Report by the board of directors of Jelmoli Holding

Report by the board of directors of Jelmoli Holding Ltd pursuant to art. 29 of the Stock Exchange Act and art. 30–32 of the Takeover Ordinance Pursuant to art. 29 para. 1 SESTA and art. 30–32 of the Takeover Ordinance the board of directors of Jelmoli Holding Ltd with its registered offices in Zurich ("Jelmoli") comments on the public exchange offer by Swiss Prime Site AG, Olten ("SPS" or "Offeror") for all publicly held registered shares in Jelmoli as follows: 1. Comments On June 2, 2009 the Offeror published the pre-announcement of a public exchange offer, which was not coordinated with Jelmoli, for all of the publicly held Jelmoli shares. At the same time SPS announced that on May 29, 2009 it entered into a share purchase agreement with Pelham Investments SA ("Pelham"), a company controlled by Georg von Opel, pursuant to which the Offeror will purchase from this shareholder a total of 1'214'981 Jelmoli shares (respectively around 30% of the share capital entered into the commercial register at the time). According to the information from the Offeror the share purchase agreement shall be * consummated on July 10, 2009 . The board of directors of Jelmoli ("Board") rejected this offer, which was not coordinated with Jelmoli and contained an exchange ratio of 7.7 SPS shares per Jelmoli share, as financially insufficient (press release of June 2, 2009). However, the Board entered into negotiations with the board of directors of SPS in order to verify whether SPS would be ready to improve its offer to the Jelmoli shareholders. On June 11, 2009 SPS and Jelmoli concluded a transaction agreement described below in section 3. Therein the Offeror undertakes to improve the offer and to increase the exchange ratio to 8.1 SPS shares per Jelmoli share. The Board agreed to recommend the approval of the offer. The consent occurred subject to the Board receiving sufficient comfort until the publication of the offer prospectus that the financing of the existing financial liabilities is guaranteed (which is the case, see section 4.3 below to this end). The Board examined the improved exchange offer described in the offer prospectus closely and recommends to the shareholders of Jelmoli on the basis of the following considerations without a dissentient vote but with one abstention (see sections 4.2 and 6 below to this end) to accept the exchange offer of SPS and to tender their Jelmoli shares. 2. 2.1 Recommendation and reasons Adequate offer price The improved offer price corresponds to a premium of approximately 11,2% on the stock exchange closing price of the Jelmoli shares of CHF 393.5 and the SPS shares of CHF 54 respectively on May 29, 2009, the last trading day before the pre-announcement or rather of approximately 11% compared with the volumeweighted average price of the Jelmoli shares and the SPS shares respectively on the SIX Swiss Exchange each in the last 60 trading days before the publication of the pre-announcement on June 2, 2009. * Jelmoli was informed by the Offeror that the share purchase agreement was consummated on July 10, 2009. Moreover, the Board assigned Bank Sarasin & Cie AG with the preparation of a fairness opinion in order to verify the adequacy of the offer price from a financial perspective. In its fairness opinion Bank Sarasin & Cie AG concluded that the exchange ratio of 8.1 SPS shares per registered share of Jelmoli offered by SPS is adequate (cp. regarding the fairness opinion section 9 below). 2.2 Potential resulting from the integration of SPS and Jelmoli The situation of Jelmoli today is the consequence of the Boards's efforts, after it was newly appointed in December of 2007, to give Jelmoli a clear structure and to create an enhancement in value of the entire group by separating the real estate division (including the "House of Brands" und Jelmoli Bonus Card Ltd) from the other investment activities (Molino Restaurants, Beach Mountain, Seiler Hotels, Investment activities in Russia und Algeria) ("Strategic Plan"). On January 23, 2009 the general meeting of Jelmoli approved by a large majoritiy the Strategic Plan which primarily includes the following elements: • • • • Creation of two listed companies – a real estate company (Jelmoli) and an investment company (Athris Holding Ltd, "Athris"); Abolishment of the two categories of shares in Jelmoli (uniform share); Compensation for Pelham as indemnification for the surrender of control of Jelmoli; Option for a pay-off in cash in connection with a repurchase program for shareholders of Athris. Furthermore, Jelmoli succeeded in concluding an agreement with the shareholders of Tivona AG ("Tivona") pursuant to which Jelmoli takes over the remaining share of 55.5% of Tivona for a cash payment of CHF 60 million and 80'000 Jelmoli bearer shares (before the spin-off of Athris). Since 2004 Tivona, a Swiss real estate company for commercial real estate with a focus on retail business spaces like of instance shopping centers and specialized discounters, was the object of an arbitration proceeding between Jelmoli and the other Tivona shareholders. With the agreement both sides waived all claims and counterclaims and the lawsuit could be settled (for further details on the lawsuit reference is made to the description in note 7 in the semi-annual report 2008 of September 16, 2008 (www.jelmoliholding.ch) and previous press releases). Tivona further improved Jelmoli's position as the second largest listed Swiss real estate company and increased the market value of the real estate portfolio to approximately CHF 4.1 billion. Tivona further increased Jelmoli's focus on retail business real estate and offers additional value enhancement potential due to high-value development projects, e.g. the completion of the shopping center Stücki in Basle. The transaction could be consummated as planned in two steps on February 26 and July 1, 2009. At the end of March 2009 the Strategic Plan could then be implemented and consummated respectively. The Jelmoli barer shares were abolished and transformed into registered shares respectively. Athris was listed as an independent investment company on the SIX Swiss Exchange and Jelmoli could henceforth concentrate itself on its real estate activities and the House of Brands (cp. to this end also press releases of April 28, 2009). Originally, the Board planed on continuing with the well positioned Jelmoli as an independent real estate company. However, this strategy was called into question with the sale of the block of shares of approximately 28% by Pelham to SPS since Jelmoli now had a new shareholder which at the same time is 2 one of its compeditors. The Board also had to discover that SPS and Jelmoli complement one another well. SPS' main focus is on office properties and that of Jelmoli on retail properties. While Jelmoli is also present in the west and north of Switzerland, in SPS' case the greater Zurich area in the foreground. Hence, the real estate portfolios of both companies complement one another factually and geographically. An integration would create the leading listed real estate company in Switzerland with a well-balanced portfolio of first class realty and attractive locations. The combined company could also play a roll on the European level and should become more attractive for investors. This should lead to a long-term increase of the share price and in any case improve the liquidity of its shares. Based on the talks held with SPS and taking into consideration the warranties given by SPS in the transaction agreement the Board is of the opinion that Jelmoli's business model can be integrated into SPS' business model so that the substantial responsibilities of Jelmoli in the area of management and development of retail business real estate can be retained and no substantial additional costs are created. With the now improved offer price (to this end see section 2.2 above) the Board thus deems the offer is in the best interest of Jelmoli's shareholders. Moreover, in the transaction agreement with SPS important business interests could be fixed. The continuation of the department store on the Bahnhofstrasse in Zurich ("House of Brands") at least until 2010 as well as an extended protection for employees of Jelmoli has been warranted. 2.3 Potential tax consequences for private investors in Switzerland For shareholders resident in Switzerland who hold Jelmoli shares as their privat property the exchange offer may have tax consequences. Concerning this matter the Board refers to the detailed explanations in section 5. With regard to general tax consequences for shareholders reference is made to the remarks in the offer prospectus (see section K.8 there). 2.4 Effects on Jelmoli's financial liabilities In the transaction agreement the Board reserved the right to withdraw the recommendation to accept the offer if it does not receive enough comfort until the publication of the offer prospectus that the financing of the existing financial liabilities of Jelmoli is warranted. In cooperation with the Offeror Jelmoli has examined the effects of the exchange offer on its financial liabilities. The assessment shows that in the case of an consummation of the exchange offer part of the existing financing of Jelmoli has to be adjusted or replaced, this pertains to in particular loans which have so far been unsecured and partially would be converted into secured loans. In the current interest rate environment the additional collateralization tends to lead to lower financing costs; in the other hand there are one-time costs for establishing the respective mortgage instruments. Based on the talks held together with SPS and the banks the Board has concluded that with the consummation of the exchange offer a refinancing is possible and the advantages of the transaction outweigh the possible negative effects on the existing financing in the long term. According to the offer prospectus it is possible that after the consummation of the exchange offer SPS will merge with Jelmoli at a later point in time. If, when and how such a merger will be implemented is currently uncertain. In connection with a possible merger it would be incumbent on the boards of directors of both companies at that time to disclose and assess in the merger report the possible effects of such a merger on the financing of both companies existing at that time. Hence, the report at hand cannot comment on this. 3 2.5 Recommendation As a result of its assessment and the discribed meassures the Board is convinced that the exchange offer is in the best interest of Jelmoli, its shareholders, employees, customres and suppliers. On the basis that (a) the exchange ratio is adequate, (b) the integration into SPS leading to one of Europe's largest real estate companies makes sense strategically and (c) SPS undertook to continue running Jelmoli with its substantial parts the Board recommends to the shareholders of Jelmoli without a dissenting vote and with one abstention to accept SPS' exchange offer; three members of the Board withdrew from the adoption of the resolution (to this end see sections 4.2 and 6 below).. 3. Transaction agreement On June 11, 2009 Jelmoli signed a transaction agreement. It stipulates the conditions of the exchange offer and the respective duties of Jelmoli and SPS with respect to the exchange offer. In particular the transaction agreement determins the exchange ratio which SPS has to offer for the Jelmoli shares. Furthermore, in the transaction agreement SPS made different warranties limited in time regarding the continuation of the Jelmoli department store ("House of Brands"), use of the name «Jelmoli» as well as a lay-off protection for employees. In the transaction agreement SPS undertook to propose to the extraordinary general meeting of SPS two representatives of Jelmoli for appointment to the board of directors of SPS. These representatives have not yet been determined. The appointment shall be subject to the condition that the exchange offer materializes to a degree of at least 50% (including the shares purchased from Pelham Investments SA). There is a summary of the transaction agreement in section F.3 of the offer prospectus. 4. 4.1 Additional information required by the Swiss takeover law Board of directors and executive management of Jelmoli The Board consists of Messrs. Christopher M. Chambers (chairman), Michael Müller (delegate and CEO), Dr. Markus Dennler, Walter Fust, Dr. Bernhard Hammer, Barthélemy Helg, Dr. Rudolf Huber and Klaus Rudolf Wecken. The executive management of Jelmoli consists of Messrs. Michael Müller (delegate and CEO) and Markus Meier (CFO), who replaced the former CFO, Mr. Roland Walder, per March 1, 2009 (see press release of January 13, 2009). 4.2 Possible conflicts of interest Bernhard Hammer and Rudolf Huber are simultaneously members of the board of directors of SPS and due to the transaction agreement the Board proposed their appointment to the Board to the annual general meeting of Jelmoli on June 16, 2009 and they were elected by the general meeting pursuant to the Board's proposal as new Board members. Hence, they have a conflict of interest with respect to the exchange offer and withdrew from the deliberation and the assessment of the offer as well as the adoption of the resolution regarding the Board's report at hand. With the exception of Bernhard Hammer and Rudolf Huber no member of the Board has as a Board member of the company or otherwise contractual relations with the Offeror (or with a person acting in concert with it). None of the other Board members acts on instruction from SPS (or a person acting in concert with it) with regard to his mandate, neither in general nor in connection with the preparation of this report. 4 Furthermore, none of these members has been madated by or has a substantial business relation with the Offeror and has also not been appointed based on a proposal by SPS (or a person acting in concert with it) and is neither a body nor an employee of SPS (or of a person acting in concert with it) or a company which has substantial business relations with SPS (or a person acting in concert with it). Since his appointment to the Board in the year 2007 Michael Müller acted as confidant of Georg von Opel who stands behind the shareholder Pelham and was in this capacity also a member of the board of directors of Pelham and Pelham's main shareholder, Hansa Aktiengesellschaft. After assuming office as Jelmoli's CEO in connection with the consummation of the Strategic Plan, Michael Müller resigned from board of directors of the mentioned companies and later also terminated all other substantial activities in Georg von Opel's interest (cp. press release of Athris of July 1, 2009). Although for his reason in the Board's opinion a potential conflict of interest no longer exists Michael Müller withdrew from the adoption of the resolution regarding the Board's report. However, he participated in the deliberation and assessment of the offer. Since March 1, 2009 Markus Meier acts as CFO of Jelmoli and, based on the Board's knowledge, has no conflict of interest in connection with the exchange offer. 4.3 (a) Possible financial consequences of the offer Remuneration of the Board and the executive management For the period until Jelmoli's annual general meeting of June 16, 2009 the Board members (excluding Michael Müller) receive for their activity their ordinary remuneration in the previous amount (see p. 128F, section 13 in the 2008 annual report of Jelmoli). Pursuant to the transaction agreement Jelmoli undertook to adapt the remuneration to SPS' practice for the period after the annual general meeting (see p. 100 section 10 in the Offeror's annual report). As far as the Board knows the executive management will continue the operational management of Jelmoli on the present terms after the consummation of the offer. The Board resolved to create an integration bonus pool of at the maximum a total of CHF 2.5 million for a group of approximately 10-15 members of the extended executive management and other key employees of Jelmoli and its affiliates. The integration bonus pool shall serve the purpose of granting performance based rewards for extraordinary efforts and achievements in connection with the integration of Jelmoli into SPS. The group of the beneficiaries as well as the amounts of the individual remuneration payments have not yet been determined at the time of the preparation of this report and will be fixed by Jelmoli upon mutual agreement with the Offeror. (b) Jelmoli shares held by members of the Board and the executive At the time of the preparation of this report the members of the Board and the executive management hold the following Jelmoli shares and options on Jelmoli shares: Name Board Christopher M. Chambers Shares Options 3600 3080 150 100 5 Michael Müller Name Markus Dennler Shares Options 660 268'491 660 327´689 0 10 100 650 100 0 0 0 Walter Fust Barthélemy Helg Klaus Wecken Rudolf Huber Bernhard Hammer Executive management Michael Müller (see above) Markus Meier 0 0 As far as not disclosed differently in section 6 below, the Board members intend to tender their Jelmoli shares to SPS. Each option grants the right to obtain 5 registered shares in Jelmoli Holduing AG. Jelmoli will look for solutions in cooperation with the Offeror in order to redeem the options. (c) Payments caused by the takeover The Board members will be granted no benefits whatsoever in connection with the exchange offer. None of the Board members will receive a compensation due to the offer. The employment agreements of the members of the executive management do not contain any change of control clauses and do not stipulate any termination pay. 4.4 Contractual agreements or other connections with SPS Based on the Board's knowledge no other agreements exist between the Offeror and Jelmoli with the exception of the agreements mentioned in section F.3 of the offer prospectus. 5. Tax consequences for private shareholders with exclusive tax liability in Switzerland The Board verified the remarks by the Offeror in section 8 of the offer prospectus regarding the tax consequences and considers them plausible. In particular, after consultation with its tax advisors also the Board assumes that the consummation of the offer should basically not be connected with immediate tax consequences (income tax, real estate tax) for the shareholders with exclusive tax liability in Switzerland who hold Jelmoli shares as their private property. In case the Offeror merges with Jelmoli after the execution (which the Board assumes), the Board takes note of the remarks in section K 8.1 of the offer prospectus pursuant to which the board of directors of SPS will undertake everything that is reasonable in order to prevent a taxation of the increase of the nominal value after the fact. 6 6. Intensions of the shareholders who own more than 3% of the voting rights Based on the Board's knowledge the following shareholders hold more than 3% of the voting rights of Jelmoli at the time of this report: • Mr. Georg von Opel, Wollerau (through Hansa Aktiengesellschaft and Pelham Investments AG) or rather Swiss Prime Site AG, Olten, after the consummation of the share purchase agreement (cp. section 1)**: 28,34% Mr. Klaus Wecken (for himself and as statutory agent for Ferry Wecken and Ina Wecken), Bettingen: 8.83% Franklin Mutual Advisers, Short Hills (New Jersey USA): 8.31% Mr. Walter Fust, Freienbach: 6.6% Suva Schweizerische Versicherungsanstalt, Luzern: 4.73% • • • • ** According to information from the Offeror the share purchase agreement was consummated on July 10, 2009. Georg von Opel sold his stake to the Offeror (cp. section 1 above) and disclosed himself together with the Offeror as a group (date of publication of the notification June 9, 2009). The Board has no exact knowledge of the content of the share purchase agreement (cp. to this end section F.3. of the offer prospectus). The Offeror intends to takeover Jelmoli by means of the exchange offer at hand. Klaus Wecken was only appointed to the Board on the occasion of the general meeting of June 16, 2009, i.e. after the signing of the transaction agreement between Jelmoli and the Offeror. He has not yet decided whether he will tender his shares. Accordingly, he abstained from voting on the present report of the Board. Although Mr. Fust could not participate in the final decision-making with regard to the present report of the Board, he announced that he will tender his shares. Franklin Mutual Advisers informed the Board that it does not intend to tender the shares at the exchange ratio at hand. Beyond that, the Board has no knowledge of the intensions of the other aforementioned shareholders. The Board does not know of any other shareholders who hold more than 3% of the voting rights of Jelmoli. 7. Defensive measures The Board has not taken any defensive measures against SPS' offer and does not intend to do so. The annual general meeting of Jelmoli of June 16, 2009 also did not resolve upon defensive measures. 8. Information on material changes of the state of the assets, the financial state and the profitability as well as the business outlook and the interim financial statements Jelmoli prepared its annual financial statements per December 31, 2008, which can be retrieved under www.jelmoliholding.ch. Based on the Board's knowledge there have been no material changes in the state of the assets, the financial state and the profitability as well as the business outlook of Jelmoli since December 31, 2008 with the exception of the events listed below (the respective press releases can be retrieved under www.jelmoliholding.ch as well): 7 • On January 16, 2009 the bondholders of the two bonds issued by Jelmoli with the nominal value of CHF 175 million and CHF 200 million approved the respective proposal pursuant to which both bonds would not become due for repayment prior to maturity if the extraordinary general meeting of Jelmoli being held on January 23, 2009 approved the distribution of a spezial dividend as a substantial element of the Strategic Plan. In turn Jelmoli agreed, subject to the condition of and from the point in time of the distribution of the spezial dividend, to pay interest on the bonds at the new rate of 4.25 % p.a. (in the case of the 4% bond maturing on July 5, 2011) and 4.625 % p.a. (in the case of the 3 1/8% bond maturing on July 11, 2013) respectively and to adjust the annual coupon accordingly (cp. press release of January 16, 2009). On January 23, 2009 the general meeting approved the Strategic Plan. The plan could be implemented and executed respectively at the end of March 2009 (cp. to this end section 2.3 above as well as the press releases of January 23 and March 11, 27 and 30, 2009). Also on January 23, 2009 the dispute with the other Tivona shareholders could be settled and the complete takeover of Tivona initiated (cp. to this end the press releases of January 23 and 28, 2009). This takeover could be executed on February 26 and July 1, 2009. • • It is planned to publish the interim financial statements of Jelmoli regarding the results of the first half-year of 2009 by August 31, 2009. 9. Fairness opinion of Bank Sarasin & Cie AG The Board mandated Bank Sarasin & Cie AG ("Sarasin") to as an independent expert prepare a fairness opinion regarding the adequacy of the exchange ratio in order to assure an objective and independent opinion on the offer. In its fairness opinion of July 7, 2009 Sarasin came to the conclusion that the offer price offered by SPS for the Jelmoli shares is fair and adequate from a financial perspective (cp. p. 29, chapter 10 of the Fairness Opinion). This opinion is based on the perception that on the basis of the Adjusted Net Asset Value of both companies it is, from an economic viewpoint, a combination of two companies of almost the same size ("merger of equals") through which through the economic combination the shareholders of Jelmoli continue to participate, in the context of the brought in assets, with 46,6% (without consideration of the former participation of Pelham in Jelmoli) in the financial substrate of Jelmoli and would participate in the future synergies together with the shareholders of the Offeror on the basis of the assets brought into the combined company. According to Sarasin from this it follows that every exchange ratio which leads to a premium of 0% or higher for shareholders of Jelmoli (which is the case according to the calcualtions of Sarasin) is to be regarded as fair and adequate respectively. The fairness opinion of Bank Sarasin & Cie AG can be retrieved under www.jelmoliholding.ch and can be ordered free of charge at Bank Sarasin & Cie AG, Corporate Finance, Löwenstrasse 11, Zurich (tel.: +41 44 213 9678, fax: +41 44 213 9680, e-mail: corporate.finance@sarasin.ch). Zurich, July 8, 2009 For the board of directors of Jelmoli Holding Ltd: Christopher M. Chambers, Chairman 8