP Holding Company Subsidiary L.P., which we refer to in this proxy statement as “OP Merger Sub”, is a Virginia limited partnership whose general partner is Merger Sub.

 

At the special meeting, our stockholders will be asked to approve the merger of our company with and into Merger Sub, with Merger Sub surviving the merger, pursuant to the terms of the merger agreement. We sometimes use the term “surviving entity” in this proxy statement to describe Merger Sub as the surviving entity following the merger.

 

The merger agreement also provides for the merger of OP Merger Sub with and into Columbia OP, with Columbia OP continuing as the surviving partnership. We refer in this proxy statement to the merger of Columbia OP as the “OP merger.” Together, the merger and the OP merger are sometimes referred to in this proxy statement as the “mergers.” We expect the OP merger to close concurrently with the merger. In connection with the execution of the merger agreement, SSPF/CET required each of Oliver T. Carr, III, our Chairman, President and Chief Executive Officer, John A. Schissel, our Executive Vice President, Chief Financial Officer, Secretary and Treasurer, and Oliver T. Carr, Jr., the father of Oliver T. Carr, III and the beneficial owner of greater than 5% of our outstanding common stock (referred to in this proxy statement as “OTC Jr.”), each in his capacity as a limited partner of Columbia OP, to enter into a voting agreement pursuant to which each of Messrs. Carr and Schissel and OTC Jr. have agreed to vote or cause their units of limited partnership interest in Columbia OP (including “LTIP Units” of Columbia OP granted in connection with our initial public offering), which we refer to as “Columbia LP Units”, to be voted in favor of approval of the OP merger; provided, however, that their votes will only be effective if we obtain the necessary approval of the merger by our stockholders. Subsequent to the date of the merger agreement, each of our other three executive officers, Clinton D. Fisch, Christian H. Clifford and John A. Novack, entered into voting agreements pursuant to which each of Messrs. Fisch, Clifford and Novack agreed to vote their Columbia LP Units in favor of approval of the OP merger. LTIP Units are a special class of partnership interest in Columbia OP issued pursuant to our 2005 Equity Compensation Plan. Our executive officers and OTC Jr. hold an aggregate of 90.1% of the outstanding Columbia LP Units (excluding those Columbia LP Units held by us and our subsidiaries). The consent of the holders of the outstanding Columbia LP Units is required to approve the OP merger. Because we own a majority of the Columbia LP Units (and all the general partnership interests) and the holders of an aggregate of 90.1% of the outstanding Columbia LP Units not owned by us have agreed to approve the OP merger, there is a sufficient number of Columbia LP Units to approve the OP merger without the approval or consent of the holders of any other Columbia LP Units. Thus, the OP merger is assured of being approved if the merger is approved. Columbia OP will solicit the votes of each of its limited partners for approval of the OP merger.

 

In the merger, each share of common stock of our company that is issued and outstanding immediately prior to the effective time of the merger, other than certain shares owned by us, SSPF/CET or Merger Sub or any subsidiary of us, SSPF/CET or Merger Sub, will be converted into, and cancelled in exchange for, the right to receive $19.00 in cash, without interest, which we refer to as the “merger consideration”. The merger consideration is fixed and will not be adjusted for changes in the trading price of our common stock.

 

As consideration for the OP merger, Columbia LP Units, including LTIP Units, will be converted into (i) cash in an amount equal to $19.00 per unit, (ii) one unit of common equity membership interest in SSPF/CET (referred to in this proxy statement as “SSPF/CET common units”) per Columbia LP Unit, (iii) one unit of preferred equity membership interest in SSPF/CET (referred to in this proxy statement as “SSPF/CET preferred units”) per Columbia LP Unit or (iv) a combination of the foregoing, at the election of the holder. Only Columbia LP Unit holders who qualify as “accredited investors” under Regulation D under the Securities Act of 1933, as amended, will be eligible to receive equity consideration in exchange for their Columbia LP Units. The consideration described in (i) through (iv) is referred to collectively in this proxy statement as the “OP merger consideration”. We refer collectively to the consideration described in clauses (ii) and (iii) above as the “OP merger equity consideration”. SSPF/CET common units will have all of the rights and privileges typically associated with common equity, and SSPF/CET preferred units will have the rights and privileges discussed in the section captioned “The

Merger — Interests of Our Directors, Executive Officers and Other Persons in the Mergers” on page 31 of this proxy statement.

 

In connection with the execution of the merger agreement, SSPF/CET has required Messrs. Carr and Schissel and OTC Jr. to elect to exchange 66,675, 13,333 and 289,474 of their Columbia LP Units, respectively, for SSPF/CET common units in the OP merger and Mr. Schissel agreed to invest $89,000 in cash for SSPF/CET common units. Subsequent to the date of the merger agreement, Messrs. Fisch, Clifford and Novack agreed to exchange 29,964, 16,667 and 7,083 of their Columbia LP Units, respectively, for SSPF/CET common units.

 

Following the completion of the merger, you will receive a letter of transmittal describing how you may exchange your shares of common stock for the merger consideration by sending your common stock certificates with your completed letter of transmittal to the paying agent. You should not send your common stock certificates to us or anyone else until you receive these instructions. You will receive payment of the merger consideration after we receive from you a properly completed letter of transmittal together with your stock certificates. If you hold your common stock in “street name,” your broker or nominee must surrender your stock in exchange for your merger consideration following completion of the merger.

 

We are authorized under the merger agreement to declare and pay regular quarterly cash dividends with respect to our common stock in an amount equal to the greater of up to $0.15 per share or that amount required for us to maintain our status as a REIT and for us not to be required to pay federal income taxes with respect to our earnings prior to the closing of the merger. We are also authorized to declare and pay a special pre-closing dividend that will represent the pro rata portion of a regular quarterly dividend for any partial quarter from the most recent dividend record date prior to the merger to the effective time of the merger.

 

The merger will be completed only if the conditions specified in the merger agreement are either satisfied or waived (to the extent permissible). Some of the most significant conditions specified in the merger agreement include:

 

 

 

The merger is not conditioned on SSPF/CET, Merger Sub or OP Merger Sub obtaining financing for the merger consideration. See “— Available Funds and Guarantee” on page 7 for more information regarding the financing of the merger.

 

If the requisite holders of our common stock approve the merger and the other conditions to the merger are satisfied or waived (to the extent permissible), then we intend to consummate the merger as soon as practicable following the special meeting.

 

Our Board of Directors unanimously recommends that holders of shares of our common stock vote FOR approval of the merger. At a special meeting held on November 5, 2006, each of our Board of Directors and an independent committee comprised solely of independent directors unanimously approved the merger and the other transactions contemplated by the merger agreement and declared the merger advisable and in the best interests of our company and our stockholders on the terms set forth in the merger agreement. The approval of our Board of Directors was made after the careful consideration of a variety of business, financial and other factors and consultation with its legal and financial advisors.

 

In deciding to approve the merger on the terms set forth in the merger agreement, our Board of Directors, and an independent committee of five directors who are not employees of our company (the “Committee”), considered a number of factors, both potentially positive and potentially negative, with respect to the merger and the other transactions contemplated by the merger agreement.

 

Some of the potentially positive factors our Board of Directors and the Committee considered include:

 

 

 

 

 

Some of the potentially negative factors our Board of Directors and the Committee considered include:

 

 

 

 

 

 

In view of the wide variety of factors considered by our Board of Directors, our Board of Directors did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered. Our Board of Directors’ recommendation is based on the totality of the information presented to it and which it considered. After taking into consideration the factors set forth above together with other factors, including those described in “The Merger — Reasons for the Merger” on page 24, our Board of Directors and the Committee determined that the potential benefits of the merger substantially outweigh the potential detriments associated with the merger.

 

The Committee approved the engagement of Wachovia Securities as the exclusive financial advisor to our company with respect to the possible sale of our company to JPMAM. The Committee selected Wachovia Securities to act as exclusive financial advisor based on Wachovia Securities’ qualifications, expertise and reputation. Wachovia Securities rendered its oral opinion to the Board of Directors and the Committee and subsequently confirmed it with its written opinion that, as of November 5, 2006, subject to and based on the assumptions made, procedures followed, matters considered and limitations on the opinion and the review undertaken, as set forth in its opinion, the merger consideration of $19.00 in cash per share to be received by holders of our common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

 

The full text of Wachovia Securities’ written opinion, dated November 5, 2006, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the opinion and the review undertaken in connection with the opinion, is attached as Exhibit B to this proxy statement. You should carefully read the opinion and the summary below in “The Merger — Opinion of Wachovia Securities” on page 26. The foregoing and such summary are qualified in their entirety by reference to the full text of the opinion.

 

SSPF/CET has represented to us in the merger agreement that it will on the closing date have cash sufficient to pay the merger consideration and to satisfy the obligations of SSPF/CET, Merger Sub and OP Merger Sub at the time and in the manner contemplated by the merger agreement, including without limitation, in connection with the merger and the other transactions contemplated by the merger agreement and all related expenses.

 

SSPF has executed and delivered to us and Columbia OP a guarantee which guarantees all of the obligations of SSPF/CET, Merger Sub and OP Merger Sub under the merger agreement.

 

Under Maryland law, because our common stock is listed on the NYSE, appraisal rights are not available to holders of our common stock in connection with the merger.

 

Each of our executive officers and certain of our directors and other persons have interests in the merger that differ from, or are in addition to, and therefore may conflict with, your interests as a stockholder as described in “The Merger — Interests of Our Directors, Executive Officers and Other Persons in the Mergers” beginning on page 31. Our Board of Directors is aware of these interests and considered them in approving the merger and the other transactions contemplated by the merger agreement. These interests include:

 

 

The merger agreement prohibits our company, Columbia OP and our respective subsidiaries and representatives from (i) soliciting, initiating or encouraging any inquiries or the making of any inquiry, proposal or offer that constitutes, or reasonably could be expected to lead to, an acquisition proposal, (ii) engaging or otherwise participating in any discussions or negotiations regarding an acquisition proposal, or providing any non-public information to any person related to an acquisition proposal or releasing any person from standstill or similar obligations, or (iii) otherwise knowingly facilitating any effort to attempt to make an acquisition proposal. Notwithstanding the foregoing, the merger agreement does permit us to provide information in response to a request with respect to an unsolicited bona fide written acquisition proposal, provided the party so requesting the information enters into a confidentiality and standstill agreement on terms not less restrictive to the requesting party than those contained in our confidentiality agreement with JPMAM, and engage or participate in any discussions or negotiations with any party that has made a bona fide written acquisition proposal, provided we have not given the party an exclusive right to negotiate with us. In addition to these permitted communications, subject to certain conditions, in the event our Board of Directors makes a change in its recommendation for approval of the merger, our Board of Directors may approve, recommend or otherwise declare advisable or propose to approve, recommend or otherwise declare advisable, an acquisition proposal that our Board of Directors deems a superior

proposal (as defined in the merger agreement). Upon termination of the merger agreement and our Board of Directors approving of our entering into an agreement for a transaction that constitutes a superior proposal, we would be obligated to make a termination payment in the amount of $4.0 million to SSPF/CET and to reimburse SSPF/CET for transaction expenses up to $750,000. We refer to these transaction expenses as “merger expenses” throughout this proxy statement.

 

In addition to customary termination events, including termination by mutual consent of the parties, termination for breaches of representations, warranties or covenants and termination upon failure to receive the requisite stockholder approval for the merger, the merger agreement may be terminated under the following circumstances:

 

 

 

We also would be required to pay SSPF/CET the termination payment and the merger expenses if:

 

 

The receipt of the merger consideration in exchange for shares of our common stock in the merger will be a taxable transaction for federal income tax purposes. See “Material United States Federal Income Tax Consequences”. Your tax consequences will depend on your personal situation. You are urged to consult your own tax advisor for a full understanding of the tax consequences of the merger to you.

 

We estimate that our company will incur, and will be responsible for paying, transaction-related fees and expenses, consisting primarily of filing fees, fees and expenses of financial advisors, attorneys and accountants and other related charges, totaling approximately $5.6 million, assuming the merger and the other transactions contemplated by the merger agreement are completed. In the event the merger and the other transactions contemplated by the merger agreement are completed, the surviving entity will assume these fees and expenses, to the extent they have not been paid.

 

No material federal or state regulatory approvals are required to be obtained by us or the other parties to the merger agreement in connection with the merger. To effect the merger, however, we must file articles of merger with the State Department of Assessments and Taxation of Maryland (the “SDAT”) and a merger certificate with the Delaware Secretary of State, and such articles of merger and merger certificate must be accepted for record by the SDAT and the Delaware Secretary of State, respectively.

 

In the event the merger is not completed for any reason, we will continue to operate as an independent entity and will strive to create value for our stockholders over time.

 

If you have any questions about the merger or the other transactions contemplated by the merger agreement or how to submit your proxy or would like additional copies of this proxy statement, you should contact the firm assisting in the solicitation of proxies:

 

Innisfree M&A Incorporated

501 Madison Avenue, 20^th Floor

New York, NY 10022

(877) 456-3463

 

What am I being asked to vote on?

 

Holders of our common stock are being asked to vote to approve the merger of Columbia Equity Trust, Inc. with and into Merger Sub pursuant to the terms of the merger agreement.

 

What will I receive in the merger?

 

You will be entitled to receive $19.00 in cash, without interest, for each outstanding share of our common stock that you own as of the effective date of the merger. The merger consideration is fixed and will not be adjusted for changes in the trading price of our common stock. In addition to any regular quarterly dividends (of up to $0.15 per share) declared by our company prior to the closing of the merger, you will also be entitled to receive a special pre-closing dividend that will represent the pro rata portion of a regular quarterly dividend for any partial quarter from the most recent dividend record date prior to the merger to the effective time of the merger.

 

What does the Board of Directors recommend?

 

Our Board of Directors and the Committee comprised solely of directors determined by our Board to be independent and disinterested unanimously approved the merger and declared the merger advisable on the terms set forth in the merger agreement. Our Board of Directors recommends that holders of our common stock vote FOR approval of the merger. For a description of factors considered by our Board of Directors, please see the sections captioned “The Merger — Reasons for the Merger” on page 24 and “The Merger — Recommendation of Our Board of Directors” on page 23.

 

Why was the Committee of our Board of Directors appointed?

 

Our directors who are also executive officers have interests in the merger and the other transactions contemplated by the merger agreement that differ from those of our other stockholders and as a result, have a conflict of interest in considering the merger and related transactions. In order to limit the effect of these conflicts of interest in connection with the evaluation by our Board of Directors of the merger and the other transactions contemplated by the merger agreement, our Board of Directors appointed a committee comprised solely of five non-employee directors that the Board determined to be independent and disinterested for purposes of evaluating the proposed transaction. The members of the Committee are Bruce M. Johnson, Robert J. McGovern, Rebecca L. Owen, Hal A. Vasvari and Thomas A. Young, Jr. For more information about the interests of our directors and executive officers, please see the section captioned “The Merger — Interests of Our Directors, Executive Officers and Other Persons in the Mergers” on page 31.

 

What is the premium to the market price of our common stock offered in the merger?

 

The $19.00 cash per share merger consideration represents an approximate 12.4% premium over the closing price of our common stock on November 3, 2006, the last trading day before the public announcement of the signing of the merger agreement and an approximate 19.9% premium over the volume weighted average closing price of our common stock over the 90-day period ended November 3, 2006.

 

When do you expect to complete the merger?

 

A special meeting of our stockholders is scheduled to be held on Tuesday, February 27, 2007, to consider and vote on the merger pursuant to the terms of the merger agreement. Because obtaining the requisite approval of the merger by our stockholders is only one of the conditions to the completion of the merger, we can give you no assurance as to when or whether the merger will occur, but we expect to close the merger in the first quarter of 2007. For more information regarding the other conditions to the merger, please see the section captioned “The Merger Agreement — Conditions to the Merger” on page 44.

If the merger is completed, when can I expect to receive the merger consideration for my common stock?

 

If you are a registered holder of our common stock at the effective time of the merger, then following the completion of the merger, you will receive (i) a letter of transmittal describing how you may exchange your shares of common stock for the merger consideration and (ii) instructions for use in effecting the surrender of any stock certificates held by you. At that time, you must send your stock certificates with your completed letter of transmittal to the paying agent. You should not send your stock certificates to us or anyone else until you receive these instructions. You will receive payment of the merger consideration, less any applicable tax withholding, after we receive from you a properly completed letter of transmittal together with your stock certificates. If you hold your common stock in “street name,” your broker or nominee must take the actions required to obtain delivery of your portion of the merger consideration to your account on your behalf and you will not be required to take any action yourself to receive the merger consideration.

 

If I am a U.S. stockholder, what are the tax consequences of the merger to me?

 

Any gain resulting from your receipt of the merger consideration for your shares of common stock will be taxable for federal income tax purposes. For further information on the material tax consequences of the merger, please see the section captioned “Material United States Federal Income Tax Consequences — Consequences of the Merger to U.S. Holders of Our Common Stock” on page 49. You should consult your own tax advisor for a full understanding of the tax consequences of the merger to you.

 

If I am a non-U.S. stockholder, what are the tax consequences of the merger to me?

 

The tax consequences to non-U.S. stockholders are complex and will depend on various factors. Non-U.S. stockholders are urged to read the section captioned “Material United States Federal Income Tax Consequences — Consequences of the Merger to Non-U.S. Holders of Our Common Stock” on page 50 and to consult with their own tax advisors, especially concerning the Foreign Investment in Real Property Tax Act of 1980, U.S. federal income tax withholding rules and the possible application of benefits under an applicable income tax treaty.

 

What vote is required to approve the merger?

 

Approval of the merger requires the affirmative vote of the holders of a majority of shares of our common stock that are outstanding on the record date. We urge you to complete, execute and return the enclosed proxy card or authorize a proxy via the Internet or by calling the toll-free number on the proxy card to assure the voting of your shares at the special meeting.

 

What rights do I have if I oppose the merger?

 

You can vote against the merger by indicating a vote against the proposal on your proxy card and signing and mailing your proxy card, by instructing a proxy to vote against the merger via the Internet or by calling the toll-free number on the proxy card or by voting against the merger in person at the special meeting. You are not, however, entitled to dissenters’ or appraisal rights under Maryland law.

 

Who is entitled to vote at the special meeting?

 

Only stockholders of record at the close of business on the record date, January 16, 2007, are entitled to receive notice of the special meeting and to vote the shares that they held on that date at the special meeting, or any postponements or adjournments of the special meeting. Each stockholder has one vote for each share of common stock owned at the close of business on the record date. As of the record date, there were 13,863,334 shares of common stock outstanding and entitled to vote at the special meeting.

What is the location, date and time of the special meeting?

 

The special meeting will be held at the Occidental located at 1475 Pennsylvania Avenue, N.W., Washington, D.C., on Tuesday, February 27, 2007, at 8:30 a.m., Eastern time.

 

What happens if I sell my common stock before the special meeting or before the completion of the merger?

 

The record date for the special meeting, January 16, 2007, is earlier than the date of the special meeting. If you held your shares of our common stock on the record date but transfer them prior to the effective time of the merger, you will retain your right to vote at the special meeting, but not the right to receive the merger consideration for the common stock. The right to receive such consideration will pass to the person who owns your common stock when the merger becomes effective.

 

How do I vote?

 

If you are a registered holder of our common stock and properly complete and sign the proxy card enclosed with this proxy statement and return it to us prior to the special meeting or if you properly give a proxy authorization by phone or the Internet, your shares will be voted as you direct. If you are a registered stockholder and attend the special meeting, you may deliver your completed proxy card or vote in person. If you elect to vote in person at the special meeting and your shares are held by a broker or nominee, you must bring to the special meeting a legal proxy from the broker or nominee authorizing you to vote your shares.

 

If you fail to either return your proxy card, authorize a proxy by using the toll-free telephone number or the Internet or vote in person at the special meeting, or if you mark your proxy card ABSTAIN, the effect will be the same as a vote against the merger. If you sign and return your proxy card and fail to indicate your vote on your proxy, your shares will be counted as a vote FOR the merger.

 

If my shares of common stock are held for me by my broker, will my broker vote my shares for me?

 

If you hold your common stock in “street name” through a broker or other nominee, your broker or nominee will not vote your shares of common stock unless you provide instructions on how to vote. You should instruct your broker or nominee how to vote your shares of common stock by following the directions your broker or nominee will provide to you. If you do not provide instructions to your broker or nominee, your shares of common stock will not be voted and this will have the same effect as a vote against the proposal to approve the merger.

 

How will proxy holders vote my shares of common stock?

 

If you complete and properly sign the proxy card enclosed with this proxy statement and return it to us prior to the special meeting, or if you properly give a proxy authorization by phone or the Internet, your shares of common stock will be voted as you direct. Unless you give other instructions on your proxy card or in your proxy authorization by phone or the Internet, the persons named as proxy holders will vote your shares in accordance with the Board of Directors’ recommendation. Our Board of Directors recommends a vote FOR approval of the merger. Please see the section captioned “The Merger — Recommendation of Our Board of Directors” on page 23.

 

How can I change my vote after I have mailed my signed proxy card or voted by telephone or on the Internet?

 

If you are a registered holder of our common stock, you may change your vote by (i) delivering to our Secretary, before the special meeting, a later dated, signed proxy card or a written revocation of your proxy, or by using the toll-free telephone number or Internet or (ii) attending the special meeting and notifying the chairman of the meeting that you would like your proxy revoked and voting in person. The powers of the proxy holders will be suspended with respect to your proxy if you attend the special meeting in person and so request; your attendance at the special meeting, however, will not, by itself, revoke your proxy. If you have instructed a broker or nominee to vote your shares, you must follow the directions received from your broker or nominee to change those instructions.

Also, if you elect to vote in person at the special meeting and your shares are held by a broker or nominee, you must bring to the special meeting a legal proxy from the broker or nominee authorizing you to vote your shares.

 

What will happen to my common stock after completion of the merger?

 

Following the completion of the merger, your shares of common stock will be cancelled and will represent only the right to receive the merger consideration. Trading in our common stock on the NYSE will cease and price quotations for our common stock will no longer be available.

 

What do I need to do now?

 

This proxy statement contains important information regarding the merger and the other transactions contemplated by the merger agreement, as well as information about our company and the other parties to the merger agreement. It also contains important information about what our Board of Directors considered in approving the merger. We urge to you read this proxy statement carefully, including the exhibits.

 

Should I send my common stock certificates now?

 

No. After the merger is completed, a paying agent will send you a letter of transmittal describing how you may exchange your common stock certificates for the merger consideration. At that time, you must send in your common stock certificates or execute an appropriate instrument of transfer of your shares, as applicable, with your completed letter of transmittal to the paying agent to receive the merger consideration. If you do not hold physical certificates, your broker or nominee must surrender your shares following completion of the merger.

 

Where can I find more information about Columbia Equity Trust, Inc.?

 

We file annual, quarterly and other periodic reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any reports, statements, or other information we file with the Securities and Exchange Commission at its public reference room in Washington, D.C. (100 F Street, N.E. 20549). Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference room. Our filings are also available to the public on the Internet, through a web site maintained by the Securities and Exchange Commission at http://www.sec.gov and on our web site at www.columbiareit.com.  Information contained on our web site is not part of, or incorporated into, this proxy statement. Please see the section captioned “Where You Can Find Additional Information” on page 54.

 

Whom can I call with questions?

 

We have selected Innisfree M&A Incorporated as our proxy solicitor. If you have questions, require assistance voting your shares or need additional copies of proxy materials, you may call:

 

Innisfree M&A Incorporated

501 Madison Avenue, 20^th Floor

New York, NY 10022

(877) 456-3463

 

Who will solicit and pay the cost of soliciting proxies?

 

Each of SSPF/CET and our company will pay one-half of the expenses related to printing, filing and mailing this proxy statement. In addition to solicitation by mail and, without additional compensation for such services, proxies may be solicited personally, or by telephone or telecopy, by our officers or employees. We will bear the cost of soliciting proxies. We have paid The Altman Group $6,500 for providing preliminary proxy solicitation services. We have engaged Innisfree M&A Incorporated to serve as our proxy solicitor. We will pay Innisfree M&A Incorporated a fee of $50,000 to assist with the solicitation of proxies. If our stockholders approve the merger, we will pay Innisfree M&A Incorporated a success fee of $25,000. Innisfree M&A Incorporated may solicit proxies by telephone or other electronic means or in person. We also will reimburse Innisfree M&A Incorporated for routine out-of-pocket expenses in connection with this proxy solicitation plus a 5% service charge in certain instances, which expenses will include a charge of $5.00 for each

stockholder successfully contacted. We will request that banking institutions, brokerage firms, custodians, trustees, nominees, fiduciaries and other like parties forward the solicitation materials to the beneficial owners of common stock held of record by such persons, and we will, upon request of such record holders, reimburse forwarding charges and out-of-pocket expenses.

 

If you have further questions, you may contact our proxy solicitor at the address or telephone number indicated above.

 

This proxy statement contains certain forward-looking statements, including statements relating to the financial condition, results of operations, plans, objectives, future performance and businesses of our company, as well as information relating to the merger, the merger agreement and the transactions contemplated by the merger agreement, including statements concerning the anticipated closing date of the merger, the conduct of the business of our company if the merger is not completed, tax consequences of the merger and the possibility that any of the conditions to closing, including those outside our control, will be satisfied. The Private Securities Litigation Reform Act of 1995 provides safe harbor provisions for forward-looking information. These forward-looking statements are based on current expectations, beliefs, assumptions, estimates and projections about the current economic environment, our company, the industry and markets in which our company operates. Words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” and variations of such words and similar words also identify forward-looking statements. Our company also may provide oral or written forward-looking information in other materials released by the company to the public.

 

You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control. Although we believe that the expectations reflected in any forward-looking statements that we made are based upon reasonable assumptions, these risks, uncertainties and other factors may cause our actual results, performance or achievements to differ materially from anticipated future results, or the performance or achievements expressed or implied by such forward-looking statements. Accordingly, there can be no assurance that these expectations will be realized.

 

We undertake no obligation to update or revise forward-looking statements in this proxy statement to reflect changes in underlying assumptions or factors, new information, future events or otherwise. Any forward-looking statements speak only as of the date that they are made.

 

All forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

 

Columbia Equity Trust, Inc.

 

We are a self-advised and self-managed real estate company whose primary focus is on the acquisition, development, renovation, repositioning, ownership, management and operation of commercial office properties located predominantly in the Greater Washington, D.C. area, which we define as the District of Columbia, northern Virginia and suburban Maryland. As of September 30, 2006, we owned or maintained interests in 21 commercial office properties, directly or through joint ventures, containing an aggregate of approximately 2.9 million net rentable square feet and two properties under development or pre-development that, upon completion, will contain an aggregate of approximately 225,000 net rentable square feet. We were formed as a Maryland corporation in September 2004 and commenced operations on July 5, 2005 after completing our initial public offering. Upon completion of our initial public offering, we succeeded to the commercial office property business of Carr Capital Corporation, or Carr Capital, a recognized owner and operator of commercial office properties in the Greater Washington, D.C. area. We elected to be taxed as a REIT for federal income tax purposes beginning with our short taxable year ended December 31, 2005. Our executive offices are located at 1750 H Street, N.W., Suite 500, Washington, D.C. 20006, telephone number (202) 303-3080. Our common stock currently is listed on the New York Stock Exchange, or “NYSE,” under the symbol “COE.” We currently have no shares of preferred stock outstanding.

Columbia Equity, LP

 

Columbia Equity, LP, which we refer to in this proxy statement as “Columbia OP”, is a Virginia limited partnership through which we conduct substantially all of our business. Columbia OP owns, either directly or indirectly through subsidiaries, substantially all of our assets. We serve as the sole general partner of, and as of September 30, 2006 owned a 92.83% interest in, Columbia OP. The remaining 7.17% interest in Columbia OP is held by third parties, some of whom are, or are affiliated with, our directors and officers.

 

SSPF/CET Operating Company LLC

 

SSPF/CET Operating Company LLC, which we refer to in this proxy statement as “SSPF/CET”, is a Delaware limited liability company and the parent of Merger Sub. SSPF/CET is a subsidiary of the Commingled Pension Trust Fund (Special Situation Property) of JPMorgan Chase Bank, N.A. (“SSPF”). SSPF is a bank collective investment fund of which JPMorgan Chase Bank, N.A. is the trustee, and the Bank’s Assets Management business group, which we refer to in this proxy statement as JPMAM, is the advisor. Pursuant to the merger agreement, SSPF/CET will pay the merger consideration.

 

SSPF/CET OP Holding Company LLC

 

SSPF/CET OP Holding Company LLC, which we refer to as “Merger Sub”, is a Delaware limited liability company and a direct and wholly owned subsidiary of SSPF/CET. Merger Sub will become the general partner of Columbia OP following completion of the OP merger.

 

SSPF/CET OP Holding Company Subsidiary L.P.

 

SSPF/CET OP Holding Company Subsidiary L.P., which we refer to as “OP Merger Sub”, is a Virginia limited partnership whose general partner is Merger Sub.

 

Overview

 

The merger agreement provides for the merger of our company with and into Merger Sub. Merger Sub will be the surviving entity in the merger and will be a subsidiary of SSPF/CET. The merger agreement also provides for the merger of OP Merger Sub with and into Columbia OP, with Columbia OP continuing as the surviving partnership. Completion of the OP merger is a condition to the closing of the merger. In connection with the execution of the merger agreement, SSPF/CET required each of Oliver T. Carr, III, our Chairman, President and Chief Executive Officer, John A. Schissel, our Executive Vice President, Chief Financial Officer, Secretary and Treasurer, and Oliver T. Carr, Jr., the father of Oliver T. Carr, III and the beneficial owner of greater than 5% of our outstanding common stock (referred to in this proxy statement as “OTC Jr.”), each in his capacity as a limited partner of Columbia OP, to enter into a voting agreement pursuant to which each of Messrs. Carr and Schissel and OTC Jr. have agreed to vote or cause their Columbia LP Units to be voted in favor of approval of the OP merger; provided, however, that their votes will only be effective if we obtain the necessary approval of the merger by our stockholders. Subsequent to the date of the merger agreement, each of our other three executive officers, Clinton D. Fisch, Christian H. Clifford and John A. Novack, entered into voting agreements pursuant to which each of Messrs. Fisch, Clifford and Novack agreed to vote their Columbia LP Units in favor of approval of the OP merger. LTIP Units are a special class of partnership interest in Columbia OP issued pursuant to our 2005 Equity Compensation Plan. Our executive officers and OTC Jr. hold an aggregate of 90.1% of the outstanding Columbia LP Units (excluding those Columbia LP Units held by us and our subsidiaries). The consent of the holders of the outstanding Columbia LP Units is required to approve the OP merger. Because we own a majority of the Columbia LP Units (and all the general partnership interests) and the holders of an aggregate of 90.1% of the outstanding Columbia LP Units not owned by us have agreed to approve the OP merger, there is a sufficient number of Columbia LP Units to approve the OP merger without the approval or consent of the holders of any other Columbia LP Units.

Thus, the OP merger is assured of being approved if the merger is approved. Columbia OP will solicit the votes of each of its limited partners for approval of the OP merger.

 

We expect the merger to occur as soon as practicable after our stockholders approve the merger proposal and the satisfaction or waiver of all other conditions to closing under the merger agreement. The merger will be completed when the articles of merger have been accepted for record by the State Department of Assessments and Taxation of Maryland in accordance with Maryland law and the merger certificate has been accepted by the Delaware Secretary of State in accordance with Delaware law, or such later time as we and Merger Sub may agree and designate in the articles of merger or merger certificate. We currently anticipate closing the merger during the first quarter of 2007.

 

Merger Consideration to be Received by Holders of Our Common Stock

 

As of the effective time of the merger, holders of our common stock will have no further ownership interest in the surviving entity. Instead, each holder of our outstanding shares of common stock immediately prior to the effective time of the merger will be entitled to receive $19.00 in cash per share, without interest.

 

As of the effective time of the merger, each share of our common stock that is owned by us, by any of our subsidiaries or by SSPF/CET, Merger Sub or any of their subsidiaries, other than shares held on behalf of third parties, will be cancelled and retired and shall cease to exist. No payment will be made for any such cancelled shares.

 

Merger Consideration to be Received by Holders of Columbia LP Units and LTIP Units

 

As consideration for the OP merger, Columbia LP Units, including LTIP Units, will be converted into (i) cash in an amount equal to $19.00 per unit, (ii) one SSPF/CET common unit per Columbia LP Unit, (iii) one SSPF/CET preferred unit per Columbia LP Unit or (iv) a combination of the foregoing, at the election of the holder. Only Columbia LP Unit holders who qualify as “accredited investors” under Regulation D under the Securities Act of 1933 will be eligible to receive SSPF/CET common units or SSPF/CET preferred units in exchange for their Columbia LP Units. The SSPF/CET common units will have all of the rights and privileges typically associated with common equity, and the SSPF/CET preferred units will have the rights and privileges discussed in the section captioned “— Interests of Our Directors, Executive Officers and Other Persons in the Mergers” on page 31 of this proxy statement.

 

In connection with the execution of the merger agreement, each of Messrs. Carr and Schissel, both of whom also serve as directors of our company, and OTC Jr., the father of Oliver T. Carr, III, are required to exchange, in the case of each of Mr. Carr and OTC Jr., approximately 25% of his equity interest in Columbia OP and, in the case of Mr. Schissel, approximately 25% of his combined equity interest in our company and Columbia OP, for SSPF/CET common units. Subsequent to the date of the merger agreement, each of Messrs. Fisch, Clifford and Novack agreed to exchange approximately 25% of his Columbia LP Units for SSPF/CET common units. Our executive officers and OTC Jr. have the opportunity to elect to receive additional SSPF/CET common units or SSPF/CET preferred units in exchange for their Columbia LP Units in connection with the OP merger. See “— Interests of Our Directors, Executive Officers and Other Persons in the Mergers” on page 31.

 

The affirmative vote of the holders of a majority of our outstanding common stock entitled to vote at the special meeting is required to approve the merger. Shares of common stock not voted at the special meeting will have the same effect as a vote against the merger.

 

Beginning in 2002, our predecessor, Carr Capital, began partnering with JPMAM for the purpose of acquiring, developing, managing and selling commercial office properties in the Greater Washington, D.C. area through joint venture arrangements. In July 2005, in connection with completion of our initial public offering, we succeeded to Carr Capital’s interest in these joint ventures. As of September 30, 2006, we owned interests ranging from

approximately 8% to 40% in five joint ventures with affiliates of JPMAM. These joint ventures own properties containing approximately 1.1 million square feet of net rentable area. Through these joint ventures, JPMAM has become familiar with our company, management team and operating systems.

 

On October 5, 2005, Company A, a real estate investment firm, contacted our Chairman, President and Chief Executive Officer and our Chief Financial Officer (the “Senior Executive Officers”) and preliminarily indicated an interest in potentially working together on a range of strategic capital alternatives, including joint ventures or a possible acquisition of our company. At a meeting on November 3, 2005 at an industry conference in Chicago, Illinois, while discussing these strategic capital alternatives with our Senior Executive Officers, certain members of Company A’s management team conveyed their interest in a possible acquisition of our company. Our Senior Executive Officers indicated that our company was not interested in entering into a confidentiality agreement or any type of exclusive negotiations with Company A given the recent completion of our initial public offering, but that Company A could review the publicly available information about our company and make any proposal they deemed appropriate. Shortly thereafter, Company A delivered a preliminary verbal proposal to our Senior Executive Officers for the potential acquisition of our company at $17.00 per share. The Senior Executive Officers advised our Board of Directors at its regularly scheduled meeting on November 11, 2005 of Company A’s interest and potential partnering opportunities and further stated that they had communicated to Company A our interest in keeping an open channel for further dialogue, but that our company was focused on executing its business plan at that time. The Board determined not to pursue the matter further but requested that management immediately consult the Board if discussions became elevated. The Senior Executive Officers later advised Company A of the Board’s response, after which time we received no further communication from Company A.

 

On March 15, 2006, in a meeting with the Senior Executive Officers, representatives of JPMAM initially raised the possibility of pursuing a transaction involving the potential acquisition of Columbia by an affiliate of JPMAM. On March 27, 2006, representatives of JPMAM followed up with the Senior Executive Officers after having reviewed publicly available information about our company and raised the possibility of acquiring our company in an all cash transaction at a price in the range of $17.75 to $18.25 per share, subject to further due diligence. At a meeting of our Board of Directors on April 7, 2006, the Senior Executive Officers communicated these preliminary discussions with JPMAM to the Board, including JPMAM’s preliminary range for the merger consideration and JPMAM’s desire to sign a confidentiality agreement and conduct additional due diligence. At this meeting, the Board discussed the advisability of exploring a transaction, but determined that JPMAM’s preliminary range for the merger consideration was insufficient and further indicated the Board’s unwillingness to enter into a confidentiality agreement at that time.

 

On May 5, 2006, representatives of JPMAM communicated to the Senior Executive Officers JPMAM’s willingness to increase its potential offer to $18.50 per share and further communicated its interest in acquiring our company and its operating platform, which would involve the continued employment of the Senior Executive Officers and other members of our management team following the transaction.

 

On May 12, 2006, at a regularly scheduled meeting of our Board of Directors, the Senior Executive Officers described to the Board of Directors JPMAM’s revised potential offer of $18.50 per share and desire to employ the management team after the transaction. The Board discussed the proposal and reiterated its position that the merger consideration was insufficient, but that the Board might be willing to consider a potential transaction at a higher price. At this meeting, Hunton & Williams LLP, Columbia’s outside counsel, described to the directors their fiduciary duties and other considerations with respect to a potential transaction. At the meeting, the Board determined to undertake to obtain an independent valuation of our company based on our business plan as an independent company and selected Wachovia Securities, the lead managing underwriter in our initial public offering, to conduct such independent valuation. Our Board of Directors concluded its discussions by instructing the Senior Executive Officers to inform JPMAM that the Board might be willing to discuss a potential transaction at a higher price and that JPMAM should be directed to present a more formal offer at a higher valuation. Shortly after this meeting, the Senior Executive Officers communicated our Board of Directors’ position regarding a potential transaction to representatives of JPMAM.

 

Commencing shortly after the May 12, 2006 Board meeting, Wachovia Securities began a series of conversations with our management team to refine its understanding of our stand-alone business model for purposes of the independent valuation of our company.

On May 31, 2006, we received a letter from JPMAM outlining an all cash transaction to acquire Columbia for $18.50 per share and further requesting information regarding our company that was not otherwise publicly available. The Senior Executive Officers verbally conveyed to JPMAM that the Senior Executive Officers would present the letter to the Board at its next meeting.

 

While attending an industry conference in New York, on June 8, 2006, the Senior Executive Officers visited JPMAM’s offices in New York, New York and discussed with JPMAM various matters relating to our joint ventures with JPMAM and the current acquisition and investment environment in the Greater Washington, D.C. commercial office market.

 

At a meeting of our Board of Directors on June 16, 2006, representatives of Wachovia Securities presented to and discussed with our Board of Directors, Wachovia Securities’ valuation analysis of our company based on our independent business plan and other valuation criteria and reviewed the $18.50 per share offer from JPMAM. The Board concluded this meeting by instructing representatives of Wachovia Securities to communicate to JPMAM and its financial advisor the Board’s interest in receiving JPMAM’s best offer at its highest valuation. The following week, Wachovia Securities communicated our Board’s position to JPMAM and its financial advisor. On June 23, 2006, representatives of JPMAM telephoned a representative of Wachovia Securities and stated that JPMAM was not interested in pursuing a potential transaction at a price exceeding $18.50 per share. Wachovia Securities again conveyed to JPMAM that the Board of Directors was not inclined to move forward on a transaction at $18.50 per share.

 

On June 26, 2006, we received a letter from JPMAM indicating its potential interest in a transaction at $19.00 per share, but conditioning this interest on its ability to conduct additional due diligence that would require review of certain information regarding our company and its properties that was not publicly available. Our Board of Directors held a telephonic meeting the following day to discuss JPMAM’s proposal letter and $19.00 per share offer and during this meeting authorized the Senior Executive Officers to negotiate a confidentiality agreement with JPMAM prior to providing JPMAM with non-public information. On June 30, 2006, we and JPMAM signed a confidentiality agreement with respect to information we provided to JPMAM, some of which was non-public in nature.

 

Beginning in early July and continuing into August 2006, JPMAM began an in-depth review of non-public information regarding our company and representatives of our company, JPMAM and each parties’ respective financial and legal advisors spoke several times to clarify information and discuss our business plan and legal structure.

 

On August 2, 2006, at the request of Company B, a publicly-owned REIT, our Senior Executive Officers met with representatives of Company B, at which time the representatives of Company B raised the possibility of working together on a range of strategic capital alternatives that might improve both parties access to real estate transactions, including potential joint ventures to acquire or co-develop commercial office properties in the Greater Washington, D.C. area. The discussions at this meeting were general and preliminary in nature and no specific transactions were proposed by Company B or us at that meeting or thereafter.

 

On August 4, 2006, our Board of Directors held a telephonic meeting with representatives of Wachovia Securities. Wachovia Securities provided the Board with an update regarding JPMAM’s potential offer and the status of JPMAM’s due diligence. A representative of Hunton & Williams was also present. During this meeting, Wachovia Securities’ representatives advised the Board that JPMAM had indicated that it was willing to proceed with an all cash transaction at a price of $19.00 per share but would not consider any further increase in price. In addition, JPMAM would expect us to provide JPMAM with significant deal protection in the form of termination fees and JPMAM would require that our company’s management team commit to continuing employment with the post-merger entity that would operate the post-merger entity’s business after the transaction. Wachovia Securities also reported that JPMAM was unwilling to propose or negotiate the terms of management’s potential employment or compensation, nor would JPMAM consider management’s future employment or compensation, until the Board had preliminarily agreed to the $19.00 per share price. The Senior Executive Officers advised the Board that they had held no prior conversations with JPMAM regarding compensation or other employment or investment related matters. During this meeting, our Board determined to consider the potential transaction over the course of the following week and scheduled an in-person valuation presentation by Wachovia Securities at the Board’s regularly scheduled meeting on August 11, 2006.

 

On August 11, 2006, our Board of Directors held its regularly scheduled quarterly meeting. Present at the meeting were representatives of Wachovia Securities and Hunton & Williams. At this meeting, representatives of Wachovia Securities presented an updated valuation analysis of our company based on our independent business plan and an analysis of JPMAM’s cash offer of $19.00 per share. During the meeting, the Board asked the Senior Executive Officers to leave the meeting and the independent directors discussed the potential transaction among themselves and with Wachovia Securities and Hunton & Williams. The Board and its advisors specifically discussed the benefits of pursuing this potential transaction with JPMAM as opposed to “shopping” our company to other potential bidders. The Board noted several factors in this regard, including that (i) conducting an expansive process that involved “shopping” our company to other potential bidders would be difficult for our company and could adversely affect our operating performance given (a) the complex nature of our business plan and joint venture agreements, (b) the significant time demands already placed on our senior management team due to our size and (c) the substantial diversion of our senior management team from its day-to-day responsibilities that would result from engaging in such a process, (ii) as our joint venture partner in the ownership of five of our properties, JPMAM had a greater understanding of our business and properties than other potential bidders, and (iii) JPMAM is a leading investor in U.S. real estate with financial resources available that were sufficient to complete the proposed transaction without any financing contingency. After extensive discussion and careful consideration of many factors, including those described above, and based upon the information presented in the valuation analysis, the Board instructed Wachovia Securities to advise JPMAM that the Board was willing to move forward in considering an all-cash transaction at a price of $19.00 per share but only if the termination fees payable to JPMAM, in the event we received a superior acquisition proposal from another party after announcement of a transaction with JPMAM, were sufficiently low so as not to unduly discourage other parties from submitting acquisition proposals. Aware of JPMAM’s interest in acquiring our company and JPMAM’s condition that our management team remain employed after the transaction, the Board authorized the Senior Executive Officers to commence discussions with JPMAM regarding the terms of their post-transaction employment. The Board advised Wachovia Securities, Hunton & Williams and the Senior Executive Officers that prior to approving any transaction, the Board wanted to review and be fully aware of the full terms of any employment and compensation arrangements negotiated between JPMAM and the management team. At this meeting, the Board also determined that the five directors who are not employees of our company were independent and disinterested for purposes of evaluating the proposed transaction and appointed these directors as an independent committee of the Board to review and negotiate the terms of any transaction involving our company.

 

Beginning shortly after the August 11, 2006 Board meeting until September 7, 2006, the Senior Executive Officers and representatives of JPMAM and its financial advisor spoke several times regarding the terms and conditions of the post-transaction employment and compensation arrangements for the Senior Executive Officers, including at a meeting at JPMAM’s offices on August 29, 2006. On September 7, 2006, the Senior Executive Officers and JPMAM reached an agreement in principle with JPMAM regarding the terms and conditions of the Senior Executive Officers’ post-transaction employment.

 

On September 8, 2006, our Board of Directors held a telephonic meeting. Also present on the call were representatives of Wachovia Securities and Hunton & Williams. During the meeting, the Senior Executive Officers informed the Board that they and JPMAM had reached an agreement in principle regarding their post-transaction employment. The Board again discussed the proposed cash consideration per share and, given the recent rise in our stock price, requested Wachovia Securities to update its valuation analysis. Following Wachovia Securities’ presentation, the Committee asked the Senior Executive Officers to leave the meeting. After extensive discussion, the Committee instructed the Senior Executive Officers, Wachovia Securities and Hunton & Williams to move forward with negotiating the definitive terms of the proposed transaction at a price of $19.00 per share and instructed Wachovia Securities and Hunton & Williams to limit the “deal protection” and termination fees in the merger agreement. The Committee further appointed Robert H. McGovern and Rebecca J. Owen to act as lead independent directors during the course of the negotiations with JPMAM. The Committee approved the appointment of Wachovia Securities as financial advisor, subject to negotiation of a satisfactory engagement letter with Wachovia Securities. The Committee instructed Hunton & Williams to commence preparation of a merger agreement. Over the course of the following few days, the Committee reviewed materials provided by Wachovia Securities regarding recent merger transactions in the real estate industry and all industries, including the financial advisory fees paid to investment banking firms by the seller in each such transaction. Based on this review and after

further discussion among the members of the Committee, the Committee approved the engagement of Wachovia Securities as financial advisor with respect to a possible sale of our company to JPMAM pursuant to an engagement letter and, in connection with the execution of any definitive merger agreement, to render a fairness opinion to the Board and the Committee.

 

On September 22, 2006, Hunton & Williams distributed an initial draft of the merger agreement to JPMAM and Stroock & Stroock & Lavan LLP, or Stroock, JPMAM’s legal advisor. Between September 22, 2006 and October 11, 2006, several draft merger agreements were exchanged between our advisors and JPMAM’s advisors and numerous calls were held to discuss the proposed transaction.

 

On October 3, 2006, at the request of Company C, our Senior Executive Officers met with a representative of Company C. At this meeting, the representative and our Senior Executive Officers discussed a range of strategic capital alternatives between Company C and our company. These discussions were general and preliminary in nature, encompassing a number of strategic possibilities. No specific transaction was proposed by Company C or us and neither party pursued more formal discussions thereafter.

 

On October 11, 2006, representatives of Wachovia Securities and Hunton & Williams held a telephone call with the lead Committee members, Mr. McGovern and Ms. Owen, to update them on the status of the merger agreement negotiations and certain unresolved matters, including JPMAM’s position that the termination payment should consist of a two-tier structure with the amount of the payment depending on when a competing acquisition proposal was received, JPMAM’s position that the employment agreements and agreements relating to our management team’s equity interest in SSPF/CET should be negotiated and drafted following execution of the merger agreement, the lack of a guarantee or financial backstop of SSPF/CET’s obligations under the merger agreement, and whether the merger agreement would provide for specific performance. Hunton & Williams also reported on the status of negotiations of the representations, covenants, closing conditions and due diligence. Hunton & Williams also communicated to the lead Committee members that the Senior Executive Officers and their counsel had indicated that it could take several weeks before the final documentation relating to their post-transaction employment and compensation arrangements would be complete. The lead Committee members emphasized their desire for a longer period during which the lower, first-tier break-up payment was applicable and that the Committee would require both a guarantee from SSPF and the availability of specific performance to enforce the merger agreement. The lead Committee members reiterated their position that because JPMAM was requiring that the Senior Executive Officers continue as employees as a condition of the merger, the Committee should be aware of all details of the Senior Executive Officers’ employment and compensation arrangements with JPMAM, prior to approving the merger.

 

On October 12, 2006, the Senior Executive Officers met with a representative of Company D, a private real estate firm, with respect to a preliminary inquiry by Company D as to whether our company would be interested in pursuing a transaction involving an acquisition of our assets and operating platform. The discussions at this meeting did not include any specific terms or valuation for such a transaction and no subsequent discussions among the parties ensued.

 

During a conference call on October 13, 2006, representatives of Wachovia Securities and Hunton & Williams advised JPMAM and its advisors of the Committee’s requirement that the employment agreements and other documentation relating to the management team’s employment after closing needed to be fully negotiated and made available to the Committee before the Committee would approve the definitive terms of the merger.

 

On October 16, 2006, the Senior Executive Officers and their counsel, representatives of Wachovia Securities and Hunton & Williams, as our advisor and counsel, respectively, in our capacity as the general partner of Columbia OP, representatives of JPMAM, Stroock, and Goldman Sachs, JPMAM’s financial advisor, attended a meeting at Stroock’s offices in New York for the purpose of negotiating the terms of the Senior Executive Officers’ employment agreements and equity participation, the rights of SSPF/CET common and preferred unitholders in the OP merger and other ancillary transaction documents.

 

On October 18, 2006, our Board of Directors held a telephonic meeting to discuss the results of the negotiating session in New York. All directors, other than Messrs. McGovern and Vasvari, participated in the meeting. Hunton & Williams described to the Board the recent discussions and negotiations among the parties and advised the Board

that it would provide the Board with a summary of the merger agreement and significant open issues, as well as a summary of the Senior Executive Officers’ employment agreements and their equity and profits participation in JPMAM-affiliated entities post-transaction. During the call, Mr. Carr informed the Board of the recent unsolicited inquiries from Company B, Company C and Company D. Mr. Carr advised the Board that none of these parties had formally followed up after the preliminary general inquiries nor had they proposed or discussed any terms of a potential transaction. The Board discussed whether the Board should consider a more formal process for marketing the company to potential acquirers. After considerable discussion, including extensive discussion of those factors considered by the Board at its meeting on August 11, 2006, the Board concluded that it did not want to place the company in the position of being auctioned for sale or shopped to other potential bidders and concluded that the proposed two tier break up fee of $4 million for the first 30 day period and $8 million thereafter was not a significant barrier to receiving offers from other interested parties if a transaction was announced. The Board also believed that there was a strong possibility that JPMAM would withdraw its $19.00 per share offer if Columbia undertook to market itself to other potential purchasers.

 

On October 26, 2006, the Board convened a telephonic meeting at which all directors were present. Wachovia Securities and Hunton & Williams also participated. Mr. Carr updated the Board regarding the status of negotiations between the Senior Executive Officers and JPMAM with respect to employment and compensation matters and advised the Board that he expected the documentation to be fully negotiated within the following week. Representatives of Wachovia Securities discussed the updated valuation analysis and the current status of the break-up payment provisions and expense reimbursement negotiations with JPMAM, Wachovia Securities advised the Board that the proposed two-tiered termination payment would not, in Wachovia Securities’ view, materially deter a third party from making a proposal to acquire Columbia after announcement of the merger. Hunton & Williams provided the Board with an overview of the draft merger agreement, merger structure, OP merger consideration, termination rights, the Board’s ability to consider other offers and certain other ancillary transaction documents, including the guarantee of SSPF/CET’s obligations by SSPF. The Board also discussed the proposed $19.00 per share merger consideration in light of recent increases in Columbia’s stock price. Wachovia Securities indicated that, although the increase in the stock price had reduced the original transaction premium, the Board’s original determination to move forward at a $19.00 per share price was still an attractive alternative to Columbia’s independent business plan and that Wachovia Securities remained comfortable that it would be able to issue its proposed fairness opinion at that price. The Committee asked the Senior Executive Officers to leave the meeting and the Committee continued the meeting with Wachovia Securities and Hunton & Williams, during which the Committee further discussed the adequacy of the merger consideration, the potential for negotiating an increase in the merger consideration and the potential transaction risks related to such a strategy. The Committee agreed to hold a follow-up telephonic meeting on Sunday, October 29, 2006 with Hunton & Williams and Wachovia Securities.

 

On October 29, 2006, the Committee convened a telephonic meeting with Wachovia Securities and Hunton & Williams at which all independent directors, other than Mr. Vasvari, were present. Representatives of Wachovia Securities discussed the decline in transaction premium as a result of the recent increase in Columbia’s stock price, but indicated that the current premium for the transaction was still near the mean of recent merger and acquisition transactions for REITs and that $19.00 per share continued to represent a significant premium when viewed from a net asset value perspective. In light of the recent increase in Columbia’s stock price, the Committee and Wachovia Securities discussed (i) seeking to negotiate an increase to the $19.00 per share merger consideration, (ii) requesting reduced deal protection in the form of a reduced termination payment, and (iii) the risk of JPMAM walking away from the transaction in either event. The representatives of Wachovia Securities then left the call and the Committee discussed certain alternatives with respect to negotiating a higher price and lower termination payment. The Committee discussed the potential impact of the termination payment and expense reimbursement on the likelihood of a higher offer from a third party and the reaction of JPMAM to a demand for a higher price, particularly in light of the existing joint venture relationships between Columbia and JPMAM, and the effect on the Company’s business plan if JPMAM terminated discussions. Following these discussions, the Committee agreed to hold a follow-up telephonic meeting the next morning to discuss these matters further.

 

On October 30, 2006, the Board convened a telephonic meeting with Wachovia Securities and Hunton & Williams. All directors, other than Mr. McGovern and Mr. Young, were present. Hunton & Williams and Wachovia Securities discussed with the independent directors the risk that JPMAM would terminate negotiations if we sought

to negotiate for increased merger consideration. The Board also discussed the likelihood that in the event we asked for an increase in merger consideration, JPMAM would likely require that any increase in merger consideration be exchanged for greater deal protection in the form of a higher termination payment to JPMAM. The Board also discussed requiring the proposed two-tiered structure for the termination fee ($4 million with respect to termination for alternative acquisition proposals received in the first 21 days following the merger agreement and $8 million thereafter) be eliminated and replaced with a single termination payment of $4 million, which the Board felt would not constitute a significant barrier to receiving offers from other interested parties if a transaction was announced. Following considerable discussion, the Committee determined to proceed with a price of $19.00 per share but with a single tier termination payment of $4 million. Because two independent directors were unable to participate in this call, the Board agreed to reconvene another telephonic meeting that evening to include these two independent directors.

 

That evening, the Board held a call with Wachovia Securities and Hunton & Williams. All members of the Board participated in the meeting, except for Mr. Vasvari, who had participated in the morning call. Members of the Committee that were present for the morning call together with Wachovia Securities and Hunton & Williams provided an overview of the morning’s discussions to Messrs. McGovern and Young who had not been on the morning call. After extensive discussion, including extensive discussion of those factors considered by the Board at its meeting on August 11, 2006 and again on October 18, 2006, the Committee instructed Wachovia Securities to inform JPMAM that the Committee was prepared to move quickly toward executing a definitive merger agreement at a $19.00 per share price, provided that JPMAM agree to a single tier termination payment of $4 million. On October 31, 2006, Wachovia Securities conveyed the Committee’s position to JPMAM and its advisors.

 

On November 1, 2006, Hunton & Williams distributed to each director a copy of the current draft of the merger agreement and other ancillary documents, as well as summaries of the merger agreement, the current draft of the Senior Executive Officers’ employment agreements, and the draft agreements relating to the proposed equity and profits participation in JPMAM-affiliated entities by the Senior Executive Officers. On the same date, Wachovia Securities distributed to the directors its updated valuation analysis and draft fairness opinion.

 

On November 3, 2006, our Board of Directors held a meeting at our offices in Washington, D.C., at which all directors were present. Hunton & Williams and Wachovia Securities also attended the meeting. Hunton & Williams again provided the Committee a detailed description of the material terms of the merger agreement, the proposed agreements between the Senior Executive Officers and JPMAM and other relevant transaction documents. Wachovia Securities made a presentation and rendered an oral opinion to the Committee and to the Board of Directors that, as of November 3, 2006, and subject to and based on the assumptions made, procedures followed, matters considered and limitations on the opinion and the review undertaken by Wachovia Securities, as set forth in the opinion, the $19.00 in cash per share to be received by the holders of our common stock pursuant to the merger agreement, was fair, from a financial point of view, to such holders. After this presentation, the Board of Directors further discussed the proposed merger and related transactions and scheduled a subsequent telephonic meeting of the Board for Sunday evening, November 5, 2006.

 

On November 5, 2006, our Board of Directors held a telephonic meeting at which all directors were present. Wachovia Securities verbally updated and reconfirmed its fairness opinion. This opinion, subsequently confirmed in writing, is described in “— Opinion of Wachovia Securities” beginning on page 26 of this proxy statement. Following discussion, the Committee and the Board of Directors determined that the proposed merger was advisable on the terms set forth in the merger agreement and approved the merger on the terms set forth in the merger agreement.

 

Shortly thereafter, the merger agreement was signed by the parties and a joint press release was issued prior to the opening of NYSE trading on November 6, 2006 announcing the execution of the merger agreement. A copy of the merger agreement is attached to this proxy statement as Exhibit A. The merger agreement is described in the section entitled “The Merger Agreement” beginning on page 37 of this proxy statement.

 

Our Board of Directors unanimously recommends that holders of shares of our common stock vote FOR approval of the merger. At a special meeting held on November 5, 2006, each of our Board of Directors and the

Committee unanimously approved the merger and the other transactions contemplated by the merger agreement and declared the merger advisable on the terms set forth in the merger agreement. At this meeting, our Board of Directors voted to recommend that holders of shares of our common stock vote FOR approval of the merger. The recommendation of our Board of Directors was made after the careful consideration of a variety of business, financial and other factors and consultation with our legal and financial advisors.

 

In deciding to approve the merger on the terms set forth in the merger agreement, our Board of Directors and the Committee considered a number of factors, both potentially positive and potentially negative, with respect to the merger and the other transactions contemplated by the merger agreement.

 

Some of the potentially positive factors our Board of Directors and the Committee considered include:

 

 

 

 

 

 

Some of the potentially negative factors our Board of Directors and the Committee considered include:

 

 

 

 

 

In view of the wide variety of factors considered by our Board of Directors, our Board of Directors did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors considered. Our Board of Directors’ recommendation is based on the totality of the information presented to it and which it considered. After taking into consideration the factors set forth above together with other factors, including those described in “ — Reasons for the Merger” on page 24, our Board of Directors and the Committee determined that the potential benefits of the merger substantially outweigh the potential detriments associated with the merger.

 

In the event the merger is not completed for any reason, we will continue to operate as an independent entity and will strive to deliver enhanced value for our stockholders over time.

 

The Committee approved the engagement of Wachovia Securities as the exclusive financial advisor to our company with respect to a possible sale of our company to JPMAM. The Committee selected Wachovia Securities to act as the Committee’s and the full Board of Directors’ exclusive financial advisor based on Wachovia Securities’ qualifications, expertise and reputation. Wachovia Securities rendered its oral opinion to the Board of Directors and the Committee and subsequently confirmed it with its written opinion that, as of November 5, 2006, subject to and based on the assumptions made, procedures followed, matters considered and limitations on the opinion and the review undertaken, as set forth in its opinion, the $19.00 in cash per share to be received by holders of our common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

 

The full text of Wachovia Securities’ written opinion, dated November 5, 2006, which sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the opinion and the review undertaken in connection with the opinion, is attached as Exhibit B to this proxy statement. You should carefully read the opinion in its entirety. This summary is qualified in its entirety by reference to the full text of the opinion.

 

Wachovia Securities’ opinion did not address the merits of the underlying business decision to enter into the merger agreement and does not constitute a recommendation to any holder of our common stock as to how such holder should vote in connection with the merger agreement.

 

In arriving at its opinion, Wachovia Securities, among other things:

 

 

 

In connection with its review, Wachovia Securities assumed and relied upon the accuracy and completeness of the foregoing financial and other information, including all accounting, legal and tax information, and has not assumed any responsibility for, nor conducted, any independent verification of such information. Wachovia Securities has relied upon the assurances of the management of our company that they were not aware of any facts or circumstances that would make such information about our company inaccurate or misleading. Wachovia Securities was provided with prospective financial information of our company. Wachovia Securities discussed such prospective financial information, as well as the forecasts, estimates, judgments, allocations and assumptions upon which such prospective financial information is based, with the management of our company. Wachovia Securities assumed that the forecasts, estimates, judgments, allocations and assumptions expressed by the management of our company in such prospective financial information have been reasonably formulated and that they reflect the best currently available forecasts, estimates, judgments, allocations and assumptions of the management of our company regarding such prospective financial information. Wachovia Securities assumes no responsibility for, and expresses no view as to, any such prospective financial information or the forecasts, estimates, judgments, allocations or assumptions upon which they are based. In arriving at its opinion, Wachovia Securities has not prepared or obtained any independent evaluations or appraisals of the assets or liabilities of our company, including any contingent liabilities.

 

In rendering its opinion, Wachovia Securities assumed that the merger contemplated by the merger agreement will be consummated on the terms described in the merger agreement, without waiver of any material terms or conditions, and that in the course of obtaining any necessary legal, regulatory or third-party consents and/or approvals, no restrictions will be imposed or other actions will be taken that will have an adverse effect on the merger or other actions contemplated by the merger agreement. Wachovia Securities also assumed that SSPF/CET will be able to obtain any financing arrangements necessary to pay to all holders of our common stock the merger consideration due to them. The opinion is necessarily based on economic, market, financial and other conditions and the information made available to Wachovia Securities as of the date of the opinion. Although subsequent developments may affect the opinion, Wachovia Securities does not have any obligation to update, revise or reaffirm the opinion. In addition, Wachovia Securities expresses no view on the terms of the merger, except as expressly set forth above, or of the OP merger, nor does the opinion address the fairness of the consideration to be received by any Columbia LP Unit holder in the OP merger. The opinion does not address the relative merits of the merger or other actions contemplated by the merger agreement compared with other business strategies or transactions that may have been considered by our management and our Board of Directors or any committee thereof.

 

The summary set forth below does not purport to be a complete description of the analyses performed by Wachovia Securities, but describes, in summary form, the material analyses of Wachovia Securities in connection with its fairness 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 fairness opinion, Wachovia Securities considered the results of all its analyses as a whole and did not attribute any particular weight to any analysis or factors considered by it. Accordingly, the analyses listed in the tables and described below must be considered as a whole. Considering any portion of such analyses and the factors considered, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Wachovia Securities’ fairness opinion.

 

Dividend Discount Analysis.  Wachovia Securities performed a dividend discount analysis of our company’s common stock using our management’s funds from operations (“FFO”) per share estimates through 2011 and our management’s projected dividends per share for 2007 through 2011. Wachovia Securities calculated the implied present values of projected cash dividends for our company for 2007 through 2011 using discount rates ranging

from 8.50% to 10.50%. Wachovia Securities then calculated implied terminal values in 2011 based on multiples ranging from 13.10x to 15.10x 2012 FFO per share. These implied terminal values were then discounted at discount rates of 8.50% to 10.50% to arrive at implied present values. Wachovia Securities derived a range of implied per share prices for our common stock based on the sum of the respective implied present value of our company’s projected cash dividends and the implied present value of our company’s terminal value in 2011. Discount rates utilized in this analysis were derived from the capital asset pricing model and historic REIT equity returns and multiples were derived based upon our company’s peers’ forward FFO multiples. This analysis produced an estimated per share value range of $17.20 to $21.00 for our common stock.

 

Discounted Cash Flow Analysis.  Wachovia Securities performed a discounted cash flow analysis of our company based upon the projected unleveraged cash flows provided by our management. Wachovia Securities calculated a range of equity values per share based upon the sum of the discounted net present values of our company’s unleveraged free cash flows for 2007 through 2011 plus the discounted net present value of our company’s terminal value. Applying a range of weighted average cost of capital from 7.75% to 8.50%, Wachovia Securities calculated an estimated per share value range of $15.19 to $20.95 for our common stock.

 

Net Asset Value Analysis.  Using information provided by our management, Wachovia Securities calculated the net asset value per share of common stock. For this analysis, Wachovia Securities applied a range of blended capitalization rates from 6.00% to 7.00% to our management’s projected twelve month forward net operating income. The resulting gross real estate value was combined with the value of cash and other assets to arrive at a total asset value. Total liabilities and estimated transaction related expenses were then subtracted from such total asset value to arrive at an estimated net asset value per share of common stock. In applying the range of blended capitalization rates, Wachovia Securities took into consideration, and discussed with management, current market conditions and property characteristics. The net asset valuation analysis produced an estimated per share value range of $15.34 to $20.29 for our common stock.

 

Historical Stock Trading Analysis.  Wachovia Securities reviewed publicly available historical trading prices and volumes for our common stock for the twelve-month period ended November 3, 2006, the last trading day before the announcement of the transaction. Wachovia Securities compared the $19.00 in cash per common share to be received by holders of our common stock pursuant to the merger agreement to the prior day closing price and the volume weighted average closing prices of our common stock during the current 10-day, 30-day, 60-day, 90-day, and 180-day periods preceding the announcement of the merger. The $19.00 per share offer price represents a premium to the historical average closing prices of our common stock as follows:

 

 

Comparable Companies Analysis.  Wachovia Securities compared our financial, operating and stock market data to the following publicly traded REITs that it believed were reasonably comparable to our company:

 

Corporate Office Properties Trust
Kilroy Realty Corporation
Mack-Cali Realty Corporation
Maguire Properties, Inc.

Republic Property Trust
Washington Real Estate Investment Trust

 

Wachovia Securities calculated, among other things, the multiple of per share closing prices to estimated FFO per share for 2006 and 2007 for the comparable companies, based upon projected financial information from the Thompson Financial’s First Call Earnings Estimates (“First Call”) consensus estimates and closing share prices on November 3, 2006. Wachovia Securities calculated a range consisting of the high, mean, median and low multiples of per share price to projected FFO for the comparable companies and applied this range to our management’s and First Call’s consensus estimates of our projected FFO for 2006 and 2007. This analysis produced an implied per share value range for our common stock of $13.18 to $24.14 for 2006 and $14.66 to $26.23 for 2007. The range of implied share prices for our common stock is outlined below.

 

 

 

Wachovia Securities selected the companies reviewed in the comparable companies analyses because of, among other reasons, their specialization in the office REIT sector, asset quality, market capitalization, and capital structure. None of the companies utilized in the above analyses, however, is identical to our company. Accordingly, a complete analysis of the results of the foregoing calculations cannot be limited to a quantitative review of such results and involves complex considerations and judgments concerning the differences in the financial and operating characteristics of the comparable companies and other factors that could affect the public trading value of the comparable companies, as well as the potential trading value of our company.

 

Selected Transactions Analysis.  Wachovia Securities reviewed selected transactions involving publicly traded office REITs since January 1, 2004 and publicly available information relating to FFO and premiums paid in connection with these transactions. The selected transactions were:

 

Wachovia Securities calculated, among other things, a range consisting of the high, mean, median and low transaction prices to forward FFO multiples for the selected transactions and applied this range to First Call consensus and our management’s estimates of our FFO for 2007. This analysis produced an implied per share value range for our common stock of $15.62 to $21.59, as shown in the chart below:

 

 

Wachovia Securities selected the companies reviewed in the selected transaction analysis because of, among other reasons, their specialization in the office REIT sector, asset quality, market capitalization, and capital structure. None of the companies or transactions utilized in the above analyses, however, is identical to our company. Accordingly, a complete analysis of the results of the foregoing calculations cannot be limited to a quantitative review of such results and involves complex considerations and judgments concerning the differences in the financial and operating characteristics of the comparable companies and other factors that could affect the value of the common stock of comparable companies, as well as the value of our common stock.

 

Premiums Paid Analysis.  Wachovia Securities analyzed the premium or discount paid by the acquirer in all of the transactions used in the selected transactions analysis and compared those discounts or premiums paid to the closing market price of the target company’s common shares on the day prior to announcement of the transaction, and the 10-day, 30-day, 60-day and 90-day average closing prices prior to the announcement of the transaction.

 

Using publicly available information, Wachovia Securities calculated, among other things, a range consisting of the high, mean, median and low premium paid in these transactions and applied this range to various prices. This analysis resulted in an implied share range for our common stock of $16.66 to $21.46, as shown in the chart below:

 

 

Because the market conditions, rationale and circumstances surrounding each of the transactions analyzed in the various selected transaction analyses were specific to each transaction and because of the inherent differences between our businesses, operations and prospects and those of the comparable acquired companies, Wachovia Securities believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the analysis. Accordingly, Wachovia Securities also made qualitative judgments concerning differences between the characteristics of these transactions and the proposed merger that could affect our acquisition values and those of such acquired companies.

 

In performing its analyses, Wachovia Securities made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond our control. No company, transaction or business used in the analyses described above is identical to our company or the proposed merger. Any estimates contained in Wachovia Securities’ analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by these estimates. The analyses performed were prepared solely as a part of Wachovia Securities’ analysis of the fairness, from a financial point of view, to the holders of our common stock, as of November 5, 2006, and subject to and based on the assumptions made, procedures followed, matters considered and limitations on the opinion and the review undertaken in such opinion, of the $19.00 in cash per share to be received by such holders pursuant to the terms

of the merger agreement, and were conducted in connection with the delivery by Wachovia Securities of its fairness opinion, dated November 5, 2006.

 

Wachovia Securities’ opinion was one of the many factors taken into consideration by our Board of Directors and the Committee in making its determination to approve the merger. Wachovia Securities’ analyses summarized above should not be viewed as determinative of the opinion of our Board of Directors and the Committee with respect to the value of our common stock or of whether our Board of Directors or the Committee would have been willing to agree to a different form of consideration.

 

Wachovia Securities is a nationally recognized investment banking and advisory firm and a subsidiary of Wachovia Corporation. Wachovia Securities, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. Wachovia Securities and its affiliates (including Wachovia Corporation and its affiliates) may maintain relationships with our company, SSPF, as well as any of their principals or affiliates. In connection with unrelated matters, Wachovia Securities and its affiliates in the past have provided financing services to our company, including serving as the bookrunning manager on our $207 million initial public offering that closed in July 2005. Wachovia Securities also maintains equity research coverage on our company. Wachovia recently advised BRE Properties in the formation of a programmatic development and acquisition joint venture with JPMAM. Additionally, in the ordinary course of its business, Wachovia Securities may trade in our securities and affiliates of SSPF for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

 

Pursuant to the terms of the letter agreement pursuant to which Wachovia Securities was engaged, we have agreed to pay Wachovia Securities a fee of $3.25 million in connection with the consummation of the merger. While a customary portion of the fee became payable upon delivery of its fairness opinion, a significant portion of the fee is contingent upon closing of the merger. In addition, we have agreed to reimburse Wachovia Securities for its out of pocket expenses and to indemnify Wachovia Securities and certain related parties against certain liabilities and expenses related to or arising out of Wachovia Securities’ engagement.

 

In considering the recommendation of our Board of Directors in connection with the merger, holders of our common stock should be aware that, as described below, each of our executive officers and certain of our directors and other persons have interests in, and will receive benefits from, the mergers that differ from, or are in addition to, and therefore may conflict with, the interests of our stockholders generally. These additional interests are described below. In addition, the number of shares of our common stock beneficially owned by our directors and executive officers and holders of greater than 5% of our outstanding common stock (including OTC Jr.), as of December 14, 2006, appears below under the section captioned “Principal and Management Stockholders” on page 51. Our Board of Directors is aware of these interests and considered them in approving the merger and the other transactions contemplated by the merger agreement.

 

Columbia LP Units.  Each of Oliver T. Carr, III, our Chairman, President and Chief Executive Officer, Clinton D. Fisch, our Senior Vice President and Director of Acquisitions, and OTC Jr. owns Columbia LP Units. In accordance with the terms of voting agreements between SSPF/CET and each of Mr. Carr and OTC Jr., each of Mr. Carr and OTC Jr. is required to exchange approximately 25% of his Columbia LP Units (including Columbia LTIP Units), having a value of $1,268,725 in the case of Mr. Carr, and $5,500,006 in the case of OTC Jr., based on the merger consideration, for SSPF/CET common units at the effective time. Subsequent to the date of the merger agreement, Mr. Fisch agreed to exchange 25% of his Columbia LP Units (including Columbia LTIP Units), having a value of $569,316, for SSPF/CET common units. Except for these Columbia LP Units, and the Columbia LTIP Units held by Messrs. Schissel, Clifford and Novack described below under “— Columbia LTIP Units”, the remaining Columbia LP Units owned by Messrs. Carr, Fisch, OTC Jr. and other holders of Columbia LP Units and Columbia LTIP Units will be converted into the right to receive, at their election:

 

 

 

 

 

The merger will constitute a taxable transaction to our stockholders and, as a result, holders of our common stock will be required to pay tax on gains resulting from exchanging their common stock for the merger consideration. The election by holders of Columbia LP Units (which include our officers and directors and OTC Jr.) to receive SSPF/CET common units and/or SSPF/CET preferred units instead of the $19.00 in cash will allow such holders to defer the taxable gain they would otherwise recognize upon receipt of cash consideration.

 

SSPF/CET Preferred Units.  In general, SSPF/CET preferred units will have the following terms:

 

 

 

 

Special Redemption Rights.  In addition to the redemption rights described under “ — SSPF/CET Preferred Units,” each holder of common or preferred units in SSPF/CET shall have the right, commencing four years from the effectiveness of the merger or within 60 days after the occurrence of a special event, to have such units redeemed for cash at fair market value, in the case of SSPF/CET common units, and liquidation value, in the case of SSPF/CET preferred units. For holders of SSPF/CET common or preferred units having a value of $5,000,000 or more, such holders may elect to receive property in lieu of cash.

 

There are also special redemption rights in which the holders of SSPF/CET common units may have such units redeemed for cash at fair market value after the occurrence of a special event, liquidity event or payment trigger date (see “Interests of our Directors, Executive Officers and Other Persons in the Mergers — Management’s Profits Participation”).

 

Columbia LTIP Units.  Columbia LTIP Units issued to each of our executive officers are subject to forfeiture if certain vesting requirements are not satisfied. In addition, Columbia LTIP Units must achieve full parity with Columbia LP Units with respect to liquidating distributions before they may be converted into Columbia LP Units. Pursuant to the terms of the merger agreement, all Columbia LTIP Units will vest and will be treated in the same manner as Columbia LP Units and will be entitled to receive the consideration described above in the OP merger. In accordance with the terms of a voting agreement between Mr. Schissel and SSPF/CET, Mr. Schissel is required to exchange 100% of his Columbia LTIP Units for SSPF/CET common units. In addition, pursuant to his voting agreement, Mr. Schissel will invest $89,000 in cash in exchange for SSPF common units. Subsequent to the date of

the merger agreement, each of Messrs. Clifford and Novack agreed to exchange approximately 25% of his Columbia LTIP Units, having a value of $316,673 in the case of Mr. Clifford, and $134,577 in the case of Mr. Novack, for SSPF/CET common units at the effective time.

 

Each of our non-employee directors owns 4,000 Columbia LTIP Units that were fully vested on the date of grant.

 

Our directors and executive officers and OTC Jr. will be entitled to receive the following amounts (based on the $19.00 per share cash merger consideration) with respect to Columbia LP Units and Columbia LTIP Units owned by them:

 

 

 

 

New Employment Arrangements for Executive Officers.  In connection with the execution of the merger agreement, the Senior Executive Officers entered into binding employment agreements with SSPF/CET which will be effective as of the effective time of the merger. In the event the merger is not consummated, the employment agreements will be terminated.

 

After completion of the merger, Mr. Carr will serve as President and Chief Executive Officer of SSPF/CET and Mr. Schissel will serve as Executive Vice President, Chief Financial Officer, Secretary and Treasurer of SSPF/CET and each will serve on the five-member Board of Managers of SSPF/CET, the governing body of SSPF/CET which is equivalent to our Board of Directors. The Senior Executive Officers’ employment agreements include the following terms:

 

 

 

 

 

A “liquidity event” means:

 

 

Severance benefits (other than the accrued benefits) are contingent upon the execution of a release.

 

In the event that a Senior Executive Officer’s severance benefits constitute a “parachute payment” as defined by the Internal Revenue Code, SSPF/CET will pay the Senior Executive Officer an amount in cash equal to the sum of the excise taxes payable by the Senior Executive Officer by reason of receiving a parachute payment, plus the amount necessary to put the Senior Executive Officer in the same after-tax position.

 

Subsequent to the date of the merger agreement, SSPF/CET entered into employment agreements, effective as of the effective time of the merger, with Messrs. Fisch, Clifford and Novack. After completion of the merger, Mr. Fisch will serve as Senior Vice President of Acquisitions, Mr. Clifford will serve as Senior Vice President of Asset Management and Mr. Novack will serve as Senior Vice President and Chief Accounting Officer. Except as

noted below, the terms of the employment agreements between these executive officers are similar to those described above for Messrs. Carr and Schissel:

 

 

 

 

Management’s Profits Participation.  Pursuant to their employment agreements, an entity controlled by our current management team will be entitled to a profits participation interest in SSPF/CET PI LLC (“New Deal LLC”), which is the entity that will hold all new investments made by us or the surviving entity after November 5, 2006. We refer to this management-controlled entity as “PI Holder LLC” in this proxy statement. Pursuant to the limited liability company agreement of New Deal LLC, which will become effective at the closing of the merger, PI Holder LLC will be entitled to distributions and allocations of profits and losses in New Deal LLC in the following manner, which distributions shall not be made until the payment trigger date (as defined below):

 

 

provided, however, that in the event SSPF/CET fails to achieve an 8% internal rate of return on our existing core portfolio as of the payment trigger date, PI Holder LLC will forfeit an amount necessary to result in an 8% internal rate of return for SSPF/CET, but by not more than 25% of the amount otherwise allocable to PI Holder LLC as set forth above.

 

The value of the profits interest will be based on the fair market value of New Deal LLC’s portfolio investments and other assets on the earlier of the valuation date or a New Deal LLC liquidity event. Initially, for purposes of calculating the internal rate of return of SSPF/CET, 75% of our annual general and administrative expense will be allocated to our existing core portfolio. The percentage of general and administrative expense allocated between SSPF/CET and New Deal LLC may be shifted every 12 months and will be allocated on a pro rata basis based on the net rentable square footage of the buildings comprising the portfolios of each of SSPF/CET and New Deal LLC. Closing costs related to the merger will be excluded when calculating the internal rate of return of SSPF/CET. As defined in the limited liability company agreement of New Deal LLC, “valuation date” means the date on which

SSPF/CET values the portfolio investments and other assets of New Deal LLC for the purpose of determining the profits interest, which date will be the earlier of (i) the date of consummation of a liquidity event or (ii) a date chosen by the PI Holder LLC that is not earlier than September 30, 2010 nor later than 48 months after the effective date of the merger. A “New Deal LLC liquidity event” means (a) the liquidation or dissolution of New Deal LLC, (b) the sale or other disposition of all or substantially all the New Deal LLC assets if New Deal LLC fails to reinvest more than 50% of the net cash proceeds from such sale within 180 days, (c) the merger, recapitalization, consolidation or similar event or (d) the sale or transfer of a majority of the interests in New Deal LLC to one person or a group of persons.

 

The profits interest will be paid to PI Holder LLC on the “payment trigger date,” which is defined as the earliest to occur of:

 

 

 

PI Holder LLC will award 10,000 membership units. Pursuant to their employment agreements, each of Messrs. Carr and Schissel will receive an equity interest in PI Holder LLC that is not less than 15% nor more than 25% and not less than 12% nor more than 20%, respectively. Pursuant to employment agreements entered into subsequent to the date of the merger agreement, Messrs. Fisch, Clifford and Novack, will receive equity interests of 750, 750 and 500 membership units, respectively, in PI Holder LLC. In addition, certain current employees of our company will, and certain future employees of SSPF/CET may, receive an equity interest in PI Holder LLC at and after the effective time of the merger. We refer to these employees, together with the Senior Executive Officers, as the “SSPF/CET employees.” All equity interests in PI Holder LLC will be subject to vesting restrictions until the payment date, as follows:

 

 

 

 

 

The equity interest is subject to accelerated vesting in the event of the SSPF/CET employee’s death or disability, termination of employment on account of disability or by SSPF/CET without cause (as defined in the SSPF/CET employee’s employment agreement), resignation by the SSPF/CET employee for good reason (as defined in the SSPF/CET employee’s employment agreement) or the occurrence of a liquidity event or a special event. All equity interests, whether or not vested, will be forfeited in the event of the SSPF/CET employee’s termination for cause.

 

Indemnification and Insurance.  The merger agreement provides that we, and following the merger, the surviving entity, will indemnify and hold harmless any person who is a director or executive officer of our company or any of our subsidiaries to the same extent as currently provided in our charter and bylaws. The merger agreement further provides that the surviving entity will maintain the current policies of directors’ and officers’ liability insurance maintained by us or our subsidiaries for a period of six years following the closing of the merger. For a more complete discussion of these provisions of the merger agreement, see the section captioned “The Merger Agreement — Indemnification; Director and Officer Insurance” on page 47 of this proxy statement.

 

Independent Committee Compensation.  Each independent director received regular per meeting fees of $1,000 for each Board or Committee meeting attended in person and $500 for each Board or Committee meeting attended by telephone in connection with considering the merger and related transactions. Such compensation was payable based on the number of meetings and was not conditioned upon the completion of any transaction, including the merger.

 

The following is a summary of selected material provisions of the merger agreement. This summary is qualified in its entirety by reference to the complete text of the merger agreement, which is incorporated by reference in its entirety and attached to this proxy statement as Exhibit A. We urge you to read carefully the merger agreement in its entirety.

 

The merger agreement has been attached to this proxy statement to provide you with information regarding its terms. It is not intended to provide any other factual information about Columbia Equity Trust, Inc. or the other parties to the merger agreement. Information about our company can be found elsewhere in this proxy statement and in the other public filings we make with the SEC, which are available without charge at http://www.sec.gov. Information contained on our website is not incorporated in or made a part of this proxy statement.

 

The merger agreement contains representations and warranties made by and to the parties to the merger agreement as of specific dates. The statements embodied in those representations and warranties were made solely for purposes of the contract between SSPF/CET and us and may be subject to important qualifications and limitations agreed to by SSPF/CET and us in connection with negotiating its terms. In addition, certain representations and warranties are subject to contractual standards of materiality that may be different from what may be viewed as material to stockholders. The representations and warranties may have been used for the purpose of allocating risk between the parties rather than establishing matters as facts. For the foregoing reasons, you should not rely on the representations and warranties as statements of factual information.

 

If the merger is approved by our stockholders and all other conditions to the merger are satisfied or waived, we will be merged with and into Merger Sub, a direct and wholly-owned subsidiary of SSPF/CET, with Merger Sub continuing as the surviving entity following the merger. Concurrently with the merger, OP Merger Sub will merge with and into Columbia OP, with Columbia OP continuing as the surviving partnership following the OP merger.

 

The closing date of the merger will be no later than the second business day after all the closing conditions set forth in the merger agreement are satisfied or waived by our company, Columbia OP, SSPF/CET, Merger Sub or OP Merger Sub, as applicable. The merger will become effective when the articles of merger have been accepted by the State Department of Assessments and Taxation of the State of Maryland in accordance with Maryland law and the merger certificate has been filed with the Delaware Secretary of State in accordance with Delaware law, or such later time as the parties to the merger agreement may agree and designate in the articles of merger or merger certificate. The OP merger will become effective when the merger certificate has been filed with the State Corporation Commission of Virginia, or such later time as the parties to the merger agreement may agree and designate in the merger certificate.

 

We and SSPF/CET are working to complete the merger as quickly as possible. Because completion of the merger is subject to certain conditions that are beyond the control of SSPF/CET and us, we cannot predict the exact

timing of the closing. At this time, we expect that the merger will close during the first quarter of 2007 if, at the special meeting of our stockholders, our stockholders approve the merger.

 

The limited liability company agreement of Merger Sub and limited partnership agreement of Columbia OP, each as in effect immediately prior to the effective time of the mergers, will be the limited liability company agreement of the surviving entity and limited partnership agreement of the surviving partnership following the mergers. Upon completion of the OP merger, Merger Sub will be the general partner of the surviving partnership.

 

Each share of our common stock (other than shares owned by us or our subsidiaries or SSPF/CET, Merger Sub or any of their subsidiaries) issued and outstanding immediately prior to the effective time will be converted into the right to receive $19.00 in cash, without interest. In the event that, after November 5, 2006 but prior to the effective time of the merger, the number or kind of common shares issued and outstanding changes due to a stock dividend, stock or unit split, reclassification, recapitalization, share or unit exchange or similar transaction, an appropriate adjustment to the merger consideration will be made. However, such transactions are prohibited by the merger agreement without the written consent of SSPF/CET.

 

SSPF/CET will deposit cash with a paying agent in the amount of the aggregate merger consideration payable to holders of our common stock and those holders of Columbia LP Units that elect to receive cash as consideration in the OP merger. A letter of transmittal will be sent to each of our stockholders within five business days after the closing of the merger that will include instructions on how our stockholders may exchange their shares for the cash consideration they will receive in the merger. The paying agent will pay our former stockholders, upon receiving the surrender of a stockholder’s stock certificate, if applicable, and upon delivery of a properly completed letter of transmittal, the merger consideration they are entitled to receive, net of any applicable withholding tax. No interest will be paid or accrue on any cash payable upon surrender of any stock certificate.

 

The paying agent will also pay those holders of Columbia LP Units that elect to receive $19.00 in cash per unit. The surviving partnership will arrange for the issuance of the OP merger equity consideration to those holders of Columbia LP Units that elect to receive the OP merger equity consideration.

 

SSPF/CET has represented to us in the merger agreement that it will have, on the closing date, cash sufficient to pay the merger consideration and the OP merger consideration and to satisfy the obligations of SSPF/CET, Merger Sub and OP Merger Sub in connection with the mergers and any other transaction contemplated by the merger agreement and any and all fees and expenses in connection with the mergers.

 

We and Columbia OP have made certain customary representations and warranties to SSPF/CET, Merger Sub and OP Merger Sub, subject to exceptions disclosed in the merger agreement and subject to customary qualifications for materiality. These representations and warranties relate to, among other things:

 

 

 

SSPF/CET, Merger Sub and OP Merger Sub have made certain representations and warranties to us. These representations and warranties relate to, among other things:

 

 

During the period from November 5, 2006 to the earlier of the closing date of the merger or termination of the merger agreement, we have agreed to not conduct our business other than in the ordinary course consistent with past practice and to use our commercially reasonable efforts to preserve our business organization, conduct our

operations in compliance with applicable law, maintain our REIT tax status, keep available the services of our employees and maintain our relationships with tenants, joint venture partners and others having business dealings with us. We have also agreed that we and each of our subsidiaries will not, except (i) in connection with the performance of contracts entered into prior to the date of the merger agreement, (ii) as set forth in our disclosure letter in connection with the merger agreement, (iii) as consented to in writing by SSPF/CET, which consent is not to be unreasonably withheld, conditioned or delayed, or (iv) as expressly contemplated or permitted by the merger agreement:

 

 

 

We and the other parties to the merger agreement have agreed to various covenants regarding general matters. Some of these covenants are mutual, while others have been made either only by us or only by SSPF/CET, Merger Sub and/or OP Merger Sub.

 

The mutual covenants regarding general matters include, but are not limited to:

 

 

The covenants regarding general matters that we have made include, but are not limited to:

 

 

The covenants regarding general matters that SSPF/CET, Merger Sub and/or OP Merger Sub have made include, but are not limited to preparing materials to accompany the partnership form of election, which will be used by SSPF/CET to offer the OP merger consideration to holders of Columbia LP Units and Columbia LTIP Units.

 

Concurrently with entering into the merger agreement, we and SSPF/CET entered into an interim acquisition agreement which provides that if between the period commencing November 5, 2006 and ending on the first to occur of the closing of the merger or the termination of the merger agreement, we identify any real property (or interests therein) that we desire to acquire and SSPF/CET consents to such acquisition but we determine that we do not have sufficient internal funding capacity to fund such acquisition, then (a) an affiliate of SSPF/CET will acquire such property and (b) such affiliate will grant to us the option to acquire such property if the merger agreement is terminated. Such option must be exercised within 30 days of the termination date. The price at which we can acquire the property shall be the total actual costs incurred by SSPF/CET in acquiring the property plus an internal rate of return equal to the projected internal rate of return determined by us and agreed to by SSPF/CET.

 

We are authorized under the merger agreement to declare and pay regular quarterly cash dividends with respect to our common stock in an amount equal to the greater of up to $0.15 per share or that amount required for us to maintain our status as a REIT and for us not to be required to pay federal income taxes with respect to our earnings prior to the closing of the merger. We are also authorized to declare and pay a special pre-closing dividend that will represent the pro rata portion of a regular quarterly dividend for any partial quarter from the most recent dividend record date prior to the merger to the effective time of the merger.

 

The merger agreement prevents us, our subsidiaries and our respective representatives, prior to the closing of the merger, from:

 

 

For these purposes, an “acquisition proposal” means any proposal or offer in one transaction or a series of transactions (i) directly or indirectly with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, share exchange, business combination or similar transaction involving us, Columbia OP or any of our significant subsidiaries and (ii) to acquire in any manner, directly or indirectly, 20% or more of the total voting power of any class of equity securities of our company or those of any of our subsidiaries, or 20% or more of our consolidated total assets (including, without limitation, equity securities of our subsidiaries), in each case other than the transactions contemplated by the merger agreement.

 

Prior to stockholder approval, in response to a bona fide, unsolicited, written acquisition proposal from a third party, we may (i) provide information in response to a request related to that acquisition proposal, but only if the person so requesting the information executes a confidentiality and standstill agreement on terms not less restrictive that those terms contained in our confidentiality agreement with JPMAM, (ii) engage or participate in any discussions or negotiations with the interested party; provided, however, we may not grant exclusive rights to negotiate with any person, or (iii) after complying with the “change in recommendation” provision described below, approve, recommend or otherwise declare advisable or propose to approve, recommend or otherwise declare advisable an acquisition proposal, if and only to the extent that:

 

 

 

The merger agreement provides that the Board will recommend to our stockholders approval of the merger; provided, however, that our Board of Directors may, prior to obtaining stockholder approval of the merger, withhold, withdraw, qualify or modify its recommendation for the merger or approve, recommend or otherwise declare advisable any superior proposal, if our Board of Directors determines in good faith, after consultation with outside counsel, that failure to do so would be reasonably likely to be inconsistent with the directors’ duties under applicable law. We refer to this change in this proxy statement as a “change in recommendation.”

 

We are required by the merger agreement to promptly, and in any event within 48 hours, notify SSPF/CET after we receive: (a) any acquisition proposal; (b) the identity of the third party making the acquisition proposal; (c) any request for information with respect to any acquisition proposal; and (d) the material terms and conditions of any acquisition proposal, inquiry or request for discussions, negotiations or information regarding any acquisition proposal and to keep SSPF/CET reasonably informed of the status and material terms of any acquisition proposal.

 

If, prior to obtaining the approval of the merger by our stockholders, our Board of Directors intends to approve and authorize our entry into a definitive agreement providing for the implementation of a superior proposal, which we refer to in this proxy statement as a “competing agreement,” then at least five days prior to executing the competing agreement, we will provide written notice to SSPF/CET that we intend to enter into the competing agreement and will provide SSPF/CET with the most current version of such competing agreement. In addition, during the five day period following SSPF/CET’s receipt of written notice, we must offer to negotiate with and, if accepted, cause our financial and legal advisors to negotiate in good faith with SSPF/CET to make adjustments to the terms and conditions of the merger agreement and the terms of the merger. If, following the completion of such five day period, our Board of Directors determines in good faith, after considering the results of the negotiations and the revised proposal made by SSPF/CET, that the superior proposal giving rise to the five-day notice continues to be a superior proposal, our Board of Directors may approve, recommend or otherwise declare advisable the superior proposal and may terminate the merger agreement (subject to payment of the termination payment and merger expenses described further below).

 

The merger agreement defines a “superior proposal” as a bona fide acquisition proposal that was not solicited by us, Columbia OP or any of our representatives (except as permitted by the merger agreement) after the date of the merger agreement, involving more than 50% of the assets (on a consolidated basis) or voting power of the equity securities of our company or Columbia OP and that our Board of Directors has determined in its good faith judgment, taking into account the transaction in its entirety (including, among other things, terms and conditions of the proposal, break-up fees, expense reimbursements, conditions to closing, legal, financial and regulatory aspects of the proposal and the person making the proposal), that if consummated, would result in a transaction more favorable to our stockholders than the merger from a financial point of view.

 

Each of our employees as of the effective time of the merger will continue to be employees of the surviving entity. For a period of not less than 18 months following the merger closing date, SSPF/CET has agreed that it will cause the surviving entity to provide all employees employed by us as of the effective time of the merger and who continue to be employed by the surviving entity or its successors or assigns or any of their subsidiaries with compensation and benefits (including salary, bonus, severance benefits, but excluding any equity-based awards) in amounts that are no less favorable in the aggregate as those provided under our benefit plans in effect immediately prior to the effective time of the merger. In addition, SSPF/CET has agreed to waive pre-existing condition exclusions, waiting periods and certain other requirements, to provide credit for co-payments and deductibles paid and generally to recognize prior service with us for purposes of SSPF/CET benefit plans (other than for purposes of benefit accrual under defined benefit pension plans).

 

The merger will be completed only if the conditions specified in the merger agreement are either satisfied or waived. Some of the conditions are mutual, meaning that if the condition is not satisfied, none of the parties would be obligated to close the merger. Those conditions that are not mutual are in favor of either SSPF/CET, Merger Sub and OP Merger Sub, on the one hand, or our company and Columbia OP, on the other hand, meaning that if the condition is not satisfied that party could waive the condition, to the extent legally permissible, and the other party would remain obligated to close.

 

The mutual conditions for completion of the merger are:

 

 

Our obligation and that of Columbia OP to effect the merger is subject to the satisfaction or waiver of various conditions that include the following:

 

 

SSPF/CET’s, Merger Sub’s and OP Merger Sub’s obligation to effect the merger is subject to the satisfaction or waiver of various conditions that include the following:

 

 

Certain of the above conditions, such as the requirement for stockholder approval, cannot be waived under applicable law. We, Columbia OP, SSPF/CET, Merger Sub and OP Merger Sub reserve the right to waive other conditions to the merger. We cannot be certain when (or if) the conditions to the merger will be satisfied or waived or

that the merger will be completed. We expect to complete the merger as promptly as practicable after all the conditions have been satisfied or waived.

 

Under the merger agreement, “material adverse effect,” as it applies to our company, means any event, circumstance, change or effect that individually or in the aggregate (i) is materially adverse to the business, properties, liabilities, financial condition or results of operations of our company and its subsidiaries, taken as a whole, or (ii) prevents the ability of our company to consummate the merger; provided, however, that none of the following shall be deemed to constitute or be taken into account in determining a “material adverse effect”:

 

 

 

 

 

The merger agreement may be terminated prior to the merger effective time:

 

 

 

 

 

 

 

 

 

The merger agreement provides that we are obligated to pay SSPF/CET an amount equal to $4.0 million as a termination payment and up to $750,000 of SSPF/CET’s merger expenses if the merger agreement is terminated:

 

 

 

 

 

 

 

We will pay up to $750,000 of SSPF/CET’s merger expenses in the event SSPF/CET terminates the merger agreement as a result of our breaching any representation or warranty or failing to perform any covenant or agreement contained in the merger agreement and as described above. In all other circumstances, the parties are responsible for paying their own fees, costs and expenses, other than expenses related to the printing, filing and mailing of this proxy statement (and any amendments or supplements thereto) and all SEC and other regulatory filing fees, if any, incurred in connection with this proxy statement, which will be split evenly between SSPF/CET and us.

 

The parties may amend the merger agreement, but after our stockholders have approved the merger agreement, no such amendment will be made which (i) reduces the merger consideration or (ii) by law requires further approval by our stockholders without obtaining such approval.

 

SSPF/CET, the surviving entity and the surviving partnership will provide exculpation and indemnification to the fullest extent authorized or permitted by applicable law for each person who as of the date of the merger agreement or during the period from the date of the merger agreement through the closing date of the merger, served as an executive officer or director of our company or any of our subsidiaries (referred to in this proxy statement as the “indemnified parties”). The indemnification and advancement obligations of SSPF/CET, the surviving entity and the surviving partnership pursuant to the merger agreement will extend to acts or omissions occurring at or before the closing time and any claim relating thereto. In addition, SSPF/CET, the surviving entity and the surviving partnership also agreed to promptly pay on behalf of, or advance to, each of the indemnified parties, to the fullest extent authorized or permitted by applicable law, any expenses incurred in defending, serving as a witness with respect to or otherwise participating in any claim in advance of the final disposition of such claim.

 

The merger agreement provides that all rights to indemnification existing in favor of, and all limitation of personal liability of, the present and former directors, officers, employees, fiduciaries or agents of our company and our subsidiaries provided for in our and our subsidiaries’ organizational and corporate governance documents in effect on November 5, 2006 will continue in full force and effect for a period of six (6) years from the closing date of the merger. The merger agreement also requires that SSPF/CET maintain in effect, for a period of at least six years after the effective time of the merger, our current directors’ and officers’ liability policies; provided, however, that the surviving entity may instead substitute policies of at least the same amounts and containing other terms and

conditions which are, in the aggregate, not materially less advantageous to the insured persons. This requirement is subject to a maximum cost per year of coverage of 300% of the annual premiums we paid for such insurance prior to the date we signed the merger agreement. If the cost per year of insurance coverage exceeds such maximum amount, the surviving entity must obtain as much comparable insurance as possible for an annual premium equal to 300% of the annual premiums we paid prior to the date we signed the merger agreement.

 

The obligations described above regarding directors’ and officers’ indemnification and directors’ and officers’ insurance must be assumed by any successor entity to the surviving entity.

 

Prior to the termination of the merger agreement, in the event any provision of the merger agreement is not performed by the parties in accordance with its terms, both SSPF and we are entitled to seek an injunction or injunctions to prevent a breach of the merger agreement and maintain the right to seek specific performance of the obligations of each of the parties under the merger agreement. In connection with the execution of the merger agreement, SSPF executed a guarantee in our favor whereby SSPF has guaranteed all of the obligations of SSPF/CET, Merger Sub and OP Merger Sub.

 

The following is a summary of the material United States federal income tax consequences of the merger to holders of our common stock whose shares are surrendered in the merger in exchange for the right to receive the merger consideration. This summary is based on current law and is for general information only. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), applicable Treasury Regulations, and administrative and judicial interpretations thereof, each as in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. We have not requested, and do not plan to request, any rulings from the Internal Revenue Service (the “IRS”) concerning the tax treatment of the merger, and the statements in this proxy statement are not binding on the IRS or any court. We can provide no assurance that the tax consequences contained in this discussion will not be challenged by the IRS, or if challenged, will be sustained by a court.

 

This summary assumes that our common stock is held as a capital asset within the meaning of Section 1221 of the Code and does not address all aspects of taxation that may be relevant to particular holders in light of their personal investment or tax circumstances or to persons that are subject to special tax rules. In addition, this summary does not address the tax treatment of special classes of holders of our common stock, including, for example:

 

 

 

This summary also does not discuss any state, local, foreign or other tax considerations.

 

If any entity that is treated as a partnership for United States federal tax purposes holds shares of our common stock, the tax treatment of its partners or members generally will depend upon the status of the partner or member and the activities of the entity. If you are a partner of a partnership or a member of a limited liability company or other entity classified as a partnership for United States federal tax purposes and that entity holds shares of our common stock, you should consult your tax advisor.

 

For purposes of this section, a “U.S. holder” means a beneficial owner of shares of our common stock that is for United States federal income tax purposes one of the following:

 

 

As used in this section, a “non-U.S. holder” means a beneficial owner of shares of our common stock that is an individual, corporation, estate or trust that is not a U.S. holder as described in the bullets above.

 

For United States federal income tax purposes, we will treat the merger as if we had sold all of our assets to SSPF/CET in exchange for the merger consideration and then made a liquidating distribution of the merger consideration to our stockholders in exchange for shares of our stock.

 

The receipt of cash by U.S. holders in exchange for shares of our common stock pursuant to the merger will be a taxable transaction for United States federal income tax purposes. In general, a U.S. holder of our common stock will recognize gain or loss for United States federal income tax purposes equal to the difference between:

 

 

Gain or loss will be calculated separately for each block of shares, with a block consisting of shares acquired at the same cost in a single transaction. Assuming that the shares constitute capital assets in the hands of the U.S. holder, gain or loss will be capital gain or loss and will be long-term capital gain or loss if at the time of the merger the shares have been held for more than one year. A U.S. holder taxed at individual rates will be subject to tax on net long-term capital gain at a maximum federal income tax rate of 15%. Capital gains of corporate U.S. holders generally are taxable at the regular tax rates applicable to corporations. The deductibility of a capital loss recognized in the exchange is subject to limitations under the Code. A U.S. holder who has held our common stock for six months or less at the time of the merger and who recognizes a loss on the exchange of our common stock in the merger will be treated as recognizing a long-term capital loss to the extent of any capital gain dividends received from us, plus such holder’s share of any designated retained capital gains, with respect to such shares of common stock.

The IRS has the authority to prescribe, but has not yet prescribed, regulations that would apply a tax rate of 25% to a portion of capital gain realized by a noncorporate shareholder on the sale of REIT shares that would correspond to the REIT’s “unrecaptured Section 1250 gain.” The maximum tax rate on long-term capital gain from the sale or exchange of “section 1250 property,” or depreciable real property, is 25% computed on the lesser of the total amount of the gain or the accumulated Section 1250 depreciation.

 

Generally, a non-U.S. holder’s gain or loss from the merger will be determined in the same manner as that of a U.S. holder. The United States federal income tax consequences of the merger to a non-U.S. holder will depend on various factors, including whether the receipt of the merger consideration is taxed under the provisions of the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, governing sales of REIT shares or whether the receipt of the merger consideration is taxed under the provisions of FIRPTA governing distributions from REITs. Current law is unclear as to which provisions should apply, and both sets of provisions are discussed below.

 

Distribution of Gain from the Disposition of U.S. Real Property Interests.  It is likely that that the merger consideration received by a non-U.S. holder will be subject to tax under Section 897(h)(1) of the Code as a distribution from us that is attributable to gain from the deemed sale of our U.S. real estate assets in the merger and not as a sale of shares of our common stock. If that characterization were respected, then such distribution would be taxed under FIRPTA, unless a special exception applies (the “5% Exception,” discussed below). If the distribution were taxed under FIRPTA, the gain recognized by a non-U.S. holder generally would be subject to United States federal income tax (in the same manner as a U.S. holder) to the extent attributable to gain from the sale of our real estate assets. The 5% Exception would apply to a non-U.S. holder of our shares if the non-U.S. holder does not own more than 5% of our common stock at any time during the one-year period ending on the date of the merger. If the 5% Exception were to apply to a non-U.S. Holder, the FIRPTA tax would not apply, but we would be required to withhold 10% of the value of the merger consideration paid to the non-U.S. holder, as described below.

 

Taxable Sale of Shares.  It is possible that the receipt of the merger consideration will be treated as a sale of shares of our common stock for purposes of FIRPTA. Subject to the discussion of U.S. real property interests below, if the merger is treated as a taxable sale of shares of our common stock, a non-U.S. holder should not be subject to United States federal income tax on any gain or loss from the merger unless: (i) the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States and, if an applicable income tax treaty applies, the gain is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States; (ii) the non-U.S. holder is an individual present in the United States for 183 days or more in the taxable year of the merger and certain other requirements are met; or (iii) such shares of common stock constitute a “Untied States real property interest” under FIRPTA.

 

A non-U.S. holder whose gain is effectively connected with the conduct of a trade or business in the United States generally will be subject to United States federal income tax on such gain on a net basis in the same manner as a U.S. holder. In addition, a non-U.S. holder that is a corporation may be subject to the 30% branch profits tax on such effectively connected gain.

 

A non-U.S. holder who is an individual present in the United States for 183 days or more in the taxable year of the merger and who meets certain other requirements will be subject to a flat 30% tax on the gain derived from the merger, which may be offset by United States source capital losses.

 

If a non-U.S. holder’s shares of our common stock constitute a “United States real property interest” under FIRPTA, such holder will be subject to United States federal income tax on the gain recognized in the merger on a net basis in the same manner as a U.S. holder. A non-U.S. holder’s shares of our common stock generally will not constitute a U.S. real property interest if (i) we are a “domestically controlled qualified investment entity” at the time of the merger, or (ii) the non-U.S. holder owns (actually or constructively under the attribution rules provided in Section 897(c)(6)(C) of the Code) 5% or less of the total fair market value of our common stock at all times during the five-year period ending with the effective date of the merger. A “qualified investment entity” includes a REIT. Assuming we qualify as a REIT, we will be a “domestically controlled qualified investment entity” at the time of the merger if non-U.S. holders held directly or indirectly less than 50% in value of our stock at all times during the

preceding five years. No assurances can be given that the actual ownership of our stock has been or will be sufficient for us to qualify as a “domestically controlled qualified investment entity” at the time of the merger.

 

U.S. Withholding Tax Under FIRPTA.  As described above, it is unclear whether the receipt of the merger consideration will be treated as a distribution from us that is attributable to gain from the deemed sale of our U.S. real estate assets in the merger or as a sale of shares of our common stock. Accordingly, we intend to withhold U.S. federal income tax at a rate of 35% from the portion of the merger consideration that is, or is treated as, attributable to gain from the sale of U.S. real property interests and paid to a non-U.S. holder unless such holder qualifies for the 5% Exception, in which case we intend to withhold 10% of merger consideration paid to the non-U.S. holder. Non- U.S. Holders should note that the sale of our common stock prior to the time of the merger may not be subject to withholding under FIRPTA, provided our common stock continues to be regularly traded on an established securities market in the United States. Accordingly, non-U.S. Holders are urged to consult their tax advisors regarding the FIRPTA withholding tax consequences of selling their common stock prior to the time of the merger as compared with the FIRPTA withholding tax consequences of exchanging their shares in the merger for the merger consideration.

 

A non-U.S. holder may be entitled to a refund or credit against the holder’s United States tax liability, if any, with respect to any amount withheld pursuant to FIRPTA, provided that the required information is furnished to the IRS on a timely basis. Non-U.S. holders should consult their tax advisors regarding withholding tax considerations.

 

Backup withholding, presently at a rate of 28%, and information reporting may apply to the merger consideration received pursuant to the exchange of our common stock in the merger. Backup withholding will not apply, however, to a holder who

 

 

Backup withholding is not an additional tax. It may be credited against the holder’s United States federal income tax liability and may entitle the holder to a refund if required information is timely furnished to the IRS.

 

THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX CONSIDERATIONS RELATING TO THE MERGER. THEREFORE, HOLDERS OF OUR COMMON STOCK ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF UNITED STATES FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS IN THEIR PARTICULAR CIRCUMSTANCES.

 

As of January 16, 2007, there were 13,863,334 shares of our common stock outstanding.

 

The following table sets forth information, as of December 14, 2006, regarding our common stock owned of record or known by us to be owned beneficially by:

 

 

 

 

The number of shares of common stock “beneficially owned” by each stockholder is determined under rules issued by the SEC regarding the beneficial ownership of securities. Under the SEC rules, beneficial ownership of our common stock includes any shares as to which the person or entity has sole or shared voting power or investment power.

Unless otherwise indicated in the footnotes, all such interests are owned directly, and the indicated person or entity has sole voting and investment power. The address for each of our directors and executive officers listed below is: c/o Columbia Equity Trust, Inc., 1750 H Street, N.W., Suite 500, Washington, DC 20006.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pursuant to our bylaws, no other business is permitted to be transacted at the special meeting of stockholders. On any motion to adjourn the special meeting, the named proxies will vote on such motion in their best discretion, provided that only those shares of common stock represented by proxies entitled to vote FOR the proposal to approve the merger may be voted by the named proxies FOR such adjournment. Nevertheless, the enclosed proxy confers discretionary authority to vote with respect to matters described in Rule 14a-4(c) under the Securities Exchange Act of 1934, as amended, including matters that our Board of Directors does not know, a reasonable time before proxy solicitation, are to be presented at the special meeting. If any of these matters are duly presented at the meeting, then the proxy agents named in the enclosed proxy card will vote in accordance with their judgment.

 

If we complete the merger, we will not hold annual meetings thereafter. If we do not complete the merger when currently anticipated, we intend to hold our next annual meeting in May 2007 or shortly thereafter. If the merger is not completed for any reason, under SEC rules, stockholders intending to submit proposals for presentation at our 2007 Annual Meeting of Stockholders must have submitted their proposals in writing, and we must have received these proposals at our executive offices on or before December 11, 2006 for inclusion in our proxy statement and the form of proxy relating to our 2007 Annual Meeting.

 

Although stockholder proposals received by us after December 11, 2006 will not be included in our proxy statement or proxy card for the 2007 Annual Meeting of Stockholders, stockholder proposals may be included in the agenda for the 2007 Annual Meeting of Stockholders if properly submitted in accordance with our bylaws. Our bylaws provide that in order for a stockholder to nominate a candidate for election as a director at an annual meeting of stockholders or propose business for consideration at such meeting, notice must be given in writing to our Secretary not later than the close of business on the 90th day prior to the first anniversary of the date of mailing of the notice for the preceding year’s annual meeting nor earlier than the close of business on the 120th day prior to the first anniversary of the date of mailing of the notice for the preceding year’s annual meeting. As a result, any notice given by or on behalf of a stockholder pursuant to the provisions of the bylaws must be delivered in writing via personal delivery or United States certified mail, postage prepaid to our Secretary c/o Columbia Equity Trust, Inc., 1750 H Street, Suite 500, Washington, D.C. 20006, Attn: Secretary, not earlier than December 11, 2006, and not later than January 10, 2007.

 

We file annual and quarterly reports, proxy statements and other information with the SEC under the Securities Exchange Act of 1934, as amended. You may read and obtain copies of this information in person or by mail from the Public Reference Section of the SEC, 100 F Street N.E., Room 1580, Washington, DC 20549, at prescribed rates. You may obtain information on the operation of the public reference room by calling the SEC at (800) SEC-0330.

 

The SEC also maintains an internet website that contains annual, quarterly and current reports, proxy statements and other information about issuers like our company, which file electronically with the SEC. The address of that site is http://www.sec.gov. You may also retrieve this information from our website at www.columbiareit.com. Information contained on our website is not incorporated in or made a part of this proxy statement.

 

This proxy statement does not constitute the solicitation of a proxy in any jurisdiction to or from any person to whom or from whom it is unlawful to make such proxy solicitation in such jurisdiction. You should rely only on the information in this document. We have not authorized anyone to provide you with information that is different from what is contained in this proxy statement. The information contained in this document speaks only as of the date of this document, unless the information specifically indicates that another date applies.

EXHIBIT A

 

 

AGREEMENT AND PLAN OF MERGER

DATED AS OF NOVEMBER 5, 2006

AMONG

SSPF/CET OPERATING COMPANY LLC,

SSPF/CET OP HOLDING COMPANY LLC,

SSPF/CET OP HOLDING COMPANY SUBSIDIARY L.P.,

COLUMBIA EQUITY, L.P.

AND

COLUMBIA EQUITY TRUST, INC.

 

TABLE OF CONTENTS

 

AGREEMENT AND PLAN OF MERGER, dated as of November 5, 2006 (this “Agreement”), among SSPF/CET Operating Company LLC, a Delaware limited liability company (“Acquiror”), SSPF/CET OP Holding Company LLC, a Delaware limited liability company and a wholly owned subsidiary of Acquiror (“Merger Subsidiary”), SSPF/CET OP Holding Company Subsidiary L.P., a Virginia limited partnership (“Partnership Merger Subsidiary”), Columbia Equity, L.P., a Virginia limited partnership (the “Partnership”), and Columbia Equity Trust, Inc., a Maryland corporation (the “Company”).

 

RECITALS

 

WHEREAS, the parties wish to effect a business combination through a merger of the Company with and into Merger Subsidiary (the “Company Merger”) on the terms and subject to the conditions set forth in this Agreement with Merger Subsidiary continuing as the Surviving Company and a wholly owned subsidiary of Acquiror;

 

WHEREAS, the parties also wish to effect a merger of Partnership Merger Subsidiary with and into the Partnership (the “Partnership Merger” and together with the Company Merger, the “Mergers”), on the terms and subject to the conditions set forth in this Agreement with the Partnership continuing as the Surviving Partnership and an indirect subsidiary of Acquiror;

 

WHEREAS, each of the Board of Directors of the Company and the Company Special Committee (as defined below) unanimously has approved this Agreement and the Company Merger and declared that the Company Merger is advisable and in the best interests of the Company and its stockholders, on the terms and subject to the conditions set forth herein;

 

WHEREAS, the Company, as the sole general partner of the Partnership, has approved this Agreement and the Partnership Merger and deemed it advisable for the Partnership to enter into this Agreement;

 

WHEREAS, Acquiror, as the sole member of Merger Subsidiary, has approved this Agreement and the Company Merger and declared that this Agreement and the Company Merger are advisable on the terms and subject to the conditions set forth herein; and

 

WHEREAS, Merger Subsidiary, as general partner of the Partnership Merger Subsidiary, has approved this Agreement and the Partnership Merger and deemed it advisable for the Partnership Merger Subsidiary to enter into this Agreement;

 

WHEREAS, simultaneously with the execution and delivery of this Agreement, Acquiror and certain limited partners of the Partnership (the “Principal Company Limited Partners”) have entered into voting agreements in the form of Exhibit A attached hereto (the “Voting Agreements”) pursuant to which Acquiror and the Principal Company Limited Partners have agreed to take specified actions in furtherance of the Partnership Merger;

 

WHEREAS, to induce Acquiror, Company Merger Subsidiary and Partnership Merger Subsidiary to enter into this Agreement, concurrently herewith, certain officers of the Company are entering into Employment Agreements with Acquiror dated as of the date hereof and effective as of the Company Merger Effective Time (as defined below) (each, an “Employment Agreement”); and

 

WHEREAS, the parties hereto desire to make certain representations, warranties, covenants and agreements in connection with the Mergers, and also to prescribe various conditions to such transactions.

 

NOW, THEREFORE, in consideration of the premises and of the mutual covenants, representations, warranties and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE 1.

 

CERTAIN DEFINITIONS

 

1.01  Certain Definitions.   The following terms are used in this Agreement with the meanings set forth below:

 

“Acquiror” has the meaning set forth in the preamble to this Agreement.

 

“Acquiror Benefit Plans” has the meaning set forth in Section 6.08.  

 

“Acquisition Proposal” has the meaning set forth in Section 6.04(b).  

 

“Action” means any claim, action, suit, proceeding, arbitration, mediation or other investigation as to which written notice has been provided to the applicable party, or as to which such party has actual knowledge.

 

“Affiliate” means, with respect to any Person, any other Person which directly or indirectly controls, is controlled by or is under common control with such Person. For purposes of the immediately preceding sentence, the term “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise. Notwithstanding the foregoing, JPMorgan Chase Bank N.A. and any of its subsidiaries or any entity controlled, managed and/or advised by JPMorgan Chase Bank, N.A. or any of its subsidiaries are not Affiliates of Acquiror for purposes of this Agreement.

 

“Agreement” means this Agreement, as amended or modified from time to time in accordance with Section 10.04.  

 

“Alternative Acquisition Agreement” has the meaning set forth in Section 6.04(c).  

 

“Applicable Permits” has the meaning set forth in Section 5.02(e).  

 

“Articles of Merger” has the meaning set forth in Section 2.02(b).  

 

“Benefit Plans” has the meaning set forth in Section 5.02(i).  

 

“Blue Sky Laws” has the meaning set forth in Section 5.02(d).  

 

“Business Day” means Monday through Friday of each week, except a legal holiday recognized as such by the U.S. Government or any day on which banking institutions in the State of New York are authorized or obligated to close.

 

“Buy-Out Payment” has the meaning set forth in Section 9.03(b).  

 

“CERCLA” has the meaning set forth in Section 5.02(o).  

 

“Certificate” means any certificate which immediately prior to the Company Merger Effective Time represented shares of Company Common Stock.

 

“Change in Recommendation” has the meaning set forth in Section 6.04(c).  

 

“Claim” has the meaning set forth in Section 6.07(a).  

 

“Closing” and “Closing Date” have the meanings set forth in Section 2.02(a).  

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Company” has the meaning set forth in the preamble to this Agreement.

 

“Company Board” means the Board of Directors of the Company.

 

“Company Bylaws” means the Amended and Restated Bylaws of the Company as in effect on the date hereof.

 

“Company Charter” means the Articles of Amendment and Restatement of the Company as in effect on the date hereof.

 

“Company Common Stock” means the common stock, $0.001 par value per share, of the Company.

 

“Company Indemnified Parties” has the meaning set forth in Section 6.07(a).  

 

“Company Lease” means any tenant lease at a Company Property.

 

“Company Material Adverse Effect” means any event, circumstance, change or effect that individually or in the aggregate (i) is materially adverse to the business, properties, liabilities, financial condition or results of operations of the Company and its Subsidiaries, taken as a whole, or (ii) prevents the ability of the Company to consummate the Company Merger; provided, however, that none of the following shall be deemed to constitute or shall be taken into account in determining whether there has been a “Company Material Adverse Effect”: (A) any event, circumstance, change or effect arising out of or attributable to (a) any decrease in the market price of Company Common Stock (but not any event, circumstance, change or effect underlying such decrease to the extent that such event, circumstance, change or effect would otherwise constitute a Company Material Adverse Effect), (b) any changes in the United States or global economy or capital, financial or securities markets generally, including changes in interest or exchange rates, (c) the commencement or escalation of a war or armed hostilities, (d) the occurrence of acts of terrorism or sabotage (except to the extent disproportionately adversely affecting the Company as compared to other similarly situated companies (by size or otherwise) which own commercial office properties in the greater Washington, D.C. metropolitan market), (e) any changes in general economic, legal, regulatory or political conditions in the geographic regions in which the Company and its Subsidiaries operate, (f) any events, circumstances, changes or effects arising from the consummation or anticipation of the Mergers or the announcement of the execution of this Agreement, (g) any events, circumstances, changes or effects arising from the compliance with the terms of, or the taking of any action required by, this Agreement, (h) earthquakes, hurricanes or other natural disasters (except to the extent disproportionately adversely affecting the Company as compared to other similarly situated companies (by size or otherwise) which own commercial office properties in the greater Washington, D.C. metropolitan market), (i) changes in Law or GAAP, or (j) failure by the Company to complete the acquisition of any properties or assets currently under contract or letter of intent, (k) a failure by the Company to report earnings or revenue results in any quarter ending on or after the date hereof consistent with the Company’s historic earnings or revenue results in any previous fiscal quarter or published guidance with respect thereto (but not any event, circumstance, change or effect underlying such failure to the extent that such event, circumstance, change and or effect would otherwise constitute a Company Material Adverse Effect), or (B) any event, circumstance, change or effect disclosed herein or in the Disclosure Letter.

 

“Company Merger” has the meaning set forth in the recitals of this Agreement.

 

“Company Merger Certificates” has the meaning set forth in Section 2.02(b).  

 

“Company Merger Consideration” has the meaning set forth in Section 3.01(b).  

 

“Company Merger Effective Date” means the day of the Company Merger Effective Time.

 

“Company Merger Effective Time” has the meaning set forth in Section 2.02(b).  

 

“Company Property” or “Company Properties” has the meaning set forth in Section 5.02(l).  

 

“Company Special Committee” means the committee of the Company Board comprised of the five non-employee members of the Company Board.

 

“Company Stock Plan” means the Company’s 2005 Equity Compensation Plan.

 

“Company Stockholders Meeting” means a special meeting of the Company’s stockholders to consider and vote upon the approval of the Company Merger, this Agreement and any other matter required to be approved by the Company’s stockholders for consummation of the Transaction (including any adjournment or postponement).

 

“Company Title Insurance Policy” has the meaning set forth in Section 5.02(l).  

 

“Confidentiality Agreement” has the meaning set forth in Section 6.03(b).  

 

“Continuing Employee” has the meaning set forth in Section 6.08(a).  

 

“Disclosure Letter” has the meaning set forth in Section 5.01.  

 

“DLLCA” has the meaning set forth in Section 2.01(a).  

 

“Election Date” has the meaning set forth in Section 3.02(b).  

 

“Employee” has the meaning set forth in Section 6.08(a).  

 

“Employment Agreement” has the meaning set forth in the recitals.

 

“Environmental Laws” means any United States federal, state or local Laws in existence on the date hereof relating to pollution or protection of the environment.

 

“Environmental Permits” has the meaning set forth in Section 5.02(o).  

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

 

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.

 

“Exchange Agent” has the meaning set forth in Section 3.03(a).  

 

“Exchange Fund” has the meaning set forth in Section 3.03(a).  

 

“Expenses” has the meaning set forth in Section 6.07(a).  

 

“Former Equityholder” has the meaning set forth in Section 3.03(b).  

 

“GAAP” means accounting principles generally accepted in the United States of America.

 

“Governmental Authority” means any federal, state or local court, administrative agency or commission or other governmental authority or instrumentality or agency.

 

“Ground Lease” has the meaning set forth in Section 5.02(l).  

 

“Hazardous Substance” means (i) those substances defined in or regulated under the following federal statutes and their state counterparts, as each may be amended from time to time, and all regulations thereunder: the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act and the Clean Air Act; (ii) petroleum and petroleum products, including crude oil and any fractions thereof; (iii) polychlorinated biphenyls, friable asbestos and radon; and (iv) any substance, material, or waste regulated by any Governmental Authority pursuant to any Environmental Law.

 

“Intellectual Property” means all intellectual property owned or used by the Company and its Subsidiaries, including patents (including any continuations, divisionals, continuations-in-part, renewals and reissues), trademarks, trade names, service marks, domain names and other indicators of source or origin, database rights, copyrights, mask works, technology, know-how, trade secrets, inventory, ideas, algorithms, processes, computer software programs or applications (in both source code and object code form), tangible or intangible proprietary information or material and all other intellectual property or proprietary rights, together with all goodwill symbolized by any of the foregoing, registrations and applications for the foregoing, and rights to sue for past infringement thereof.

 

“IRS” has the meaning set forth in Section 5.02(i).  

 

“JPM JVs” means the joint venture entities listed on Exhibit C hereto.

 

“JPM JV Properties” means the properties owned by JPM JVs as listed on Exhibit C hereto.

 

“JV Entities” has the meaning set forth in Section 5.02(a).  

 

“knowledge of the Company” or “to the Company’s knowledge” means the actual knowledge after due inquiry of the Chairman of the Company Board and Chief Executive Officer of the Company and the Executive Vice President and Chief Financial Officer of the Company.

 

“Law” has the meaning set forth in Section 5.02(d).  

 

“Liens” means any charge, mortgage, pledge, security interest, restriction, Claim, lien or encumbrance.

 

“LTIP Unit” has the meaning set forth in Section 3.02(a).  

 

“Material Contracts” has the meaning set forth in Section 5.02(p).  

 

“Merger Consideration” has the meaning set forth in Section 3.02(a).  

 

“Merger Expenses” has the meaning set forth in Section 9.03(a).  

 

“Merger Subsidiary” has the meaning set forth in the preamble to this Agreement.

 

“Mergers” has the meaning set forth in the recitals of this Agreement.

 

“MGCL” means the Maryland General Corporation Law.

 

“Non-JPM JVs” means the entities listed on Exhibit D hereto.

 

“Non-JPM JV Properties” means the properties owned by non-JPM JVs as listed on Exhibit D hereto.

 

“NYSE” has the meaning set forth in Section 5.02(d).  

 

“Organizational Documents” has the meaning set forth in Section 5.02(a).  

 

“Other Filing” has the meaning set forth in Section 5.02(k).  

 

“Outside Date” has the meaning set forth in Section 9.01(b).  

 

“Partnership Agreement” has the meaning set forth in Section 5.02(b).  

 

“Partnership Approval” has the meaning set forth in Section 5.02(c).  

 

“Partnership Cash Merger Consideration” has the meaning set forth in Section 3.02(a).  

 

“Partnership Form of Election” means the form of election that the holders of Partnership LP Units will complete, execute and deliver to Acquiror to elect the form of Partnership Merger Consideration to be received in the Partnership Merger, in a form mutually satisfactory to each of the Company and Partnership Merger Subsidiary.

 

“Partnership LP Unit” has the meaning set forth in Section 3.02(a).  

 

“Partnership Merger Certificate” has the meaning set forth in Section 2.02(c).  

 

“Partnership Merger Consideration” has the meaning set forth in Section 3.02(a).  

 

“Partnership Merger Effective Time” has the meaning set forth in Section 2.02(c).  

 

“Partnership Merger” has the meaning set forth in the preamble of this Agreement.

 

“Partnership Unit Election” has the meaning set forth in Section 3.03(e).  

 

“Partnership Unit Common Merger Consideration” has the meaning set forth in Section 3.02(a).  

 

“Partnership Unit Preferred Merger Consideration” has the meaning set forth in Section 3.02(a).  

 

“Partner Solicitation Materials” has the meaning set forth in Section 6.02(b).  

 

“Permitted Encumbrances” has the meaning set forth in Section 5.02(l).  

 

“Permitted Liens” has the meaning set forth in Section 5.02(l).  

 

“Person” means any individual, bank, corporation, partnership, association, joint-stock company, business trust, limited liability company, Governmental Authority or unincorporated organization.

 

“Principal Company Limited Partners” has the meaning set forth in the recitals.

 

“Property Restrictions” has the meaning set forth in Section 5.02(l).  

 

“Proxy Statement” has the meaning set forth in Section 5.02(d).

 

“REIT” means a real estate investment trust within the meaning of Sections 856-860 of the Code.