EXHIBIT-10.30
THE ROUSE COMPANY
CONTINGENT STOCK AGREEMENT
DATED AS OF JANUARY 1, 1996
TABLE OF CONTENTS
PAGE
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ARTICLE I
Definitions and Interpretation
Section 1.01. Certain Defined Terms 1
Section 1.02. Interpretation 15
ARTICLE II
Contingent Shares
Section 2.01. General 16
Section 2.02. Business Unit Accounts 16
Section 2.03. Value Index for the General Business Unit Account 16
Section 2.04. Value Index for the Howard Hughes Center Business Unit
Account 17
Section 2.05. Value Index for the Playa Vista Business Unit Account 17
Section 2.06. Value Index for the Summerlin Business Unit Account 18
Section 2.07. Asset Appraisals and Holders' FMV Allocation 19
Section 2.08. Delivery of Contingent Shares 20
Section 2.09. Debits to the Business Unit Accounts 24
Section 2.10. Tax Adjustments 24
Section 2.11. Company Loans 25
Section 2.12. Advances 25
Section 2.13. Underfunding of Employee Benefit Plans 25
ARTICLE III
Representations and Warranties of the Company
ARTICLE IV
Certain Covenants
Section 4.01. Information 28
Section 4.02. Ownership of Assets of the Business Units 30
Section 4.03. Capitalization of Business Units 30
Section 4.04. Records and Books of Account 32
Section 4.05. Negative Covenants of the Company and the Business Unit
Entities 32
Section 4.06. Board Representation 34
Section 4.07. Treasury Shares 34
Section 4.08. Inspection 34
Section 4.09. Maintain Registry 35
Section 4.10. Compliance with Laws 35
Section 4.11. Taxes; Claims 35
Section 4.12. Insurance 35
Section 4.13. Corporate Existence; Etc 35
Section 4.14. Registration of Contingent Shares and Contingent
Preferred Shares; Compliance with Securities Laws 35
Section 4.15. Rouse Shareholder Approval 36
Section 4.16. Contingent Preferred Shares 36
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Section 4.17. Reservation of Shares 37
Section 4.18. Abandonment of Assets 37
ARTICLE V
Concerning the Representatives
Section 5.01. Authority and Liabilities of the Representatives 37
Section 5.02. Directions to Representatives 38
Section 5.03. Reliance Upon Documents and Opinions of Counsel 39
Section 5.04. No Responsibility for Recitals, Etc 39
Section 5.05. Actions by Representatives 39
Section 5.06. Resignation and Removal 39
Section 5.07. Appointment of Successor Representative 40
Section 5.08. Acceptance of Appointment by Successor Representative 40
Section 5.09. Compensation and Indemnification 40
Section 5.10. Representatives' Escrow Account 41
Section 5.11. Confidentiality 43
Section 5.12. Controlling Provisions 43
Section 5.13. Indemnification 43
ARTICLE VI
Concerning the Review Committee
Section 6.01. General 43
Section 6.02. Composition 44
Section 6.03. Resignation and Removal 44
Section 6.04. Actions, Etc 44
Section 6.05. Confidentiality 45
Section 6.06. Indemnification 45
ARTICLE VII
Miscellaneous
Section 7.01. Notices 45
Section 7.02. Dispute Resolution 47
Section 7.03. Benefit and Burden 47
Section 7.04. Consolidations, Mergers, Etc 48
Section 7.05. Company as Fiduciary 48
Section 7.06. No Third Party Rights 49
Section 7.07. Amendments and Waiver 49
Section 7.08. Further Documents 50
Section 7.09. Assignments 50
Section 7.10. Severability 50
Section 7.11. Specific Performance 51
Section 7.12. APPLICABLE LAW 51
Section 7.13. Submission to Jurisdiction 51
Section 7.14. Expenses 51
Section 7.15. No Right of Set Off 51
Section 7.16. No Partnership, Joint Venture or Agency 51
Section 7.17. Survival of Representations, Warranties, Etc 52
Section 7.18. Payments and Interest 52
Section 7.19. Entire Agreement 52
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CONTINGENT STOCK AGREEMENT
This Contingent Stock Agreement, effective as of January 1, 1996, is by The
Rouse Company, a Maryland corporation (the "Company"), in favor of and for the
benefit of the Holders and the Representatives (as such terms are hereinafter
defined).
PRELIMINARY STATEMENTS
1. The Company, TRC Acquisition Company I, a newly-formed Delaware
corporation and a wholly-owned subsidiary of the Company ("Newco"), and The
Hughes Corporation, a Delaware corporation ("THC"), are parties to that certain
Agreement and Plan of Merger dated as of February 22, 1996 (the "Merger
Agreement"), which provides, among other things, for the merger of THC with and
into Newco (the "Merger"), as a result of which each outstanding share of common
stock of THC (other than shares held by THC or any of its subsidiaries) will be
converted into the right to receive (i) upon the effectiveness of the Merger,
shares of Rouse Common Stock (as hereinafter defined) and, if required pursuant
to the terms of the Merger Agreement, cash and (ii) subsequent to the
effectiveness of the Merger, additional shares of Rouse Common Stock or, in
certain circumstances, Rouse Preferred Stock, pursuant to the terms of this
Agreement.
2. The number of shares of Rouse Common Stock deliverable by the Company
upon the effectiveness of the Merger will be determined as provided in the
Merger Agreement. The number of shares of Rouse Common Stock deliverable by the
Company subsequent to the effectiveness of the Merger (the "Contingent Shares")
is not susceptible of being ascertained as of the time of the Merger because of
the uncertainty as to the value of certain Assets (as hereinafter defined) as of
the time of the Merger. Accordingly, the number of Contingent Shares will be
determined as provided in this Agreement based upon the future economic
performance of the Business Units (as hereinafter defined) and related Assets.
3. It is a condition precedent to the obligations of THC to close the
transactions contemplated by the Merger Agreement that the Company shall have
executed and delivered this Agreement.
4. This Agreement and the Merger Agreement are inter-related and
non-severable, and the parties to the Merger Agreement would not have
consummated the Merger had this Agreement not been executed and delivered and
vice versa.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein and in the Merger Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company, intending to be legally bound, hereby agrees as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01. Certain Defined Terms. Capitalized terms used in this
Agreement shall have the following respective meanings, except as otherwise
provided herein or as the context shall otherwise require:
"Adjusted Fair Market Value" has the meaning specified in Section 2.07(d).
"Adjusted Net Equity Balance" means, with respect to the General Business
Unit and the Summerlin Business Unit, an amount (not less than zero) determined
as of the beginning of each Computation Period equal to (i) the Initial Net
Equity of such Business Unit minus (ii) an amount equal to 200% of the aggregate
credits to the Business Unit Account for such Business Unit under Section
2.03(b) or Section 2.06(b), as applicable, for all Prior Computation Periods (if
any).
"Advance" has the meaning specified in Section 2.12.
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such Person. The term "control"
(including, with correlative meaning, the terms "controlling", "controlled by"
and "under common control with") means the possession, directly or indirectly,
of the power to direct or cause direction of the management and policies of a
Person, whether through the ownership of voting securities, by Contract or
otherwise; provided, however, that in no event shall the Company be deemed an
Affiliate of any Holder or vice versa.
"Agreement" means this Contingent Stock Agreement.
"All Computation Periods" means, with respect to any Calculation Date, all
Computation Periods ending on or prior to such Calculation Date.
"Applicable Federal Rate" means, with respect to any day, the federal
short-term rate, mid-term rate or long-term rate, as applicable, determined
pursuant to Section 1274(d) of the Code and published by the Secretary of the
Treasury or his delegate for the most recent calendar month ending prior to such
day. The Applicable Federal Rate shall be based on semi-annual compounding.
"Applicable Tax Rate" means, with respect to any Business Unit, 33.33% of
the marginal tax rate applicable to corporations subject to Subchapter C of
Chapter 1 of Subtitle A of the Code for each category of items of Business Unit
Income or Loss for such Business Unit for the period in which such Business Unit
Income or Loss was realized or sustained.
"Appraisal Panel" has the meaning specified in Section 2.07(b).
"Assets" means, with respect to any Person, any interest of such Person in
any kind of property or asset, whether real, personal or mixed, tangible or
intangible, and wherever situated, including Equity Interests in any other
Person.
"Associate" means, with respect to any Person, (i) any Affiliate of such
Person, (ii) any trust or estate in which such Person has a substantial
beneficial interest or as to which such Person serves as a trustee or in a
similar fiduciary capacity, (iii) any relative or spouse of such Person or any
relative of such spouse, (iv) any relative or spouse of any director or officer
of such Person, (v) any current or former employee, agent, advisor, consultant,
officer, director, partner or stockholder of such Person and (vi) any Person in
which such Person has an Equity Interest or with which such Person has a
business relationship.
"Authorized Officer" means the chief executive officer, the president, the
chief financial officer, the chief accounting officer or any other officer of
the Company with responsibility for the administration of the relevant portion
of this Agreement.
"Business Unit Accounts" has the meaning specified in Section 2.02.
"Business Unit Entity" has the meaning specified in Section 4.02.
"Business Unit Income or Loss" has the meaning specified in Section
2.10(a).
"Business Units" means (i) the General Business Unit, (ii) the Howard
Hughes Center Business Unit, (iii) the Playa Vista Business Unit and (iv) the
Summerlin Business Unit.
"Calculation Date" means the last day of each Computation Period.
"Capital Expenditure" means any expenditure which, in accordance with GAAP,
should be classified as a capital expenditure.
"Cash" means (i) cash and cash equivalents, (ii) Marketable Securities and
(iii) any other item that would be reflected as cash or cash equivalents on a
balance sheet prepared in accordance with GAAP.
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"Claim" means any claim, demand, investigation, cause of action, suit,
default, assessment, litigation, third party action, arbitral proceeding or
proceeding by or before any Governmental Authority or any other Person.
"Code" means the Internal Revenue Code of 1986, and any successor statute
of similar import, together with the regulations thereunder.
"Company" has the meaning specified in the introductory paragraph of this
Agreement.
"Company Consolidated Group" has the meaning specified in Section 2.10(a).
"Company Loan" has the meaning specified in Section 2.11.
"Company Members" has the meaning specified in Section 6.02.
"Computation Period" means the six-month period beginning on each January 1
and July 1 of each year; provided, however, that with respect to each Business
Unit (i) the first Computation Period shall commence on January 1, 1996 and (ii)
the final Computation Period shall end on the Valuation Date applicable to such
Business Unit.
"Computation Period Distribution Amount" has the meaning specified in
Section 2.08(b).
"Computation Period Tax Adjustment" has the meaning specified in Section
2.10(c).
"Contingent Preferred Shares" has the meaning specified in Section 4.16.
"Contingent Shares" has the meaning specified in the Preliminary Statements
of this Agreement.
"Contingent Stock Distribution Discount Rate" means a rate equal to (i) the
lesser of (A) the lowest Applicable Federal Rate in effect during the
three-month period ended on February 29, 1996 and (B) the lowest Applicable
Federal Rate in effect during the three-month period ending on the last day of
the month in which the Effective Time occurs or (ii) such other rate as may be
required under applicable tax Laws.
"Contingent Stock Distribution Interest" means, with respect to any
Contingent Stock Distribution Value, such Contingent Stock Distribution Value
minus the applicable Contingent Stock Distribution Principal.
"Contingent Stock Distribution Principal" has the meaning specified in
Section 2.08(h).
"Contingent Stock Distribution Value" means, with respect to any Holder,
(i) in the case of any delivery of Contingent Shares (A) for any Calculation
Date, the product of (x) the Current Share Value as of such Calculation Date
times (y) the Computation Period Distribution Amount with respect to such
Calculation Date times (z) such Holder's Percentage Interest and (B) for any
Valuation Distribution Date, the product of (x) the Valuation Distribution Share
Value as of such Valuation Distribution Date times (y) the number of Contingent
Shares delivered to such Holder on such Valuation Distribution Date and (ii) in
the case of any delivery of Contingent Preferred Shares for any Calculation Date
or Valuation Distribution Date, the product of (A) the stated liquidation value
of a Contingent Preferred Share times (B) the number of Contingent Preferred
Shares delivered to such Holder in connection with such Calculation Date or
Valuation Distribution Date.
"Contract" means any agreement, lease, license, evidence of indebtedness,
mortgage, deed of trust, note, bond, indenture, security agreement, commitment,
instrument, understanding or other contract, obligation or arrangement of any
kind.
"Current Share Value" means, as of any date (the "computation date"), the
average of the closing per share sales prices of Rouse Common Stock during the
ten trading days consisting of (i) the five consecutive trading days ending on
the last day of the calendar month immediately preceding the calendar month in
which the
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computation date falls and (ii) the five consecutive trading days ending on the
computation date, in each case, on the Composite Tape of the New York Stock
Exchange or, if shares of Rouse Common Stock are not then listed on the New York
Stock Exchange, on the principal United States securities exchange registered
under the Exchange Act on which shares of Rouse Common Stock are then listed or,
if shares of Rouse Common Stock are not then listed on any such stock exchange,
the average of the average closing bid and ask quotations with respect to a
share of Rouse Common Stock during the ten trading days consisting of (A) the
five consecutive trading days ending on the last day of the calendar month
immediately preceding the calendar month in which the computation date falls and
(B) the five consecutive trading days ending on the computation date, in each
case, on the NASDAQ or any successor system then in use or, if no such
quotations are then available, the average of the bid and asked prices with
respect to a share of Rouse Common Stock for such trading days, as furnished by
a member of the New York Stock Exchange regularly making a market in the Rouse
Common Stock selected by the Rouse Board, or, if no such member firm is then
making a market in Rouse Common Stock, the fair market value on the computation
date of a share of Rouse Common Stock as determined in good faith by a majority
of the members of the Rouse Board after consultation with an independent
financial advisor of recognized national standing.
"Debt" means, for any Person, all Liabilities of such Person (i) for the
repayment of money borrowed (whether or not represented by bonds, debentures,
notes, securities or other similar instruments), (ii) to pay the deferred or
unpaid purchase price of goods, services or Assets, (iii) as lessee under any
lease which, in conformity with GAAP, is required to be capitalized for balance
sheet purposes, (iv) under guaranties, endorsements (other than for collection
or deposit in the ordinary course of business) or assumptions of, or other
contingent obligations in respect of, or to purchase or otherwise acquire, any
Liabilities of any other Person, (v) in respect of letters of credit or other
similar instruments, (vi) secured by a Lien existing on Assets owned by such
Person, whether or not the Liabilities secured thereby shall have been assumed
by such Person and/or (vii) to redeem or repurchase any of such Person's Equity
Interests.
"Debtor Relief Laws" means the Bankruptcy Code of the United States, and
any successor statute of similar import, and all other applicable dissolution,
liquidation, conservatorship, bankruptcy, moratorium, readjustment of debt,
compromise, rearrangement, receivership, insolvency, fraudulent transfer or
conveyance, reorganization or similar debtor relief Laws from time to time in
effect affecting the rights of creditors generally.
"Delaware Courts" has the meaning specified in Section 7.13.
"Delivery Date" has the meaning specified in Section 4.16.
"Disputants" has the meaning specified in Section 7.02(a).
"Dividend Adjustment" means, with respect to any Calculation Date or
Valuation Date, an amount equal to the product of (i) the sum of any and all
dividends and other distributions paid on a share of Rouse Common Stock after
the date hereof, but only if, in the case of each such dividend or distribution,
the record date fixed for the purpose of determining the Persons entitled to
receive payment of such dividend or other distribution falls within the period
commencing on such Calculation Date or Valuation Date, as applicable, and ending
on the date on which the Contingent Shares required to be delivered by the
Company in connection with such Calculation Date or Valuation Date, as
applicable, are actually delivered to the Holders times (ii) the number of
Contingent Shares which the Company is otherwise required to deliver to the
Holders in connection with such Calculation Date or Valuation Date, as
applicable.
"Effective Date" has the meaning specified in the Merger Agreement.
"Effective Time" has the meaning specified in the Merger Agreement.
"Eligible Assignee" means an assignee or transferee of the rights of a
Holder hereunder but only if such assignee or transferee is (i) a beneficial
owner of Equity Interests of such Holder as of the date hereof, (ii) an
executor, administrator or guardian of the estate of such Holder or beneficial
owner, (iii) an inter vivos trust for the benefit of such Holder or beneficial
owner or a member of such Holder's or beneficial owner's immediate family, (iv)
a legatee or heir of such Holder or beneficial owner under the will of such
Holder or beneficial owner or
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pursuant to the Laws of descent and distribution, (v) a Person who acquires such
rights by operation of Law (including pursuant to a property settlement
agreement, plan or arrangement approved or ordered by any court) or (vi) the
Company or any Subsidiary of the Company.
"Environmental Laws" means any and all Laws, including any judgment,
permit, approval, decision or determination, pertaining to the environment now
or hereafter in effect and applicable to the Assets comprising any Business
Unit, including the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as amended by the Superfund
Amendment and Reauthorization Act of 1986 and as further amended, the Federal
Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq., as amended, the Solid
Waste Disposal Act of 1976, 42 U.S.C. (S) 6901 et seq., as amended, the Clean
Air Act, 42 U.S.C. (S) 7401 et seq., as amended, the Toxic Substances Control
Act, 15 U.S.C. (S) 2601 et seq., as amended, the Hazardous Materials
Transportation Act, 49 Ap. U.S.C.A. (S) 1801 et seq., as amended, the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S) 136 et seq., as
amended, and comparable state and local Laws, and other environmental
conservation and protection Laws.
"Equity Interests" means, with respect to any Person and whether now
outstanding or issued after the date of this Agreement, any and all shares,
interests, participations or other equivalents in the equity (however
designated) of such Person and any and all options, warrants and other rights to
purchase or otherwise acquire an equity interest in such Person.
"Escrow Account" has the meaning specified in Section 5.10(a).
"Escrow Agent" has the meaning specified in Section 5.10(a).
"Escrow Agreement" has the meaning specified in Section 5.10(a).
"Escrow Termination Date" has the meaning specified in Section 5.10(a).
"Event of Default" means any of the following events:
(a) any representation, warranty or statement made by the Company
in this Agreement or in any writing furnished by the Company to the
Review Committee, any Representative or any Holder pursuant to this
Agreement is inaccurate in any respect on the date as of which made
and in light of the circumstances under which made, which inaccuracy,
alone or together with all other such inaccuracies, could reasonably
be expected to have a Material Adverse Effect;
(b) the Company fails to perform or observe any covenant or
agreement contained in Section 2.08;
(c) the Company fails to perform or observe any other material
agreement, term or condition contained in this Agreement and such
failure (if capable of being remedied) is not remedied within 30
consecutive days after the date on which such failure first became
known to the Company;
(d) the Company takes or omits to take any action with the
knowledge that such action or omission will result, and such action or
omission does result, in the default by the Company of any its
covenants or agreements contained in this Agreement;
(e) the Company or HHPLP makes an assignment for the benefit of
creditors or is generally not paying its Debts as they become due;
(f) any decree or order for relief in respect of the Company or
HHPLP is entered under any Debtor Relief Law of any jurisdiction;
(g) the Company or HHPLP files a petition or otherwise applies to
any Governmental Authority for, or consents to, the appointment of, or
the taking of possession by, a trustee, receiver,
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custodian, liquidator or similar official of it or any substantial
part of its Assets, or commences a voluntary case under any Debtor
Relief Law of any jurisdiction;
(h) any such petition or application described in clause (g)
above is filed, or any such proceeding commenced, against the Company
or HHPLP, and the Company or HHPLP, as applicable, by any act
indicates its approval thereof, consents thereto or acquiesces
therein, or an order, judgment or decree is entered appointing any
such trustee, receiver, custodian, liquidator or similar official, or
approving the petition in any such proceeding, and such order,
judgment or decree remains unstayed and in effect for more than 60
consecutive days;
(i) any order, judgment or decree is entered in any proceeding
against the Company or HHPLP decreeing the dissolution, winding-up or
liquidation of the Company or HHPLP, and such order, judgment or
decree remains unstayed and in effect for more than 60 consecutive
days;
(j) any order, judgment or decree is entered in any proceedings
against the Company or HHPLP decreeing a split-up of the Company or
HHPLP, or which requires the divestiture of any material Asset or any
material portion of the Assets of the Company or HHPLP, and such
order, judgment or decree remains unstayed and in effect for more than
60 consecutive days;
(k) this Agreement shall at any time, for any reason, cease to be
in full force and effect or shall be declared to be null and void in
whole or in any material part by an order, judgment or decree of any
Governmental Authority, or the validity or enforceability of this
Agreement shall be contested by or on behalf of the Company, or the
Company shall renounce, or deny that it is bound by the terms of, any
material provision of this Agreement, it being understood that nothing
herein shall restrict the Company from asserting that its actions or
omissions do not constitute a violation of this Agreement;
(l) any violation or breach of, or default under, the governing
documents of any Business Unit Entity shall occur and (if capable of
being remedied) is not remedied within 30 consecutive days after the
date on which such failure first became known to the Company or such
Business Unit Entity, which violation, breach or default, alone or
together with all other such violations, breaches and defaults, could
reasonably be expected to have a Material Adverse Effect; or
(m) the failure of the shareholders of the Company to approve
this Agreement and the issuance and delivery of securities of the
Company as contemplated hereby prior to July 15, 1997.
"Excess Cash Flow" means, with respect to any Business Unit for any
Computation Period, an amount equal to its Receipts for such Computation Period
minus the sum of its Expenditures and Computation Period Tax Adjustment (if any)
for such Computation Period.
"Exchange Act" means the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder.
"Expenditures" means, with respect to any Business Unit for any Computation
Period, all costs and expenses incurred by the Company or any of its
Subsidiaries which are properly chargeable to such Business Unit in accordance
with GAAP and actually paid during such Computation Period and all adjustments
to the records and books of account of such Business Unit made in accordance
with the terms of this Agreement which have the effect of decreasing the Cash
accounts of such Business Unit during such Computation Period, including any and
all:
(a) real estate commissions, legal fees and title costs incurred
in connection with the Transfer of any of the Assets comprising such
Business Unit;
(b) sales, franchise, licensing, property and other taxes (other
than taxes of any Governmental Authority measured by income);
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(c) Capital Expenditures, insurance premiums, labor, supplies,
utilities and other services, infrastructure, amenities, improvements
and enhancements, whether on-site, off-site or regional, not
reimbursed by the purchaser of any of the Assets comprising such
Business Unit or otherwise, including costs in connection with
installing utilities, roadways and landscaping, which costs are
allocable to any of the Assets comprising such Business Unit on a
basis reasonably determined by the Company;
(d) payments on indebtedness for borrowed money (including any
Company Loan and any Revolving Credit Loan), whether for principal or
interest, which indebtedness existed on the effective date hereof or
was incurred subsequent to the effective date hereof in the ordinary
course of business of any Business Unit Entity in accordance with the
terms of this Agreement;
(e) overhead directly related to such Business Unit or, to the
extent that services are provided to the related Business Unit Entity
by employees of the Company or any of its Subsidiaries (such as
financial, personnel, legal, accounting, tax or other administrative
services), the reasonable actual costs incurred for such services,
which costs shall not exceed the costs at which such services could
have been obtained by such Business Unit Entity in an arms'-length
transaction with a Person that is not an Associate of the Company or
any Business Unit Entity;
(f) costs and expenses in connection with the direct management
of the Assets comprising such Business Unit other than Howard Hughes
Center Management Costs and Playa Vista Management Costs;
(g) fees and expenses in connection with or as a result of any
action or proceeding brought, or any Claim made, by any Governmental
Authority or any other Person (other than the Review Committee, any
Representative or any Holder) directly relating to any of the Assets
comprising such Business Unit, unless such incurrence resulted from
the gross negligence or willful misconduct of the Company or any of
its Subsidiaries constituting a material breach of its obligations
under this Agreement;
(h) increases in Reserves but only if and to the extent that such
increases are permitted by the definition of "Reserve" contained
herein;
(i) fees, costs and expenses of the Review Committee which have
been allocated to such Business Unit in accordance with Section 6.01;
(j) Advances (or any portion thereof) repaid to any other
Business Unit; and
(k) Advances made to any other Business Unit;
provided, however, that except as expressly provided in the foregoing clauses
(a) through (k), the term "Expenditure" shall not include (i) any cost or
expense of the Company or any of its Subsidiaries for general overhead or
non-operating items, such as financial, personnel, legal, accounting, tax and
other general administrative services, (ii) any charges for interest on
intercompany advances or charges for other intercompany payments of any nature
other than payments for Assets or services directly related to the operation of
the Assets comprising such Business Unit or (iii) any share of the consolidated
tax Liability of the Company Consolidated Group (federal, state or local), and
provided further, that all Expenditures incurred by THC and its Subsidiaries
during the period commencing January 1, 1996 to and including the Effective
Time, which would be properly chargeable to any Business Unit in accordance with
GAAP and are actually paid during such period, shall be deemed for all purposes
of this Agreement to have been incurred and actually paid by the Company during
such period with respect to such Business Unit.
"Fair Market Value" has the meaning specified in Section 2.07(e).
"Funding Requirement" has the meaning specified in Section 4.03(a).
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"GAAP" means generally accepted United States accounting principles,
applied on a consistent basis (except for changes in which the independent
auditors of the Person in question concur) as in effect from time to time unless
the application of a principle of accounting not in effect at the date hereof
would in any way be prejudicial to the Holders or to the Company, in which event
the generally accepted United States accounting principles as in effect on the
date hereof will be applied.
"General Business Unit" means any and all rights, title and interests
(subject to any related Liabilities) of the Company and its Subsidiaries and
Affiliates in and to (i) (A) the Assets located in Nevada and California
described on Exhibit B and all improvements thereon (if any), (B) the available
land component of Hughes Airport Center (as designated on Exhibit D), (C) the
available land component of Hughes Center (as designated on Exhibit E) and (D)
the available land component of Hughes Cheyenne Center (as designated on Exhibit
F) and (ii) to the extent that any of the foregoing are held indirectly by the
Company or any Business Unit Entity through any other Person, (A) the Equity
Interests held by the Company or such Business Unit Entity in such other Person,
(B) any securities issued or issuable with respect to any such Equity Interests
by way of distribution, (C) any Assets or securities into which such Equity
Interests or securities may be converted in connection with a recapitalization,
merger, consolidation or other reorganization or otherwise and (D) any Cash,
Equity Interests or other Assets distributed with respect to such Equity
Interests, securities or Assets.
"General Business Unit Account" has the meaning specified in Section 2.03.
"General Business Unit Reduction Amount" means, with respect to the General
Business Unit Account for any Calculation Date, an amount equal to the sum of
(i) 3% of the gross cash proceeds from sales of real estate comprising the
General Business Unit during All Computation Periods (except in connection with
the allocation of the Fair Market Value of any Assets among the Company and the
Holders in which case such amount shall be determined as provided in Section
2.07(d)), reduced by all amounts taken into account in Section 2.03(c)(ii)(B) in
all Prior Computation Periods plus (ii) to the extent that all or any portion of
the amount obtained under clause (i) is not taken into account in Section
2.03(c)(ii)(B) on the Calculation Date for the Computation Period during which
such gross cash proceeds were actually received by the Company or any of its
Subsidiaries, a cumulative 7.5% per annum, compounded semi-annually, return on
such amount from the Calculation Date for the Computation Period during which
such gross cash proceeds were so received until the Calculation Date for the
Computation Period in which such amount is taken into account in Section
2.03(c)(ii)(B).
"Governmental Approval" means any authorization, consent, approval,
license, franchise, lease, ruling, tariff, rate, permit, certificate or
exemption of, or filing or registration with, any Governmental Authority.
"Governmental Authority" means (i) any nation or government, (ii) any
federal, state, county, province, city, town, municipality, local or other
political subdivision thereof or thereto, (iii) any court, tribunal, department,
commission, board, bureau, instrumentality, agency, council, arbitrator or other
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government and (iv) any other governmental entity,
agency or authority having or exercising jurisdiction over any relevant Person,
item or matter.
"Hazardous Materials" means any hazardous or toxic substances or
contaminated material including asbestos (friable, non-friable or any other
form), polychlorinated biphenyls and any flammable materials, explosives,
radioactive materials, hazardous materials, hazardous waste, hazardous or toxic
or regulated substances or related materials defined in or under any
Environmental Law and any other substance, waste, pollutant, contaminant or
material, including petroleum products and derivatives, crude oil or fractions
thereof or any chemical which causes cancer or reproductive effects, which are
defined by applicable Law as hazardous or toxic or the use, transport, disposal,
storage, treatment, recycling, handling, discharge, Release or emission of which
is regulated or governed by any applicable Law.
"HHPLP" means Howard Hughes Properties, Limited Partnership, a Delaware
limited partnership.
"Holder Members" has the meaning specified in Section 6.02.
8
"Holders" means the Persons listed on Schedule 1 and all Eligible
Assignees.
"Holders' Designee" has the meaning specified in Section 4.06(a).
"Holders' FMV Allocation" has the meaning specified in Section 2.07(d).
"Holders' FMV Allocation Amount" has the meaning specified in Section
2.08(c)(ii).
"Howard Hughes Center Business Unit" means any and all rights, title and
interests (subject to any related Liabilities) of the Company and its
Subsidiaries and Affiliates in and to (i) the approximately 69-acre tract of
land located in Los Angeles, California described on Exhibit C and all
improvements thereon and (ii) to the extent that any of the foregoing are held
indirectly by the Company or any Business Unit Entity through any other Person,
(A) the Equity Interests held by the Company or such Business Unit Entity in
such other Person, (B) any securities issued or issuable with respect to any
such Equity Interests by way of distribution, (C) any Assets or securities into
which such Equity Interests may be converted in connection with a
recapitalization, merger, consolidation or other reorganization or otherwise and
(D) any Cash, Equity Interests or other Assets distributed with respect to such
Equity Interests, securities or Assets.
"Howard Hughes Center Business Unit Account" has the meaning specified in
Section 2.03.
"Howard Hughes Center Management Costs" means, with respect to any
Calculation Date, the aggregate amount of direct management costs incurred and
actually paid by the Company and any of its Subsidiaries in connection with the
Howard Hughes Center Business Unit during All Computation Periods which have not
been taken into account under Section 2.04 in any Prior Computation Period.
"Hughes Airport Center" means the approximately 382-acre tract of land
located in Las Vegas, Nevada described on Exhibit D and all improvements thereon
(except as noted on such Exhibit).
"Hughes Center" means the approximately 84-acre tract of land located in
Las Vegas, Nevada described on Exhibit E and all improvements thereon (except as
noted on such Exhibit).
"Hughes Cheyenne Center" means the approximately 211-acre tract of land
located in Las Vegas, Nevada described on Exhibit F and all improvements thereon
(except as noted on such Exhibit).
"Hughes Funding" means the lesser of (i) the amount funded by the Company
pursuant to the Funding Requirement and (ii) $10,000,000; provided, however,
that solely for the purposes of making the calculations required by Section
2.05(a) with respect to any Calculation Date, such amount shall be reduced by an
amount equal to the aggregate credits to the Playa Vista Business Unit Account
under Section 2.05(b) for all Prior Computation Periods.
"Independent Member" has the meaning specified in Section 6.02.
"Initial Net Equity" means (i) $40,900,000 with respect to the General
Business Unit and (ii) $64,900,000 with respect to the Summerlin Business Unit.
"Laws" means all laws, statutes, rules, regulations, ordinances, orders,
writs, injunctions or decrees and other pronouncements having the effect of law
of any Governmental Authority.
"Liability" means, with respect to any Person, any indebtedness, obligation
and other liability of such Person, whether absolute, accrued, contingent, fixed
or otherwise, or whether due or to become due.
"Lien" means (i) any mortgage, lien, charge, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, security interest, assessment,
adverse claim, levy, preference or priority or other security agreement of any
kind or nature whatsoever (whether voluntary or involuntary, affirmative or
negative, and whether imposed or created by Contract, operation of Law or
otherwise) in, on, of or with respect to any Assets or Equity
9
Interests, whether now owned or hereafter acquired, (ii) any other interest in
Assets or Equity Interests designed to secure the repayment of Debt or any other
obligation, whether arising by Contract, operation of Law or otherwise, (iii)
any Contract to give any of the foregoing and (iv) any conditional sale or other
title retention agreement and any financing lease having substantially the same
effect as any of the foregoing.
"Losses" means any and all damages (including consequential, punitive and
exemplary), fines, penalties, judgments, deficiencies, losses, costs and
expenses, including court costs, reasonable fees of attorneys, accountants and
other experts and other reasonable expenses of any Claim.
"Maguire Thomas Partners" means (i) Maguire Thomas Partners/JMB Associates,
a California limited partnership, and (ii) Maguire Thomas Partners/JMB Area C
Associates, a California limited partnership.
"Majority Holders" means, at any time, Holders whose combined Percentage
Interests represent more than 50% of the Percentage Interests of all Holders
(excluding the Company and its Subsidiaries and Affiliates).
"Marketable Securities" means (i) securities which (a) are listed on the
New York Stock Exchange or the American Stock Exchange, (b) are reported on
NASDAQ, (c) are part of an issue which is listed on the New York Stock Exchange
or the American Stock Exchange or is reported on NASDAQ or (d) are regularly
quoted by brokers or dealers making a market in such securities and (ii) readily
marketable securities or obligations issued or guaranteed by any Governmental
Authority.
"Material Adverse Effect" means a material adverse effect on (i) the
business, operations, condition (financial or otherwise), results of operations
or prospects of the Company, any Business Unit Entity or any Business Unit, (ii)
the Company's ability to perform its obligations under this Agreement, (iii) the
value, condition or marketability of any material Assets comprising any Business
Unit, (iv) the validity, legality or enforceability of this Agreement, (v) the
ability of any Holder to exercise or enforce any of its rights, powers or
remedies under this Agreement or (vi) the ability of any Representative or any
member of the Review Committee to perform any of his duties or obligations, or
to exercise or enforce any of his rights, powers or remedies, under this
Agreement, but excluding from clauses (i) and (iii) hereof any effect caused by
matters of general applicability, such as economic, regulatory, tax or other
matters of general applicability, or matters generally affecting real estate or
real estate markets. For purposes of this definition, the financial condition of
the Company, any Business Unit Entity or any Business Unit shall be determined
on the basis of the current value net worth of such Person.
"Merger" has the meaning specified in the Preliminary Statements of this
Agreement.
"Merger Agreement" has the meaning specified in the Preliminary Statements
of this Agreement.
"Merger Agreements" means (i) the Merger Agreement and (ii) the Agreement
and Plan of Merger, dated as of February 22, 1996, among the Company, TRC
Acquisition Company II and HHPLP relating to the Partnership Merger.
"NASDAQ" means The Nasdaq Stock Market.
"Newco" has the meaning specified in the Preliminary Statements of this
Agreement.
"Parties" means the Company, the Holders and the Representatives.
"Partnership Merger" means the merger of TRC Acquisition Company II, a
newly formed Delaware corporation and a wholly-owned subsidiary of the Company,
with and into HHPLP, as a result of which each outstanding Class 1 LP Unit of
HHPLP will be converted into the right to receive cash.
"Percentage Interest" means (i) with respect to each Holder, the percentage
set opposite such Holder's name on Schedule 1, as such percentage may be
adjusted in connection with a Transfer to an Eligible
10
Assignee, and (ii) with respect to any Eligible Assignee, the percentage
Transferred to such Eligible Assignee by the Transferring Holder.
"Permitted Encumbrances" means any and all (i) Liens for taxes if the same
shall at the time not be delinquent or thereafter may be paid without penalty or
if such taxes are being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted, but only if (A) such contest could
not reasonably be expected to have a Material Adverse Effect and (B) such
reserves or other appropriate provisions (if any) as shall be required by GAAP
shall have been made therefor, (ii) Liens consisting of easements, zoning
restrictions or other restrictions on the use of real property that do not
materially affect the value of the Assets encumbered thereby or materially
impair the ability of the Company or any Business Unit Entity to use such Assets
in its business, (iii) Liens of landlords, mechanics, materialmen, warehousemen,
carriers or other statutory Liens securing obligations that are not yet due and
are incurred in the ordinary course of business, (iv) Liens resulting from
deposits to secure payments of workmen's compensation or other social security
programs or to secure the performance of tenders, statutory obligations, surety
and appeal bonds, bids or Contracts in the ordinary course of business and (v)
Liens existing on the date hereof or created after the date hereof in accordance
with the terms of this Agreement.
"Permitted Investments" has the meaning specified in Section 5.09(f).
"Person" means any individual, firm, corporation, trust, association,
company, limited liability company, joint stock company, partnership, joint
venture, Governmental Authority or other entity or enterprise.
"Playa Vista Business Unit" means any and all rights, title and interests
(subject to any related Liabilities) of the Company and its Subsidiaries and
Affiliates in and to (i) the limited partner interests held by HHPLP in the
Playa Vista Partnerships, (ii) any securities issued or issuable with respect to
any such limited partner interests by way of distribution, (iii) any Assets or
securities into which such limited partner interests or securities may be
converted in connection with a recapitalization, merger, consolidation or other
reorganization or otherwise and (iv) any Cash, Equity Interests or other Assets
distributed with respect to such limited partner interests, securities or
Assets.
"Playa Vista Business Unit Account" has the meaning specified in Section
2.05.
"Playa Vista Financings" has the meaning specified in Section 4.03(a).
"Playa Vista Management Costs" means, with respect to any Calculation Date,
the aggregate amount of direct management costs incurred by the Company and its
Subsidiaries in connection with the Playa Vista Business Unit during All
Computation Periods which have not been taken into account under Section 2.05 in
any Prior Computation Period.
"Playa Vista Management Costs Return" means a cumulative 15% per annum,
compounded semi-annually, return on the Playa Vista Management Costs from the
last day of the Computation Period during which such costs were actually paid by
the Company or any of its Subsidiaries until the Calculation Date for the
Computation Period in which such amount is taken into account under Section
2.05(a).
"Playa Vista Partnership Agreements" means (i) the Amended and Restated
Agreement of Limited Partnership dated February 14, 1989 of Maguire Thomas
Partners--Playa Vista, a California limited partnership, and (ii) the Agreement
of Limited Partnership dated September 26, 1990 of Maguire Thomas
Partners--Playa Vista Area C, a California limited partnership.
"Playa Vista Partnerships" means (i) Maguire Thomas Partners--Playa Vista,
a California limited partnership, and (ii) Maguire Thomas Partners--Playa Vista
Area C, a California limited partnership, being the entities formed by the Playa
Vista Partnership Agreements.
"Prior Computation Periods" means, with respect to any Calculation Date,
all Computation Periods ending prior to, but not on or after, such Calculation
Date.
11
"Process Agent" has the meaning specified in Section 7.13.
"Prohibited Transaction" has the meaning specified in Section 7.04(b).
"Proposed Transaction" has the meaning specified in Section 7.04(c).
"Receipts" means, with respect to any Business Unit for any Computation
Period, all Cash actually received by the Company or any of its Subsidiaries
during such Computation Period with respect to the operation and business of
such Business Unit and the Assets comprising such Business Unit and all
adjustments to the records and books of account of such Business Unit made in
accordance with the terms of this Agreement which have the effect of increasing
the Cash accounts of such Business Unit during such Computation Period,
including any and all:
(a) proceeds from the purchaser of any of the Assets comprising such
Business Unit (including any purchaser pursuant to an agreement that was entered
into prior to the effective date hereof), including, with respect to the General
Business Unit, the Howard Hughes Center Business Unit and the Summerlin Business
Unit, any proceeds paid (or deemed paid) by the Company or any of its
Subsidiaries to the applicable Business Unit Entity for the account of the
applicable Business Unit in connection with a Transfer of any of the Assets of
the General Business Unit, the Howard Hughes Center Business Unit or the
Summerlin Business Unit to the Company or any of its Subsidiaries;
(b) proceeds of indebtedness for borrowed money (including any Company Loan
and any Revolving Credit Loan) received subsequent to the effective date hereof;
(c) decreases in any Reserves;
(d) insurance proceeds in respect of any casualty or other insured loss to
or affecting any of the Assets comprising such Business Unit;
(e) proceeds in respect of any taking of any of the Assets comprising such
Business Unit, or of any rights appurtenant thereto, by condemnation, eminent
domain or transfer in lieu thereof for public or quasi-public use under any Law
or arising out of any damage or diminution in value to the Assets comprising
such Business Unit in connection therewith;
(f) payments (including sinking fund payments) and distributions on or in
respect of any Equity Interests in any Person included in the Assets comprising
such Business Unit;
(j) Advances received from any other Business Unit; and
(k) repayments by any other Business Unit of any Advance (or any portion
thereof) made by such Business Unit;
provided, however, that for purposes of determining Receipts hereunder, to the
extent that the Company or any of its Subsidiaries receives proceeds, Cash,
Assets or other amounts of a kind described herein that relate both to the
Assets comprising such Business Unit and to other Assets of the Company or any
of its Subsidiaries, such proceeds, Cash, Assets and other amounts shall be
allocated to such Business Unit and to such other Assets by the Company on a
reasonable and equitable basis and, to the extent applicable, in accordance with
GAAP, and, provided further, that all Receipts actually received by THC and its
Subsidiaries during the period commencing January 1, 1996 to and including the
Effective Time with respect to the operation and business of the Assets
comprising such Business Unit shall be deemed for all purposes of this Agreement
to have been actually received by the Company during such period with respect to
such Business Unit.
"Registration Statement" has the meaning specified in paragraph (j) of
Article III.
12
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment (including the abandonment or discarding of barrels, containers
and other closed receptacles).
"Representatives" means Platt W. Davis, III, David G. Elkins and Kenneth E.
Studdard and their respective successors who shall become such in the manner
prescribed in Article V.
"Representatives' Diversion Notice" has the meaning specified in Section
5.10(b).
"Reserve" means, with respect to any Business Unit, any contingency reserve
established and maintained in good faith by the Company or the relevant Business
Unit Entity with respect to such Business Unit in accordance with GAAP, if
applicable, but only if such reserve is reasonably necessary (i) for working
capital purposes approved by the Company in good faith, (ii) to fund any
payments for indebtedness for borrowed money with respect to such Business Unit
to the extent, and only to the extent, that such indebtedness exists on the date
hereof or is incurred subsequent to the date hereof (x) in the ordinary course
of the business of the Company or any of its Subsidiaries, (y) in compliance
with the terms of this Agreement and (z) solely for the purpose of funding
Expenditures or (iii) for any other proper purpose; provided, however, that no
such reserve may be established or maintained at any time unless, and then only
to the extent that, such action is consistent with sound business practices and
is in accordance with industry practices.
"Review Committee" has the meaning specified in Section 6.01.
"Revolving Credit Loans" has the meaning specified in Section 4.03(b).
"Rouse Board" means the board of directors of the Company.
"Rouse Common Stock" means the common stock, par value $0.01, of the
Company, being the class of common stock of the Company listed on the New York
Stock Exchange on the date hereof, and any securities issued or issuable with
respect to any such common stock by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise.
"Rouse Funding" means the amount (not to exceed $5,000,000) funded by the
Company pursuant to the Funding Requirement in excess of $10,000,000; provided,
however, that solely for the purposes of making the calculations required by
Section 2.05(c) with respect to any Calculation Date, such amount shall be
reduced by an amount equal to 1,000% of the aggregate credits to the Playa Vista
Business Unit Account under Section 2.05(d) for all Prior Computation Periods.
"Rouse Increasing Rate Preferred Stock" means the series of Rouse Preferred
Stock created and designated pursuant to the Articles Supplementary to the
Charter of the Company attached hereto as Exhibit A and consisting of 10,000,000
authorized and unissued shares.
"Rouse Preferred Stock" means the preferred stock, par value $0.01, of the
Company.
"SEC" means the Securities and Exchange Commission of the United States of
America or any successor thereof.
"Securities Act" means the Securities Act of 1933 and the rules and
regulations promulgated thereunder.
"State and Local Tax Adjustment" means, with respect to any Business Unit
for any taxable year, 33 1/3% of the aggregate income taxes that would be
imposed on the income of such Business Unit by each State or local tax authority
("jurisdiction") as a result of the location of the Assets of such Business Unit
within such jurisdiction or the conduct of business by such Business Unit within
such jurisdiction, computed as if the Assets of such Business Unit located in
such jurisdiction or the operations of such Business Unit in such jurisdiction
were
13
owned and conducted by a separate corporation which has no contacts or nexus
with any other jurisdiction other than the jurisdiction in which such Assets are
located or business is conducted.
"Subsidiary" means, with respect to any Person, each other Person of which
or in which such Person and its other Subsidiaries own, hold or control,
directly or indirectly, Equity Interests having ordinary voting power, in the
absence of contingencies, to elect a majority of the board of directors of such
other Person, or other Persons performing similar functions for such other
Person, or, if there are no such directors or other Persons, having a majority
of the general voting power with respect to the policies and activities of such
other Person.
"Summerlin" means the tract of land located in Las Vegas, Nevada described
on Exhibit G.
"Summerlin Business Unit" means any and all rights, title and interests
(subject to any related Liabilities) of the Company and its Subsidiaries and
Affiliates in and to (i)(A) the Assets located in Summerlin described on Exhibit
H and all improvements thereon (if any) and (B) the available land component of
Summerlin Commercial (as designated on Exhibit I), (ii) the Tournament Players
Club golf club located in Summerlin, including the 18-hole championship golf
course, the clubhouse and related structures, and (iii) to the extent that any
of the foregoing are held indirectly by the Company or any Business Unit Entity
through any other Person, (A) the Equity Interests held by the Company or such
Business Unit Entity in such other Person, (B) any securities issued or issuable
with respect to any such Equity Interests by way of distribution, (C) any Assets
or securities into which such Equity Interests or securities may be converted in
connection with a recapitalization, merger, consolidation or other
reorganization or otherwise and (D) any Cash or other Assets distributed with
respect to such Equity Interests, securities or Assets.
"Summerlin Business Unit Account" has the meaning specified in Section
2.06.
"Summerlin Business Unit Reduction Amount" means, with respect to the
Summerlin Business Unit Account for any Calculation Date, an amount equal to the
sum of (i) 3% of the gross cash proceeds from sales of real estate comprising
the Summerlin Business Unit during All Computation Periods (except in connection
with the allocation of the Fair Market Value of any Assets among the Company and
the Holders in which case such amount shall be determined as provided in Section
2.07(d)), reduced by all amounts taken into account in Section 2.06(e)(ii)(D) in
all Prior Computation Periods plus (ii) to the extent that all or any portion of
the amount obtained under clause (i) is not taken into account in Section
2.06(e)(ii)(D) on the Calculation Date for the Computation Period during which
such gross cash proceeds were actually received by the Company or any of its
Subsidiaries, a cumulative 7.5% per annum, compounded semi-annually, return on
such amount from the Calculation Date for the Computation Period during which
such gross cash proceeds were so received until the Calculation Date for the
Computation Period in which such amount is taken into account in Section
2.06(e)(ii)(D).
"Summerlin Commercial" means that portion of Summerlin identified as such
on Exhibit I and all improvements thereon (except as noted on such Exhibit).
"Summerlin North" means that portion of Summerlin identified as being owned
by HHPLP on Exhibit J and all improvements thereon and the available land
component of Summerlin Commercial (as designated on Exhibit I).
"Tax Adjustment" means, with respect to any Business Unit for any taxable
year, the sum of (i) the product of (A) Business Unit Income or Loss for such
Business Unit for such taxable year times (B) the Applicable Tax Rate plus (ii)
the State and Local Tax Adjustment for such Business Unit for such taxable year;
provided, however, that the Tax Adjustment shall not be a negative number.
"Termination Date" has the meaning specified in Section 4.03(a).
"THC" has the meaning specified in the Preliminary Statements of this
Agreement.
"Transfer" means, with respect to any Assets, any sale, Lien, pledge,
assignment or other disposition of such Assets, and such term, when used as a
verb, shall have correlative meanings.
14
"Treasury Shares" means shares of Rouse Common Stock held in the treasury
of the Company or any shares of authorized and unissued Rouse Common Stock
treated as treasury shares for purposes of listing on the New York Stock
Exchange by virtue of having been reacquired by the Company and restored to the
status of authorized but unissued shares.
"Valuation Date" means (i) with respect to the General Business Unit and
the portion of the Summerlin Business Unit comprised of Summerlin North,
December 31, 2000, (ii) with respect to the Howard Hughes Center Business Unit
and the Playa Vista Business Unit, December 31, 2005 and (iii) with respect to
the remaining Assets comprising the Summerlin Business Unit, December 31, 2009.
"Valuation Distribution Date" means, with respect to any Business Unit, the
date on which any of the Contingent Shares required to be delivered by the
Company to the Holders in connection with the Valuation Date for such Business
Unit are actually delivered by the Company to the Holders.
"Valuation Distribution Share Value" means, as of any date (the
"computation date"), the average of the closing per share sales prices of Rouse
Common Stock during the twenty trading days consisting of the five consecutive
trading days ending on the last day of each of the four calendar months
immediately preceding the calendar month in which the computation date falls, in
each case, on the Composite Tape of the New York Stock Exchange or, if shares of
Rouse Common Stock are not then listed on the New York Stock Exchange, on the
principal United States securities exchange registered under the Exchange Act on
which shares of Rouse Common Stock are then listed or, if shares of Rouse Common
Stock are not then listed on any such stock exchange, the average of the average
closing bid and ask quotations with respect to a share of Rouse Common Stock
during the twenty trading days consisting of the five consecutive trading days
ending on the last day of each of the four calendar months immediately preceding
the calendar month in which the computation date falls, in each case, on the
NASDAQ or any successor system then in use or, if no such quotations are then
available, the average of the bid and asked prices with respect to a share of
Rouse Common Stock for such trading days, as furnished by a member of the New
York Stock Exchange regularly making a market in the Rouse Common Stock selected
by the Rouse Board, or, if no such member firm is then making a market in Rouse
Common Stock, the fair market value on the computation date of a share of Rouse
Common Stock as determined in good faith by a majority of the members of the
Rouse Board after consultation with an independent financial advisor of
recognized national standing.
Section 1.02. Interpretation. In this Agreement, unless a clear contrary
intention appears:
(a) the words "hereof," "herein" and "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular provision of
this Agreement;
(b) reference to any gender includes each other gender and the neuter;
(c) all terms defined in the singular shall have the same meanings in the
plural and vice versa;
(d) reference to any Person includes such Person's heirs, executors,
personal representatives, administrators, successors and assigns; provided,
however, that nothing contained in this clause (d) is intended to authorize any
assignment not otherwise permitted by this Agreement;
(e) reference to a Person in a particular capacity excludes such Person in
any other capacity or individually;
(f) reference to any Contract means such Contract as amended, supplemented
or modified from time to time in accordance with the terms thereof;
(g) all references to Articles, Sections, Schedules and Exhibits shall be
deemed to be references to the Articles and Sections of this Agreement and the
Schedules and Exhibits attached hereto which are made a part hereof;
15
(h) the word "including" (and with correlative meaning "include") means
including, without limiting the generality of any description preceding such
term;
(i) with respect to the determination of any period of time, the word
"from" means "from and including" and the words "to" and "until" each means "to
but excluding";
(j) the captions and headings contained in this Agreement shall not be
considered or given any effect in construing the provisions hereof if any
question of intent should arise;
(k) reference to any Law or any Governmental Approval means such Law or
Governmental Approval as amended, modified, codified, reenacted, supplemented or
superseded in whole or in part, and in effect from time to time;
(l) accounting terms used but not defined herein shall be construed in
accordance with GAAP, and whenever the character or amount of any Asset,
Liability or item of income or expense is required to be determined, or any
consolidation or accounting computation is required to be made, such
determination or computation shall be made in accordance with GAAP;
(m) all computations and calculations to be made hereunder in accordance
with GAAP shall be made by utilizing such allocations, conventions and methods
as are consistent with GAAP and have been utilized by the Company prior to the
date hereof or which may be subsequently adopted by the Company in accordance
with GAAP except as otherwise provided herein;
(n) the word "knowledge", when used in any representation, covenant or
warranty of the Company contained herein, means the actual knowledge of any
officer, director, key employee, division head or similar Person of the Company
or any of its Subsidiaries;
(o) where any provision of this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person; and
(p) no provision of this Agreement shall be interpreted or construed
against any Person solely because that Person or its legal representative
drafted such provision.
ARTICLE II
CONTINGENT SHARES
Section 2.01. General. As part of the consideration to be received by the
Holders in connection with the Merger, the Company shall deliver the Contingent
Shares to the Holders (and, if required pursuant to Section 2.08(k), the
Representatives) in the amounts and at the times set forth in this Agreement. At
the time they are delivered, the Contingent Shares shall be (i) freely tradable
shares (other than as a result of the actions, or based upon the status, of the
holder thereof) which are registered with the SEC under the Securities Act of
1933, (ii) listed on the New York Stock Exchange, the American Stock Exchange or
NASDAQ and (iii) duly authorized, legally and validly issued, fully paid and
nonassessable and free of preemptive rights.
Section 2.02. Business Unit Accounts. The Company shall establish and
maintain a separate account on its financial books and records with respect to
each Business Unit (collectively, the "Business Unit Accounts"). The initial
balance of each Business Unit Account shall be zero. Adjustments to the Business
Unit Accounts shall be made as of each Calculation Date in accordance with the
following provisions of this Article II.
Section 2.03. Value Index for the General Business Unit Account. As of each
Calculation Date, the Business Unit Account maintained with respect to the
General Business Unit (the "General Business Unit Account") shall be credited
with an amount equal to the sum of the following:
16
(a) an amount equal to 50% of Excess Cash Flow of the General Business Unit
for the applicable Computation Period until the aggregate credits to the General
Business Unit Account under this clause (a) for All Computation Periods equal a
cumulative 7.5% per annum, compounded semi-annually, amount calculated on the
Adjusted Net Equity Balance of the General Business Account as of the beginning
of each Prior Computation Period;
(b) an amount equal to 50% of (i) Excess Cash Flow for the General Business
Unit for the applicable Computation Period minus (ii) 200% of the credits to the
General Business Unit Account under clause (a) above for such Computation
Period, until the aggregate credits to the General Business Unit Account under
this clause (b) for All Computation Periods equal 50% of the Initial Net Equity
of the General Business Unit Account; and
(c) an amount equal to 50% of (i) Excess Cash Flow for the General Business
Unit for the applicable Computation Period minus (ii) the sum of (A) 200% of the
credits to the General Business Unit Account under clauses (a) and (b) above for
such Computation Period plus (B) the General Business Unit Reduction Amount as
of such Calculation Date.
Section 2.04. Value Index for the Howard Hughes Center Business Unit
Account. As of each Calculation Date, the Business Unit Account maintained with
respect to the Howard Hughes Center Business Unit (the "Howard Hughes Center
Business Unit Account") shall be credited with an amount equal to 80% of (a)
Excess Cash Flow for the Howard Hughes Center Business Unit for the applicable
Computation Period minus (b) the sum of (i) the Howard Hughes Center Management
Costs plus (ii) to the extent not taken into account under this clause (ii) in
any Prior Computation Period, an amount equal to a cumulative 15% per annum,
compounded semi-annually, return on the Howard Hughes Center Management Costs
from the last day of the Computation Period during which such costs were
actually paid by the Company or any of its Subsidiaries until the Calculation
Date for the Computation Period in which such amount is taken into account under
this clause (ii); provided, however, that on each Calculation Date, the credit
that would otherwise be made to the Howard Hughes Center Business Unit Account
on such Calculation Date shall be reduced by (A) the aggregate of all amounts
paid by the Company or any of its Subsidiaries to Tooley & Company pursuant to
that certain Managing Developer Agreement dated August 15, 1993 between Tooley &
Company and HHPLP during All Computation Periods minus (B) the aggregate of all
such amounts taken into account pursuant to this Section 2.04 in all Prior
Computation Periods.
Section 2.05. Value Index for the Playa Vista Business Unit Account. As of
each Calculation Date, the Business Unit Account maintained with respect to the
Playa Vista Business Unit (the "Playa Vista Business Unit Account") shall be
credited with an amount equal to the sum of the following:
(a) an amount equal to 90% of (i) Excess Cash Flow of the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of (A)
the Playa Vista Management Costs plus (B) the Playa Vista Management Costs
Return until the aggregate credits to the Playa Vista Business Unit Account
under this clause (a) for All Computation Periods equal a cumulative 7% per
annum, compounded semi-annually, amount calculated on the Hughes Funding as of
the beginning of each Prior Computation Period;
(b) an amount equal to 90% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of (A)
the Playa Vista Management Costs plus (B) the Playa Vista Management Costs
Return taken into account under clause (a) above for the applicable Computation
Period plus (C) 10/9ths of the credits to the Playa Vista Business Unit Account
under clause (a) above for such Computation Period, until the aggregate credits
to the Playa Vista Business Unit Account under this clause (b) for All
Computation Periods equal the Hughes Funding;
(c) an amount equal to 10% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of (A)
the Playa Vista Management Costs plus (B) the Playa Vista Management Costs
Return taken into account under clause (a) above for the applicable Computation
Period plus (C) 10/9ths of the credits to the Playa Vista Business Unit Account
under clauses (a) and (b) above for such Computation Period, until the aggregate
credits to the Playa Vista Business Unit Account under this clause (c) for All
Computation Periods equal a cumulative 7/9ths of 1% per annum, compounded
semi-annually, amount calculated on the Rouse Funding as of the beginning of
each Prior Computation Period;
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(d) an amount equal to 10% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of (A)
the Playa Vista Management Costs plus (B) the Playa Vista Management Costs
Return taken into account under clause (a) above for the applicable Computation
Period plus (C) 10/9ths of the credits to the Playa Vista Business Unit Account
under clauses (a) and (b) above for such Computation Period plus (D) 1,000% of
the credits to the Playa Vista Business Unit Account under clause (c) above for
such Computation Period, until the aggregate credits to the Playa Vista Business
Unit Account under this clause (d) for All Computation Periods equal 1/9th of
the Rouse Funding;
(e) an amount equal to 75% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of (A)
the Playa Vista Management Costs plus (B) the Playa Vista Management Costs
Return taken into account under clause (a) above for the applicable Computation
Period plus (C) 10/9ths of the credits to the Playa Vista Business Unit Account
under clauses (a) and (b) above for such Computation Period plus (D) 1,000% of
the credits to the Playa Vista Business Unit Account under clauses (c) and (d)
above for such Computation Period, until the aggregate credits to the Playa
Vista Business Unit Account under this clause (e) for All Computation Periods
equal $25,000,000;
(f) an amount equal to 25% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of (A)
the Playa Vista Management Costs plus (B) the Playa Vista Management Costs
Return taken into account under clause (a) above for the applicable Computation
Period plus (C) 10/9ths of the credits to the Playa Vista Business Unit Account
under clauses (a) and (b) above for such Computation Period plus (D) 1,000% of
the credits to the Playa Vista Business Unit Account under clauses (c) and (d)
above for such Computation Period plus (E) 4/3rds of the credits to the Playa
Vista Business Unit Account under clause (e) above for such Computation Period,
until the aggregate credits to the Playa Vista Business Unit Account under this
clause (f) for All Computation Periods equal $8,333,333; and
(g) an amount equal to 50% of (i) Excess Cash Flow for the Playa Vista
Business Unit for the applicable Computation Period minus (ii) the sum of (A)
the Playa Vista Management Costs plus (B) the Playa Vista Management Costs
Return taken into account under clause (a) above for the applicable Computation
Period plus (C) 10/9ths of the credits to the Playa Vista Business Unit Account
under clauses (a) and (b) above for such Computation Period plus (D) 1,000% of
the credits to the Playa Vista Business Unit Account under clauses (c) and (d)
above for such Computation Period plus (E) 4/3rds of the credits to the Playa
Vista Business Unit Account under clause (e) above for such Computation Period
plus (F) 400% of the credits to the Playa Vista Business Unit Account under
clause (f) above for such Computation Period.
Section 2.06. Value Index for the Summerlin Business Unit Account. As of
each Calculation Date, the Business Unit Account maintained with respect to the
Summerlin Business Unit (the "Summerlin Business Unit Account") shall be
credited with an amount equal to the sum of the following:
(a) an amount equal to 50% of Excess Cash Flow of the Summerlin Business
Unit for the applicable Computation Period until the aggregate credits to the
Summerlin Business Unit Account under this clause (a) for All Computation
Periods equal a cumulative 7.5% per annum, compounded semi-annually, amount
calculated on the Adjusted Net Equity Balance of the Summerlin Business Unit
Account as of the beginning of each Prior Computation Period;
(b) an amount equal to 50% of (i) Excess Cash Flow for the Summerlin
Business Unit for the applicable Computation Period minus (ii) 200% of the
credits to the Summerlin Business Unit Account under clause (a) above for such
Computation Period, until the aggregate credits to the Summerlin Business Unit
Account under this clause (b) for All Computation Periods equal to 50% of the
Initial Net Equity of the Summerlin Business Unit;
(c) an amount equal to 75% of (i) Excess Cash Flow for the Summerlin
Business Unit for the applicable Computation Period minus (ii) 200% of the
credits to the Summerlin Business Unit Account under clauses (a) and (b) above
for such Computation Period, until the aggregate credits to the Summerlin
Business Unit Account under this clause (c) for All Computation Periods equal
$40,000,000;
18
(d) an amount equal to 25% of (i) Excess Cash Flow for the Summerlin
Business Unit for the applicable Computation Period minus (ii) the sum of (A)
200% of the credits to the Summerlin Business Unit Account under clauses (a) and
(b) above for such Computation Period plus (B) 4/3rds of the credits to the
Summerlin Business Unit Account under clause (c) above for such Computation
Period, until the aggregate credits to the Summerlin Business Unit Account under
this clause (d) for All Computation Periods equal $13,333,333; and
(e) an amount equal to 50% of (i) Excess Cash Flow for the Summerlin
Business Unit for the applicable Computation Period minus (ii) the sum of (A)
200% of the credits to the Summerlin Business Unit Account under clauses (a) and
(b) above for such Computation Period plus (B) 4/3rds of the credits to the
Summerlin Business Unit Account under clause (c) above for such Computation
Period plus (C) 400% of the credits to the Summerlin Business Unit Account under
clause (d) above for such Computation Period plus (D) the Summerlin Business
Unit Reduction Amount as of such Calculation Date.
Section 2.07. Asset Appraisals and Holders' FMV Allocation. (a) The Fair
Market Value of the Assets comprising each Business Unit or portion thereof
shall be determined by appraisal as of the Valuation Date with respect to such
Business Unit or portion thereof. If any of the Assets comprising any Business
Unit are held indirectly by the Company or any Business Unit Entity through any
other Person, the appraisal required under this Section 2.07 with respect to
such Assets shall determine the Fair Market Value of such Assets as owned by
such other Person, in which event the Fair Market Value of such Assets for
purposes of computing the number of Contingent Shares to be delivered by the
Company in connection with such Valuation Date shall be determined by
multiplying such Fair Market Value by the percentage interest in the equity of
such other Person owned by the Company or such Business Unit Entity, taking into
account any preferential rights associated with any Equity Interest owned by any
Person therein.
(b) Within five days after the Valuation Date with respect to each Business
Unit or portion thereof, the Representatives and the Company shall each appoint
one appraiser for each item of Assets included in such Business Unit or portion
thereof. The two appraisers so appointed shall, within five days after the
second of them has been appointed, appoint a third appraiser and such appraisers
shall constitute the "Appraisal Panel" with respect to such item of Assets. If
the two appraisers appointed are unable to agree on the third appraiser within
such five-day period, either the Representatives or the Company may apply to any
court of competent jurisdiction for the appointment of a third appraiser. If
either the Representatives or the Company fails to appoint an appraiser within
five days after notice from the other that the recipient of such notice has
failed to appoint an appraiser within the five-day period referred to above, the
appraiser appointed by the other shall be deemed to constitute the Appraisal
Panel. Each appraiser shall be a real estate and financial expert who is
generally recognized as having current competence in the valuation of Assets
similar to the Assets being appraised in the area(s) where such Assets are
located. Each appraiser shall be independent and, as such, shall not be an
Associate of the Company or any Holder (other than as a result of contractual
relationships arising out of such appraisal or any prior appraisal pursuant to
this Agreement). The fees and expenses of each Appraisal Panel shall be paid by
the Company. Notwithstanding anything to the contrary set forth above, any
appraiser may be appointed to appraise more than one item of Assets at any one
time, or may be appointed repeatedly over time.
(c) Each Appraisal Panel shall be instructed to determine, within 45 days
of its appointment, the Fair Market Value of the Assets comprising the relevant
Business Unit or portion thereof as of the relevant Valuation Date. If any
Appraisal Panel consists of three appraisers, the Fair Market Value
determination that shall differ the most from the second highest Fair Market
Value determination of all three appraisers shall be excluded, the remaining two
Fair Market Value determinations shall be averaged and such average shall
constitute the determination of the Appraisal Panel. Each Appraisal Panel shall
furnish the Company and the Representatives with a written report of its
determination within the 45-day period referred to above, which report shall (i)
be signed by each member of such Appraisal Panel and (ii) specify the amount
determined by such Appraisal Panel to be the Fair Market Value of the relevant
Assets as of the relevant Valuation Date. The determination of the Fair Market
Value of such Assets by the Appraisal Panel shall be final and binding on the
Parties.
(d) Upon determining the Fair Market Value of the Assets comprising any
Business Unit or portion thereof, the aggregate Fair Market Value of all of the
Assets comprising such Business Unit or portion thereof shall be reduced by an
amount equal to the amount of all accounts payable and other indebtedness
properly reflected on the records and books of account of such Business Unit or
portion thereof in accordance with the terms
19
of this Agreement which have not been taken into account as an Expenditure in
determining the Excess Cash Flow for any Computation Period for the applicable
Business Unit Account of such Business Unit or portion thereof, excluding any
such amounts which were taken into account in determining the Fair Market Value
of any of such Assets (the "Adjusted Fair Market Value"). Upon determining the
Adjusted Fair Market Value of any Business Unit or portion thereof, an amount
equal to such Adjusted Fair Market Value shall be allocated between the Company
and the Holders in the same manner that credits to the Business Unit Account for
such Business Unit are calculated under Section 2.03, 2.04, 2.05 or 2.06 (as
appropriate), as if such Adjusted Fair Market Value were the Excess Cash Flow
upon which such calculations are to be made and taking into account all previous
credits which have been made to such Business Unit Account based upon Excess
Cash Flow for such Business Unit; provided, however, that (i) such allocations
shall be determined without regard to any development or management fee
otherwise payable to the Company or any of its Subsidiaries, other than any
General Business Unit Reduction Amount or Summerlin Business Unit Reduction
Amount (which for purposes of this paragraph (d) shall include 3% of the gross
proceeds from sales of real estate comprising the applicable Business Unit prior
to such Valuation Date irrespective of whether such proceeds have been received
by the Company or any of its Subsidiaries) which represents amounts actually
received by or owing to the Company or any of its Subsidiaries which have not
been taken into account under Section 2.03(c)(ii)(B) or 2.06(e)(ii)(D),
respectively, with regard to the sale, prior to the applicable Valuation Date,
of any real estate which comprised the General Business Unit or the Summerlin
Business Unit, and (ii) the amount determined to be allocable to the Holders as
provided above shall be reduced by an amount equal to 50% of the fees and
expenses of each Appraisal Panel which have been paid by the Company with
respect to such Business Unit or portion thereof. As used herein, "Holders' FMV
Allocation", when used with reference to the Assets comprising any Business Unit
or portion thereof, means the portion of the Adjusted Fair Market Value of such
Assets allocable to the account of the Holders pursuant to this paragraph (d).
(e) For purposes of this Agreement, "Fair Market Value" means, with respect
to any Asset, the most probable price in terms of money which such Asset would
bring at a fair sale for its highest reasonable use, determined in a
commercially reasonable manner, and where the title to such Asset will pass from
the seller to the buyer with (i) each of the buyer and the seller acting
prudently and knowledgeably, (ii) the price not being affected by any undue
stimulus, (iii) neither the buyer nor seller being under compulsion to sell or
buy such Asset, (iv) each of the buyer and the seller being typically motivated,
well informed and advised and acting in what it considers to be its best
interests, (v) a reasonable period of time being allowed for exposure of such
Asset in the open market and (vi) the payment of the purchase price being made
in cash. In determining the Fair Market Value of any Asset, there shall be taken
into account, as appropriate, all Liabilities relating to such Asset to the
extent that they are secured by a Lien on such Asset or would otherwise encumber
such Asset in the hands of the buyer, and the appraisers shall assume that the
Asset being appraised is to be sold in a commercially reasonable manner.
Section 2.08. Delivery of Contingent Shares. (a) The Company shall be
obligated to deliver Contingent Shares with respect to each Business Unit (i)
following each Calculation Date (including the Valuation Date for such Business
Unit) as provided in paragraph (b) below and (ii) following the Valuation Date
for such Business Unit or portion thereof as provided in paragraph (c) below.
(b) The aggregate number of Contingent Shares to be delivered by the
Company to the Holders with respect to all of the Business Units following each
Calculation Date as contemplated by paragraph (a)(i) above shall be determined
as of such Calculation Date and shall be a number (the "Computation Period
Distribution Amount") equal to the product of (i) 0.992 times (ii) the sum of
(A) an amount equal to (x) the aggregate positive balances of the Business Unit
Accounts as of such Calculation Date divided by (y) the Current Share Value as
of such Calculation Date plus (B) an amount equal to (x) the Dividend Adjustment
with respect to the number of Contingent Shares determined under clause (A)
above divided by (y) the Current Share Value as of such Calculation Date. The
Company shall unconditionally and irrevocably deliver to each Holder (or his
designee), as soon as practicable and in any event within 60 days after each
Calculation Date, that number of Contingent Shares determined by multiplying (1)
the Computation Period Distribution Amount with respect to such Calculation Date
by (2) such Holder's Percentage Interest.
(c) The aggregate number of Contingent Shares to be delivered by the
Company to the Holders with respect to any Business Unit or portion thereof as
contemplated by paragraph (a)(ii) above shall be determined as follows:
20
(i) In the event that the Company delivers all of the Contingent
Shares contemplated by paragraph (a)(ii) above with respect to any
Business Unit or portion thereof in one installment, the aggregate
number of Contingent Shares to be delivered by the Company shall be
determined as of the Valuation Distribution Date for such Business
Unit or portion thereof and shall be a number equal to the product of
(A) 0.992 times (B) the sum of:
(x) an amount equal to (1) the Holders' FMV Allocation with
respect to such Assets divided by (2) the Valuation Distribution Share
Value as of the Valuation Distribution Date for such Business Unit or
portion thereof plus
(y) an amount equal to (1) the Dividend Adjustment with
respect to the number of Contingent Shares determined under clause (x)
above divided by (2) the Valuation Distribution Share Value as of such
Valuation Distribution Date.
The Company shall unconditionally and irrevocably deliver to each
Holder (or his designee), as soon as practicable and in any event
within 12 months after the applicable Valuation Date, that number of
Contingent Shares determined by multiplying (a) the aggregate number
of Contingent Shares being delivered by the Company on such Valuation
Distribution Date under this clause (i) by (b) such Holder's
Percentage Interest.
(ii) In the event that the Company delivers the Contingent Shares
contemplated by paragraph (a)(ii) above with respect to any Business
Unit or portion thereof in more than one installment, on each
Valuation Distribution Date for such Business Unit or portion thereof,
the "Holders' FMV Allocation Amount" shall be calculated, being an
amount equal to the product of:
(A) the aggregate number of Contingent Shares being
delivered by the Company on such Valuation Distribution Date times
(B) the Valuation Distribution Share Value with respect to
such Valuation Distribution Date times
(C) a fraction, the numerator of which is such Valuation
Distribution Share Value and the denominator of which is the sum of
(x) such Valuation Distribution Share Value plus (y) the Dividend
Adjustment with respect to one share of Rouse Common Stock during the
period commencing on the applicable Valuation Date to and including
such Valuation Distribution Date times
(D) 0.992.
The Company shall continue to deliver Contingent Shares to the
Holders with respect to such Business Unit or portion thereof pursuant
to this clause (ii) until such time as the sum of the Holders' FMV
Allocation Amount with respect to each Valuation Distribution Date for
such Business Unit or portion thereof equals the Holders' FMV
Allocation with respect to such Business Unit or portion thereof. In
connection with each such Valuation Distribution Date, the Company
shall unconditionally and irrevocably deliver to each Holder (or his
designee) a number of Contingent Shares equal to the product of (1)
the aggregate number of Contingent Shares being delivered by the
Company on such Valuation Distribution Date under this clause (ii)
times (2) such Holder's Percentage Interest. The Company shall
unconditionally and irrevocably deliver to each Holder (or his
designee), as soon as practicable and in any event within 12 months
after the applicable Valuation Date, all Contingent Shares required to
be delivered under paragraph (a)(ii) above with respect to each
Business Unit or portion thereof.
(d) In the event that the Company fails to deliver Contingent Shares on or
before the date on which the Company is obligated to deliver such Contingent
Shares, the Company shall become obligated to deliver to each Holder that number
of additional Contingent Shares which is equal to the quotient of (i) the
return, calculated at the Applicable Federal Rate plus 5%, on an amount equal to
(A) the number of Contingent Shares
21
which should have been delivered to such Holder times (B) the Current Share
Value utilized to determine the number of Contingent Shares to be delivered by
the Company in connection with the applicable Calculation Date, such return to
accrue on such amount for the period commencing on the day that such Contingent
Shares were required to be delivered by the Company to such Holder and
continuing thereafter until the Company delivers such Contingent Shares to such
Holder or delivers Contingent Preferred Shares to such Holder in accordance with
Section 4.16 divided by (ii) the Current Share Value utilized to determine the
number of Contingent Shares to be delivered by the Company in connection with
the applicable Calculation Date.
(e) If an Event of Default shall have occurred and be continuing (other
than any Event of Default applicable under the circumstances described in
paragraph (f) below), the Representatives may, by notice in writing delivered to
the Company, (i) accelerate the Company's obligation to deliver Contingent
Shares pursuant to paragraph (c) above or (ii) require the Company, in
satisfaction of the Company's obligation to deliver Contingent Shares
thereafter, to issue and deliver to the Holders an aggregate number of
Contingent Preferred Shares (including fractional shares) determined by dividing
(A) the aggregate number of Contingent Shares which would otherwise be delivered
to the Holders pursuant to paragraph (c) above by (B) the quotient of (x) $100
divided by (y) the Current Share Value as of the date of such notice. Upon
receipt of such notice, the Company shall cause the appraisals described in
Section 2.07 to be initiated and completed as soon as practicable as of the
Calculation Date for the most recent Computation Period ended on or before the
date of such notice, and the Company shall unconditionally and irrevocably
deliver such Contingent Shares or Contingent Preferred Shares, as applicable, as
soon as practicable and in any event within 15 days after the completion of such
appraisals.
(f) If (i) but for the provisions of Section 7.05(b), an Event of Default
described in clause (c) of the definition thereof would have occurred and be
continuing with respect to any Business Unit Entity solely on account of the
non-performance by the Company of any covenant contained in Section 4.10, 4.11,
4.12 or 4.13 as such covenant relates to such Business Unit Entity and (ii) in
connection with such circumstances, (A) the Company shall have determined in
good faith that it would neither be commercially reasonable nor in the best
interests of the Company and the Holders for the Company to take, or cause to be
taken, the actions necessary to avoid such non-performance and (B) the Company
shall have given prior written notice of such non-performance to the
Representatives confirming that the Company has made the determination described
in subclause (A) and setting forth, in reasonable detail, the reasons therefor,
then the Representatives may, by notice in writing delivered to the Company, (i)
accelerate the Company's obligation to deliver Contingent Shares pursuant to
paragraph (c) above with respect to the Assets comprising the Business Unit to
which such non-performance relates or (ii) require the Company, in satisfaction
of the Company's obligation to deliver Contingent Shares thereafter with respect
to the Assets comprising the Business Unit to which such non-performance
relates, to issue and deliver to the Holders an aggregate number of Contingent
Preferred Shares (including fractional shares) determined by dividing (A) the
aggregate number of Contingent Shares which would otherwise be delivered to the
Holders pursuant to paragraph (c) above by (B) the quotient of (x) $100 divided
by (y) the Current Share Value as of the date of such notice. Upon receipt of
such notice, the Company shall cause the appraisals described in Section 2.07 to
be initiated and completed with respect to such Assets as soon as practicable as
of the Calculation Date for the most recent Computation Period ended on or
before the date of such notice, and the Company shall unconditionally and
irrevocably deliver such Contingent Shares or Contingent Preferred Shares, as
applicable, as soon as practicable and in any event within 15 days after the
completion of such appraisals; provided, however, that in connection with any
appraisal conducted pursuant to this paragraph (f), the Appraisal Panel shall be
instructed to determine the Fair Market Value of the relevant Assets as if no
Person is required to make any additional contribution to the capital of, or
investment in, or loan or advance in respect of, such Assets.
(g) If any foreclosure on, or the exercise of any similar remedy with
respect to, any of the Assets comprising any Business Unit shall occur or (i) an
Event of Default described in clause (e), (f), (g), (h), (i) or (j) of the
definition thereof shall have occurred and be continuing with respect to any
Business Unit Entity other than HHPLP, as if such clauses applied to each such
Business Unit Entity instead of the Company and HHPLP and (ii) if, in connection
with such Event of Default, (A) the Company shall have determined in good faith
that it would neither be commercially reasonable nor in the best interests of
the Company and the Holders for the Company to take, or cause to be taken, the
actions necessary to avoid such Event of Default and (B) the Company shall have
given prior written notice of such Event of Default to the Representatives
confirming that the Company has made the determination described in subclause
(A) and setting forth, in reasonable detail, the reasons therefor, then in any
such event the Representatives may, by notice in writing delivered to the
Company, (i) accelerate the Company's
22
obligation to deliver Contingent Shares pursuant to paragraph (c) above with
respect to any Assets comprising any Business Unit which are owned by such
Business Unit Entity or (ii) require the Company, in satisfaction of the
Company's obligation to deliver Contingent Shares thereafter with respect to any
Assets comprising any Business Unit which are owned by such Business Unit
Entity, to issue and deliver to the Holders an aggregate number of Contingent
Preferred Shares (including fractional shares) determined by dividing (A) the
aggregate number of Contingent Shares which would otherwise be delivered to the
Holders pursuant to paragraph (c) above by (B) the quotient of (x) $100 divided
by (y) the Current Share Value as of the date of such notice. Upon receipt of
such notice, the Company shall cause the appraisals described in Section 2.07 to
be initiated and completed with respect to such Assets as soon as practicable as
of the Calculation Date for the most recent Computation Period ended on or
before the date of such notice, and the Company shall unconditionally and
irrevocably deliver such Contingent Shares or Contingent Preferred Shares, as
applicable, as soon as practicable and in any event within 15 days after the
completion of such appraisals; provided, however, that in connection with any
appraisal conducted pursuant to this paragraph (g), the Appraisal Panel shall be
instructed to determine the Fair Market Value of the relevant Assets as if no
Person is required to make any additional contribution to the capital of, or
investment in, or loan or advance in respect of, such Assets.
(h) Except as otherwise required by applicable tax Laws, in connection with
each delivery of Contingent Shares or Contingent Preferred Shares pursuant to
this Agreement, the Contingent Stock Distribution Value of each Holder shall be
discounted to the effective date hereof at the Contingent Stock Distribution
Discount Rate to determine the amount of contingent stock distribution principal
(the "Contingent Stock Distribution Principal") and the amount of Contingent
Stock Distribution Interest. Contingent Stock Distribution Interest shall be
treated by the Company and each Holder as interest for federal income tax
purposes.
(i) All Contingent Shares to be delivered hereunder shall be newly-issued
shares of Rouse Common Stock or, at the election of the Company, Treasury
Shares; provided, however, that (i) in the event the Company is precluded or
otherwise unable, for any reason, to deliver newly-issued shares of Rouse Common
Stock to the Holders, the Company shall deliver or cause to be delivered
Treasury Shares to the Holders and (ii) in the event the Company is precluded or
otherwise unable, for any reason, to deliver Treasury Shares to the Holders, the
Company shall deliver or cause to be delivered newly-issued shares of Rouse
Common Stock to the Holders.
(j) Notwithstanding anything to the contrary contained herein, at any time
at which the Company is obligated to deliver Contingent Shares to the Holders
pursuant to the terms of this Agreement, the Company shall not deliver any
fractional shares of Rouse Common Stock to any Holder and, in lieu of delivering
such fractional shares, the following provisions shall apply:
(i) with respect to any fractional shares which would have
otherwise been delivered by the Company to a Holder based upon Excess
Cash Flow:
(A) if the last Calculation Date with respect to any
Business Unit shall not have occurred, on the next succeeding
Calculation Date the Company shall deliver to such Holder a number of
Contingent Shares equal to the sum of (x) such number of fractional
shares plus (y) the number of Contingent Shares which the Company is
obligated to deliver to such Holder based upon Excess Cash Flow for
the Computation Period ending on such succeeding Calculation Date plus
(z) a number of Contingent Shares equal to (1) the Dividend Adjustment
with respect to a share of Rouse Common Stock during the period
commencing on the Calculation Date on which such fractional shares
would have otherwise been delivered and ending on the date on which
the Contingent Shares to be delivered by the Company in connection
with such succeeding Calculation Date are actually delivered to the
Holders multiplied by (2) the number of such fractional shares divided
by (3) the Current Share Value utilized in determining the number of
Contingent Shares to be delivered by the Company in connection with
such succeeding Calculation Date; and
(B) if no Calculation Date with respect to any Business Unit
or portion thereof will occur after such Calculation Date, the Company
shall pay such Holder an amount in cash equal to such fractional
shares times the Current Share Value utilized in determining the
23
number of Contingent Shares to be delivered by the Company in
connection with such Calculation Date; and
(ii) with respect to any fractional shares which would otherwise
have been delivered by the Company to the Holders in connection with
any Valuation Date, the Company shall pay each Holder an amount in
cash equal to (A) the number of fractional shares which would have
otherwise been delivered by the Company to such Holder in connection
with such Valuation Date times (B) the Valuation Distribution Share
Value utilized in determining the number of Contingent Shares to be
delivered by the Company to the Holders in connection with such
Valuation Date.
(k) Notwithstanding anything to the contrary contained in this Agreement,
in the event that the Company receives a Representatives' Diversion Notice in
accordance with the provisions of Section 5.10(b), the Company shall, in lieu of
delivering the number of Contingent Shares described in such Representatives'
Diversion Notice to the Holders, deliver such Contingent Shares to the
Representatives, in which event the number of Contingent Shares otherwise
deliverable to the Holders shall be appropriately reduced pro rata in accordance
with their respective Percentage Interests.
Section 2.09. Debits to the Business Unit Accounts. Upon the delivery by
the Company to the Holders of all Contingent Shares required to be delivered in
connection with any Calculation Date, the Business Unit Account with respect to
which such Contingent Shares were delivered shall be debited by an amount equal
to the product of (i) the sum of the number of Contingent Shares so delivered by
the Company plus the aggregate number of fractional shares which were not
delivered to the Holders in accordance with the provisions of Section 2.08(j)
times (ii) the Current Share Value utilized in determining the number of
Contingent Shares delivered times (iii) 1.008.
Section 2.10. Tax Adjustments. (a) The Company shall compute the pro forma
taxable income or loss for each Business Unit ("Business Unit Income or Loss")
for each taxable year, utilizing the method of tax accounting and, to the extent
applicable, the elections employed in the preparation of the consolidated
federal income tax return of the group of corporations of which the Company is
the common parent (the "Company Consolidated Group") for such taxable year.
Notwithstanding the form of ownership of a Business Unit, such computation shall
be made as though each Business Unit was a separate corporation filing a
separate return of taxable income which was taxed at the Applicable Tax Rate, as
determined with respect to such Business Unit. The Business Unit Income or Loss
for each Business Unit shall be computed utilizing the actual items of income,
gain, loss and deduction attributable to the Assets, Liabilities and operations
of such Business Unit; provided, however, that in making such computation, the
State and Local Tax Adjustment shall be taken as a deduction.
(b) If such calculation results in a Business Unit Income or Loss which is
a loss for such taxable year, the Tax Adjustment for such year shall be zero and
such loss shall be carried forward and treated as an item of deduction that will
reduce any calculation of Business Unit Income or Loss of such Business Unit
which results in income in any future period in accordance with the principles
of Section 172(b) of the Code and the regulations promulgated thereunder. No
unutilized Business Unit Income or Loss which is a loss will be carried back to
any prior taxable year.
(c) The Company shall estimate the Business Unit Income or Loss of each
Business Unit for each Computation Period and, based upon such estimates, shall
compute the estimated Tax Adjustment for such Computation Period for each
Business Unit (the "Computation Period Tax Adjustment"). In the event and to the
extent that the Tax Adjustment with respect to any Business Unit for the
calendar year is different than the aggregate Computation Period Tax Adjustments
for such Business Unit for such year, such difference shall be added to, or
subtracted from, the next succeeding Computation Period Tax Adjustment for such
Business Unit until fully accounted for.
(d) The Business Unit Income or Loss and the Computation Period Tax
Adjustments for each Business Unit for each Computation Period shall be
determined by the Company within 20 days following the end of such Computation
Period.
24
(e) The Business Unit Income or Loss and the Computation Period Tax
Adjustments for each Business Unit for each taxable year shall be reviewed and
reported on by KPMG Peat Marwick LLP (or other independent certified public
accountants satisfactory to the Representatives) within 90 days following the
end of such taxable year. Such report shall be submitted to the Review Committee
for its approval within 90 days following the end of such taxable year and, once
approved, shall (except for adjustments contemplated by this Section 2.10) be
final, binding and conclusive for purposes of the determinations to be made
pursuant hereto.
(f) The Company shall furnish to the Representatives all information and
documentation necessary or useful in the computation of each Computation Period
Tax Adjustment and the Tax Adjustment. The Company shall permit the
Representatives, or their designated representatives, to have full access, at
any reasonable time and from time to time during the term of this Agreement and
for a period of five years thereafter, to all relevant tax returns and
supporting papers of the Company Consolidated Group and their Affiliates,
wherever located, and shall furnish, and request that the independent
accountants of the Company Consolidated Group furnish, to the Representatives,
such additional tax and other information and documents in the possession of
such Persons with respect to the Company Consolidated Group and the computation
of each Computation Period Tax Adjustment and the Tax Adjustment as the
Representatives may from time to time reasonably request.
Section 2.11. Company Loans. The Company may, at its option, make loans and
advances to any Business Unit Entity for the account of any Business Unit from
time to time for the sole purpose of providing working capital and other funds
for use in connection with such Business Unit as contemplated by this Agreement
(each a "Company Loan"); provided, however, that prior to making any Company
Loan, the Company shall pay or cause to be paid in cash any payable owed to such
Business Unit by the Company or any Affiliate of the Company, irrespective of
whether the same are due and payable. To the extent that any Business Unit
requires funds for such purposes, the Company may, at its option, (a) cause the
applicable Business Unit Entity to borrow such funds for the account of such
Business Unit from a financial institution on commercially reasonable terms or
(b) make a Company Loan to such Business Unit Entity for the account of such
Business Unit. The interest rate applicable to each Company Loan shall be no
greater than the interest rate that would be charged to the relevant Business
Unit Entity for a comparable loan made to such Business Unit Entity in an
arms'-length transaction with a Person that is not an Associate of the Company;
provided, however, that if such Business Unit Entity could not reasonably be
expected to obtain such funds through a borrowing from a financial institution
at a per annum interest rate of less than 15%, then such Company Loan shall
accrue interest at the rate of 15% per annum.
Section 2.12. Advances. In the event that (a) any Business Unit has
insufficient funds for working capital purposes, (b) the Company is not
obligated to make a Revolving Credit Loan to the applicable Business Unit Entity
pursuant to Section 4.03(b), (c) third party financing to fund such working
capital requirements is unavailable to such Business Unit Entity and (d) the
Company elects not to make a Company Loan to such Business Unit Entity for the
account of such Business Unit, such Business Unit Entity or any other Business
Unit Entity may, with the unanimous consent of the Review Committee, loan funds
to such Business Unit from any other Business Unit (each such loan, an
"Advance"); provided, however, that prior to any Advance being made to such
Business Unit, the Company shall pay or cause to be paid in cash any payable
owed to such Business Unit by the Company or any Affiliate of the Company,
irrespective of whether the same are due and payable. Advances shall not bear
any interest and shall be repaid by the recipient Business Unit to the Business
Unit making such Advance on each Calculation Date thereafter, to the extent that
the Excess Cash Flow of such Business Unit as of such Calculation Date exceeds
its working capital requirements after giving effect to any payments required to
be made to the Company pursuant to Section 4.03(c).
Section 2.13. Underfunding of Employee Benefit Plans. Notwithstanding
anything to the contrary contained in this Agreement, in the event that (a) the
termination of the qualified defined benefit plan currently maintained by THC
results in any costs or benefit payments (other than taxes) paid or to be paid
or incurred by THC or any of its Subsidiaries as the result of such termination
(after all costs that may be paid by such plan are paid by the plan) which are
in excess of the reversion amount (before taxes), if any, of such plan on the
date of its liquidation (the amount of such costs or benefit payments together
with interest accruing thereon at the rate of 5% from the date such costs are
incurred or benefit payments made until the date such benefit costs or payments
are deducted as set forth below being referred to as the "Underfunded Amount")
and (b) the Business Unit Accounts have an aggregate positive balance as of any
Calculation Date ending after the final determination of such Underfunded
Amount, then the aggregate positive balances of the Business Unit Accounts shall
be reduced, prior to
25
calculating the aggregate number of Contingent Shares to be delivered by the
Company to the Holders pursuant to Section 2.08(b), by an amount equal to the
lesser of (i) the aggregate positive balances of the Business Unit Accounts as
of such Calculation Date and (ii) the amount of such Underfunded Amount which
has not previously been utilized to reduce the aggregate positive balances of
the Business Unit Accounts; provided, however, that in no event shall the
aggregate amount of such reduction to the aggregate positive balances of the
Business Unit Accounts exceed the amount of such Underfunded Amount. The
Representatives shall be entitled to participate in all material decisions
related to the termination of such Pension Plan, including the bidding and
selection of any annuities purchased to fund the obligations of such Pension
Plan, and Rouse shall keep the Representatives fully informed of the status and
details of all actions taken or proposed to be taken in connection therewith.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each Holder and each
Representative that:
(a) the Company is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Maryland and has all requisite
corporate power and authority to own, lease and operate its Assets, to carry on
its business as it is now being conducted and proposed to be conducted and to
execute and deliver this Agreement and consummate the transactions contemplated
hereby;
(b) each Subsidiary of the Company is duly organized, validly existing and
in good standing under the Laws of the jurisdiction of its organization and has
all requisite power and authority to own, lease and operate its Assets and to
carry on its business as it is now being conducted and proposed to be conducted,
except where the failure to be so organized, qualified and in good standing,
alone or together with all such other failures, could not reasonably be expected
to have a Material Adverse Effect;
(c) the Company and each of its Subsidiaries is duly qualified to do
business and is in good standing in each jurisdiction in which its Assets or the
nature of the business conducted by it makes such qualification necessary and
where failure to so qualify would have a Material Adverse Effect;
(d) the execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Rouse Board and no other corporate proceedings or approvals on the part
of the Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby;
(e) this Agreement has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such enforcement may
be limited by applicable Debtor Relief Laws and general equitable principles;
(f) except as provided herein, no Governmental Approvals and no
notifications, filings or registrations to or with any Governmental Authority or
any other Person is or will be necessary for the valid execution and delivery by
the Company of this Agreement or the consummation of the transactions
contemplated hereby, or the enforceability hereof, other than those which have
been obtained or made and are in full force and effect and those which if not
made or obtained, as the case may be, would not, individually or in the
aggregate, have a Material Adverse Effect;
(g) the execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated hereby do not and shall not, by
the lapse of time, the giving of notice or otherwise, (i) constitute a breach or
violation of, or default under, any Law, any provision contained in the charter,
bylaws or similar governing instruments of the Company or any of its
Subsidiaries or any provision contained in any Governmental Approval or writ,
injunction, order, judgment or decree of any Governmental Authority or any
Contract to which the Company or any of its Subsidiaries is a party or by which
the Company or any of its Subsidiaries or any of their respective Assets is
bound or affected, which breach, violation or default, alone or together with
all other such breaches, violations and defaults, could reasonably be expected
to have a Material
26
Adverse Effect or (ii) result in or require the creation of any Lien upon any of
the Assets comprising any Business Unit;
(h) each share of Rouse Common Stock delivered pursuant to this Agreement
will, at the time of its delivery, be (i) freely tradable (other than as a
result of the actions, or based upon the status, of the holder thereof) and
registered with the SEC under the Securities Act, (ii) listed on the New York
Stock Exchange, the American Stock Exchange or NASDAQ and (iii) duly authorized,
legally and validly issued, fully paid and nonassessable and free of preemptive
rights;
(i) each share of Rouse Preferred Stock delivered pursuant to this
Agreement will, at the time of its delivery, (i) be duly authorized, legally and
validly issued, fully paid and nonassessable and free of preemptive rights and
(ii) have the rights, preferences and privileges set forth in the Articles
Supplementary to the Charter of the Company attached hereto as Exhibit A which
have been duly adopted by the Company and filed with the Maryland State
Department of Assessments and Taxation;
(j) the Company has heretofore filed with the SEC a registration statement
on Form S-4 (No-333-01693) (the "Registration Statement"), covering the shares
of Rouse Common Stock issuable pursuant to the Merger Agreement and the shares
of Rouse Common Stock and Rouse Preferred Stock issuable pursuant to this
Agreement;
(k) the Registration Statement has become effective in accordance with the
provisions of the Securities Act, and no stop order suspending such
effectiveness has been issued and is in effect and no proceedings for that
purpose have been instituted by the SEC or any other Governmental Authority;
(l) the securities covered by the Registration Statement have been
registered or qualified under all blue sky and other securities Laws necessary
to enable the Holders to consummate the disposition of such securities by the
Holders;
(m) the Company has reserved, free from preemptive rights, out of its
authorized but unissued shares of Rouse Common Stock or Treasury Shares, such
number of shares of Rouse Common Stock as shall be issuable pursuant to this
Agreement, such reservation being solely for the issuance of Contingent Shares
pursuant to this Agreement;
(n) the Company has reserved, free from preemptive rights, out of its
authorized but unissued shares of Rouse Preferred Stock, such number of shares
of Rouse Preferred Stock as shall be issuable pursuant to this Agreement, such
reservation being solely for the issuance of Contingent Preferred Shares
pursuant to this Agreement;
(o) there are no Claims pending or, to the knowledge of the Company,
threatened, and the Company has no knowledge of the basis for any Claim, which,
either alone or in the aggregate, (i) seeks to restrain or enjoin the execution
and delivery of this Agreement or the consummation of any of the transactions
contemplated hereby or the performance of any obligation of the Company or any
Business Unit Entity or (ii) could reasonably be expected to have a Material
Adverse Effect;
(p) there are no judgments or outstanding orders, injunctions, decrees,
stipulations or awards (whether rendered by a Governmental Authority or by an
arbitrator) against the Company or any of its Subsidiaries which prohibit or
restrict or could reasonably be expected to have a material adverse effect on
(i) the Company's ability to perform its obligations under this Agreement, (ii)
the value, condition or marketability of any Assets comprising any Business
Unit, (iii) the validity, legality or enforceability of this Agreement, (iv) the
ability of any Holder to exercise or enforce any of its rights, powers or
remedies under this Agreement or (v) the ability of any Representative or any
member of the Review Committee to perform any of his duties or obligations, or
to exercise or enforce any of his rights, powers or remedies, under this
Agreement;
(q) none of the factual information hereafter furnished by the Company or
any Business Entity to the Review Committee, the Representatives or the Holders
for purposes of or in connection with this
27
Agreement or any transaction contemplated hereby will be intentionally untrue,
incorrect, incomplete or misleading in any respect as of the date as of which
such information is dated or certified; and
(r) the Company has no knowledge of any fact, circumstance, happening,
occurrence, event or any other matter which, alone or in the aggregate, could
reasonably be expected to have a material adverse effect on (i) the Company's
ability to perform its obligations under this Agreement, (ii) the validity,
legality or enforceability of this Agreement, (iii) the ability of any Holder to
exercise or enforce any of its rights, powers or remedies under this Agreement
or (iv) the ability of any Representative or any member of the Review Committee
to perform any of his duties or obligations, or to exercise or enforce any of
his rights, powers or remedies, under this Agreement.
Each of the foregoing representations and warranties is made only as of the
date hereof, except that the representations and warranties contained in clauses
(g), (h), (i), (q) and (r) shall also apply prospectively as contemplated
thereby.
ARTICLE IV
CERTAIN COVENANTS
Section 4.01. Information. The Company shall furnish to the Review
Committee and the Representatives all of the following:
(a) as soon as available (and in any event not later than 60 days) after
the end of each Computation Period, a report prepared and certified by an
Authorized Officer with respect to each Business Unit, prepared as of the last
day of such Computation Period, setting forth the amount and purpose of each
Reserve established and/or maintained by the Company or any Business Unit Entity
with respect to any of the Business Units, accompanied by a certificate of such
Authorized Officer stating (i) that all such Reserves comply with and satisfy
the definition of "Reserve" contained in this Agreement and (ii) that the signer
has reviewed this Agreement and has made, or caused to be made under his
supervision, a review of the transactions of the Company and each Business Unit
Entity relating to such Computation Period and that such review did not disclose
the existence during or at the end of such Computation Period of any Event of
Default or, if any Event of Default exists, specifying the nature and period of
existence thereof and what action the Company or such Business Unit Entity has
taken, is taking or proposes to take with respect thereto;
(b) as soon as available (and in any event not later than 60 days) after
the end of each Computation Period, a report prepared and certified by an
Authorized Officer with respect to each Business Unit, prepared as of the last
day of such Computation Period (i) specifying (A) any and all Receipts received
by the Company, any Business Unit Entity or any of their respective Subsidiaries
during such Computation Period with respect to such Business Unit and the
aggregate amount of any and all Receipts received by the Company, any Business
Unit Entity or any of their respective Subsidiaries during the period from the
effective date hereof to and including the last day of such Computation Period
with respect to such Business Unit, (B) any and all Expenditures incurred by the
Company, any Business Unit Entity or any of their respective Subsidiaries during
such Computation Period with respect to such Business Unit and the aggregate
amount of any and all Expenditures incurred by the Company, any Business Unit
Entity or any of their respective Subsidiaries during the period from the
effective date hereof to and including the last day of such Computation Period
with respect to such Business Unit and (C) the amount of Excess Cash Flow with
respect to such Business Unit as of the last day of such Computation Period and
the aggregate amount of Excess Cash Flow during the period from the effective
date hereof to and including the last day of such Computation Period with
respect to such Business Unit and (ii) showing in reasonable detail the manner
in which such amounts were calculated;
(c) as soon as available (and in any event not later than 60 days) after
the end of each Computation Period (except the last Computation Period of any
calendar year), an operating statement with respect to each Business Unit for
such Computation Period and the portion of the calendar year then ended,
together with a certificate of an Authorized Officer stating that such operating
statement has been prepared (i) in accordance with GAAP (except that such
operating statement need not include footnotes as required by GAAP) and (ii)
using such allocations, conventions and methods as are consistent with GAAP and
have been consistently utilized by the Company or the applicable Business Unit
Entity with respect to such Business Unit;
28
(d) as soon as available (and in any event not later than 120 days) after
the end of each calendar year, an operating statement with respect to each
Business Unit for such calendar year, together with a certificate of an
Authorized Officer stating that such operating statement has been prepared (i)
in accordance with GAAP (except that such operating statement need not include
footnotes as required by GAAP) and (ii) using such allocations, conventions and
methods as are consistent with GAAP and have been consistently utilized by the
Company or the applicable Business Unit Entity with respect to such Business
Unit;
(e) promptly upon the Company or any Business Unit Entity obtaining
knowledge thereof, written notice of the existence of any Event of Default
specifying the nature and period of existence thereof and what action the
Company or such Business Unit Entity has taken, is taking or proposes to take
with respect thereto;
(f) promptly upon any officer or director of the Company, of any Business
Unit Entity or of any of their respective Subsidiaries obtaining knowledge
thereof, notice of (i) any violation of, noncompliance with or remedial
obligations under any Governmental Approval or Environmental Law involving or
directly affecting any of the Assets comprising any Business Unit, (ii) any
Release or threatened Release involving or directly affecting in any material
respect any of the Assets comprising any Business Unit and (iii) the amendment
or revocation of any Governmental Approval with respect to any of the Assets
comprising any Business Unit that, in any such case referred to in this
paragraph (f), could reasonably be expected to have a Material Adverse Effect;
(g) promptly upon receipt thereof by any officer or director of the
Company, of any Business Unit Entity or of any of their respective Subsidiaries,
and in any event within ten days after such receipt, a copy of (i) any notice or
Claim involving or directly affecting any of the Business Units or any of the
Assets comprising any Business Unit to the effect that the Company, any Business
Unit Entity, any of their respective Subsidiaries or any other Person is or may
be liable to any Person as a result of the Release by the Company, any Business
Unit Entity, any of their respective Subsidiaries or any other Person of any
Hazardous Material into the environment and (ii) any notice involving or
directly affecting any of the Business Units or any of the Assets comprising any
Business Unit alleging any violation of any Governmental Approval or
Environmental Law by the Company, any Business Unit Entity, any of their
respective Subsidiaries or any other Person, which, in any case referred to in
this paragraph (g), could reasonably be expected to have a Material Adverse
Effect;
(h) promptly upon any officer or director of the Company, of any Business
Unit Entity or of any of their respective Subsidiaries obtaining knowledge
thereof, and in any event within ten days thereafter, written notice of the
institution of, or threat of, any Claim or any other matter involving or
directly affecting any of the Business Units or any of the Assets comprising any
Business Unit that could reasonably be expected to have a Material Adverse
Effect and that has not previously been disclosed in writing to the Review
Committee and the Representatives pursuant to this Agreement, and such
information with respect to any material developments in any such Claim as the
Review Committee or any Representative may reasonably request from time to time;
(i) promptly upon any officer or director of the Company, of any Business
Unit Entity or of any of their respective Subsidiaries obtaining knowledge
thereof, notice of (i) any taking, or proposal to take, any action with respect
to a Lien on any of the Assets comprising any Business Unit or (ii) the creation
or incurrence of any Lien (other than Permitted Encumbrances) on any of the
Assets comprising any Business Unit, in any such case, which could reasonably be
expected to have a Material Adverse Effect;
(j) promptly after the sending or filing thereof, copies of all proxy
statements which the Company sends to any holders of any of its securities, and
copies of all regular and periodic reports and all registration statements
(other than on Form S-8) which the Company files with the SEC or any national
securities exchange;
(k) promptly upon their distribution, copies of all press releases and
other written statements made available generally by the Company to the public
which relate to any of the Business Units or any of the Assets comprising any
Business Unit or which relate to any event, circumstance or condition which
could reasonably be expected to have a Material Adverse Effect; and
29
(l) promptly, such other information in the possession of the Company, any
Business Unit Entity or any of their respective Subsidiaries as any member of
the Review Committee may from time to time reasonably request respecting the
Business Units or the Assets comprising any Business Unit.
Section 4.02. Ownership of Assets of the Business Units. The Company shall
cause the Assets comprising each Business Unit to be maintained at all times in
(a) HHPLP or (b) with the prior written consent of the Representatives, a (i)
separate partnership in which the Company and its Subsidiaries are the only
partners or (ii) direct or indirect wholly-owned Subsidiary of the Company (each
of HHPLP and such partnerships or wholly-owned Subsidiaries being herein called
a "Business Unit Entity"). The Company shall at all times be the direct or
indirect owner of 100% of the Equity Interests of each Business Unit Entity. The
Assets of each Business Unit Entity shall be developed and operated separate and
apart from other Assets now owned or hereafter acquired by the Company or any of
its Subsidiaries or Affiliates and shall be accounted for and administered
hereunder as a single functional unit. The Company shall, as soon as practicable
and in any event within 30 days after the execution and delivery of this
Agreement, amend the Sixth Amended and Restated Agreement of Limited Partnership
of HHPLP, dated as of January 1, 1990, to include provisions which, and the
Company shall cause each other Business Unit Entity to have governing documents
or be a party to Contracts which, (A) implement the provisions of this Article
IV, including provisions which prohibit such Business Unit Entity from taking,
directly or indirectly, any of the actions described in Section 4.05 without the
prior written consent of a majority of the members of the Review Committee, (B)
prohibit such Business Unit Entity from developing commercial buildings on any
of the Assets comprising any Business Unit, (C) prohibit such Business Unit
Entity, without the prior unanimous approval of the Review Committee, from
Transferring any of the Assets comprising any Business Unit other than in
transactions entered into on terms no less favorable than those that could be
obtained in an arm's-length transaction with a Person that is not an Associate
of the Company or any Business Unit Entity and which provide consideration to
the Company or such Business Unit Entity in an amount at least equal to the Fair
Market Value of such Assets and (D) prohibit such Business Unit Entity from
amending, modifying or supplementing its governing documents or such Contracts
in any manner which affects the provisions described in clauses (A) through (C)
above or this clause (D). The Company shall, to the extent reasonably
practicable, consult with the Review Committee before initiating or responding
to any material Claim affecting any Business Unit or any of the Assets
comprising such Business Unit. The Representatives may, by an instrument in
writing, waive compliance by the Company with any provision of this Section
4.02, either generally or in a particular instance and either retroactively or
prospectively.
Section 4.03. Capitalization of Business Units. (a) With respect to the
Playa Vista Business Unit, capital requirements shall be as determined under the
Playa Vista Partnership Agreements. At the present time, capital requirements
are mutually determined by Maguire Thomas Partners and by HHPLP or its
Affiliates. However, such requirements are currently under review in connection
with the restructuring of the Playa Vista Partnership Agreements to permit
participation by Dreamworks SKG and the related equity and debt financings which
are contemplated in connection with such restructuring (the "Playa Vista
Financings"). To the extent that HHPLP (which term includes for purposes of the
remaining provisions of this paragraph (a) any Business Unit Entity succeeding
to the interests of HHPLP in the Assets comprising the Playa Vista Business
Unit) or its Affiliates, together with Maguire Thomas Partners, determine to
contribute additional capital to either of the Playa Vista Partnerships
(including any contributions in connection with the Dreamworks SKG
restructuring), the Company shall make such contributions to the Playa Vista
Partnerships on behalf of HHPLP or its Affiliates in an amount not to exceed
$15,000,000 (the "Funding Requirement"); provided, however, that the Company
shall not be obligated to make any such contribution unless (i) with respect to
all or any portion of the first $10,000,000 of the Funding Requirement, a
majority of the members of the Review Committee determine that the Company
should make such contribution at such time and (ii) with respect to all or any
portion of the Funding Requirement in excess of $10,000,000, all of the members
of the Review Committee determine that the Company should make such contribution
at such time and, provided further, that any capital contributions made to the
Playa Vista Partnerships during the period commencing January 1, 1996 to and
including the Effective Time shall be deemed for all purposes of this Agreement
to have been made by the Company pursuant to the Funding Requirement. If funding
is provided by the Company pursuant to the Funding Requirement, the Holders
shall be entitled to the benefit of the Hughes Funding pursuant to the Value
Indices with respect to the Playa Vista Business Unit. If the Company funds less
than $10,000,000 pursuant to the Funding Requirement, the Company shall, on or
before the tenth day after the Termination Date, credit the Playa Vista Business
Unit Account with an amount equal to (A) $10,000,000 minus the amount of the
Hughes Funding plus (B) a 7% per annum, compounded semi-annually, return on such
amount
30
accruing from the effective date hereof until such amount is credited to the
Playa Vista Business Unit Account. To the extent that all or any portion of the
Funding Requirement is not funded nor required to be funded pursuant to this
paragraph (a) and is not credited nor required to be credited to the Playa Vista
Business Unit Account pursuant to the immediately preceding sentence, the
obligation of the Company to fund such amount shall expire at such time as the
Playa Vista Financings are consummated or, if not consummated, at such time as
the agreements between HHPLP or its Affiliates and Maguire Thomas Partners for
mutually agreed commitments to capital for the project expire or are terminated
(the "Termination Date").
(b) Subject to the terms and conditions hereof, during the period
commencing on the Effective Date and continuing thereafter to and until the date
which is nine months after the Effective Date, the Company shall, from time to
time, make a loan or loans to the Business Unit Entities owning the Assets
comprising the General Business Unit, the Howard Hughes Center Business Unit and
the Summerlin Business Unit, on a revolving credit basis, in an aggregate
principal amount not at any time exceeding $25,000,000 (the "Revolving Credit
Loans"); provided, however, that if, on the date which is nine months after the
Effective Date, the unutilized portion of the commitment under the working
capital component of the Bank of America credit facility currently available to
HHPLP, or any replacement facility, is less than $20,000,000, then the Company
shall continue to, from time to time, make Revolving Credit Loans to such
Business Unit Entities until the date which is two years after the Effective
Date, in an aggregate principal amount not at any time exceeding $20,000,000
minus the unutilized portion of such commitment on the date which is nine months
after the Effective Date. Each Revolving Credit Loan made by the Company to a
Business Unit Entity shall be made solely for the account of a single Business
Unit. In no event will the Company be obligated to make any Revolving Credit
Loan to any Business Unit Entity unless such Business Unit Entity could not
reasonably be expected to obtain funds for the working capital requirements of
the applicable Business Unit through a borrowing from a financial institution on
commercially reasonable terms. The proceeds of each Revolving Credit Loan shall
be used by the Business Unit Entity borrowing such funds solely (i) for working
capital purposes of the relevant Business Unit for whose account such Revolving
Credit Loan was made and (ii) in connection with the operation of the relevant
Business Unit for whose account such Revolving Credit Loan was made and the
Assets comprising such Business Unit. The terms and conditions of each Revolving
Credit Loan shall be no less favorable to the borrowing Business Unit Entity
than would be obtained in an arms'-length transaction with a Person that is not
an Associate, except that each Revolving Credit Loan shall bear interest on the
unpaid principal amount thereof from the date such Revolving Credit Loan is made
until repaid at a floating rate per annum equal to the prime rate of interest
charged from time to time by the First National Bank of Maryland. In the event
that the aggregate working capital requirements of two or more of the Business
Units referred to above exceed $25,000,000 at any time, the Revolving Credit
Loans required hereby may be allocated by the Company between or among such
Business Units as it reasonably determines in good faith. The Revolving Credit
Loans will not be deemed to be Company Loans and vice versa.
(c) On each Calculation Date occurring while any amount under any Revolving
Credit Loan remains outstanding, the working capital needs of the General
Business Unit, the Howard Hughes Business Unit and the Summerlin Business Unit
shall be reviewed. To the extent that Excess Cash Flow for the applicable
Computation Period for any such Business Unit exceeds the funds required by such
Business Unit for working capital purposes, such excess shall be paid by the
applicable Business Unit Entity towards the repayment of any Revolving Credit
Loans made by the Company to such Business Unit Entity for the account of such
Business Unit. To the extent that any amount under any Revolving Credit Loan
remains outstanding after giving effect to the payments contemplated by the
immediately preceding sentence, any amounts held by the applicable Business Unit
Entities for the account of any Business Unit in excess of the funds required by
such Business Unit for working capital purposes shall be paid to the Company by
such Business Unit Entities, pro rata based upon the amounts of such excess
funds, towards the repayment of any Revolving Credit Loans made by the Company
to any Business Unit Entity for the account of any other Business Unit. Any
amount paid by a Business Unit Entity for the account of a Business Unit towards
the payment of a Revolving Credit Loan made to a Business Unit Entity for the
account of any other Business Unit shall constitute (i) an Advance by the
Business Unit for whose account such payment is being made to the Business Unit
for whose account such Revolving Credit Loan was borrowed and (ii) a payment
from the Business Unit for whose account such Revolving Credit Loan was borrowed
to the Company. Any payments made by any Business Unit Entity to the Company
pursuant to this paragraph (c) shall be applied first to interest, then to
principal.
31
Section 4.04. Records and Books of Account. In order to enable the Company
and the Business Unit Entities to calculate the credits to the Business Unit
Accounts required to be made pursuant to Article II, the Company shall keep
adequate records and books of account in which complete entries will be made
accurately and fairly reflecting all financial transactions relating to each
Business Unit. The Company shall maintain, and shall cause each Business Unit
and each Business Unit Entity to maintain, a system of accounting established
and administered in accordance with sound business practices to permit
preparation of financial statements in conformity with GAAP and the financial
reports required under Section 4.01. The Company shall, and shall cause each
Business Unit Entity to, maintain separate records on a cash basis and
accurately record therein any and all Receipts, Expenditures, Reserves and Tax
Adjustments.
Section 4.05. Negative Covenants of the Company and the Business Unit
Entities. (a) Without the prior written consent of a majority of the members of
the Review Committee, the Company shall not permit or cause any Business Unit
Entity to, directly or indirectly:
(i) Transfer in bulk more than 500 acres of real estate
comprising any Business Unit;
(ii) borrow or otherwise become obligated in respect of any
indebtedness in excess of (A) $10,000,000 with respect to the General
Business Unit, (B) $5,000,000 with respect to the Howard Hughes Center
Business Unit, (C) zero with respect to the Playa Vista Business Unit
or (D) $75,000,000 plus the amount of any special improvement district
financings with respect to the Summerlin Business Unit;
(iii) create, incur or permit to exist any Lien upon any of the
Assets comprising any Business Unit (other than Permitted
Encumbrances), except in connection with a financing where the
proceeds of such financing will be used exclusively for the
development or operation of such Assets;
(iv) engage in the development of amenities in connection with
the Assets comprising any Business Unit where the reasonably
anticipated costs and expenses of such development will exceed
$10,000,000 (other than infrastructure required by Law or pursuant to
any Governmental Approval in order to permit development which would
not otherwise be subject to Review Committee approval);
(v) make any premature infrastructure expenditures or any other
infrastructure expenditures which are excessive when considered in
light of the projected schedule for development of the Assets of the
Business Unit to which such infrastructure relates;
(vi) consolidate with or merge into any Person or permit any
Person to consolidate with or merge into such Business Unit Entity,
sell all or substantially all of the Assets comprising any Business
Unit or dissolve or liquidate; or
(vii) generally not pay, or admit in writing its inability to
pay, its Debts as they mature, make a general assignment for the
benefit of creditors, institute any proceeding under any Debtor Relief
Law seeking to adjudicate itself insolvent, seeking liquidation,
winding-up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its Debts, or seeking the entry of an
order for relief or the appointment of a receiver, trustee or other
similar official for it or for any substantial part of its Assets, or
take any action in furtherance of any of such actions or, in any
involuntary proceeding under any Debtor Relief Law, by any act
indicate its approval of such proceedings, its consent thereto or its
acquiescence therein.
(b) Without the prior consent of majority of the members of the Review
Committee, the Company shall not, and shall not permit or cause any Business
Unit Entity to, directly or indirectly:
(i) permit any of the Assets comprising any Business Unit to be
subject to the Claims of creditors of the Company, any Business Unit
Entity or any of their respective Affiliates except for (A) Claims
arising directly from the operation or ownership of such Assets in the
ordinary course of business in compliance with the provisions of this
Agreement and (B) Claims of any Person that is not
32
an Associate of the Company or any Business Unit Entity (other than
Persons that are Associates of the Company or any Business Unit Entity
solely due to the contractual relationships under the applicable
Contract), arising under any Contract pursuant to which such Person
provides products or services to (x) the applicable Business Unit
Entity in connection with the Assets comprising such Business Unit and
(y) the Company, any other Business Unit Entity or such Business Unit
Entity in connection with its other operations, or any of their
respective Affiliates, and other Claims arising by operation of Law,
to the extent that such Claims are being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted,
but only if adequate reserves have been established on the books of
the Company in connection with such Claims in accordance with GAAP;
(ii) enter into or permit to exist any Contract, including any
financing agreement or arrangement, joint venture agreement or
partnership agreement, which precludes or places any material
conditions or restrictions on the right or ability of the Company or
any Business Unit Entity to (A) make any payment or Transfer or
perform any act required under the terms of this Agreement or (B)
manage or develop the Assets comprising any Business Unit in the
ordinary course, including pursuant to any non-competition covenant,
restriction on capital expenditures or indebtedness or restriction on
transactions with affiliates contained in any such Contract;
(iii) enter into any transaction with any of its Subsidiaries,
Affiliates or Associates (other than Persons that will become
Associates solely as a result of such transaction), which (A) involves
any of the Business Units or any of the Assets comprising any Business
Unit, other than transactions entered into in the ordinary course of
business on terms no less favorable than those that could be obtained
in an arm's- length transaction with a Person that is not an Associate
of the Company or any Business Unit Entity, or (B) could reasonably be
expected to result in a material adverse effect on (1) the Company's
ability to perform its obligations under this Agreement, (2) the
value, condition or marketability of any Assets comprising any
Business Unit, (3) the validity, legality or enforceability of this
Agreement, (4) the ability of any Holder to exercise or enforce any of
its rights, powers or remedies under this Agreement or (5) the ability
of any Representative or any member of the Review Committee to perform
any of his duties or obligations, or to exercise or enforce any of his
rights, powers or remedies, under this Agreement; or
(iv) enter into any transaction involving competition in any
material respect with any Business Unit or the Assets comprising any
Business Unit, it being understood and agreed, however, that the
purchase by the Company from HHPLP of the Assets comprising the
Summerlin Business Unit which are described in Exhibit K (subject to
such adjustments to the configuration and boundaries thereof as may
become reasonably necessary during the planning process and are
approved by a majority of the members of the Review Committee) for the
purpose of constructing and operating for the foreseeable future a
regional shopping mall and entertainment complex thereon shall not, in
and of itself, be deemed to involve competition between the Company
and the Summerlin Business Unit;
(c) Notwithstanding the foregoing, no transaction described in clauses
(a)(i) through (a)(iv) above or clauses (b)(ii) through (b)(iv) above shall
require the consent of the Review Committee if and to the extent that such
transaction has been duly approved by the Board of Directors of THC prior to the
Effective Date; provided, however, that any such transaction which is described
in clause (a)(ii) above shall be taken into account in determining whether the
applicable Business Unit has borrowed or otherwise become obligated with respect
to indebtedness in excess of the relevant amount.
(d) Subject to the terms of the Articles Supplementary to the Charter of
the Company creating and designating the Rouse Increasing Rate Preferred Stock,
the Company shall not amend, alter or otherwise modify such Articles or the
number of shares, rights, preferences or privileges of the Rouse Increasing Rate
Preferred Stock thereunder unless (i) in the event that any Contingent Preferred
Shares shall have been issued and remain outstanding, such amendment, alteration
or other modification shall have been duly approved by the holders of the
Contingent Preferred Shares or the Representatives in accordance with the
provisions of the Rouse Increasing Rate Preferred Stock or (ii) in the event
that no Contingent Preferred Shares are issued and outstanding, the Company
shall have obtained the approval of its shareholders contemplated by Section
4.15; provided, however, that at any time during which the circumstances
described in clause (ii) have been satisfied, the Company may, without the
consent of any Holder or the Representatives, amend such Articles to eliminate
the restrictions contained
33
therein with respect to the issuance of any capital stock of the Company ranking
on a parity with, or superior to, the shares of Rouse Increasing Rate Preferred
Stock with respect to distributions of assets upon any dissolution, liquidation
(partial or complete) or winding up of the Company or with respect to the
payment of dividends.
Section 4.06. Board Representation. (a) From the date of this Agreement
until the earlier to occur of (i) the first day on which the Holders shall no
longer own, beneficially or of record, at least 5% of the outstanding shares of
Rouse Common Stock and (ii) the expiration of ten years from the date of this
Agreement, the Representatives will be entitled to designate an individual for
election to the Rouse Board; provided, however, that such individual is
reasonably acceptable to the Company at the time of his initial designation.
Pursuant to the terms of the Merger Agreement, the Company, in accordance with
its bylaws, has increased the size of the Rouse Board by one and caused the
vacancy created by such increase to be filled by the election of the individual
designated on behalf of the Holders in the Merger Agreement (the "Holders'
Designee"), which election is effective as of the Effective Date. Such Holders'
Designee will serve until the first annual meeting of the stockholders of the
Company following the date hereof and until his successor shall be duly elected
and qualified or until his death, disability, removal or resignation.
(b) So long as the Representatives possess the right of designation
described in paragraph (a) above, the Company shall nominate (or shall cause to
be nominated) for election at each annual meeting of the stockholders of the
Company after the date hereof, the incumbent Holders' Designee or such other
individual as the Representatives may designate; provided, however, that such
other individual is reasonably acceptable to the Company at the time of his
initial designation.
(c) So long as the Representatives possess the right of designation
described in paragraph (a) above, if the Holders' Designee should die, become
disabled, be removed, retire or resign during the term of his office, the
Representatives shall be entitled to designate a successor Holders' Designee
reasonably acceptable to the Company at the time of his initial designation, in
which event the Company shall cause such successor Holders' Designee to be
promptly elected as a member of the Rouse Board to fill the vacancy created by
such death, disability, removal, retirement or resignation.
(d) So long as the Representatives possess the right of designation
described in paragraph (a) above, without the prior written consent of the
Representatives (which consent will not be unreasonably withheld), neither the
Company nor the Rouse Board will (i) recommend that the Holders' Designee be
removed by the stockholders of the Company or (ii) fail to recommend any
incumbent Holders' Designee for reelection.
Section 4.07. Treasury Shares. All purchases or other acquisitions of
shares of Rouse Common Stock by the Company shall be implemented in compliance
with applicable Laws, including Rules 10b-5 and 10b-6 under the Exchange Act.
The Company will not purchase or otherwise acquire shares of Rouse Common Stock
with the intention or for the specific purpose, directly or indirectly, of
increasing the amount of any Current Share Value to be calculated hereunder.
Section 4.08. Inspection. The Company shall permit, and shall cause each
Business Unit Entity to permit, each Review Committee member, each
Representative and their respective representatives to (a) visit and inspect the
Assets comprising any Business Unit; (b) examine its books and records and make
copies thereof or extracts therefrom to the extent that the same relate to the
performance or non-performance of any of the terms of this Agreement, any
Business Unit or any of the Assets comprising any Business Unit; and (c) discuss
its affairs, finances and accounts with its officers and independent accountants
to the extent that the same relate to the performance or non-performance of any
of the terms of this Agreement, any Business Unit or any of the Assets
comprising any Business Unit (and by this provision the Company authorizes such
accountants to discuss with such Persons, to such extent, the affairs, finances
and accounts of the Company and any Business Unit Entity), all at such
reasonable times and as often as such Review Committee member or such
Representative may reasonably request. As an accommodation to the Company, the
Representatives will endeavor to arrange their visits and inspections hereunder
to coincide with the regular meetings of the Review Committee contemplated by
Section 6.01; provided, however, that the Representatives shall not be so
obligated if they believe the Company may not be in compliance with any
provision of this Agreement. All out-of-pocket expenses incurred by the Company,
the Holder Members and the Independent Member in connection with such visits and
inspections shall constitute Expenditures hereunder; provided, however, that (i)
in no event shall any other cost or expense, including any salary or other
wages, incurred
34
by the Company or any Business Unit Entity in connection with discussions
between any member of the Review Committee and any officers, directors or
employees of the Company or any Business Unit Entity be deemed an Expenditure
hereunder and (ii) if an Event of Default shall have occurred and be continuing,
no costs or expenses in connection with any visit or inspection by a member of
the Review Committee shall be deemed an Expenditure hereunder. All such visits
and inspections by a Representative shall be at the expense of the Holders;
provided, however, that (A) in no event shall the Company or any Business Unit
Entity be entitled to reimbursement for any cost or expense, including any
salary or other wages, incurred in connection with discussions between any
Representative and any officers, directors or employees of the Company or any
Business Unit Entity, (B) if an Event of Default shall have occurred and be
continuing, all such visits and inspections shall be at the expense of the
Company and (C) no costs or expenses described in clauses (A) and (B) shall be
deemed an Expenditure hereunder.
Section 4.09. Maintain Registry. The Company shall maintain a registry of
the Holders and record therein each Holder's name, address and Percentage
Interest. Such registry shall be kept at the principal corporate office of the
Company and shall be made available for inspection by any Representative or any
Holder during normal business hours upon reasonable prior notice. Such registry
shall initially be comprised of the Persons and other information set forth on
Schedule 1. Upon receipt of a written notice of Transfer to an Eligible
Assignee, such notice specifying the name of the Transferring Holder, the name
and address for notice purposes of such Eligible Assignee, the Percentage
Interest Transferred to such Eligible Assignee and the cause (if applicable) of
the Transfer, the Company shall revise the registry to reflect such Transfer.
The Company, the Representatives and the Escrow Agent may deem and treat the
Persons listed in the registry as the Holders for all purposes of this
Agreement. Any request, authority or consent of any Person who, at the time of
making of such request or giving such authority or consent, is a Holder shall be
conclusive and binding on any subsequent Eligible Assignee of such Holder.
Section 4.10. Compliance with Laws. Subject to the provisions of Section
7.05(b), the Company shall comply, and shall cause each Business Unit Entity to
comply, with all applicable Laws (including Environmental Laws) and Governmental
Approvals applicable to any of the Assets comprising any Business Unit,
non-compliance with which, alone or together with all other such
non-compliances, could reasonably be expected to have a Material Adverse Effect.
Subject to the provisions of Section 7.05(b), the Company shall obtain and
maintain, and shall cause each Business Unit Entity to obtain and maintain, as
and when required by applicable Law, all Governmental Approvals necessary for
its ownership and use of the Assets comprising any Business Unit, other than
such failures to obtain or maintain Governmental Approvals which, alone or
together with all other such failures, could not reasonably be expected to have
a Material Adverse Effect.
Section 4.11. Taxes; Claims. Subject to the provisions of Section 7.05(b),
the Company shall pay and discharge, and shall cause each Business Unit Entity
to pay and discharge, all taxes, assessments and governmental charges or levies
imposed upon the Assets comprising any Business Unit and all lawful Claims,
other than such failures to pay and discharge taxes, assessments, charges,
levies and Claims which, alone or together with all such other such failures,
could not reasonably be expected to have a Material Adverse Effect.
Section 4.12. Insurance. Subject to the provisions of Section 7.05(b), the
Company shall maintain, and shall cause each Business Unit Entity to maintain,
insurance with financially sound, responsible and reputable insurance companies
or associations with respect to the Assets comprising any Business Unit against
such risks and in such amounts (and with co-insurance and deductibles) as is
customarily obtained by the Company in connection with its own Assets and
operations.
Section 4.13. Corporate Existence; Etc. Subject to the provisions of
Section 7.05(b), and except as provided in Sections 4.05(a)(vi) and 7.04, the
Company shall, and shall cause each Business Unit Entity to, preserve and
maintain its existence, and the Company shall, and shall cause each Business
Unit Entity to, qualify and remain qualified as a foreign Person in each
jurisdiction in which any of the Assets comprising any Business Unit is located
for so long as the Company or such Business Unit Entity is the owner of such
Assets.
Section 4.14. Registration of Contingent Shares and Contingent Preferred
Shares; Compliance with Securities Laws. In connection with each delivery of
Contingent Shares or Contingent Preferred Shares under this Agreement, the
Company shall:
35
(a) cause the delivery of such Contingent Shares or Contingent Preferred
Shares to have been registered or qualified under the Securities Act and all
applicable blue sky and other securities Laws, such that the Contingent Shares
or Contingent Preferred Shares so delivered shall be transferable by the Holders
receiving such Contingent Shares or Contingent Preferred Shares free of any
restrictions imposed by the Securities Act (except for restrictions, if
applicable, under Rule 145 under the Securities Act);
(b) furnish to each Representative a signed counterpart, addressed to the
Representatives for the benefit of the Holders, of an opinion of counsel to the
Company, dated the date of delivery of such Contingent Shares or Contingent
Preferred Shares, reasonably satisfactory in form and substance to the
Representatives, to the effect that the delivery of such Contingent Shares or
Contingent Preferred Shares to the Holders has been registered under the
Securities Act, and all applicable blue sky and other securities Laws;
(c) otherwise comply with all applicable rules and regulations of the SEC
with respect to the delivery of such Contingent Shares or Contingent Preferred
Shares;
(d) provide and cause to be maintained a transfer agent and registrar for
all Contingent Shares or Contingent Preferred Shares so delivered;
(e) cause such Contingent Shares to be listed, on or prior to the date of
such delivery, on the New York Stock Exchange, the American Stock Exchange or
NASDAQ;
(f) provide or have provided a CUSIP number for all Contingent Shares or
Contingent Preferred Shares so delivered; and
(g) make or have made all periodic filings that the Company shall be or
have been required to make or have made with the SEC pursuant to and containing
the information required by the Exchange Act.
Section 4.15. Rouse Shareholder Approval. (a) The Company shall use its
reasonable best efforts to obtain shareholder approval of this Agreement and the
transactions contemplated hereby, to the extent that the rules of the New York
Stock Exchange require such approval prior to the Company issuing new shares of
Rouse Common Stock for delivery to the Holders in satisfaction of its obligation
to deliver Contingent Shares hereunder, prior to July 15, 1997. Without
limitation of the foregoing, if and to the extent so required, prior to July 1,
1997 the Company shall (i) submit this Agreement and the transactions
contemplated hereby for the approval of its shareholders at a meeting of its
shareholders to be held prior to July 15, 1997, (ii) through the Rouse Board,
recommend to its shareholders approval of this Agreement and the transactions
contemplated hereby and (iii) take such other actions as may be required, or as
the Representatives may reasonably request, in order to obtain such shareholder
approval prior to July 15, 1997. None of the information to be supplied by the
Company or its Subsidiaries for inclusion in the proxy statement to be
distributed in connection with the shareholders meeting referred to above will,
at the time of the mailing thereof and amendments or supplements thereto and at
the time of the meeting of the shareholders referred to above, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. Such proxy
statement will comply as to form in all material respects with all applicable
Laws.
(b) The Company (i) acknowledges that a breach of its covenant contained in
paragraph (a) above to convene a meeting of its shareholders and call for a vote
thereat with respect to the approval of this Agreement and the transactions
contemplated hereby will result in irreparable harm to the Holders which will
not be compensable in money damages and (ii) agrees that such covenant shall be
specifically enforceable and that specific performance and injunctive relief
shall be a remedy properly available to the Representatives and the Holders for
a breach of such covenant.
Section 4.16. Contingent Preferred Shares. Notwithstanding any provision of
this Agreement to the contrary, if the Company is required to deliver Contingent
Shares pursuant to this Agreement on any date (the "Delivery Date") and if the
Company is precluded or otherwise unable for any reason to deliver such
Contingent Shares on the Delivery Date, including any such preclusion or
inability which results because the issuance by the
36
Company of shares of Rouse Common Stock and delivery of such shares to the
Holders in satisfaction of its obligation to deliver Contingent Shares hereunder
would be a breach or violation of any then effective New York Stock Exchange
Listing Agreement to which the Company is a party, then the Company shall
immediately issue and deliver shares of Rouse Increasing Rate Preferred Stock
("Contingent Preferred Shares") in lieu thereof. The aggregate number of
Contingent Preferred Shares (including fractional shares) to be issued and
delivered by the Company on any Delivery Date shall be determined by dividing
(a) 125% of the sum of (i) the aggregate number of Contingent Shares originally
required to be delivered by the Company on the Delivery Date plus (ii) the
aggregate number of Contingent Shares required to be delivered by the Company
pursuant to Section 2.08(d) by (b) the quotient of (i) $100 divided by (ii) the
Current Share Value used in calculating such aggregate number of such Contingent
Shares. The obligation of the Company to issue and deliver shares of Contingent
Preferred Shares under this Section 4.16 shall terminate if and when this
Agreement and the transactions contemplated hereby have been duly and validly
approved by the Company's shareholders as contemplated by Section 4.15;
provided, however, that no such termination shall relieve the Company from (A)
any liability for any breach of this Section 4.16 prior to such termination or
(B) any obligation to deliver Contingent Preferred Shares pursuant to Section
2.08(e).
Section 4.17. Reservation of Shares. (a) The Company will at all times
reserve and keep available (free of preemptive rights), out of its authorized
and unissued shares of Rouse Common Stock solely for issuance pursuant to this
Agreement, the full number of shares of Rouse Common Stock as the Rouse Board,
after consultation with independent financial advisors and legal counsel, shall
determine in good faith to be issuable under this Agreement.
(b) The Company will at all times reserve and keep available (free of
preemptive rights), solely for issuance pursuant to this Agreement, all shares
of Rouse Preferred Stock constituting the Rouse Increasing Rate Preferred Stock.
Section 4.18. Abandonment of Assets. In the event that: (a) the Company, in
its good faith judgment, determines, based upon reasonable assumptions and after
consultation with the Review Committee, that the continued ownership and
operation of any Business Unit would be neither profitable to nor in the best
interests of the Company and the Holders; (b) the Company is not obligated to
make a Revolving Credit Loan to the applicable Business Unit Entity pursuant to
Section 4.03(b); (c) third party financing to fund the cash requirements of such
Business Unit is unavailable to the applicable Business Unit Entity; (d) the
Company is unwilling to make a Company Loan to the applicable Business Unit
Entity in connection with such Business Unit; and (e) the Review Committee has
rejected a request to have another Business Unit make an Advance to such
Business Unit, then the Company may cease to operate such Business Unit;
provided, however, that prior to any such cessation, the Company shall (i)
unless otherwise consented to by the Representatives, use commercially
reasonable efforts for a period of at least 12 months to market and sell or
lease the Assets comprising such Business Unit and (ii) if no potential
purchaser or lessee for any of such Assets exists as of the last day of such
period, the Company shall, unless otherwise consented to by the Representatives,
sell any such Assets at a public auction, for cash or credit, at the highest
price bid for such Assets at such auction. Any and all costs, expenses and
proceeds that are incurred, paid and received, as applicable, in connection with
any such sale of Assets shall constitute Receipts and Expenditures, as
applicable, with respect to the applicable Business Unit and, provided further,
that in the event that such cessation relates to the Playa Vista Business Unit
prior to the Termination Date, and the Company has funded less than $10,000,000
pursuant to the Funding Requirement, the Company shall, on the date of such
cessation, credit the Playa Vista Business Unit Account with an amount equal to:
(i) $10,000,000 minus the amount of the Hughes Funding plus (ii) a 7% per annum,
compounded semi-annually, return on such amount accruing from the effective date
hereof until such amount is credited to the Playa Vista Business Unit Account.
ARTICLE V
CONCERNING THE REPRESENTATIVES
Section 5.01. Authority and Liabilities of the Representatives. (a) Except
as otherwise provided herein, (i) the Representatives shall have full power and
authority to represent the Holders with respect to all matters arising under
this Agreement and shall have, and may exercise, such rights, powers, privileges
and remedies as are reasonably incidental thereto and (ii) all actions taken by
the Representatives hereunder shall be binding upon the Holders, as if expressly
confirmed and ratified by each of the Holders. Without limiting the
37
generality of the foregoing, except as otherwise provided herein, the
Representatives shall have full power and authority, on behalf of the Holders,
to interpret all of the terms and provisions of this Agreement and to compromise
and settle all disputes between the Company and the Holders (or any of them)
arising under this Agreement. So long as the Representatives are authorized to
act under this Agreement, each of the Holders hereby irrevocably appoints the
Representatives to act as the attorney-in-fact of such Holder, with full
authority in its place and stead, and in the name of the Holders, the
Representatives or otherwise, from time to time to take any action and to
execute any instrument which the Representatives may deem necessary or advisable
to carry out their duties and responsibilities and otherwise act under this
Agreement.
(b) The Representatives will be acting herein solely as an accommodation to
the Holders, and each Representative, in exercising his rights, powers,
privileges and remedies and performing his duties and responsibilities
hereunder, will endeavor to use the same care that he uses when acting solely
for his own account. The duties of the Representatives shall be determined only
with reference to this Agreement, and no Representative is or shall be charged
with knowledge of, or with any duties or responsibilities under or in connection
with, any other document or instrument. No implied duties or covenants shall be
read into this Agreement on the part of the Representatives. No Representative
shall be obligated to take any legal action hereunder which is contrary to
applicable Law or which might, in such Representative's judgment, involve any
expense or Liability unless such Representative has been indemnified to his
satisfaction by the Holders. The Representatives shall be authorized to exercise
their discretion in acting or refraining from acting hereunder and in connection
herewith and shall not be liable for any mistakes of fact or errors of judgment,
or for any acts or omissions of any kind, unless caused by the willful
misconduct or gross negligence of such Representative. IT IS THE INTENT OF THE
PARTIES THAT NO REPRESENTATIVE SHALL BE LIABLE FOR OR ON ACCOUNT OF ANY ACTION
TAKEN OR OMITTED BY HIM HEREUNDER OR IN CONNECTION HEREWITH CAUSED BY THE
ORDINARY NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OF SUCH REPRESENTATIVE. In no
event shall any Representative be liable to any Person for incidental,
consequential or indirect damages in his capacity as such. Except as provided in
Sections 5.01(e) and 5.11, no Representative shall have any duty to the Company,
any of its Subsidiaries or the Review Committee, nor shall any Representative be
liable to the Company or any of its officers, directors, shareholders, partners,
employees, agents, servants or Subsidiaries or any member of the Review
Committee for any act or failure to act hereunder or connection herewith.
(c) No Representative shall be under any obligation to make any
investigation in respect of the subject matter of this Agreement. No
Representative shall be charged with knowledge (actual or constructive) of any
Event of Default or any failure on the part of the Company in the performance of
its obligations hereunder, unless a clear written notice thereof shall have been
previously furnished to such Representative.
(d) Each individual serving as a Representative hereunder will be acting
only in his capacity as a Representative and not in his individual capacity or
in any other capacity, including as an agent, representative, employee, officer,
director, stockholder, partner or fiduciary of any other Person. Accordingly,
notwithstanding anything contained herein or elsewhere to the contrary, in no
event shall any Associate of any Representative be liable for or on account of
any action taken or omitted by such Representative nor shall recourse be had to
the Assets or business of any such Associate on account of any such action or
omission.
(e) Any Representative may be or become a Holder and may otherwise deal
with the Company and its Subsidiaries with the same rights he would have if he
were not a Representative hereunder. Without limitation of the foregoing, any
Representative who is also a Holder shall have, and may exercise, all the rights
and powers vested in such Representative in his capacity as a Holder the same as
if such Representative were not a Representative hereunder.
(f) No Representative shall hold himself out to be an agent, employee or
representative of the Company, and no act or omission by any Representative
shall bind or obligate the Company, any of its Subsidiaries or any Business Unit
Entity.
Section 5.02. Directions to Representatives. (a) The Representatives may
rely upon and shall in all respects be fully protected in acting or refraining
from acting in accordance with any request, instruction or direction of the
Majority Holders, and the Representatives shall not be liable for any action
taken, suffered or omitted by them in accordance with any such request,
instruction or direction. Each request, instruction or direction
38
made or given to the Representatives by the Majority Holders, and any action
taken, suffered or omitted by the Representatives pursuant thereto, shall be
binding upon all Holders. No Representative shall be under any obligation to
take any action or refrain from taking action at the request, instruction or
direction of the Holders (or any of them).
(b) The Representatives may at any time request instructions from the
Majority Holders with respect to any matter arising hereunder or in connection
herewith, and the Representatives (i) shall be entitled to refrain from acting
with respect to such matter unless and until they have received instructions
from the Majority Holders to do so and (ii) shall not incur Liability to any
Person by reason of so refraining.
Section 5.03. Reliance Upon Documents and Opinions of Counsel. Each
Representative may rely and shall be fully protected in acting upon any notice,
request, consent, certificate, resolution, appraisal, report or other paper or
document believed by him to be genuine and to have signed or presented by the
proper Person or Persons. Each Representative may consult with counsel (who may
be of counsel to the Company) and the opinion of such counsel shall be full and
complete authorization and protection in respect of any action taken or suffered
by such Representative hereunder in good faith and in accordance with the
opinion of such counsel.
Section 5.04. No Responsibility for Recitals, Etc. The recitals and
statements contained in this Agreement shall be taken as the recitals and
statements of the Company only, and no Representative assumes responsibility for
the correctness of the same. No Representative shall be liable or responsible to
any Person for (i) the representations, warranties or other statements made by
any other Person, (ii) the performance of this Agreement or any other instrument
or document by the Company or any of its Subsidiaries, (iii) any actions taken
or omitted by any other Person or (iv) the execution, value, sufficiency,
validity or enforceability of this Agreement or any other instrument or
document. No Representative shall be accountable to any Holder for any shares of
Rouse Common Stock or Rouse Increasing Rate Preferred Stock delivered hereunder
or responsible for the business, operations, Assets, condition (financial or
other) or results of operation of the Company or any of its Subsidiaries.
Section 5.05. Actions by Representatives. (a) Except as otherwise expressly
provided herein, all actions required or permitted to be taken by the
Representatives hereunder shall be evidenced by, and taken upon, the written
direction of a majority of the Representatives. The Company shall be entitled to
rely on the representations of a majority of the Representatives as to their
authority to take any action under or in connection with this Agreement.
(b) The Representatives may exercise any of their rights, power, privileges
or remedies hereunder or perform any of their duties hereunder either directly
or by or through agents or attorneys, and no Representative shall be responsible
for any misconduct or negligence on the part of any agent or attorneys appointed
by the Representatives with due care hereunder. The Representatives shall be
entitled to retain and consult with such independent advisors and other experts
as the Representatives shall deem necessary or appropriate in connection with
the performance of their duties and responsibilities and the exercise of their
authority or powers hereunder.
Section 5.06. Resignation and Removal. (a) Any Representative may at any
time resign and be discharged of his duties and obligations hereunder by giving
not less than 30 days' prior written notice to the Company, the other
Representatives and the Holders. Such resignation shall take place on the day
specified in such notice, unless previously a successor Representative shall
have been appointed as provided in Section 5.07, in which event such resignation
shall take effect immediately upon the appointment of such successor
Representative.
(b) Any Representative may be removed at any time, with or without cause,
by an instrument or instruments in writing signed by the Majority Holders,
specifying the removal and the date when it shall take effect. Upon the
resignation or removal of any Representative becoming effective, all the rights,
powers, duties and obligations of such Representative shall forthwith terminate
except as otherwise provided herein.
(c) Subject to the provisions of Sections 5.01, 5.02, 5.03, 5.04 and 5.05,
no such resignation or removal shall relieve any Representative from Liability
for any breach of this Agreement by such Representative prior to the effective
date of such resignation or removal. Anything herein to the contrary
notwithstanding, all
39
indemnities and rights to payment and reimbursement of each Representative
hereunder shall survive his resignation or removal and the Company's performance
of its obligations hereunder.
Section 5.07. Appointment of Successor Representative. (a) In the event of
the death, resignation or incapacity of any Representative, the remaining
Representatives (whether one or more) shall appoint a successor Representative
by an instrument or instruments in writing executed by the remaining
Representatives and delivered to the Company and the Holders; provided, however,
that if no appointment of a successor Representative shall have been made within
30 days after the date of such death, resignation or incapacity, as the case may
be, the Majority Holders shall have the right to appoint a successor
Representative by written notice given to the Company and the remaining
Representatives. For purposes of this paragraph (a), "incapacity" means, when
respect to any Representative, a physical or mental condition which, in the good
faith judgment of the other Representatives, (i) prevents such Representative
from being able to perform the services contemplated to be performed by a
Representative under this Agreement, (ii) has continued for at least 90 days and
(iii) is expected to continue.
(b) In the event a Representative shall be removed by the Majority Holders
as provided in Section 5.06(b), the Majority Holders may appoint a successor
Representative by an instrument or instruments in writing signed by the Majority
Holders and delivered to the Company and the remaining Representatives. In the
event the Majority Holders fail to so appoint a successor Representative within
30 days after the date of such removal, the remaining Representatives (whether
one or more) shall have the right to appoint a successor Representative by an
instrument or instruments in writing executed by the remaining Representatives
and delivered to the Company and the Holders.
(c) If any Representative shall die or resign or be removed in accordance
with Section 5.06 and if a successor Representative shall not have been
appointed within 60 days after the day of such death, resignation or removal,
either of the remaining Representatives may apply to any court of competent
jurisdiction to appoint a successor Representative, and such court may
thereupon, after such notice (if any) as it may consider proper, appoint a
successor Representative.
Section 5.08. Acceptance of Appointment by Successor Representative. Any
successor Representative appointed hereunder shall execute and deliver to the
remaining Representatives (for the express benefit of all the Holders) an
instrument in writing accepting such appointment (a copy of which shall be sent
to all Holders), and thereupon such successor Representative, without further
act or deed, shall become vested with all the rights, powers, duties and
obligations of his predecessor, with like effect as if originally named as a
Representative herein.
Section 5.09. Compensation and Indemnification. (a) The Representatives
shall look solely to the Holders and the Escrow Account for payment of any
compensation payable to them for their services hereunder and for any
indemnification against any Liability incurred by them in connection with the
Agreement. As compensation for performance of services hereunder as
Representatives, each Representative shall receive an amount equal to $30,000
(subject to adjustment as provided below) per annum, payable monthly in arrears
on the last day of each calendar month for so long as such Representative has
any duties or obligations under this Agreement, plus such additional
compensation as may at any time or from time to time be proposed in writing by
the Representatives (or any one of them) and approved by the Majority Holders.
In the event this Agreement, or the period of service hereunder of any
Representative, shall commence or end on other than the first or last day of a
calendar month, such monthly amount (but no other amount unless otherwise
agreed) shall be appropriately prorated. All payments due to the Representatives
under the foregoing sentence may be paid from the Escrow Account and the
Representatives shall be authorized to make withdrawals from the Escrow Account
for such purpose. The amount of the annual fee referred to above shall be
adjusted upwards or downwards, as the case may be, for each calendar year
commencing after the date hereof by the amount of the change (if any) in the
Cost of Living during the prior calendar year based on the Consumer Price Index
for Urban Consumers All Items--Less Shelter--Index (1967=100) as published with
respect to the greater Houston metropolitan area by the Bureau of Labor
Statistics for the United States Department of Labor. If such Index is
discontinued or revised in any material respect, the Representatives, acting in
good faith and after consultation with an independent consultant, shall
designate a substitute index which shall thereafter be used in order to obtain
substantially the same result as would have been obtained had such Index not
been so discontinued or revised.
40
(b) In addition to the fees described above, each Representative shall be
entitled to be promptly reimbursed by the Holders for the reasonable
out-of-pocket expenses incurred by such Representative in connection with his
service as a Representative hereunder. All payments due to the Representatives
under the foregoing sentence may be paid from the Escrow Account and the
Representatives shall be authorized to make withdrawals from the Escrow Account
for such purpose.
Section 5.10. Representatives' Escrow Account. (a) Contemporaneously with
the execution of this Agreement, the Representatives shall establish a special
purpose escrow account with a bank or trust company selected by the
Representatives (the "Escrow Agent"). The Escrow Agent shall administer the
Escrow Account in accordance with the terms and conditions of an escrow
agreement to be entered into between the Representatives and the Escrow Agent
(the "Escrow Agreement"). The Escrow Agreement shall be in such form and contain
such terms and conditions (consistent with this Agreement) as the
Representatives shall approve. The Escrow Account shall be held by and remain in
the exclusive possession of, and under the sole dominion and control of, the
Representatives for the ratable benefit of the Holders and the Representatives
during the period from the date hereof until the date on which the
Representatives shall cease to have any further duties or obligations hereunder
(the "Escrow Termination Date") and shall be maintained at all times in
accordance with the terms of this Agreement. Unless otherwise specifically
provided herein, the Escrow Account shall be subject to debit or withdrawals
solely by the Representatives as provided in this Agreement and no other Person
shall have any control over or right of withdrawal from the Escrow Account;
provided, however, that if at any time there shall not be any Representative
then serving hereunder, disbursements from the Escrow Account may be authorized
upon written instructions from the Majority Holders. No payments shall be made
out of the Escrow Account except for the purposes and on the terms provided in
this Agreement. As security for all compensation, expenses, indemnification
payments and other amounts due or to become due to the Representative hereunder,
each Representative, without any action on the part of the Holders, the Escrow
Agent or any other Person, shall have and may enforce a first priority security
interest in and Lien upon all moneys and other Assets contained from time to
time in the Escrow Account.
(b) Concurrently with the execution of this Agreement, there is being
transferred to the Escrow Account the sum of $1,500,000 pursuant to
authorization set forth in that certain Agreement and Plan of Merger dated as of
February 22, 1996 among the Company, TRC Acquisition Company II, a Delaware
corporation, and HHPLP relating to the Partnership Merger. If, subsequent to the
date hereof, the Representatives acting in good faith believe that additional
funds are required or may be required for the Escrow Account in order to enable
the Representatives to receive the compensation to which they are entitled
hereunder and to discharge their responsibilities and duties and otherwise act
on behalf of Holders pursuant to this Agreement, the Representatives shall have
the right to direct that a specified number of the Contingent Shares and/or
Contingent Preferred Shares otherwise issuable to the Holders hereunder,
determined as of the next succeeding Calculation Date, be withheld and instead
delivered to or as directed by the Representatives, such Contingent Shares
and/or Contingent Preferred Shares to be withheld from the Contingent Shares
and/or Contingent Preferred Shares otherwise deliverable to the Holders pro rata
in accordance with their respective Percentage Interests. Such direction shall
be evidenced by notice duly authorized and given by the Representatives to the
Company (a "Representatives' Diversion Notice"), a copy of which shall be
concurrently mailed to all Holders, in which event the Company shall be
obligated to withhold and so direct and deliver the Contingent Shares and/or
Contingent Preferred Shares as provided in the Representatives' Diversion
Notice. The Representatives shall cause the Contingent Shares and/or Contingent
Preferred Shares so received to be sold as promptly as prudent marketing
conditions will permit with the net proceeds of each such sale to be deposited
to the Escrow Account. Any and all deposits made into the Escrow Account shall
be irrevocable and the amount of such deposit and any interest and investment
earnings thereon shall be held by the Representatives and applied, invested and
transferred solely as provided herein and in the Escrow Agreement.
(c) Anything in this Section 5.10 to the contrary notwithstanding, the
Majority Holders may at any time or from time to time by written notice to the
Representatives (i) instruct the Representatives to withdraw any
Representatives' Diversion Notice or (ii) authorize or direct that all or part
of any amounts deposited in the Escrow Account in accordance with paragraph (b)
above be distributed to all Holders ratably in accordance with their respective
Percentage Interests.
41
(d) The Representatives shall maintain or cause to be maintained at the
expense of the Holders, books of account on a cash basis and record therein (i)
all funds received by the Representatives on behalf of the Holders, (ii) all
payments or disbursements of funds to the Representatives in payment of
compensation or for reimbursement of expenses pursuant to Section 5.09, (iii)
all payments or disbursements to any other Person for the benefit of, or
approved by, the Holders, (iv) all other deposits into and transfers to and from
the Escrow Account and (v) all investment transactions contemplated by paragraph
(f) below effected by the Representatives and/or the Escrow Agent. The
Representatives shall endeavor to make such books of account available during
normal business hours for inspection by the Holders and their respective
representatives upon reasonable prior notice, but only if the Holders or Holders
requesting such inspection agree to pay all costs and expenses relating thereto.
In addition to such books of account, the Representatives shall maintain or
cause to be maintained at all times a current list of the investments in the
Escrow Account. Not later than the 60th day after each Calculation Date, the
Representatives shall provide or cause to be provided to the Holders a statement
specifying the amounts held in, and the activity for, the Escrow Account at the
close of business on the last business day preceding such Calculation Date.
(e) The Representatives shall transfer funds available in the Escrow
Account as follows:
(i) at any time and from time to time, the Representatives shall
withdraw amounts held in the Escrow Account and apply such amounts as
required or permitted by this Agreement; and
(ii) on the Escrow Termination Date, the Representatives shall
withdraw any and all amounts held in the Escrow Account from the
Escrow Account and, after the payment or provision for payment of all
expenses and Liabilities of the Holders and the Representatives under
this Agreement, transfer the remaining amount to the Holders ratably
in accordance with their respective Percentage Interests.
In addition, the Representatives may at any time or from time to time withdraw
all or part of the funds in the Escrow Account and distribute the funds so
withdrawn to the Holders ratably in accordance with their respective Percentage
Interests.
(f) Amounts held in the Escrow Account shall be invested only in Permitted
Investments. Any interest, investment income or gain realized as a result of any
of the amounts held in the Escrow Account (net of the expenses incurred in
connection with making any Permitted Investments) shall be credited to the
Escrow Account and may be reinvested in Permitted Investments. Neither the
Escrow Agent nor any of the Representatives (or their Associates) shall have any
liability to any of the Holders or any other Person for any Loss resulting from
any Permitted Investment other than Losses arising out of his or its willful
misconduct, fraud or gross negligence. For purposes of this Agreement, the term
"Permitted Investments" means any of the following investments: (i) securities
issued or directly and fully guaranteed or insured by the United States or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States is pledged in support thereof) having a maturity not exceeding
30 days from the date of acquisition, (ii) time deposits and certificates of
deposit of any commercial bank of recognized standing having capital and surplus
in excess of $500,000,000, provided that the long term senior unsecured debt of
such bank is rated at least A+ or the equivalent thereof by Standard & Poor's
Corporation or at least A1 or the equivalent thereof by Moody's Investors
Service, having a maturity not exceeding 30 days from the date of acquisition,
and (iii) commercial paper issued by the parent corporation of any commercial
bank or by any domestic corporation, provided that such commercial paper is
rated at least A-1 or the equivalent thereof by Standard & Poor's Corporation or
at least P-1 or the equivalent thereof by Moody's Investors Service, having a
maturity not exceeding 30 days from the date of acquisition.
(g) Any and all interest and other income earned or loss realized on any
Contingent Shares or Preferred Contingent Shares held by the Representatives for
the benefit of the Holders or any amounts held in the Escrow Account for any and
all federal, state and local income tax purposes shall be attributed to the
Holders. The Representatives shall provide, or cause to be provided, information
to the Holders to enable the Holders to (i) determine any and all requirements
of governmental authorities for the payment of taxes and the reporting or
withholding of any payments for tax purposes hereunder and (ii) prepare and
file, or cause to be prepared and filed, all tax returns, reports and other
information required with respect to the Escrow Account. The Holders, ratably
according to their respective Percentage Interests, shall indemnify and hold the
Representatives harmless against any and all Claims, Liabilities and Losses for
tax withholding and/or reporting for any payments made hereunder. Such
indemnities shall survive the Escrow Termination Date, the termination or
discharge of this Agreement and the
42
death, resignation or removal of any Representative. The Representatives shall
have no obligation whatsoever with respect to the making, reporting or
withholding of any payments for tax purposes. If requested by the
Representatives, each Holder will provide the Representatives with such
information as may be required by applicable taxing authorities or tax Laws.
Section 5.11. Confidentiality. No Representative will disclose to any
Person, or use for any improper purpose, any of documents or other information
furnished to it by the Company hereunder except for the purposes contemplated by
this Agreement. Notwithstanding the foregoing, each Representative shall be
permitted to:
(a) disclose any such documents or other information (i) to the Company or
any employee, agent, advisor, consultant, officer, director or stockholder of
the Company or any Affiliate of the Company, (ii) to any member of the Review
Committee or any employee, agent, legal counsel, accountant, advisor or
consultant of the Review Committee or (iii) to the extent that such documents or
information (A) are furnished or made available to such Representative by the
Company on a non-confidential basis, (B) is or becomes generally known or
available other than as a result of a disclosure by such Representative or (C)
is or becomes known or available to such Representative on a non-confidential
basis from a source (other than the Company) which, to such Representative's
knowledge, is not prohibited from disclosing such documents or information to
such Representative by a legal, contractual, fiduciary or other obligation to
the Company; and
(b) otherwise disclose and use any such documents or other information (i)
as the Company shall approve from time to time (which approval shall not be
unreasonably withheld), (ii) as shall be required in response to any summons or
subpoena or in connection with any litigation, (iii) to the extent such
Representative believes it necessary to comply with applicable Law or (iv) to
the extent such Representative believes it necessary in the performance of his
duties and obligations hereunder or in the exercise or enforcement of his
rights, powers, privileges, remedies or immunities hereunder.
If any Representative intends to disclose any information which is subject
to the foregoing confidentiality restriction pursuant to clause (b)(ii) or
(b)(iii) above, such Representative will notify the Company, to the extent
practicable, so that the Company may seek an appropriate protective order. If
requested by the Company, each Representative will acknowledge in writing that
he is aware that the United States securities laws prohibit any Person who has
material non-public information about a company with securities registered under
the Exchange Act from purchasing or selling securities of such company based on
such non-public information or disclosing such information to any other Person
under circumstances where it is reasonably foreseeable that other such Person is
likely to sell securities of such company based on such non-public information.
Section 5.12. Controlling Provisions. If any provision of this Article V
conflicts with or is contrary to any other provision of this Agreement, such
provision of this Article V shall govern and control.
Section 5.13. Indemnification. The Holders shall indemnify and save each
Representative harmless against any Claims, Liabilities and Losses, not arising
from his own gross negligence or intentional misconduct, which such
Representative may incur in the good faith exercise and performance of his
powers and responsibilities hereunder.
ARTICLE VI
CONCERNING THE REVIEW COMMITTEE
Section 6.01. General. A committee (the "Review Committee") shall be
established for the purpose of meeting on a periodic basis (no less frequently
than once during each calendar quarter unless all of the members of the Review
Committee shall otherwise agree) to review and discuss the management, operation
and development of the Business Units and related Assets. In connection with its
preparation of any business plan for the management, development and operation
of the Business Units and related Assets or any amendment thereto, the Company
will consult with the Review Committee for the purpose of seeking advice and
recommendations from the Review Committee regarding such business plan or
amendment thereto. Promptly after each business plan (or amendment thereto) is
finalized, the Company will provide each member of the Review Committee with a
copy
43
thereof. It is understood and agreed that the object of each such business plan
will be to maximize the value of the Business Units and related Assets. The
reasonable fees of, and the reasonable costs and expenses incurred by, the
Review Committee and its members in furtherance of their responsibilities shall
be borne by the Company and fairly allocated among the Business Units for
purposes of determining the Excess Cash Flow of the Business Units, such
allocation to be made in a manner reasonably determined by the Company in good
faith.
Section 6.02. Composition. The Review Committee shall be composed of five
members. Two members shall be designated by the Company (the "Company Members")
and two members shall be designated by the Representatives (the "Holder
Members"). The Company Members and the Holder Members shall jointly appoint a
fifth member (the "Independent Member") who shall be independent and, as such,
shall not be an Associate of the Company or any Holder. Each Company Member may
be an officer, employee or consultant of the Company. Each member of the Review
Committee shall be experienced in, and shall be generally recognized as having
current competence in, the management and development of residential and
commercial properties similar to the Assets comprising the Business Units.
Section 6.03. Resignation and Removal. (a) Any member of the Review
Committee may at any time resign and be discharged of his duties and obligations
hereunder by giving prior written notice to the Company, the Representatives and
the other members of the Review Committee.
(b) The Company shall have the exclusive right at any time, with or without
cause, to remove each Company Member by giving written notice to the
Representatives and the other members of the Review Committee, which notice
shall name the individual appointed by the Company to succeed such member. If
either Company Member shall die or resign, the Company shall have the exclusive
right to appoint a successor by giving written notice to the Representatives and
the other members of the Review Committee. If the Company fails to appoint a
successor within 15 days of becoming aware of such death or resignation, the
remaining members of the Review Committee shall be deemed to constitute the
Review Committee until such time as the Company appoints a successor as
aforesaid.
(c) The Representatives shall have the exclusive right at any time, with or
without cause, to remove each Holder Member by giving written notice to the
Company and the other members of the Review Committee, which notice shall name
the individual appointed by the Representatives to succeed such member. If
either Holder Member shall die or resign, the Representatives shall have the
exclusive right to appoint a successor by giving written notice to the Company
and the other members of the Review Committee. If the Representatives fail to
appoint a successor within 15 days of becoming aware of such death or
resignation, the remaining members of the Review Committee shall be deemed to
constitute the Review Committee until such time as the Representatives appoint a
successor as aforesaid.
(d) The Company Members and the Holder Members, acting unanimously, shall
have the exclusive right at any time, with or without cause, to remove the
Independent Member by giving written notice to the Representatives and the
Company, which notice shall name the individual unanimously appointed by the
Company Members and the Holder Members to succeed such Independent Member. If
the Independent Member shall die or resign, the Company Members and the Holder
Members, acting unanimously, shall have the exclusive right to appoint a
successor by giving written notice to the Representatives and the Company. If
the Company Members and the Holder Members fail to unanimously appoint a
successor Independent Member within 15 days of becoming aware of such death or
resignation, any Company Member or Holder Member may apply to any court of
competent jurisdiction to appoint a successor Independent Member, and such court
may thereupon, after such notice (if any) as it may consider proper, appoint a
successor Independent Member.
(e) No such resignation or removal shall relieve any member of the Review
Committee from Liability for any breach of this Agreement by such member prior
to the effective date of such resignation or removal.
Section 6.04. Actions, Etc. (a) Except as otherwise provided herein, all
actions required or permitted to be made by the Review Committee hereunder shall
require the affirmative vote of a majority of all the members of the Review
Committee.
44
(b) All actions of the Review Committee shall be taken either at a meeting
of the Review Committee at which all members are present (in person or by
telephone) or by unanimous written consent, and any purported action of the
Review Committee taken by any other means shall be void and of no effect for
purposes of this Agreement. Any member of the Review Committee may call a
meeting thereof on three days' notice (oral or written) to the other members.
The Review Committee shall keep regular minutes of its proceedings and report
the same to the Representatives when required. Subject to the foregoing
provisions of this Article VI, the Review Committee may fix its rules of
procedure.
(c) The Review Committee shall be entitled to retain and consult with such
independent advisors and other experts as the Review Committee shall deem
necessary or appropriate in connection with the performance of its duties and
responsibilities and the exercise of its powers and authority hereunder.
Section 6.05. Confidentiality. The Company shall not be obligated to
provide any documents or other information to any member of the Review Committee
unless such member shall agree that all such documents and other information
will be kept confidential by such member and will be used by such member only
for the purposes contemplated by this Agreement. Notwithstanding the foregoing,
each member of the Review Committee shall be permitted to:
(a) disclose any such documents or other information (i) to the Company or
any employee, agent, advisor, consultant, officer, director or stockholder of
the Company or any Affiliate of the Company, (ii) to any Representative or any
employee, agent, legal counsel, accountant, advisor or consultant of the
Representatives or (iii) to the extent that such documents or information (A)
are furnished or made available to such member by the Company on a
non-confidential basis, (B) is or becomes generally known or available other
than as a result of a disclosure by such member or (C) is or becomes known or
available to such member on a non-confidential basis from a source (other than
the Company) which, to such member's knowledge, is not prohibited from
disclosing such documents or information to such member by a legal, contractual,
fiduciary or other obligation to the Company; and
(b) disclose and use any such documents or other information (i) as the
Company shall approve from time to time (which approval shall not be
unreasonably withheld), (ii) as shall be required in response to any summons or
subpoena or in connection with any litigation, (iii) to the extent such member
believes it necessary to comply with applicable Law or (iv) to the extent such
member believes it necessary in the performance of his duties and obligations
hereunder or in the exercise or enforcement of his rights, powers, privileges,
remedies or immunities hereunder.
If any member of the Review Committee intends to disclose any information which
is subject to the foregoing confidentiality restriction pursuant to clause
(b)(ii) or (b)(iii) above, such member of the Review Committee will notify the
Company, to the extent practicable, so that the Company may seek an appropriate
protective order. If requested by the Company, each member of the Review
Committee will acknowledge in writing that he is aware that the United States
securities laws prohibit any Person who has material non-public information
about a company with securities registered under the Exchange Act from
purchasing or selling securities of such company based on such non-public
information or disclosing such information to any other Person under
circumstances where it is reasonably foreseeable that such Person is likely to
sell securities of such company based on such non-public information.
Section 6.06. Indemnification. The Company shall indemnify and save each
member of the Review Committee harmless against any Claims, Liabilities and
Losses, not arising from his own default, gross negligence or intentional
misconduct, which such member may incur in the good faith exercise and
performance of his powers and responsibilities hereunder.
ARTICLE VII
MISCELLANEOUS
Section 7.01. Notices. Any and all notices, requests or other
communications hereunder shall be given in writing and delivered by: (a)
regular, overnight or registered or certified mail (return receipt requested),
45
with first class postage prepaid; (b) hand delivery; (c) facsimile transmission;
or (d) overnight courier service, to the Parties at the following addresses or
facsimile numbers:
(i) If to the Company:
The Rouse Company
10275 Little Patuxent Parkway
Columbia, Maryland 21044-3456
Attention: General Counsel
Telephone Number: (410) 992-6400
Facsimile Number: (410) 992-6392
With a copy to:
The Rouse Company
10275 Little Patuxent Parkway
Columbia, Maryland 21044-3456
Attention: President
(ii) If to the Representatives, to their respective addresses set
forth below:
Platt W. Davis, III
2500 First City Tower
1001 Fannin
Houston, Texas 77002
Telephone Number: (713) 758-2294
Facsimile Number: (713) 615-5246
David G. Elkins
4200 Texas Commerce Tower
600 Travis
Houston, Texas 77002
Telephone Number: (713) 220-4364
Facsimile Number: (713) 220-4285
Kenneth E. Studdard
6150 Westview
Houston, Texas 77055
Telephone Number: (713) 688-9233
Facsimile Number: (713) 688-5661
(iii) If to the Holders, as their names and addresses appear on
the registry described in Section 4.09, with copies to the
Representatives or at such other address or number as shall be
designated in a notice by the Company to the Holders and the
Representatives or by any Holder to the Company and the
Representatives or by any Representative to the Company, the Holders
and the other Representatives, in each case, given in accordance with
this Section 7.01. Except as otherwise provided in this Agreement, all
such communications shall be deemed to have been duly given (A) in the
case of a notice sent by regular mail, three business days after it is
duly deposited in the mails; (B) in the case of a notice sent by
registered or certified mail, on the date receipted for (or refused)
on the return receipt; (C) in the case of a notice delivered by hand,
when personally delivered; (D) in the case of a notice sent by
facsimile, upon transmission subject to telephone confirmation of
receipt; and (E) in the case of a notice sent by overnight mail or
overnight courier service, the date delivered at the designated
address, in each case given or addressed as aforesaid.
46
Section 7.02. Dispute Resolution. (a) In the event of any dispute between
the Company, on the one hand, and the Representatives, on the other hand, with
respect to any matter covered by this Agreement (including whether the
provisions of this Agreement have been complied with), the Company and the
Representatives (the "Disputants") shall first use their best efforts to resolve
such dispute between themselves. If the Disputants are unable to resolve the
dispute within 15 days, they agree to submit the dispute to mediation in
accordance with the Commercial Mediation Rules of the American Arbitration
Association. The Disputants will jointly appoint a mutually acceptable mediator,
seeking assistance in such regard from the American Arbitration Association if
they are unable to agree upon such appointment within ten days following the
15-day period referred to above. Upon appointment of the mediator, the
Disputants agree to participate in good faith in the mediation and negotiations
relating thereto for 20 days. If the Disputants are not successful in resolving
the dispute through mediation within such 20-day period, either Disputant may
submit the dispute to arbitration in accordance with the following provisions of
this Section 7.02. The fees and expenses of the mediator shall be borne by the
non-prevailing party or, in the event there is no clear prevailing party, as the
mediator deems appropriate.
(b) To submit a dispute to arbitration as contemplated by paragraph (a)
above, a Disputant must give written notice to the other Disputant, in which
event the dispute shall be settled by arbitration in accordance with the
Expedited Procedures of the Commercial Arbitration Rules of the American
Arbitration Association except as otherwise provided below. The arbitrators
shall have sole discretion with regard to the admissibility of evidence. Each
Disputant shall have the right to be represented by counsel. All rulings of the
arbitrators shall be in writing, shall be determined by at least a majority of
their number and shall be delivered to the Disputants. The fees and expenses of
the arbitrators shall be borne by the non-prevailing Disputant or, in the event
there is no clear prevailing Disputant, as the arbitrators deem appropriate.
(c) In the event there is any disputed question of law involved in any
arbitration proceeding hereunder, such as the proper legal interpretation of any
provision of this Agreement, the arbitrators shall make separate and distinct
findings of all facts material to the disputed question of law to be decided
and, on the basis of the facts so found, express their conclusion of the
question of law. The facts so found shall be conclusive and binding on the
Disputants, but any legal conclusion reached by the arbitrators from such facts
may be submitted by either Disputant to a court of law for final determination
by initiation of a civil action in the manner provided by law. Such action, to
be valid, must be commenced within 20 days after receipt of the arbitrators'
decision. If no civil action is commenced within such 20-day period, the legal
conclusion reached by the arbitrators shall be conclusive and binding on the
Disputants. Any such civil action shall be submitted, heard and determined
solely on the basis of the facts found by the arbitrators. Neither of the
Disputants shall, or shall be entitled to, submit any additional or different
facts for consideration by the court. In the event any civil action is commenced
under this paragraph (c), the party who prevails or substantially prevails (as
determined by the court) in such civil action shall be entitled to recover from
the other party all of its Losses incurred in connection with such action and on
appeal.
(d) Except as limited by paragraph (c) above, the Disputants agree that
judgment upon the award rendered by the arbitrators may be entered in any court
of competent jurisdiction, and the Disputants hereby consent and commit
themselves to the jurisdiction of the courts of the State of Delaware and the
United States District Court for New Castle County, Delaware for purposes of the
enforcement of any arbitration award. In the event legal proceedings are
commenced to enforce the rights awarded in any arbitration proceeding hereunder,
the party who prevails or substantially prevails (as determined by the court) in
such legal proceeding shall be entitled to recover from the other party all of
its Losses incurred in connection with such legal proceeding and on appeal.
(e) All arbitration conferences and hearings pursuant to this Section 7.02
shall be conducted in Wilmington, Delaware or at such other place as the
Disputants may mutually agree.
Section 7.03. Benefit and Burden. (a) This Agreement shall inure to the
benefit of and shall be binding upon, the Parties and their respective
executors, personal representatives, administrators, successors, heirs,
distributees, devisees, legatees and permitted assigns.
(b) Anything herein or elsewhere to the contrary notwithstanding, all
covenants and agreements on the part of the Company herein are hereby declared
to be for the benefit of the Holders and the Representatives and their
respective executors, personal representatives, administrators, successors,
heirs, devisees, legatees and permitted assigns, and each such Person shall be
entitled to enforce this Agreement the same as if it
47
were a signatory hereto. Nothing in this Agreement is intended to, or shall,
preclude or restrict any Holder from instituting and maintaining in his or its
own name such suits and proceedings as such Person may deem necessary to enforce
delivery of all Contingent Shares and Contingent Preferred Shares which such
Person is entitled to receive hereunder or to otherwise protect and enforce such
Person's rights, privileges and interests hereunder.
Section 7.04. Consolidations, Mergers, Etc. (a) The Company will require
any successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or Assets of the
Company, by agreement in form and substance reasonably acceptable to the
Representatives, to expressly assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a material
breach of this Agreement. As used herein, the term "Company" shall include any
successor to its business and/or Assets as aforesaid which executes and delivers
the agreement provided for in this paragraph (a) or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of Law.
(b) The Company acknowledges that this Agreement and the rights of the
Holders hereunder (including (i) the right of the Holders to receive securities
which are freely tradable and readily marketable and (ii) the non-taxable
receipt by the Holders of Rouse Common Stock pursuant to the Merger and of
Contingent Shares hereunder) are of major importance to the Holders and that
each Holder is justified in believing and assuming that the Company will not
voluntarily undertake or complete any Prohibited Transaction. The Company
expressly agrees that, without the prior written consent of the Majority
Holders, it will not undertake or complete any Prohibited Transaction. As used
herein, "Prohibited Transaction" means (A) any reorganization of the Company or
any consolidation or merger of the Company with or into another entity, (B) any
recapitalization, reclassification or change in the capital structure of the
Company, (C) any partial or complete liquidation, dissolution or winding up of
the affairs of the Company or (D) any other transaction or event if, in any such
case and for any reason, (i) the Company or any successor to the Company shall
be incapable of, or restricted or prohibited from, delivering (on a timely
basis) freely tradable and readily marketable securities comparable to the
Contingent Shares or the Contingent Preferred Shares (as applicable) hereunder
or (ii) such transaction or event could reasonably be expected to have a
prejudicial effect on the Holders with respect to their non-taxable receipt of
securities pursuant to the Merger Agreement or this Agreement.
(c) In the event the Company desires to implement any transaction of the
type described in clauses (A) through (D) of paragraph (b) above which the
Company has concluded, in good faith, does not constitute a Prohibited
Transaction (a "Proposed Transaction"), the Company shall, as soon as
practicable prior to the implementation of the Proposed Transaction, give
written notice to the Representatives describing the Proposed Transaction in
reasonable detail and setting forth the Company's conclusion that the Proposed
Transaction does not constitute a Prohibited Transaction and the reasons
therefor. Such notice may also contain a request that the Representatives agree
with the conclusion set forth therein. Upon receipt of any such request, the
Representatives shall consider the same in good faith and shall be authorized
(but not obligated) to agree, on behalf of the Holders, with the Company's
conclusion that the Proposed Transaction does not constitute a Prohibited
Transaction. Any such agreement of the Representatives (i) shall be in writing,
(ii) shall be limited to the Proposed Transaction in question and shall not
extend or apply to any other transaction or event and (iii) may be conditioned
upon and subject to the execution and delivery to the Representatives of one or
more instruments in writing designed to fairly and equitably protect the rights,
privileges, interests and remedies of the Holders and the Representatives
against one or more effects of the Proposed Transaction. Moreover, each such
agreement of the Representatives shall be binding upon the Holders and, in the
absence of fraud or bad faith, the Company shall be fully protected for purposes
of this Section 7.04 in acting in accordance with such agreement.
(d) Nothing in this Section 7.04 shall relieve the Company of any of its
obligations contained elsewhere in this Agreement.
Section 7.05. Company as Fiduciary. (a) The Company acknowledges and agrees
that it is accountable as a fiduciary to the Holders and their respective
executors, personal representatives, administrators, successors, heirs,
distributees, devisees, legatees and permitted assigns, which fiduciary duty
shall be the same as the fiduciary duty owed by a director of a corporation to
the stockholders of such corporation. Without limitation of the foregoing, the
Company shall, and shall cause each Business Unit Entity to, (i) exercise
reasonable care and act with
48
good faith and integrity in managing and operating the Business Units and the
Assets comprising the Business Units and (ii) deal with the Holders and the
Representatives fairly and in good faith.
(b) Except as provided in Section 4.03, no obligation or covenant imposed
on the Company by this Agreement, including under Sections 4.10, 4.11, 4.12 and
4.13, shall be construed to obligate the Company or any of its Subsidiaries in
any way to make loans to, advance funds to, invest additional capital in or
extend its credit in order to obtain financing for, or provide working capital
for, any Business Unit or any Business Unit Entity, except in its sole and
absolute discretion. The Company makes no representation or warranty that the
operation of any Business Unit or any portion of the Assets of any Business Unit
shall be profitable or that any Business Unit will have Receipts sufficient to
obligate the Company to deliver Contingent Shares hereunder.
Section 7.06. No Third Party Rights. Nothing in this Agreement shall be
deemed to create any right in any creditor or other Person other than the
Parties, the members of the Review Committee and the other Persons referred to
in Section 7.03(a), and this Agreement shall not be construed in any respect to
be a Contract in whole or in part for the benefit of any Person other than the
Parties, the members of the Review Committee and the other Persons referred to
in Section 7.03(a).
Section 7.07. Amendments and Waiver. (a) Except as provided in Section
4.02, this Agreement may be not be amended, supplemented or modified, nor may
compliance by the Company with any provision of this Agreement be waived (either
generally or in a particular instance and either retroactively or
prospectively), except in each case by an instrument in writing duly entered
into by the Company and all of the Representatives. Without limitation of the
foregoing, the Representatives may, without the consent of any of the Holders,
enter into one or more instruments supplemental hereto as they may deem
desirable in order to (i) add to the covenants of the Company in this Agreement,
(ii) surrender any right or power conferred upon the Company by this Agreement,
(iii) evidence any succession of any Person to the Company and the assumption by
such successor of the covenants of the Company contained herein, (iv) cure any
ambiguity in (or cure, correct or supplement any defective provision of) this
Agreement in such manner as shall not be inconsistent with this Agreement or
adversely affect the rights, privileges or remedies of the Holders under this
Agreement. Notwithstanding the foregoing, no such amendment, supplement,
modification or waiver will be effective:
(A) except as provided in clause (B) below, without the prior
written consent of the Majority Holders, if such amendment,
supplement, modification or waiver would (1) add any provision to this
Agreement, change in any manner or eliminate any of the provisions of
this Agreement or modify in any respect the rights of the Holders
under this Agreement, in each case if such addition, change,
elimination or modification would materially and adversely affect the
rights, privileges or remedies of the Holders under this Agreement, or
(2) waive any Event of Default;
(B) without the prior written consent of all the Holders, if such
amendment, supplement, modification or waiver would (1) change the
amount of, or times for the delivery of, Contingent Shares or
Contingent Preferred Shares to be delivered by the Company under this
Agreement in a manner adverse to the Holders, (2) change the Valuation
Date of any Business Unit, (3) reduce the Percentage Interest of any
Holder (other than due to an assignment to an Eligible Assignee), (4)
substitute any Equity Interest for the Contingent Shares or Contingent
Preferred Shares required to be delivered by the Company under this
Agreement (unless otherwise specifically permitted in this Agreement),
(5) waive any Event of Default under clause (b) of the definition
thereof or (6) change the provisions of this Section 7.07 (except to
increase any percentage required to approve any such amendment,
supplement, modification or waiver or to provide that certain other
provisions of this Agreement cannot be amended, supplemented, modified
or waived without the consent of all of the Holders affected thereby);
(C) without the prior written consent of all members of the
Review Committee, if such amendment, supplement, modification or
waiver would adversely affect the rights, duties or immunities of the
members of the Review Committee under this Agreement; or
49
(D) without the prior written consent of all of the
Representatives, if such amendment, supplement, modification or waiver
would adversely affect the rights, duties or immunities of the
Representatives under this Agreement.
Notwithstanding anything to the contrary contained herein, Article V of this
Agreement may be amended, supplemented or modified at any time solely by an
instrument in writing signed (x) by the Representatives with the consent of the
Majority Holders and (y) if and to the extent that such amendment, modification
or supplement would in any way be prejudicial to the Company, by the Company. In
the case of any amendment, supplement, modification or waiver referred to in
clause (x) above, it shall not be necessary for the Majority Holders to approve
the particular form of such amendment, supplement, modification or waiver, but
it shall be sufficient if the Majority Holders shall approve the substance
thereof. Similarly, in the case of any amendment, supplement, modification or
waiver referred to in clause (y) above, it shall not be necessary for the
Holders to approve the particular form of such amendment, supplement,
modification or waiver, but it shall be sufficient if the Holders shall approve
the substance thereof. No such amendment, supplement, modification or waiver
shall extend to or affect any provision, term or obligation not expressly
amended, supplemented, modified or waived thereby or impair any right consequent
thereon. Any amendment, supplement, modification or waiver entered into pursuant
to this paragraph (a) shall be binding upon all Parties. Copies of each
amendment, supplement, modification or waiver entered into pursuant to this
paragraph (a) shall be delivered by the Company to each of the Representatives
and each Holder.
(b) The Company will not, directly or indirectly, pay or cause to be paid
any remuneration (whether in the form of a fee or otherwise) to any Holder as
consideration for or as an inducement to such Holder's consenting to any
proposed amendment, supplement, modification or waiver of this Agreement unless
such remuneration is concurrently paid, on the same terms, ratably to all the
Holders.
(c) No failure or delay on the part of any Party in exercising any right,
power or privilege hereunder and no course of dealing between or among any of
the Parties shall operate as a waiver of any right, power or privilege
hereunder. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder. No notice to or demand on any
Party in any case shall entitle such Party to any other or further notice or
demand in similar or other circumstances or constitute a waiver of the rights of
any Party to any other or further action in any circumstances without notice or
demand.
(d) None of the expenses (including, without limitation, counsel fees and
expenses) incurred by the Company or any Business Unit Entity in connection with
any amendment, supplement, modification or waiver of this Agreement shall be
deemed an Expenditure hereunder unless otherwise consented to by the
Representatives in writing.
Section 7.08. Further Documents. The Company agrees to execute any and all
documents, and to perform any and all other acts, as may be necessary or
reasonably requested by the Representatives to accomplish the purposes of this
Agreement.
Section 7.09. Assignments. (a) Except for a Transfer by a Holder to an
Eligible Assignee or as permitted by Section 7.04, neither this Agreement nor
any right, interest or obligation hereunder may be assigned by (i) by the
Company without the prior written consent of the Representatives or (ii) by any
Holder, and any attempt to do so shall be null and void.
(b) Except as otherwise provided herein or prohibited by applicable law,
the Company may acquire from any Holder all (but not less than all) of the
rights and interests of such Holder hereunder; provided, however, that (i)
voting or consensual rights of such Holder hereunder shall automatically expire
and terminate concurrently with the assignment to the Company of the rights and
interests of such Holder hereunder and (ii) in no event shall the Company or any
Subsidiary or Affiliate of the Company acquire the rights and interests of a
Holder hereunder prior to December 31, 1997.
Section 7.10. Severability. Should any clause, sentence, paragraph,
subsection, Section or Article of this Agreement be judicially declared to be
invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement, and the part or parts
of this Agreement so held to
50
be invalid, unenforceable or void will be deemed to have been stricken herefrom,
and the remainder will have the same force and effectiveness as if such stricken
part or parts had never been included herein.
Section 7.11. Specific Performance. The covenants and obligations contained
in this Agreement relate to special, unique and extraordinary matters and a
violation of any of the terms hereof or thereof by the Company would cause
irreparable injury to the Holders and/or the Representatives in an amount which
would be impossible to estimate or determine and for which any remedy at law
would be inadequate. As such, the Company agrees that if the Company fails or
refuses to fulfill any of its obligations under this Agreement or to make any
payment or deliver any instrument required hereunder, then the Holders and/or
the Representatives shall have the remedy of specific performance, which remedy
shall be cumulative and nonexclusive and shall be in addition to any other
rights and remedies otherwise available under any other Contract or at law or in
equity and to which the Holders and/or the Representatives might be entitled.
Section 7.12. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE COMPANY HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF.
Section 7.13. Submission to Jurisdiction. The Company hereby irrevocably
and unconditionally consents to submit to the exclusive jurisdiction of the
courts of the State of Delaware and the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agrees
not to commence any litigation relating thereto except in a Delaware Court),
waives any objection to the laying of venue of any such litigation in any
Delaware Court and agrees not to plead or claim that any litigation brought in
any Delaware Court has been brought in an inconvenient forum; provided, however,
that nothing contained in this Section 7.13 is intended to waive the right of
the Company to remove any action or proceeding commenced in any state Delaware
Court to an appropriate federal Delaware Court to the extent the basis for such
removal exists under applicable Law. The Company hereby irrevocably (i) appoints
The Corporation Trust Company (the "Process Agent"), with an office on the date
hereof at 1209 Orange Street, Wilmington, Delaware 19801, as its agent to
receive on behalf of it and its Assets service of copies of the summons and
complaint and any other process which may be served in any such action or
proceeding, (ii) agrees that service of process may be made on the Company by
mailing, by certified mail, a copy of such process to the Company in care of the
Process Agent at the Process Agent's above address, with a copy to the Company
at its address for notices specified herein, and (iii) authorizes and directs
the Process Agent to accept such service on its behalf. As an alternative method
of service, the Company also irrevocably consents to the service of any and all
process in any such action or proceeding by the mailing by certified or
registered mail, return receipt requested, of any process required by any
Delaware Court, to the address specified for notices to the Company in Section
7.01.
Section 7.14. Expenses. Except as otherwise provided herein, each of the
Parties shall pay its own expenses incident to this Agreement and the
transactions contemplated hereby, including all legal and accounting fees and
disbursements. Notwithstanding anything contained herein to the contrary, if any
Party commences an action against another Party to enforce any of the terms,
covenants, conditions or provisions of this Agreement, or because of a breach or
alleged breach by such other Party of its obligations under this Agreement, the
prevailing Party in any such action shall be entitled to recover its Losses
incurred in connection with the prosecution or defense of such action, from the
losing Party.
Section 7.15. No Right of Set Off. Anything herein or elsewhere to the
contrary notwithstanding, the Company's obligations to make the payments and
deliver the Contingent Shares and Contingent Preferred Shares required under
this Agreement and otherwise perform its obligations hereunder shall not be
affected by any set off, counterclaim, recoupment, defense or other Claim, right
or action that the Company may have against any Person.
Section 7.16. No Partnership, Joint Venture or Agency. Neither the
execution, delivery or performance of this Agreement nor the consummation of any
of the transactions contemplated hereby is intended, nor will the same be deemed
or construed, to create a partnership, joint venture or agency for any purpose
between the Company or any Business Unit Entity and the Holders so as to entitle
any Holder to any share of the profits of
51
any Business Unit or to make any Holder in any way responsible for the Debts or
Losses of the Company or any Business Unit Entity, including those related to
the Business Units.
Section 7.17. Survival of Representations, Warranties, Etc. All
representations, warranties, indemnities, covenants and agreements made by the
Company in this Agreement or in any certificate, document or other instrument
delivered pursuant to this Agreement shall survive the execution and delivery of
this Agreement, any delivery of Contingent Shares or Contingent Preferred Shares
hereunder and any permitted Transfer of any of the rights of a Holder hereunder,
in each case notwithstanding any investigation heretofore or hereafter made by
or on behalf of such Holder.
Section 7.18. Payments and Interest. All cash payments payable or to be
payable by the Company pursuant to this Agreement shall be payable in
immediately available funds and in such coin or currency of the United States of
America that, at the time of payment, is legal tender for the payment of public
and private debts in the United States of America and shall be made by
electronic funds transfer as the payee shall have directed to the Company in
writing or, if no such direction shall have been given to the Company, by check
payable to the order of the payee and mailed in the manner and at the address
referred to in Section 7.01. All amounts due under this Agreement which are not
paid when due shall bear interest until paid at the Applicable Federal Rate plus
5%.
Section 7.19. Entire Agreement. This Agreement sets forth all of the
promises, agreements, conditions, understandings, warranties and representations
among the Parties with respect to the transactions contemplated hereby, and
supersedes all prior agreements, arrangements and understandings among the
Parties, whether written, oral or otherwise. There are no promises, agreements,
conditions, understandings, warranties or representations, oral or written,
express or implied, among the Parties concerning the subject matter hereof
except as set forth herein.
IN WITNESS WHEREOF, the Company has executed this Agreement as of the date
first stated herein.
The Rouse Company
By: /s/ Bruce I. Rothschild
------------------------------------
Printed Name: Bruce I. Rothschild
Title: Vice President
52
ACCEPTANCE OF APPOINTMENT BY
REPRESENTATIVES
The undersigned hereby (i) acknowledge
that they have agreed to serve, and
hereby accept their respective
appointments, as Representatives under
the foregoing Contingent Stock Agreement
and (ii) assume and agree to perform all
the rights, powers, duties and
obligations set forth with respect to
the Representatives in such Contingent
Stock Agreement.
/s/ Platt W. Davis, III
----------------------------------------
Platt W. Davis, III
/s/ David G. Elkins
----------------------------------------
David G. Elkins
/s/ Kenneth E. Studdard
----------------------------------------
Kenneth E. Studdard
53