<PAGE>
Rule 424(b)(3)
Registration No. 33-63279
Registration No. 33-63279-01
Registration No. 33-64519
Registration No. 33-64519-01
5,300,000 PREFERRED SECURITIES
ROUSE CAPITAL
9 1/4% CUMULATIVE QUARTERLY INCOME PREFERRED SECURITIES (QUIPS*)
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT ISSUER HAS FUNDS AS SET FORTH HEREIN BY
THE ROUSE COMPANY
----------------
The 9 1/4% Cumulative Quarterly Income Preferred Securities (the "Preferred
Securities") offered hereby represent preferred undivided beneficial interests
in the assets of Rouse Capital, a statutory business trust formed under the
laws of the State of Delaware (the "Issuer" or the "Trust"). The Rouse
Company, a Maryland corporation ("Rouse" or the "Company"), is the owner of
the common securities (the "Common Securities") representing undivided
beneficial interests in the assets of the Issuer. The First National Bank of
Chicago and Michael J. Majchrzak are the Property Trustee and the Delaware
Trustee, respectively, of the Issuer. The Issuer exists for the sole purpose
of issuing the Preferred Securities and the Common Securities and investing
the proceeds thereof in 9 1/4% Junior Subordinated Debentures due 2025 (the
"Junior Subordinated Debentures") issued by Rouse, and the ability of the
Issuer to make distributions and pay other amounts on the Preferred Securities
is solely dependent
(continued on next page)
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREOF FOR CERTAIN INFORMATION
RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD
AND CIRCUMSTANCES DURING WHICH AND UNDER WHICH PAYMENT ON THE PREFERRED
SECURITIES AND THE JUNIOR SUBORDINATED DEBENTURES MAY BE DEFERRED AND THE
RELATED UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
----------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO THE
OFFERING PRICE COMMISSION (1) ISSUER (2)(3)
-------------- -------------- ---------------
<S> <C> <C> <C>
Per Preferred Security........... $25.00 (2) $25.00
Total (4)........................ $132,500,000 (2) $132,500,000
</TABLE>
- --------
(1) The Issuer and Rouse have agreed to indemnify the several Underwriters (as
defined in "Underwriting") against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting".
(2) In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Junior Subordinated Debentures,
the Underwriting Agreement provides that Rouse will pay to the
Underwriters, as compensation ("Underwriters' Compensation") for their
arranging the investment therein of such proceeds, $.7875 per Preferred
Security (or $4,173,750 in the aggregate). See "Underwriting".
(3) Expenses of the offering, which are payable by Rouse, are estimated to be
$608,369.
(4) The Issuer and Rouse have granted the Underwriters an option for 30 days
to purchase up to an additional 795,000 Preferred Securities at the
initial public offering price per Preferred Security, solely to cover
over-allotments. Rouse will pay Underwriters' Compensation in the amount
per Preferred Security set forth in Note 2 with respect to each such
additional Preferred Security. If such option is exercised in full, the
total Initial Public Offering Price, Underwriting Commission and Proceeds
to the Issuer will be $152,375,000, $4,799,812.50 and $152,375,000,
respectively. See "Underwriting".
----------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, and subject to receipt and acceptance by
them and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Preferred Securities will be made only in book-
entry form through the facilities of DTC on or about November 27, 1995.
- --------
* QUIPS is a servicemark of Goldman, Sachs & Co.
GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS
INCORPORATED
LEHMAN BROTHERS
MERRILL LYNCH & CO.
SMITH BARNEY INC.
----------------
The date of this Prospectus is November 22, 1995.
<PAGE>
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2
<PAGE>
(continued from previous page)
upon Rouse making payments on the Junior Subordinated Debentures as and when
required. Such payments on the Junior Subordinated Debentures, if made in
accordance with the terms of the Indenture (as defined under "Description of
the Preferred Securities--Distributions"), will provide funds sufficient to
enable the Issuer to make distributions and pay other amounts on the Preferred
Securities. See "Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee--General". The holders of the
Preferred Securities will have a preference, with respect to cash
distributions and amounts payable on liquidation, redemption or otherwise over
the holders of the Common Securities issued by the Issuer only if there is an
Event of Default (as defined under "Description of the Preferred Securities--
Events of Default; Notice"). See "Description of the Preferred Securities--
Subordination of Common Securities" and "--Liquidation Distribution Upon
Dissolution".
Holders of the Preferred Securities will be entitled to receive cumulative
cash distributions accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year, commencing December 31, 1995, at the rate of 9 1/4% per annum of
the liquidation amount of $25 per Preferred Security. Rouse has the right to
defer payments of interest on the Junior Subordinated Debentures by extending
the interest payment period thereon at any time for up to 20 consecutive
quarters (each an "Extension Period"). If interest payments are so deferred,
distributions on the Preferred Securities will also be deferred. During an
Extension Period, distributions will continue to accrue and holders of
Preferred Securities will be required to accrue interest income for United
States federal income tax purposes. See "Description of the Junior
Subordinated Debentures--Option to Extend Interest Payment Period" and
"Certain United States Federal Income Tax Considerations--Potential Extension
of Interest Payment Period and Original Issue Discount".
The payment of distributions out of moneys held by the Issuer and payments
on liquidation of the Issuer or the redemption of Preferred Securities, as set
forth below, are irrevocably guaranteed to the extent set forth herein by
Rouse (the "Guarantee"). See "Description of the Guarantee". If Rouse fails to
make interest payments on the Junior Subordinated Debentures held by the
Issuer, the Issuer will not have sufficient funds to pay distributions on the
Preferred Securities. The Guarantee does not cover payment of distributions
when the Issuer does not have sufficient funds to pay such distributions. In
such event, the remedy of a holder of Preferred Securities is to enforce the
rights of the Issuer under the Junior Subordinated Debentures held by the
Issuer. Rouse's obligations under the Guarantee are subordinated and junior in
right of payment to all other liabilities of Rouse (including the Junior
Subordinated Debentures) except any liabilities that may be made pari passu
with or subordinate to the Guarantee expressly by their terms. Rouse has,
through the Guarantee, the Trust Agreement (as defined under "Rouse Capital"),
the Junior Subordinated Debentures, the Indenture and the Expense Agreement
(as defined under "Description of the Guarantee--The Expense Agreement"),
taken together, fully, irrevocably and unconditionally guaranteed all of the
Issuer's obligations under the Preferred Securities.
The Preferred Securities are subject to mandatory redemption upon repayment
of the Junior Subordinated Debentures at maturity or their earlier redemption,
at $25 per Preferred Security plus accumulated and unpaid distributions to the
Redemption Date (as defined under "Description of the Preferred Securities--
Redemption Procedures"), whether or not earned or declared, to the date of
payment. See "Description of the Preferred Securities--Redemption". Rouse will
have the option at any time on or after November 27, 2000 to redeem the Junior
Subordinated Debentures, in whole or in part, with the proceeds of one or more
Equity Issuances (as defined under "Description of the Preferred Securities--
Redemption"), at a cash redemption price of 100% of the principal amount
thereof, plus accrued interest to the date of redemption. Rouse also will have
the right at any time, upon the occurrence of a Tax Event (as defined under
"Description of the Preferred Securities--Redemption"), to redeem the Junior
Subordinated Debentures, in whole but not in part. See "Description of the
Junior Subordinated Debentures--Optional Redemption".
The Junior Subordinated Debentures are subordinated and junior in right of
payment to all Senior Indebtedness (as defined under "Description of the
Junior Subordinated Debentures--Subordination") of Rouse. As of September 30,
1995, Rouse had approximately $541 million of principal amount of Senior
Indebtedness. Because Rouse is a holding company whose assets consist
substantially of the stock of its subsidiaries, the Junior Subordinated
Debentures are also structurally subordinated and junior in right of payment
to indebtedness for money borrowed and capitalized lease obligations of
Rouse's subsidiaries which aggregated $2,077 million at September 30, 1995.
The terms of the Junior Subordinated Debentures do not limit Rouse's ability
to incur additional Senior Indebtedness or subsidiary indebtedness. See
"Description of the Junior Subordinated Debentures--Subordination".
In the event of the liquidation of the Issuer, the holders of the Preferred
Securities will be entitled to receive for each Preferred Security a
liquidation preference of $25 plus accrued and unpaid distributions thereon,
whether or not earned or declared, to the date of payment (the "Liquidation
Amount"), subject to certain limitations, unless in connection with such
liquidation, Junior Subordinated Debentures are distributed to the holders of
Preferred Securities. See "Description of the Preferred Securities--
Liquidation Distribution Upon Dissolution".
The Preferred Securities have been approved for listing on the New York
Stock Exchange, subject to notice of issuance, under the symbol "RSEPrZ".
The Preferred Securities will be represented by global certificates
registered in the name of The Depository Trust Company ("DTC") or its nominee.
Beneficial interests in the Preferred Securities will be shown on, and
transfers thereof will be effected only through, records maintained by
participants in DTC. Except as described herein, Preferred Securities in
certificated form will not be issued in exchange for the global certificates.
See "Description of Preferred Securities--Book-Entry-Only Issuance--The
Depository Trust Company".
---------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL
IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK
EXCHANGE, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
---------------
3
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data included
elsewhere or incorporated by reference in this Prospectus. Unless otherwise
specified, references herein to "Rouse" or "the Company" refer to The Rouse
Company and its consolidated subsidiaries. Prospective investors should
carefully read the entire Prospectus.
ROUSE CAPITAL
The Issuer is a statutory business trust recently formed under the laws of
the State of Delaware. All of the Issuer's Common Securities are owned by
Rouse.
The Issuer exists for the exclusive purposes of issuing the Preferred
Securities and the Common Securities, purchasing the Junior Subordinated
Debentures with the proceeds thereof and engaging in activities necessary or
incidental to the foregoing. The payment by the Issuer of distributions due on
the Preferred Securities is completely dependent on its receipt of interest
payments from Rouse on the Junior Subordinated Debentures.
THE ROUSE COMPANY
Rouse is one of the largest publicly-traded real estate companies in the
United States. Rouse develops, acquires, owns and manages income-producing
properties across the United States. At November 1, 1995, Rouse managed a
portfolio of operating properties consisting of retail centers and office,
mixed-use and other properties, totaling more than 58 million square feet in
almost 200 buildings. Rouse also develops and sells land primarily in and
around Columbia, Maryland.
THE OFFERING
Securities Offered.................. 5,300,000 of the Issuer's 9 1/4%
Cumulative Quarterly Income Preferred
Securities. In addition, the Issuer and
Rouse have granted the Underwriters an
option for 30 days to purchase up to an
additional 795,000 Preferred Securities
at the initial public offering price,
solely to cover over-allotments.
Distributions....................... Distributions on the Preferred Securities
will be payable at a rate per annum of 9
1/4% of the stated liquidation amount of
$25 per Preferred Security and will
cumulate from November 27, 1995. Subject
to the distribution deferral provisions
described in "--Distribution Deferral
Provisions" below, distributions will be
payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of
each year, commencing December 31, 1995.
Distributions that are in arrears for
more than one quarter will bear interest
at a rate per annum of 9 1/4%, compounded
quarterly.
5
<PAGE>
The ability of the Issuer to make
distributions on the Preferred Securities
is solely dependent on its receipt of
interest payments from Rouse on the
Junior Subordinated Debentures. Such
payments, if made in accordance with the
terms of the Indenture, will provide
sufficient funds to enable the Issuer to
make distributions and pay other amounts
on the Preferred Securities. See
"Description of the Preferred
Securities--Distributions" and "Relation-
ship Among the Preferred Securities, the
Junior Subordinated Debentures and the
Guarantee--General". The holders of the
Preferred Securities will have a
preference with respect to cash
distributions and amounts payable on
liquidation, redemption or otherwise over
the holders of the Common Securities only
if there is an Event of Default. See
"Description of the Preferred
Securities--Subordination of Common
Securities" and "--Liquidation
Distribution Upon Dissolution".
Distribution Deferral Provisions.... Rouse has the right, at any time and from
time to time, to extend any interest
payment period on the Junior Subordinated
Debentures for a period of up to 20
consecutive quarters, as described below
under "--Junior Subordinated Debentures".
Quarterly distributions on the Preferred
Securities would be deferred by the
Issuer (but would continue to accumulate
and would compound quarterly and
Additional Amounts (as defined under
"Description of the Preferred
Securities--Distributions"), intended to
provide quarterly compounding on
distribution arrearages, would also
accumulate) during any such period. If an
extension of an interest payment period
occurs, holders of Preferred Securities
will continue to accrue interest income
for United States federal income tax
purposes in advance of any corresponding
cash distribution. See "Risk Factors--
Option to Extend Interest Payment Period;
Tax Consequences" and "Certain United
States Federal Income Tax
Considerations--Potential Extension of
Interest Payment Period and Original
Issue Discount".
Liquidation Preference.............. $25 per Preferred Security, plus an
amount equal to any accumulated and
unpaid distributions (whether or not
earned or declared) to the date of
payment. See "Description of the
Preferred Securities--Liquidation
Distribution Upon Dissolution".
6
<PAGE>
Redemption.......................... Upon the repayment of any Junior
Subordinated Debentures, whether at
maturity or upon earlier redemption, the
proceeds from such repayment will be
applied to redeem Preferred Securities
and Common Securities having an aggregate
Liquidation Amount equal to the principal
amount of the Junior Subordinated
Debentures redeemed. 97% of such proceeds
will be allocated to the redemption of
Preferred Securities and 3% will be
allocated to the redemption of Common
Securities. The redemption price for each
Preferred Security selected for
redemption will be equal to $25 plus
accumulated and unpaid distributions to
the date of redemption, whether or not
earned or declared. Rouse has the option
to redeem the Junior Subordinated
Debentures (i) at any time on or after
November 27, 2000, in whole or in part,
with the proceeds of one or more Equity
Issuances and (ii) at any time, in whole
but not in part, upon the occurrence of a
Tax Event. See "Description of
the Preferred Securities--Redemption" and
"Description of the Junior Subordinated
Debentures--Optional Redemption".
Guarantee........................... Rouse will irrevocably guarantee, on a
subordinated basis and to the extent set
forth herein, the payment in full of (i)
accrued and unpaid distributions on the
Preferred Securities, if and only to the
extent the Issuer has funds sufficient to
make such payment therefor, (ii) the
Redemption Price with respect to the
Preferred Securities called for
redemption, if and only to the extent the
Issuer has funds sufficient to make such
payment and (iii) upon a voluntary or
involuntary dissolution, winding-up or
termination of the Issuer (other than in
connection with a redemption of all of
the Preferred Securities), the lesser of
(a) the aggregate Liquidation Amount, to
the extent the Issuer has funds
sufficient to make such payment, and (b)
the amount of assets of the Issuer
remaining available for distribution to
holders of the Preferred Securities in
liquidation of the Issuer. Rouse has,
through the Guarantee, the Trust
Agreement, the Junior Subordinated
Debentures, the Indenture and the Expense
Agreement, taken together, fully,
irrevocably and unconditionally
guaranteed all of the Issuer's
obligations under the Preferred
Securities. No single document standing
alone or operating in conjunction with
fewer than
7
<PAGE>
all of the other documents constitutes
such guarantee. It is only the combined
operation of these documents that has the
effect of providing a full, irrevocable
and unconditional guarantee of the
Issuer's obligations under the Preferred
Securities. See "Relationship Among the
Preferred Securities, the Junior
Subordinated Debentures and the
Guarantee--General". The Guarantee will
be unsecured and will rank (i)
subordinate and junior in right of
payment to all liabilities of Rouse
(including the Junior Subordinated
Debentures but excluding liabilities that
are made pari passu with or subordinate
to the Guarantee expressly by their
terms) and (ii) senior to Rouse's Series
A Convertible Preferred Stock,
liquidation value $50.00 per share, and
Rouse's common stock. The Guarantee is a
guarantee of payment and not of
collection. See "Risk Factors--Rights
Under the Guarantee" and "Description of
the Guarantee--General" and "--Status of
the Guarantee".
Voting Rights....................... Generally, holders of the Preferred
Securities will not have any voting
rights. However, the vote of a majority
in aggregate Liquidation Amount of
outstanding Preferred Securities will be
required to approve any amendment to the
Trust Agreement or any proposed action by
the trustees thereunder that would (i)
adversely affect the powers, preferences
or special rights of the holders of the
Preferred Securities or (ii) cause the
dissolution, winding-up or termination of
the Issuer (other than pursuant to the
Trust Agreement). In addition, the
approval of at least a majority in
aggregate Liquidation Amount of
outstanding Preferred Securities is
required to approve (i) any amendment to
the Indenture that would adversely affect
the holders of the Preferred Securities
and (ii) any waiver of an Event of
Default under the Indenture or Rouse's
obligation to comply with any covenant
thereunder. If an Event of Default under
the Indenture has occurred and is
continuing the holders of at least 25% of
the aggregate Liquidation Amount of
outstanding Preferred Securities shall
have the right to declare the principal
of and interest on the Junior
Subordinated Debentures immediately due
and payable. See "Description of the
Preferred Securities--Voting Rights" and
"Description of the Junior Subordinated
Debentures--Events of Default".
8
<PAGE>
Distribution of Junior Subordinated
Debentures Upon the Occurrence of
Certain Events.................... In the event that (i) Rouse becomes
bankrupt or insolvent or is dissolved or
liquidated or (ii) a Tax Event occurs,
the Issuer may be dissolved and
liquidated and the holders of the
Preferred Securities and Common
Securities may receive, after
satisfaction of liabilities to creditors
of the Issuer, Junior Subordinated
Debentures having an aggregate principal
amount equal to the aggregate Liquidation
Amount of the outstanding Preferred
Securities (together with any Additional
Amounts, if applicable), in lieu of
payment of the aggregate Liquidation
Amount of such Preferred Securities and
Common Securities (together with any
Additional Amounts, if applicable), which
payment would be subject to such assets
of the Issuer available for distribution
after satisfaction of liabilities to
creditors. See "Description of the
Preferred Securities--Liquidation
Distribution Upon Dissolution".
Junior Subordinated Debentures...... The Junior Subordinated Debentures will
mature on December 31, 2025, and will
bear interest at the rate of 9 1/4% per
annum, payable quarterly in arrears on
March 31, June 30, September 30 and
December 31 of each year, commencing
December 31, 1995. Such payment period
may be extended from time to time by
Rouse (during which period interest would
continue to accrue and compound
quarterly) for a period of up to 20
consecutive quarters (each, an "Extension
Period"). Prior to the termination of any
Extension Period of less than 20
consecutive quarters, Rouse may further
extend the interest payment period as
long as such Extension Period, as further
extended, does not exceed 20 consecutive
quarters and does not extend beyond the
maturity of the Junior Subordinated
Debentures. Upon the termination of any
Extension Period and the payment of all
amounts then due, Rouse may select a new
Extension Period, subject to the terms of
the preceding sentence. No interest shall
be due during an Extension Period until
the end of such period. If Rouse extends
an interest payment period, Rouse will be
prohibited from paying dividends or
distributions on certain of its capital
stock or other securities and making
certain other restricted payments until
quarterly interest payments are resumed
and all accumulated and
9
<PAGE>
unpaid interest (including any interest
payable to effect quarterly compounding)
on the Junior Subordinated Debentures is
brought current. The payment of the
principal of and interest on the Junior
Subordinated Debentures will be
subordinated in right of payment to all
Senior Indebtedness of Rouse. As of
September 30, 1995, Rouse had
approximately $541 million of principal
amount of Senior Indebtedness. In
addition, because Rouse is a holding
company whose assets consist
substantially of the stock of its
subsidiaries the Junior Subordinated
Debentures will be structurally
subordinated and junior in right of
payment to indebtedness for money
borrowed and capitalized lease
obligations of Rouse's subsidiaries,
which as of September 30, 1995 aggregated
$2,077 million. As described above under
"--Redemption", Rouse has the option to
redeem the Junior Subordinated Debentures
under certain circumstances. See
"Description of the Junior Subordinated
Debentures" and "Risk Factors--
Subordination of Guarantee and Junior
Subordinated Debentures; Limited
Preference Rights of Preferred
Securities".
Use of Proceeds.....................
The Issuer will invest the proceeds
received from the sale of the Preferred
Securities and the Common Securities in
the Junior Subordinated Debentures. After
paying the expenses associated with the
offering made hereby, Rouse will use the
net proceeds to retire or reduce certain
of its outstanding debt, to fund
development projects and/or property
acquisitions, and for general corporate
purposes. See "Use of Proceeds".
Form of Preferred Securities........ The Preferred Securities will be
represented by a global certificate or
certificates registered in the name of
DTC or its nominee. Beneficial interests
in the Preferred Securities will be
evidenced by, and transfers thereof will
be effected only through, records
maintained by participants in DTC. Except
as described herein, Preferred Securities
in certificated form will not be issued
in exchange for the global certificate or
certificates. See "Description of the
Preferred Securities--Book-Entry-Only
Issuance--The Depository Trust Company".
10
<PAGE>
RECENT DEVELOPMENTS
The Company and certain of its affiliates have been defendants in a lawsuit
brought in Louisiana state court in 1990. The plaintiff, Robert P. Guastella
Equities, Inc., a former tenant at Riverwalk, a retail center in New Orleans,
Louisiana, which is owned and operated by an affiliate of the Company, alleged
in the lawsuit that the defendants breached plaintiff's lease for the operation
of a restaurant at Riverwalk. In 1993, a jury returned a verdict against the
defendants upon which judgment was entered by the trial court on January 7,
1994, in the total net amount of approximately $9,128,000 plus interest from
the date the suit was filed. The trial court also entered an amended judgment
in which it awarded the plaintiff $450,000 in attorneys' fees.
On May 23, 1994, the Company appealed this judgment to the Louisiana Court of
Appeals, Fourth Circuit. On November 16, 1995, the Louisiana Court of Appeals
denied the Company's appeal in a 2 to 1 decision and left standing the
judgment, but reduced the judgment by $240,000. The Company believes that the
verdict and judgment are contrary to the facts and applicable law. The Company
intends to file a motion for reconsideration with the Louisiana Court of
Appeals and, if that motion is denied, intends to petition the Louisiana
Supreme Court to hear the appeal.
However, the Company has determined that it will record in the fourth quarter
of 1995 a pre-tax provision in the amount of $12,316,000, representing the full
amount of the modified award (including attorneys' fees) plus interest, less
pre-tax provisions previously recorded totaling $1,150,000. The Company expects
that the provision will cause a net loss for the fourth quarter and for the
full year 1995. The Company believes that the ultimate disposition of this
matter will not have a material adverse effect on the Company's consolidated
financial position or liquidity. The Company also believes that the ultimate
disposition of this matter will not have a material adverse effect on either
the Company's or the Issuer's ability to satisfy its obligations under the
Preferred Securities.
11
<PAGE>
SUMMARY FINANCIAL DATA OF ROUSE
The following summary financial information of the Company for the years
ended December 31, 1994, 1993 and 1992 and the nine months ended September 30,
1995 and 1994 was derived from the Company's consolidated financial statements
and five-year comparison of selected financial data contained in its Annual
Report on Form 10-K for the year ended December 31, 1994 and its Quarterly
Reports on Form 10-Q for the quarters ended September 30, 1995 and 1994 and is
qualified in its entirety by such documents. See "Incorporation of Certain
Documents by Reference". The selected financial information of the Company for
the years ended December 31, 1992, 1991 and 1990 was derived from the audited
consolidated financial statements of the Company for such periods and the
balance sheet information for the quarter ended September 30, 1994 was derived
from the unaudited consolidated financial statements of the Company for such
period which, in each case, have not been incorporated herein by reference.
Results for the nine months ended September 30, 1995 and 1994 are unaudited.
Results for the nine months ended September 30, 1995 are not necessarily
indicative of results for the year ending December 31, 1995. The following
financial information should be read in conjunction with the Company's
consolidated financial statements and notes thereto incorporated by reference
into and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating results data:
Revenues from
continuing
operations............ $ 495,316 $ 489,846 $ 671,171 $ 646,805 $ 597,105 $ 573,498 $ 529,570
Earnings (loss) from
continuing
operations............ 3,939 2,155 6,606 (1,291) (15,849) 2,424 (1,165)
Earnings (loss) from
continuing operations
available for common
shareholders per share
of common stock....... (.15) (.16) (.14) (.27) (.33) .05 (.07)
Balance sheet data:
Total assets-cost
basis................. 2,929,637 2,897,922 2,915,860 2,874,982 2,726,281 2,637,452 2,614,877
Total assets-current
value basis (1)....... -- -- 4,736,961 4,588,636 4,217,819 4,174,093 4,362,153
Debt, capital leases
and redeemable
Preferred stock....... 2,617,637 2,550,453 2,532,920 2,473,596 2,498,983 2,374,527 2,344,095
Shareholders' equity
(deficit):
Historical cost basis.. 54,483 80,763 95,026 113,151 (34,848) 17,328 25,339
Current value basis
(1)................... -- -- 1,614,245 1,525,606 1,188,896 1,274,070 1,470,088
Shareholders' equity
(deficit) per share of
common stock:
Historical cost basis
(2)................... .93 1.42 1.63 1.98 (.74) .36 .53
Current value basis
(1)(2)................ -- -- 27.75 26.75 25.50 26.60 30.10
Other selected data:
Earnings before
depreciation and
deferred taxes from
operations (EBDT)..... 76,978 67,115 94,710 78,281 52,282 46,820 50,290
Net cash provided by
(used in):
Operating activities... 69,525 79,008 113,775 101,149 66,630 67,226 35,057
Investing activities... (64,087) (143,272) (178,551) (154,446) (144,836) (96,210) (248,532)
Financing activities... (28,633) 41,086 40,618 47,068 98,914 17,271 246,968
Ratio of earnings to
fixed charges
(3)(4)(5)............. 1.05 1.04 1.06 1.01 -- -- --
Ratio of earnings to
combined fixed charges
and Preferred stock
dividend requirements
(6)(7)(8)............. -- -- -- -- -- -- --
Consolidated coverage
ratio (9)............. 1.48 1.42 1.44 1.37 1.25 1.24 1.29
Cash dividends per
share of common stock
for the period........ .60 .51 .68 .62 .60 .60 .60
Cash dividends per
share of convertible
Preferred stock for
the period............ 2.43 2.43 3.25 2.83 -- -- --
Market price per share
of common stock at end
of period (10)........ 22.00 19.13 19.25 17.75 18.00 18.25 14.50
Market price per share
of convertible
Preferred stock at end
of period............. 54.88 51.13 48.50 53.75 -- -- --
Weighted average common
shares outstanding.... 47,779 47,563 47,565 47,411 47,994 48,157 48,019
Number of common shares
outstanding at end of
period................ 47,921 47,568 47,571 47,562 47,292 48,193 48,130
Number of convertible
Preferred stock shares
outstanding at end of
period................ 4,505 4,025 4,505 4,025 -- -- --
</TABLE>
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- --------
(1) Current value basis financial information is not presented for interim
periods.
(2) Historical cost basis shareholders' equity per share of common stock and
current value basis shareholders' equity per share of common stock assume
the conversion of the Company's Series A Convertible Preferred stock.
(3) The pro forma ratios of earnings to fixed charges for the year ended
December 31, 1994 and the nine months ended September 30, 1995, adjusted to
give effect to the issuance of the Preferred Securities and the use of the
proceeds therefrom, are not materially different from the historical
ratios.
(4) The ratio of earnings to fixed charges is computed by dividing fixed
charges into net earnings (loss) before income taxes, extraordinary loss
and cumulative effect of change in accounting principle, adjusted for
minority interest in earnings, amortization of interest costs previously
capitalized and certain other items, plus fixed charges other than
capitalized interest. Fixed charges include interest costs, the estimated
interest component of rent expense and certain other items.
(5) Total fixed charges exceeded the Company's earnings available for fixed
charges by $29,449,000, $10,347,000 and $24,575,000 for the years ended
December 31, 1992, 1991 and 1990, respectively.
(6) The pro forma ratios of earnings to combined fixed charges and Preferred
stock dividend requirements for the year ended December 31, 1994 and the
nine months ended September 30, 1995, adjusted to give effect to the
issuance of the Preferred Securities and the use of the proceeds therefrom,
are not materially different from the historical ratios.
(7) The ratio of earnings to combined fixed charges and Preferred stock
dividend requirements is computed by dividing total fixed charges and
amounts of pre-tax earnings required to cover Preferred stock dividend
requirements into net earnings (loss) before income taxes, extraordinary
loss and cumulative effect of change in accounting principle, adjusted for
minority interest in earnings, amortization of interest costs previously
capitalized and certain other items, plus fixed charges other than
capitalized interest. Fixed charges include interest costs, the estimated
interest component of rent expense and certain other items.
(8) Total fixed charges and Preferred stock dividend requirements exceeded the
Company's earnings available for fixed charges and Preferred stock dividend
requirements by $9,597,000 and $9,752,000 for the nine months ended
September 30, 1995 and 1994, respectively, and $8,934,000, $17,722,000,
$29,449,000, $10,347,000, and $28,363,000 for the years ended December 31,
1994, 1993, 1992, 1991 and 1990, respectively.
(9) Consolidated coverage ratio is the ratio of earnings before depreciation
and deferred taxes from operations (EBDT) plus consolidated interest
expense to consolidated interest expense. Consolidated interest expense
includes dividends on redeemable Preferred Stock (retired for financial
reporting purposes in 1990), which are included because the stock was
subject to mandatory redemption requirements for cash.
(10) The market price of common stock of the Company as of the close of
business on November 17, 1995 was $21.625 per share.
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RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus and should particularly
consider the following matters:
SUBORDINATION OF GUARANTEE AND JUNIOR SUBORDINATED DEBENTURES; LIMITED
PREFERENCE RIGHTS OF PREFERRED SECURITIES
Rouse's obligations under the Junior Subordinated Debentures are subordinate
and junior in right of payment to all other liabilities of Rouse, except the
Guarantee, trade credit and any liabilities that may be made pari passu with
or subordinate to the Junior Subordinated Debentures expressly by their terms.
Rouse's obligations under the Guarantee are subordinated and junior in right
of payment to all other liabilities of Rouse (including the Junior
Subordinated Debentures) except any liabilities that may be made pari passu
with or subordinate to the Guarantee expressly by their terms. As of September
30, 1995, Rouse had approximately $541 million of Senior Indebtedness
outstanding. As a holding company, substantially all of Rouse's assets consist
of stock and other equity interests of its subsidiaries. Except to the extent
that Rouse may itself be a creditor with recognized claims against Rouse's
subsidiaries, the claims of the holders of the Junior Subordinated Debentures
to assets of the subsidiaries of Rouse effectively are subordinated to the
claims of the direct creditors of the subsidiaries of Rouse. At September 30,
1995, Rouse's subsidiaries had $2,077 million of indebtedness outstanding for
money borrowed and capitalized lease obligations. None of the terms of the
Preferred Securities, the Junior Subordinated Debentures or the Guarantee
limit Rouse's ability to incur additional Senior Indebtedness or subsidiary
indebtedness. See "Description of the Guarantee--Status of the Guarantee" and
"Description of the Junior Subordinated Debentures--Subordination".
The ability of the Issuer to pay amounts due on the Preferred Securities is
solely dependent upon Rouse making payments on the Junior Subordinated
Debentures as and when required.
The holders of the Preferred Securities will have a preference with respect
to cash distributions and amounts payable on liquidation, redemption or
otherwise over the holders of the Common Securities only if there is an Event
of Default. See "Description of the Preferred Securities--Subordination of
Common Securities" and "--Liquidation Distribution Upon Dissolution".
OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES
Rouse has the right under the Indenture to extend the interest payment
period from time to time on the Junior Subordinated Debentures for a period of
up to 20 consecutive quarters. During any such extended interest payment
period, quarterly distributions on the Preferred Securities would be deferred
(but would continue to accrue with interest thereon) by the Issuer. In the
event that Rouse exercises this right, during such period Rouse may not
declare or pay dividends or distributions (other than dividends or
distributions in common stock of Rouse or other security junior in right of
payment to the Junior Subordinated Debentures) on, or redeem, purchase,
acquire, or make a liquidation payment with respect to any of its capital
stock, or make any guarantee payment with respect to the foregoing (other than
payments under the Guarantee), or repurchase, or cause any of its subsidiaries
to repurchase, any security of Rouse ranking pari passu with or subordinate to
the Junior Subordinated Debentures (except on a ratable basis with securities
ranking pari passu with the Junior Subordinated Debentures). Prior to the
termination of any such extended interest payment period, Rouse may further
extend the interest payment period, provided that such extended interest
payment period together with all such previous and further extensions thereof
may not exceed 20 consecutive quarters and that such extended interest payment
period may not extend beyond the maturity date of the Junior Subordinated
Debentures. Upon the termination of any extended interest payment period and
the payment of all amounts then due, Rouse may select a new extended interest
payment period, subject to the foregoing requirements. If Rouse should
determine to exercise its extension right in the future or the market
perceives that Rouse is likely at any time to exercise such right, the market
price of the
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<PAGE>
Preferred Securities may be adversely affected. Rouse currently has no
intention to exercise its right to extend interest payment periods on the
Junior Subordinated Debentures. See "Description of the Preferred Securities--
Distributions" and "Description of the Junior Subordinated Debentures--Option
to Extend Interest Payment Period".
Should an extended interest payment period occur, holders of Preferred
Securities will continue to recognize interest income for United States
federal income tax purposes. As a result, such a holder will be required to
include such interest in gross income for United States federal income tax
purposes in advance of the receipt of the deferred cash distributions, and
such holder will not receive such deferred cash distributions from the Issuer
related to such income if such holder disposes of its Preferred Securities
prior to the record date for payment of distributions. See "Certain United
States Federal Income Tax Considerations--Potential Extension of Interest
Payment Period and Original Issue Discount".
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). The First National Bank
of Chicago will act as indenture trustee under the Guarantee for the purposes
of compliance with the Trust Indenture Act (the "Guarantee Trustee"). The
Guarantee Trustee will hold the Guarantee for the benefit of the holders of
the Preferred Securities and will also be the trustee for the Junior
Subordinated Debentures and the Property Trustee (as defined under
"Description of the Preferred Securities").
The Guarantee guarantees on a subordinated basis to the holders of the
Preferred Securities the payment (but not the collection) of (i) any accrued
and unpaid distributions required to be paid on the Preferred Securities, if
and only to the extent the Issuer has funds sufficient to make such payment,
(ii) the Redemption Price, including all accrued and unpaid distributions,
with respect to Preferred Securities called for redemption by the Issuer, if
and only to the extent the Issuer has funds sufficient to make such payment
therefor and (iii) upon a voluntary or involuntary dissolution, winding-up or
termination of the Issuer (other than in connection with a redemption of all
of the Preferred Securities), the lesser of (a) the aggregate Liquidation
Amount, to the extent the Issuer has funds sufficient to make such payment and
(b) the amount of assets of the Issuer remaining available for distribution to
holders of the Preferred Securities in liquidation of the Issuer. If, upon a
dissolution, winding-up or termination as described above, the Issuer
distributes the Junior Subordinated Debentures in lieu of making payment on
the Preferred Securities, the Guarantee will cease to be of any effect because
the Guarantee extends only to the Preferred Securities, which will have been
redeemed. The holders of a majority in aggregate Liquidation Amount of the
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Guarantee Trustee or
to direct the exercise of any trust or other power conferred upon the
Guarantee Trustee under the Guarantee. Any holder of Preferred Securities may
institute a legal proceeding directly against Rouse to enforce its rights
under the Guarantee without first instituting a legal proceeding against the
Issuer, the Guarantee Trustee or any other person or entity. If Rouse were to
default on its obligations under the Junior Subordinated Debentures, the
Issuer would lack available funds for the payment of distributions or amounts
payable on redemption of the Preferred Securities or otherwise, and in such
event holders of the Preferred Securities would not be able to rely upon the
Guarantee for payment of such amounts. Instead, holders of the Preferred
Securities would be required to rely on the enforcement by the Property
Trustee of its rights, as the registered holder of the Junior Subordinated
Debentures, against Rouse pursuant to the terms of the Junior Subordinated
Debentures and on their rights thereunder. See "Description of the Guarantee--
Status of the Guarantee" and "Description of the Junior Subordinated
Debentures--Subordination". The Trust Agreement provides that each holder of
Preferred Securities by acceptance thereof agrees to the provisions of the
Guarantee and the Indenture.
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<PAGE>
TAX EVENT
Upon the occurrence of a Tax Event, Rouse has the right to (i) redeem the
Junior Subordinated Debentures, in whole but not in part, in which event the
Issuer will redeem the Preferred Securities, (ii) distribute the Junior
Subordinated Debentures to holders of the Preferred Securities or (iii) cause
the Preferred Securities to remain outstanding and pay Additional Interest
Attributable to Taxes (as defined under "Description of the Junior
Subordinated Debentures -- Additional Interest") on the Junior Subordinated
Debentures. See "Description of the Preferred Securities--Redemption". As a
result, the holders of Preferred Securities upon the occurrence of a Tax
Event, could receive cash equal to the liquidation preference of the Preferred
Securities plus accrued and unpaid distributions thereon to the date of
payment, whether or not earned or declared, or could receive Junior
Subordinated Debentures equal to the liquidation preference of such Preferred
Securities. See "Certain United States Federal Income Tax Consequences--
Receipt of Junior Subordinated Debentures in Liquidation of Rouse Capital" for
a description of the consequences related to the distribution of Junior
Subordinated Debentures.
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and, except
upon the occurrence of an Event of Default under the Trust Agreement, will not
be entitled to vote to appoint, remove or replace the Property Trustee or the
Administrative Trustees (as defined under "Rouse Capital") or to increase or
decrease the number of Administrative Trustees, which voting rights are vested
exclusively in the holder of the Common Securities unless and until an Event
of Default has occurred and is continuing. If an Event of Default has occurred
and is continuing, the Property Trustee or the Administrative Trustees may be
removed by the holders of a majority in aggregate liquidation amount of the
Preferred Securities. If any proposed amendment to the Trust Agreement
provides for, or the Trustees otherwise propose to effect, (i) any action that
would adversely affect the powers, preferences or special rights of the
holders of the Preferred Securities, whether by way of amendment to the Trust
Agreement or otherwise, or (ii) the dissolution, winding-up or termination of
the Issuer, other than pursuant to the Trust Agreement, then the holders of
outstanding Preferred Securities will be entitled to vote on such amendment or
proposal, and such amendment or proposal shall not be effective except with
the approval of the holders of at least a majority in aggregate Liquidation
Amount of such outstanding Preferred Securities. See "Description of the
Preferred Securities--Voting Rights". In addition, certain modifications may
be made to the Indenture without the consent of the holders of the Preferred
Securities. See "Description of the Junior Subordinated Debentures--
Modification of the Indenture".
TRADING CHARACTERISTICS OF THE PREFERRED SECURITIES
The Preferred Securities have been approved for listing as an equity
security on the New York Stock Exchange, subject to notice of issuance, under
the symbol "RSEPrZ". Accordingly, the Preferred Securities are expected to
trade at a price that takes into account the value, if any, of accrued and
unpaid distributions; thus, purchasers will not pay for and sellers will not
receive any accrued and unpaid interest with respect to their undivided
interests in the Junior Subordinated Debentures owned through the Preferred
Securities that is not included in the trading price of the Preferred
Securities. However, interest on the Junior Subordinated Debentures will be
included in the gross income of holders of Preferred Securities who are United
States Persons (as defined under "Certain United States Federal Income Tax
Considerations--General") as it accrues, rather than when it is paid. See
"Certain United States Federal Income Tax Considerations--Income from
Preferred Securities" and "--Sale of Preferred Securities". Because the
Preferred Securities pay a dividend at a fixed rate based upon the fixed
interest rate payable on the Junior Subordinated Debentures, the trading price
of the Preferred Securities may decline if interest rates rise.
REAL ESTATE INVESTMENT RISKS
GENERAL. Real property investments are subject to varying degrees of risk.
The Company's revenues and the value of its properties may be adversely
affected by the general economic climate,
16
<PAGE>
the local economic climate and local real estate conditions, including the
perceptions of prospective tenants of the attractiveness of the property; the
ability of the Company to provide adequate management, maintenance and
insurance; the inability to collect rent due to bankruptcy or insolvency of
tenants or otherwise; and increased operating costs. Real estate values may
also be adversely affected by such factors as applicable laws, including tax
laws, interest rate levels and the availability of financing.
In particular, the Company's land sales relate primarily to land in and
around Columbia, Maryland. See "The Rouse Company--Land Sales". These sales
are affected by the economic climate in Howard County, Maryland and the
Baltimore-Washington area, and by local real estate conditions and other
factors, including applicable zoning laws and the availability of financing
for residential development.
Similarly, most of the office/industrial buildings that the Company manages
are located in the Baltimore-Washington corridor, including Columbia,
Maryland. See "The Rouse Company--Office, Mixed-Use and Other Properties" and
"--Projects of the Company". Due to the geographic concentration of this
portfolio, the Company's operating results in managing these buildings depend
especially on the local economic climate and real estate conditions, including
the availability of comparable, competing office/industrial buildings.
ILLIQUIDITY OF REAL ESTATE. Real estate investments are relatively illiquid
and therefore may tend to limit the ability of the Company to react promptly
in response to changes in economic or other conditions.
DEVELOPMENT RISKS. New project development is subject to a number of risks,
including risks of availability of financing, construction delays or cost
overruns that may increase project costs, risks that the properties will not
achieve anticipated occupancy levels or sustain anticipated lease levels, and
new project commencement risks such as receipt of zoning, occupancy and other
required governmental permits and authorizations and the incurrence of
development costs in connection with projects that are not pursued to
completion. See "The Rouse Company--Development and Acquisition Activities"
and "--Projects of the Company".
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY. The Company's cash flow and
results of operations would be adversely affected if a significant number of
tenants were unable to meet their obligations or if the Company were unable to
lease a significant amount of space in its operating properties on
economically favorable lease terms. In the event of default by a tenant, the
Company may experience delays in enforcing its rights as lessor and may incur
substantial costs in protecting its investment. The bankruptcy or insolvency
of a major tenant may have an adverse effect on an operating property.
COMPETITION. There are numerous other developers, managers and owners of
real estate that compete with the Company in seeking management and leasing
revenues, land for development, properties for acquisition and disposition and
tenants for properties.
UNINSURED LOSS. The Company carries comprehensive liability, fire, extended
coverage and rent loss insurance with respect to its properties with policy
specifications and insured limits customary for similar properties. There are,
however, certain types of losses (generally of a catastrophic nature, such as
wars or earthquakes) which may be either uninsurable or not economically
insurable. Should an uninsured loss occur with respect to a property, the
Company could lose both its invested capital in and anticipated profits from
the property.
ENVIRONMENTAL MATTERS. Under various federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may become liable for the costs of the investigation, removal
and remediation of hazardous or toxic substances on, under, in or migrating
from such property. Such laws often impose liability without regard to whether
the owner or
17
<PAGE>
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of hazardous or toxic substances, or the
failure to remediate properly such substances when present, may adversely
affect the owner's ability to sell or rent such real property or to borrow
using such real property as collateral. Persons who arrange for the disposal
or treatment of hazardous or toxic wastes may also be liable for the costs of
the investigation, removal and remediation of such wastes at the disposal or
treatment facility, regardless of whether such facility is owned or operated
by such person. Other federal, state and local laws, ordinances and
regulations require abatement or removal of certain asbestos-containing
materials in the event of demolition or certain renovations or remodelling,
impose certain worker protection and notification requirements and govern
emissions of and exposure to asbestos fibers in the air. Certain of the
Company's properties contain underground storage tanks which are subject to
strict laws and regulations designed to prevent leakage or other releases of
hazardous substances into the environment. In connection with its ownership,
operation and management of such properties, the Company could be held liable
for the environmental response costs associated with the release of such
regulated substances or related claims. In addition to clean-up actions
brought by federal, state and local agencies, the presence of hazardous
substances on a property could result in personal injury or similar claims by
private plaintiffs. Such claims could result in costs or liabilities which
could exceed the value of such property. Notwithstanding the above, the
Company has not been notified by any private party or governmental authority
of any non-compliance, liability or other claim in connection with
environmental conditions at any of its properties that it believes will
involve any material expenditure, nor is the Company aware of any
environmental condition with respect to any of its properties that it believes
will involve any material expenditure.
COST OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT. The Company's
properties are subject to the requirements of the Americans with Disabilities
Act (the "ADA"), which generally requires that public accommodations,
including office buildings, retail centers and hotels be made accessible to
disabled persons. The Company has surveyed each of its properties and believes
that it is in substantial compliance with the ADA and that it will not be
required to make substantial capital expenditures to address the requirements
of the ADA. The Company has developed an ADA Compliance Plan and has budgeted
for and moved forward with the removal of those barriers to access that are
readily achievable. The Company believes that implementation of its ADA
Compliance Plan will not have a material adverse effect on its financial
condition.
ROUSE CAPITAL
Rouse Capital is a statutory business trust formed under Delaware law
pursuant to (i) a trust agreement executed by Rouse, as depositor for the
Issuer, and The First National Bank of Chicago, as property trustee (the
"Property Trustee"), and Michael J. Majchrzak, as Delaware trustee (the
"Delaware Trustee"), and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on September 29, 1995. Such trust agreement will
be amended and restated in its entirety (as so amended and restated, the
"Trust Agreement") substantially in the form filed as an exhibit to the
Registration Statement of which this Prospectus forms a part. The Trust
Agreement will be qualified as an indenture under the Trust Indenture Act. The
Property Trustee will act as sole trustee under the Trust Agreement for the
purposes of compliance with the Trust Indenture Act. The Issuer exists for the
exclusive purposes of (i) issuing the Preferred Securities and Common
Securities representing undivided beneficial interests in the assets of the
Issuer, (ii) purchasing the Junior Subordinated Debentures with the proceeds
from sale of the Common Securities and the Preferred Securities and (iii)
engaging in only those other activities necessary or incidental thereto. All
of the Common Securities are owned by Rouse, and Rouse has agreed in the
Indenture to maintain such ownership. The Common Securities will rank pari
passu, and payments will be made thereon pro rata, with the Preferred
Securities, except that upon the occurrence and continuance of an Event of
Default under the Trust Agreement, the rights of the holders of the Common
Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the
18
<PAGE>
rights of the holders of the Preferred Securities. Rouse will acquire Common
Securities having an aggregate liquidation amount equal to 3% of the total
capital of the Issuer. The Issuer has a term of approximately 55 years, but
may terminate earlier as provided in the Trust Agreement. The Issuer's
business and affairs will be conducted by the Property Trustee, the Delaware
Trustee and the Administrative Trustees. The holder of the Common Securities,
or the holders of at least a majority in the aggregate Liquidation Amount of
then outstanding Preferred Securities, if an Event of Default has occurred and
is continuing, will be entitled to appoint, remove or replace the Trustees (as
defined under "Description of the Preferred Securities") of the Issuer.
The duties and obligations of the Trustees shall be governed by the Trust
Agreement. Patricia H. Dayton, Jeffrey H. Donahue and George L. Yungmann, all
officers of Rouse, will be appointed as administrative trustees of the Trust
(in such capacity, the "Administrative Trustees") pursuant to the terms of the
Trust Agreement. Under the Trust Agreement, the Administrative Trustees will
have certain duties and powers, including, but not limited to, the delivery of
certain notices to the holders of the Preferred Securities, the appointment of
the Preferred Securities Paying Agent (as defined under "Description of the
Preferred Securities--Redemption Procedures") and the Preferred Securities
Registrar (as defined under "Description of the Preferred Securities--
Registrar and Transfer Agent"), the registering of transfers of the Preferred
Securities and the Common Securities and preparing and filing on behalf of the
Trust all United States federal, state and local tax information and returns
and reports required to be filed by or in respect of the Trust. Under the
Trust Agreement, the Property Trustee will have certain duties and powers,
including, but not limited to, holding legal title to the Junior Subordinated
Debentures on behalf of the Trust, the collection of payments in respect of
the Junior Subordinated Debentures, maintenance of the Payment Account (as
defined in the Trust Agreement), the sending of default notices with respect
to the Preferred Securities and the distribution of the assets of the Trust in
the event of a winding-up of the Trust. See "Description of the Preferred
Securities".
Rouse will pay all fees and expenses related to the Issuer and the offering
of the Preferred Securities.
The principal office of the Issuer is located at 10275 Little Patuxent
Parkway, Columbia, Maryland 21044-3456 and its telephone number is (410) 992-
6000.
THE ROUSE COMPANY
The Rouse Company (the "Company" or "Rouse") is one of the largest publicly-
traded real estate companies in the United States. The Company develops,
acquires, owns and manages income-producing properties across the United
States. The Company also develops and sells land almost exclusively related to
activities in Columbia, Maryland.
OPERATING PROPERTIES
The Company manages a portfolio of operating properties totaling more than
58 million square feet in almost 200 buildings, classified into two business
categories: (i) retail centers and (ii) office, mixed-use and other
properties.
RETAIL CENTERS. Major retail properties owned and managed by the Company
include Willowbrook, Woodbridge Center and Paramus Park in New Jersey and
Faneuil Hall Marketplace, South Street Seaport and Harborplace in the
downtowns of Boston, New York and Baltimore, respectively. The Company manages
75 retail centers totaling 47,218,000 square feet of space and including 153
department stores and 20,925,000 square feet of small store gross leasable
area. Included in the 75 retail centers are eight Columbia village centers
(824,000 sq. ft.) and five centers (636,000 sq. ft. of small shops) that are
parts of large, mixed-use projects. The remaining 62 centers
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include 53 regional malls (17,811,000 sq. ft. of mall space) that primarily
are in the suburbs of major metropolitan areas and typically have three or
more department stores attached, and also include nine specialty retail
centers (1,654,000 sq. ft.) that are in the downtowns of major cities and do
not have department stores attached.
The majority of the Company's revenues, Earnings Before Depreciation and
Deferred Taxes ("EBDT") and Current Value Shareholders' Equity is derived from
its retail centers, particularly those where the Company has a significant
ownership interest in the centers. The 62 retail centers (excluding eight
Columbia village centers and five mixed-use projects) include 44 centers where
the Company has ownership interests ranging from 30% to 100%. In the remaining
18 centers, the Company's ownership interest is generally 10% or less, and the
Company normally receives fees for management, leasing and development
activities and an incentive participation in the growth of the centers' cash
flows and values.
OFFICE, MIXED-USE AND OTHER PROPERTIES. The Company manages more than 100
office/industrial buildings totaling approximately 11,353,000 square feet of
gross leasable area. Of this total, 1,842,000 square feet is located in seven
buildings which are part of major mixed-use projects in Phoenix, Baltimore,
Seattle and Portland; 3,056,000 square feet is located in Columbia in projects
that are wholly-owned; 728,000 square feet is located in Owings Mills,
Maryland in four buildings that are jointly-owned; 501,000 square feet is
located at or near retail centers; and the remaining 5,226,000 square feet is
primarily located in the Baltimore-Washington corridor and is part of a joint
venture owned by the Company (5%) and Teachers Insurance and Annuity
Association of America (95%).
The Company owns and manages two hotels, one each in Baltimore and Columbia,
and has an ownership interest in one additional hotel in Baltimore.
LAND SALES
The Company, through its subsidiaries and affiliates, develops and sells
land primarily in and around Columbia, Maryland, which is a new town launched
by the Company in 1962. Today, Columbia has a population of nearly 80,000 and
is home to 2,500 businesses which employ 56,000 people. There are presently
approximately 2,000 acres of net saleable land available for residential,
commercial and industrial uses. Subsidiaries of the Company may develop and
own certain projects in Columbia, primarily retail centers and office
buildings.
DEVELOPMENT AND ACQUISITION ACTIVITIES
The majority of the Company's operating properties were developed by the
Company or its subsidiaries. At the present time, the Company has publicly
announced that it is developing a major new regional shopping center in
Orlando, Florida; is expanding several existing retail centers (Beachwood
Place in Cleveland, Perimeter Mall in Atlanta, Northwest Arkansas Mall in
Fayetteville, Oakwood Center in suburban New Orleans and Burlington Center in
Burlington, New Jersey); has recently acquired interests in Collin Creek Mall
in Plano, Texas and Brandywine Square in Exton, Pennsylvania; has recently
acquired the remaining unowned partnership interests in Santa Monica Place in
Santa Monica, California and Paramus Park in Paramus, New Jersey; and is
investigating additional new retail center development, expansions and
potential acquisitions. Any such new retail center development, expansion or
acquisition will be funded using cash generated from operations, from the
issuance of additional equity securities or from the proceeds of any
additional indebtedness.
20
<PAGE>
PROJECTS OF THE COMPANY
Set forth below is a table that provides information with respect to the
Company's (i) retail centers in operation, (ii) retail centers under
construction, (iii) office projects in operation, (iv) hotel projects in
operation, (v) properties in operation in Columbia, Maryland, (vi) office
projects owned by Rouse-Teachers Properties, Inc. and (vii) industrial
projects owned by Rouse-Teachers Properties, Inc.
<TABLE>
<CAPTION>
RETAIL SQUARE FOOTAGE
---------------------
DATE OF
OPENING OR TOTAL MALL
RETAIL CENTERS IN OPERATION ACQUISITION DEPARTMENT STORES CENTER ONLY
--------------------------- ----------- ----------------- ----------- ---------
<C> <C> <S> <C> <C>
Almeda Mall, Houston, TX (a) 10/68 Foley's; JCPenney 802,000 294,000
The Shops at Arizona Center, 11/90 -- 151,000 151,000
Phoenix, AZ (a)
Augusta Mall, Augusta, GA (b) 8/78 Rich's; R.H. Macy; 902,000 313,000
JCPenney; Sears
Bayside Marketplace, Miami, FL 4/87 -- 223,000 223,000
(b)
Beachwood Place, Cleveland, OH 8/78 Saks Fifth Avenue; 453,000 228,000
(b) Dillard's
Burlington Center, Burlington, NJ 8/82 Strawbridge & 567,000 246,000
(d) Clothier; Sears
Cherry Hill, Cherry Hill, NJ (a) 10/61 Strawbridge & 1,285,000 544,000
Clothier; R.H.
Macy; JCPenney
The Citadel, Colorado Springs, CO 8/80 Mervyn's; JCPenney; 1,097,000 460,000
(d) Foley's; Dillard's
College Square, Cedar Falls, IA 8/80 Von Maur; Younkers; 560,000 313,000
(d) Wal-Mart
Collin Creek Mall, Plano, Texas 9/95 Dillard's; Foley's; 1,123,000 333,000
(b) Sears; JCPenny;
Mervyn's
The Mall in Columbia, Columbia, 8/71 Hecht's; Sears 876,000 421,000
MD (a)
Eastfield Mall, Springfield, MA 4/68 Sears; Filene's; 674,000 217,000
(a) JCPenney
Echelon Mall, Voorhees, NJ (a) 9/70 Strawbridge & 1,065,000 481,000
Clothier; JCPenney;
Boscov's
Exton Square, Exton, PA (a) 3/73 Strawbridge & 443,000 253,000
Clothier
Faneuil Hall Marketplace, Boston, 8/76 -- 215,000 215,000
MA (a)
Fashion Island, Newport Beach, CA 8/90 The Broadway; 1,215,000 593,000
(c) I. Magnin;
Robinson's--May;
Neiman Marcus
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
RETAIL SQUARE FOOTAGE
---------------------
DATE OF
OPENING OR TOTAL MALL
RETAIL CENTERS IN OPERATION ACQUISITION DEPARTMENT STORES CENTER ONLY
--------------------------- ----------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Franklin Park, Toledo, OH (b) 7/71 Hudson's; JCPenney; 1,082,000 313,000
Jacobson's; Lion
The Gallery at Harborplace, 9/87 -- 139,000 139,000
Baltimore, MD (a)
The Gallery at Market East, 8/77 Strawbridge & 1,320,000 360,000
Philadelphia, PA (a)(c) Clothier; JCPenney
Governor's Square, Tallahassee, 8/79 Burdine's; Sears; 1,031,000 340,000
FL (b) JCPenney; Dillard's
The Grand Avenue, Milwaukee, WI (a) 8/82 Marshall Field; The 842,000 242,000
Boston Store
Greengate Mall, Greensburg, PA 8/65 Lazarus; Montgomery 612,000 233,000
(a) Ward
Harborplace, Baltimore, MD (a) 7/80 -- 136,000 136,000
Harundale Mall, Glen Burnie, MD 10/58 Value City 309,000 232,000
(b)
Highland Mall, Austin, TX (b) 8/71 Dillard's; 1,099,000 367,000
JCPenney; Foley's
Hulen Mall, Ft. Worth, TX (a) 8/77 Foley's; Montgomery 924,000 327,000
Ward; Dillard's
The Jacksonville Landing, 6/87 -- 128,000 128,000
Jacksonville, FL (a)
Mall St. Matthews, St. Matthews, 3/62 JCPenney; Bacon's; 965,000 345,000
KY (a) Dillard's
Marshall Town Center, 8/80 JCPenney; Younkers; 340,000 153,000
Marshalltown, IA (d) Menard's
Midtown Square, Charlotte, NC (a) 10/59 Burlington Coat 235,000 190,000
Factory
Mondawmin (a)/Metro Plaza (b), 1/78; -- 496,000 496,000
Baltimore, MD 12/82
Muscatine Mall, Muscatine, IA (d) 8/80 JCPenney; Von Maur; 347,000 186,000
Wal-Mart
The Shops at National Place, 5/84 -- 125,000 125,000
Washington, D.C. (a)
North Grand, Ames, IA (d) 8/80 JCPenney; Sears; 350,000 157,000
Younkers
North Star, San Antonio, TX (b) 9/60 Dillard's; Foley's; 1,288,000 487,000
Saks Fifth Avenue;
Marshall Field;
Mervyn's
Northwest Arkansas Mall, 8/80 JCPenney; Sears; 554,000 242,000
Fayetteville, AR (d) Dillard's
Northwest Mall, Houston, TX (a) 10/68 Foley's; JCPenney 800,000 292,000
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
RETAIL SQUARE FOOTAGE
---------------------
DATE OF
OPENING OR TOTAL MALL
RETAIL CENTERS IN OPERATION ACQUISITION DEPARTMENT STORES CENTER ONLY
--------------------------- ----------- ----------------- ----------- ---------
<S> <C> <C> <C> <C>
Oakwood Center, Gretna, LA (a) 10/82 Sears; Dillard's; 960,000 362,000
Mervyn's; Maison
Blanche
Outlet Square, Atlanta, GA (a) 7/83 Burlington Coat 326,000 183,000
Factory; Marshalls
Owings Mills, Baltimore County, 7/86 R.H. Macy; Hecht's; 809,000 325,000
MD (a) Saks Fifth Avenue
Paramus Park, Paramus, NJ (a) 3/74 Abraham & Straus; 755,000 279,000
Sears
Perimeter Mall, Atlanta, GA (b) 8/71 Rich's; JCPenney; 1,224,000 444,000
R.H. Macy
Pioneer Place, Portland, OR (a) 3/90 Saks Fifth Avenue 220,000 160,000
Plymouth Meeting, Montgomery 2/66 Strawbridge & 784,000 442,000
County, PA (a) Clothier; Hess
Randhurst, Mt. Prospect, IL (d) 7/81 Carson, Pirie, 1,324,000 591,000
Scott; JCPenney;
Montgomery Ward;
Kohls
Ridgedale Center, Minnetonka, MN (d) 1/89 Carson, Pirie, 1,039,000 334,000
Scott; Dayton's; JC
Penney; Sears
Riverwalk, New Orleans, LA (a) 8/86 -- 179,000 179,000
St. Louis Union Station, 8/85 -- 172,000 172,000
St. Louis, MO (a)
Salem Centre, Salem, OR (d) 6/90 Meier & Frank; 649,000 211,000
JCPenney; Mervyn's;
Nordstrom
Salem Mall, Dayton, OH (a) 10/66 Lazarus; Sears; 817,000 312,000
JCPenney
Santa Monica Place, Santa 10/80 The Broadway; 570,000 287,000
Monica, CA (a) Robinson's--May
Sherway Gardens, Toronto, ONT (c) 12/78 Eaton's; The Bay 968,000 474,000
South DeKalb, Decatur, GA (a) 7/78 Rich's; JCPenney 691,000 329,000
Southland, Taylor, MI (d) 1/89 Hudson's; Mervyn's; 903,000 320,000
JCPenney
South Street Seaport, New York, 7/83 -- 257,000 257,000
NY (a)
Staten Island Mall, Staten 11/80 Sears; R.H. Macy; 1,224,000 618,000
Island, NY (d) JCPenney
Mall St. Vincent, Shreveport, LA 8/80 Sears; Dillard's 557,000 200,000
(c)
Talbottown, Easton, MD (a) 3/57 JCPenney 90,000 71,000
Tampa Bay Center, Tampa, FL (b) 8/76 Burdine's; Sears; 883,000 325,000
Montgomery Ward
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
RETAIL SQUARE FOOTAGE
---------------------
DATE OF
OPENING OR TOTAL MALL
RETAIL CENTERS IN OPERATION ACQUISITION DEPARTMENT STORES CENTER ONLY
--------------------------- ----------- ----------------- ---------- ----------
<S> <C> <C> <C> <C>
Town and Country Center, 2/88 Sears; Marshalls; 645,000 467,000
Miami, FL (c) Mervyn's
Underground Atlanta, Atlanta, GA 6/89 -- 219,000 219,000
(c)
Village of Cross Keys, 9/65 -- 68,000 68,000
Baltimore, MD (a)
Westlake Center, Seattle, WA (b) 10/88 Nordstrom; Bon 723,000 118,000
Marche
Westland Mall, West 8/80 JCPenney; Younkers 344,000 175,000
Burlington, IA (d)
White Marsh, Baltimore 8/81 R.H. Macy; Sears; 1,178,000 359,000
County, MD (a) JCPenney; Hecht's
Willowbrook, Wayne, NJ (b) 9/69 R.H. Macy; Sears; 1,499,000 485,000
Steinbach's;
Stern's
Woodbridge Center, 3/71 JCPenney; Sears; 1,544,000 560,000
Woodbridge, NJ (a) Stern's; ---------- ----------
Steinbach's;
Fortunoff
Total Retail 46,394,000 20,101,000
Centers in ---------- ----------
Operation
</TABLE>
<TABLE>
<CAPTION>
RETAIL SQUARE FOOTAGE
---------------------
RETAIL CENTERS UNDER
CONSTRUCTION OR IN TOTAL MALL
DEVELOPMENT DEPARTMENT STORES CENTER ONLY
-------------------- ----------------- ----------- ---------
<S> <C> <C> <C>
Brandywine Square, -- 565,000 565,000
Exton, PA
Beachwood Place Expansion, Nordstrom 459,000 90,000
Cleveland, OH
Northwest Arkansas Mall JCPenney; Dillard's 310,000 70,000
Expansion, Fayetteville, AR
Oakwood Center Expansion, JCPenney 125,000 --
Gretna, LA
Burlington Center Expansion, JCPenney 102,000 --
Burlington, NJ ----------- ---------
Total Retail Centers Under 1,561,000 725,000
Construction or in ----------- ---------
Development
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
OFFICE PROJECTS IN OPERATION LOCATION SQUARE FEET
---------------------------- -------- -----------
<S> <C> <C>
300 East Lombard (c) Baltimore, MD 233,000
Quadrangle at Cross Keys (a) Baltimore, MD 106,000
Village Square at Cross Keys (a) Baltimore, MD 79,000
Legg Mason Tower (a) Baltimore, MD 265,000
Schilling Center (a) Hunt Valley, MD 55,000
Alexander & Alexander Building (b) Owings Mills, MD 143,000
Alexander & Alexander Building II (b) Owings Mills, MD 198,000
Blue Cross & Blue Shield Building I (b) Owings Mills, MD 270,000
Blue Cross & Blue Shield Building II (b) Owings Mills, MD 117,000
One Arizona Center (a) Phoenix, AZ 322,000
Two Arizona Center (a) Phoenix, AZ 444,000
First National Bank Plaza (a) Mt. Prospect, IL 66,000
Faneuil Hall Marketplace (a) Boston, MA 147,000
Pioneer Place (a) Portland, OR 284,000
Westlake Center (b) Seattle, WA 342,000
---------
Total Office
Projects in Operation 3,071,000
---------
<CAPTION>
HOTEL PROJECTS IN OPERATION LOCATION ROOMS
--------------------------- -------- -----------
<S> <C> <C>
Cross Keys Inn (a) Baltimore, MD 148
Stouffer Harborplace Hotel Baltimore, MD 622
<CAPTION>
COLUMBIA PROPERTIES IN OPERATION TYPE OF PROJECT SQUARE FEET
-------------------------------- --------------- -----------
<S> <C> <C>
The Mall in Columbia*(a) Retail 876,000
Dobbin Center (b) Community Retail 219,000
Dorsey's Search Village Center (a) Community Retail 86,000
Harper's Choice Village Center (a) Community Retail 81,000
Hickory Ridge Village Center (a) Community Retail 97,000
King's Contrivance Village Center (a) Community Retail 107,000
Long Reach Village Center (a) Community Retail 77,000
Oakland Mills Village Center (a) Community Retail 62,000
Wilde Lake Village Center (a) Community Retail 95,000
10 Corporate Center (a) Office 89,000
Amdahl Building (a) Office 105,000
American City Building (a) Office 111,000
Columbia Center Building (a) Office 44,000
Dorsey's Search Office Building (a) Office 20,000
Exhibit Building (a) Office 20,000
PaineWebber Building (a) Office 134,000
Parkside (a) Office 112,000
RWD Building (a) Office 137,000
Re/Max Building (a) Office 39,000
Reliance Building (a) Office 38,000
The Ryland Group Headquarters (a) Office 167,000
Oakland Building (a) R&D/Industrial 145,000
Gateway Commerce Center 1, 2 & 20 (a) Industrial 1,895,000
Columbia Inn (a) Hotel 289 rooms
---------
Total Columbia
Properties in Operation 4,756,000
---------
</TABLE>
25
<PAGE>
- --------
* Also listed in previous table of Retail Centers in Operation
(a) Projects are wholly-owned by subsidiaries of the Company.
(b) Projects are owned by joint ventures or partnerships and are managed by
subsidiaries of the Company for a fee. The Company's ownership interest,
through its subsidiaries, is at least 50% (except for North Star and
Willowbrook in which the Company has 37 1/2% interests and Collin Creek
Mall in which the Company has a 30% interest).
(c) Projects are managed by subsidiaries of the Company for a fee plus a share
of cash flow.
(d) Projects are owned by partnerships or wholly owned (Staten Island Mall,
Randhurst and Burlington Center) by subsidiaries of the Company and are
managed by subsidiaries of the Company for a fee plus a share of cash flow
and a share of proceeds from sales or refinancings. The Company's
ownership interest in the partnerships is determined based upon the
results of operations.
<TABLE>
<CAPTION>
OFFICE PROJECTS OWNED BY ROUSE-
TEACHERS PROPERTIES, INC. LOCATION SQUARE FEET
------------------------------- -------- -----------
<C> <S> <C>
Triangle Business Center Baltimore, MD 75,000
Owen Brown I Columbia, MD 46,000
Sieling Tech Center Columbia, MD 76,000
RiversPark I & II Columbia, MD 306,000
Center Pointe Hunt Valley, MD 130,000
201 International Circle Hunt Valley, MD 79,000
Loveton Center 9 Hunt Valley, MD 53,000
11011 McCormick Road Hunt Valley, MD 57,000
Schilling Plaza North Hunt Valley, MD 96,000
Schilling Plaza South Hunt Valley, MD 108,000
One Hunt Valley Hunt Valley, MD 225,000
Prince George's County,
Inglewood Office Centres 1, 2 MD 222,000
Prince George's County,
Inglewood Tech Centers I, II, III, IV & V MD 316,000
Silver Spring Metro Plaza Silver Spring, MD 692,000
Ambassador Center Woodlawn, MD 83,000
15--17 Governor's Court Woodlawn, MD 29,000
21 Governor's Court Woodlawn, MD 56,000
Parkview Center Woodlawn, MD 58,000
Harbourside Tampa, FL 147,000
One & Two Prestige Place Tampa, FL 144,000
McCormick Center I, II & III Tampa, FL 202,000
Gateway Centers I & II Raleigh, NC 116,000
Senate Plaza Camp Hill, PA 231,000
---------
Total Office Projects
Owned by Rouse-Teachers
Properties, Inc. 3,547,000
---------
<CAPTION>
INDUSTRIAL PROJECTS OWNED BY ROUSE-
TEACHERS PROPERTIES, INC. LOCATION SQUARE FEET
----------------------------------- -------- -----------
<C> <S> <C>
Pulaski Industrial Park Essex, MD 157,000
Hunt Valley Business Community Hunt Valley, MD 950,000
Rutherford Business Center Woodlawn, MD 572,000
---------
Total Industrial
Projects
Owned by Rouse-Teachers
Properties, Inc. 1,679,000
---------
</TABLE>
26
<PAGE>
The principal executive office of the Company is located at 10275 Little
Patuxent Parkway, Columbia, Maryland 21044-3456 and its telephone number is
(410) 992-6000.
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities and the Common
Securities will be invested in the Junior Subordinated Debentures issued
pursuant to the Indenture. The net proceeds to be received by the Company from
the sale of the Junior Subordinated Debentures are approximately $127,717,881
($146,966,818.50, assuming exercise of the over-allotment option).
Approximately $99 million of the net proceeds will be used primarily to retire
or reduce outstanding Company debt, debt carrying a Company guarantee of
repayment and higher rate nonrecourse property debt. The Company currently has
identified approximately $95 million in debt having fixed interest rates
ranging from 9.25% to 10.25% and maturities ranging from five months to 20
years and approximately $40 million in debt having variable interest rates
averaging 8.0% and maturities ranging from 3 years to 5 years which may be
reduced or retired with the net proceeds. The specific debt that will be
reduced or retired will be determined based on the best economic interests of
the Company. The Company intends to use most of the net proceeds remaining
after debt retirement or reduction to fund development projects and/or
property acquisitions. The specific development projects and property
acquisitions will be determined based on the best economic interests of the
Company. The remaining net proceeds will be used for general corporate
purposes. Prior to such uses, the net proceeds will be invested in high-
quality, short-term instruments.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries at September 30, 1995 and as adjusted to give
effect to (i) the sale of the Preferred Securities offered hereby (without
deduction of Underwriters' Compensation or expenses and assuming the over-
allotment option is not exercised) and (ii) the application of the proceeds
therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
(IN THOUSANDS)
----------------------
ACTUAL ADJUSTED
------ ----------
<S> <C> <C>
Current portion of debt and capital lease obligations.. $ 123,371 $ 114,951
========== ==========
Long-term debt......................................... $2,438,271 $2,347,698
Long-term portion of capital lease obligations......... 55,995 55,995
Company-obligated mandatorily redeemable preferred se-
curities of subsidiary Trust holding solely Company
Subordinated Debt Securities (1)...................... -- 132,500
Shareholders' equity:
Preferred stock, par value $.01 per share; 50,000,000
shares authorized; 4,505,009 shares of Series A Con-
vertible Preferred stock, par value $.01 per share,
issued and outstanding................................ 45 45
Common stock, par value $.01 per share; 250,000,000
shares authorized; 47,921,499 shares issued and out-
standing.............................................. 479 479
Additional paid-in capital............................. 309,231 309,231
Accumulated deficit.................................... (255,272) (255,272)
---------- ----------
Total shareholders' equity........................... 54,483 54,483
---------- ----------
Total capitalization................................. $2,548,749 $2,590,676
========== ==========
</TABLE>
- --------
(1) As described herein, the assets of the Issuer include $132.5 million
aggregate principal amount of 9 1/4% Junior Subordinated Debentures of
Rouse which will constitute approximately 97% of the total assets of the
Issuer. The remaining 3% of the assets of the Issuer will be comprised of
approximately $4.1 million aggregate principal amount of 9 1/4% Junior
Subordinated Debentures of Rouse purchased with the proceeds of the sale
of Common Securities of the Issuer.
27
<PAGE>
SELECTED FINANCIAL DATA OF ROUSE
The following selected financial information of the Company for the years
ended December 31, 1994, 1993 and 1992 and the nine months ended September 30,
1995 and 1994 was derived from the Company's consolidated financial statements
and five-year comparison of selected financial data contained in its Annual
Report on Form 10-K for the year ended December 31, 1994 and its Quarterly
Reports on Form 10-Q for the quarters ended September 30, 1995 and 1994 and is
qualified in its entirety by such documents. See "Incorporation of Certain
Documents by Reference". The selected financial information of the Company for
the years ended December 31, 1992, 1991 and 1990 was derived from the audited
consolidated financial statements of the Company for such periods and the
balance sheet information for the quarter ended September 30, 1994 was derived
from the unaudited consolidated financial statements of the Company for such
period which, in each case, have not been incorporated herein by reference.
Results for the nine months ended September 30, 1995 and 1994 are unaudited.
Results for the nine months ended September 30, 1995 are not necessarily
indicative of results for the year ending December 31, 1995. The following
financial information should be read in conjunction with the Company's
consolidated financial statements and notes thereto incorporated by reference
into and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating results data:
Revenues from
continuing
operations............ $ 495,316 $ 489,846 $ 671,171 $ 646,805 $ 597,105 $ 573,498 $ 529,570
Earnings (loss) from
continuing
operations............ 3,939 2,155 6,606 (1,291) (15,849) 2,424 (1,165)
Earnings (loss) from
continuing operations
available for common
shareholders per share
of common stock....... (.15) (.16) (.14) (.27) (.33) .05 (.07)
Balance sheet data:
Total assets-cost ba-
sis................... 2,929,637 2,897,922 2,915,860 2,874,982 2,726,281 2,637,452 2,614,877
Total assets-current
value basis (1)....... -- -- 4,736,961 4,588,636 4,217,819 4,174,093 4,362,153
Debt, capital leases
and redeemable
Preferred stock....... 2,617,637 2,550,453 2,532,920 2,473,596 2,498,983 2,374,527 2,344,095
Shareholders' equity
(deficit):
Historical cost basis.. 54,483 80,763 95,026 113,151 (34,848) 17,328 25,339
Current value basis
(1)................... -- -- 1,614,245 1,525,606 1,188,896 1,274,070 1,470,088
Shareholders' equity
(deficit) per share of
common stock:
Historical cost basis
(2)................... .93 1.42 1.63 1.98 (.74) .36 .53
Current value basis
(1)(2)................ -- -- 27.75 26.75 25.50 26.60 30.10
Other selected data:
Earnings before
depreciation and
deferred taxes from
operations (EBDT)..... 76,978 67,115 94,710 78,281 52,282 46,820 50,290
Net cash provided by
(used in):
Operating activities... 69,525 79,008 113,775 101,149 66,630 67,226 35,057
Investing activities... (64,087) (143,272) (178,551) (154,446) (144,836) (96,210) (248,532)
Financing activities... (28,633) 41,086 40,618 47,068 98,914 17,271 246,968
Ratio of earnings to
fixed
charges (3)(4)(5)..... 1.05 1.04 1.06 1.01 -- -- --
Ratio of earnings to
combined fixed charges
and Preferred stock
dividend requirements
(6)(7)(8)............. -- -- -- -- -- -- --
Consolidated coverage
ratio (9)............. 1.48 1.42 1.44 1.37 1.25 1.24 1.29
Cash dividends per
share of common stock
for the period........ .60 .51 .68 .62 .60 .60 .60
Cash dividends per
share of convertible
Preferred stock for
the period............ 2.43 2.43 3.25 2.83 -- -- --
Market price per share
of common stock at end
of period (10)........ 22.00 19.13 19.25 17.75 18.00 18.25 14.50
Market price per share
of convertible
Preferred stock at end
of period............. 54.88 51.13 48.50 53.75 -- -- --
Weighted average common
shares outstanding.... 47,779 47,563 47,565 47,411 47,994 48,157 48,019
Number of common shares
outstanding at end of
period................ 47,921 47,568 47,571 47,562 47,292 48,193 48,130
Number of convertible
Preferred stock shares
outstanding at end of
period................ 4,505 4,025 4,505 4,025 -- -- --
</TABLE>
28
<PAGE>
- --------
(1) Current value basis financial information is not presented for interim
periods.
(2) Historical cost basis shareholders' equity per share of common stock and
current value basis shareholders' equity per share of common stock assume
the conversion of the Company's Series A Convertible Preferred stock.
(3) The pro forma ratios of earnings to fixed charges for the year ended
December 31, 1994 and the nine months ended September 30, 1995, adjusted
to give effect to the issuance of the Preferred Securities and the use of
the proceeds therefrom, are not materially different from the historical
ratios.
(4) The ratio of earnings to fixed charges is computed by dividing fixed
charges into net earnings (loss) before income taxes, extraordinary loss
and cumulative effect of change in accounting principle, adjusted for
minority interest in earnings, amortization of interest costs previously
capitalized and certain other items, plus fixed charges other than
capitalized interest. Fixed charges include interest costs, the estimated
interest component of rent expense and certain other items.
(5) Total fixed charges exceeded the Company's earnings available for fixed
charges by $29,449,000, $10,347,000 and $24,575,000 for the years ended
December 31, 1992, 1991 and 1990, respectively.
(6) The pro forma ratios of earnings to combined fixed charges and Preferred
stock dividend requirements for the year ended December 31, 1994 and the
nine months ended September 30, 1995, adjusted to give effect to the
issuance of the Preferred Securities and the use of the proceeds
therefrom, are not materially different from the historical ratios.
(7) The ratio of earnings to combined fixed charges and Preferred stock
dividend requirements is computed by dividing total fixed charges and
amounts of pre-tax earnings required to cover Preferred stock dividend
requirements into net earnings (loss) before income taxes, extraordinary
loss and cumulative effect of change in accounting principle, adjusted for
minority interest in earnings, amortization of interest costs previously
capitalized and certain other items, plus fixed charges other than
capitalized interest. Fixed charges include interest costs, the estimated
interest component of rent expense and certain other items.
(8) Total fixed charges and Preferred stock dividend requirements exceeded the
Company's earnings available for fixed charges and Preferred stock
dividend requirements by $9,597,000 and $9,752,000 for the nine months
ended September 30, 1995 and 1994, respectively, and $8,934,000,
$17,722,000, $29,449,000, $10,347,000, and $28,363,000 for the years ended
December 31, 1994, 1993, 1992, 1991 and 1990, respectively.
(9) Consolidated coverage ratio is the ratio of earnings before depreciation
and deferred taxes from operations (EBDT) plus consolidated interest
expense to consolidated interest expense. Consolidated interest expense
includes dividends on redeemable Preferred Stock (retired for financial
reporting purposes in 1990), which are included because the stock was
subject to mandatory redemption requirements for cash.
(10) The market price of common stock of the Company as of the close of
business on November 17, 1995 was $21.625 per share.
29
<PAGE>
RECENT DEVELOPMENTS
The Company and certain of its affiliates have been defendants in a lawsuit
brought in Louisiana state court in 1990. The plaintiff, Robert P. Guastella
Equities, Inc., a former tenant at Riverwalk, a retail center in New Orleans,
Louisiana, which is owned and operated by an affiliate of the Company, alleged
in the lawsuit that the defendants breached plaintiff's lease for the
operation of a restaurant at Riverwalk. In 1993, a jury returned a verdict
against the defendants upon which judgment was entered by the trial court on
January 7, 1994, in the total net amount of approximately $9,128,000 plus
interest from the date the suit was filed. The trial court also entered an
amended judgment in which it awarded the plaintiff $450,000 in attorneys'
fees.
On May 23, 1994, the Company appealed this judgment to the Louisiana Court
of Appeals, Fourth Circuit. On November 16, 1995, the Louisiana Court of
Appeals denied the Company's appeal in a 2 to 1 decision and left standing the
judgment, but reduced the judgment by $240,000. The Company believes that the
verdict and judgment are contrary to the facts and applicable law. The Company
intends to file a motion for reconsideration with the Louisiana Court of
Appeals and, if that motion is denied, intends to petition the Louisiana
Supreme Court to hear the appeal.
However, the Company has determined that it will record in the fourth
quarter of 1995 a pre-tax provision in the amount of $12,316,000, representing
the full amount of the modified award (including attorneys' fees) plus
interest, less pre-tax provisions previously recorded totaling $1,150,000. The
Company expects that the provision will cause a net loss for the fourth
quarter and for the full year 1995. The Company believes that the ultimate
disposition of this matter will not have a material adverse effect on the
Company's consolidated financial position or liquidity. The Company also
believes that the ultimate disposition of this matter will not have a material
adverse effect on either the Company's or the Issuer's ability to satisfy its
obligations under the Preferred Securities.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's primary business is the acquisition, development and
management of income-producing real estate projects. The Company operates a
diversified portfolio of real estate properties located across the United
States. In addition, the Company develops and sells land, primarily in
Columbia, Maryland.
Management believes that the Company's financial position is sound and that
its liquidity and capital resources are adequate. The Company has continued to
achieve strong financial results in recent periods, despite the generally
difficult market conditions in the real estate and retailing industries. These
results have been made possible by several factors, including the continued
strong performance of the Company's larger, major market retail centers and
Columbia land sales operations, refinancing of a significant amount of
project-related debt at lower interest rates, particularly in 1993 and the
first half of 1994, and, to a lesser extent, dispositions or modifications of
the terms of agreements relating to properties which were performing below
expectations.
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
OPERATING RESULTS
This discussion and analysis of operating results covers each of the
Company's four business segments as management believes that a segment
analysis provides the most effective means of understanding the Company's
business. Note 11 to the consolidated financial statements for the years ended
December 31, 1994, 1993 and 1992 incorporated by reference into this
Prospectus should be referred to when reading this discussion.
OPERATING PROPERTIES. The Company reports the results of its operating
properties in two categories: retail centers ("retail" properties) and office,
mixed-use and other properties ("office/mixed-use" properties).
The Company's tenant leases provide the foundation for the performance of
its retail and office/mixed-use properties. In addition to minimum rents, the
majority of retail and office tenant leases provide for other rents which
reimburse the Company for most of its operating expenses. Substantially all of
the Company's retail leases also provide for additional rent based on tenant
sales (percentage rent) in excess of stated levels. As leases expire, space is
re-leased, minimum rents are generally adjusted to market rates, expense
reimbursement provisions are updated and new percentage rent levels are
established for retail leases.
Most of the Company's operating properties are financed with long-term,
fixed rate, nonrecourse debt and, therefore, are not directly affected by
changes in interest rates. Although the interest rates on this debt do not
fluctuate, certain loans provide for additional payments to the Company's
lenders based on operating results and, in some instances, a share of a
property's residual value upon sale or refinancing. Certain lenders' rights to
participation in residual value expire upon maturity of the related loans.
Revenues from retail properties increased $22,877,000 in 1994 and
$35,118,000 in 1993. The increase in 1994 was attributable to expansions
opened in 1994, a full year of operations of expansions opened and properties
acquired in 1993 and increases in effective rents due to re-leasing efforts.
The increase was also due to higher occupancy levels at the Company's larger,
major market retail centers and increased lease cancellation payments received
as a result of tenant restructuring or downsizing. These increases were
partially offset by the disposition of a retail center in the first quarter of
1994.
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A substantial portion of the increase in 1993 was attributable to changes in
the composition of the Company's portfolio of retail properties during the
year, including acquisitions of interests in retail centers in the first and
second quarters and the openings of expansions in the first and third
quarters, and to a full year of operations for properties opened or acquired
during 1992. The increase in revenues also reflects higher average occupancy
levels, increased rents from temporary and seasonal tenants, re-leasing of
space at higher effective rents and improved recoveries of operating expenses
from tenants at certain properties.
Total operating and interest expenses for retail properties increased by
$8,965,000 in 1994 and $19,959,000 in 1993, including increased depreciation
and amortization of $2,662,000 and $1,508,000, respectively. The increase in
1994 was attributable to costs relating to expansions opened in 1994 and a
full year of operations of expansions opened and properties acquired in 1993,
higher occupancy levels at many of the Company's larger, major market retail
centers and higher interest costs related to floating rate debt. These
increases were partially mitigated by the effects of the disposition of a
retail center in the first quarter of 1994 and lower effective interest
expense on fixed rate property debt due to debt repayments and refinancing at
certain properties. The increase in 1993 was attributable primarily to the
changes in the Company's portfolio of retail properties described above,
partially offset by reductions in interest expense due to debt reductions,
lower interest rates on floating rate debt and refinancing at certain
properties.
Revenues from office/mixed-use properties increased $2,540,000 in 1994 and
$7,395,000 in 1993. Total operating and interest expenses for office/mixed-use
properties increased $1,835,000 in 1994 and $3,490,000 in 1993, including
increased depreciation and amortization of $1,324,000 and $529,000,
respectively. The increase in revenues in 1994 was attributable primarily to
higher occupancy levels at office and hotel properties and a full year of
operations of properties opened in 1993, partially offset by lower recoveries
of operating expenses at two office properties where the tenants began paying
certain operating expenses directly in 1994. The increase in expenses in 1994
was due principally to a full year of operations of properties opened in 1993
and higher occupancy levels at office and hotel properties, partially offset
by lower operating expenses at the two office properties referred to above.
Also, lower interest expense at certain properties due to debt reductions,
refinancing and the exercise, in the second quarter of 1994, of an option in a
loan agreement to reduce the effective interest rate on that loan, partially
mitigated the overall increase in interest and operating expenses in 1994.
The increases in revenues and expenses in 1993 were due principally to
operations of two industrial buildings in Columbia which opened in 1993 and an
office building in Columbia opened in 1992. The increase in expenses in 1993
was partially offset by a reduction in interest expense due to debt
reductions, lower interest rates on floating rate debt and the expiration of
certain interest rate exchange agreements.
LAND SALES. The Company's land sales operations relate primarily to the city
of Columbia. Generally, revenues and operating income from land sales are
affected by such factors as the availability to purchasers of construction and
permanent mortgage financing at acceptable interest rates, consumer and
business confidence, availability of saleable land for particular uses and
management's decisions to sell, develop or retain land.
Land sales revenues were $35,232,000 in 1994, $35,313,000 in 1993 and
$29,137,000 in 1992. The increase in revenues in 1993 were attributable
primarily to higher sales of land for residential uses, and to a lesser
extent, commercial land for retail and other uses.
Land sales costs and expenses were $24,905,000 in 1994, $23,480,000 in 1993
and $19,289,000 in 1992. The increases in costs and expenses in 1994 and 1993
were attributable primarily to higher operating and interest expenses due to
lower levels of land development activity on projects other than Columbia. The
increase in 1993 was also due to increased cost of sales due to higher sales
revenues.
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DEVELOPMENT. Development expenses were $6,989,000 in 1994, $4,348,000 in
1993 and $4,916,000 in 1992. These costs consist primarily of additions to the
pre-construction reserve and new business costs.
The pre-construction reserve is maintained to provide for costs of projects
in the pre-construction phase of development, including retail center
renovation and expansion opportunities, which may not go forward to
completion. Additions to the pre-construction reserve were $3,400,000 in 1994,
$2,900,000 in 1993 and $3,050,000 in 1992. New business costs relate primarily
to the initial evaluation of acquisition and development opportunities. New
business costs were $3,094,000 in 1994, $953,000 in 1993 and $1,371,000 in
1992. The increases in these costs in 1994 are due to the Company's more
aggressive pursuit of new development and acquisition opportunities.
CORPORATE. Corporate revenues consist of interest income earned on temporary
investments, including investments of unused proceeds from refinancing of
certain properties. Corporate interest expense relates primarily to interest
on the convertible subordinated debentures, unused proceeds from refinancing
of certain properties and a portion of the unsecured 8.5% notes, net of
capitalized interest on corporate funds temporarily invested in projects under
development. Corporate expenses also include general and administrative costs.
Corporate interest income was $2,892,000 in 1994, $3,862,000 in 1993 and
$2,851,000 in 1992. The decrease in 1994 was attributable primarily to lower
average investment balances. The increase in 1993 was attributable to higher
average investment balances as a result of proceeds from the offerings of the
8.5% unsecured notes and Preferred stock and refinancing of certain retail
properties in 1992. The Company earned higher interest rates in 1994 and lower
interest rates in 1993 on its investment balances which consisted primarily of
short-term U.S. government and agency obligations in both years.
Corporate interest costs were $13,934,000 in 1994, $18,571,000 in 1993 and
$20,396,000 in 1992. Of such amounts, $2,564,000, $2,158,000 and $1,984,000
were capitalized in 1994, 1993 and 1992, respectively, on funds invested in
development projects. The decreases in corporate interest costs in 1994 and
1993 are attributable primarily to the redemption of a $100,000,000 issue of
convertible subordinated debentures in May 1993. The decrease in 1993 was
partially offset by the issuance of the 8.5% unsecured notes. A portion of the
proceeds of the 8.5% unsecured notes and proceeds from refinancing of certain
retail properties completed in 1992 were used to refinance certain land and
operating property debt and to finance improvements to a number of operating
properties during 1994 and 1993. The interest costs on loan proceeds used for
other segments are included in the operating results of those segments,
reducing corporate interest costs. The higher level of interest capitalized in
1994, when compared to 1993 and 1992, reflects higher levels of corporate
funds invested in development projects consistent with the Company's more
aggressive pursuit of development opportunities in 1994.
GAIN (LOSS) ON DISPOSITIONS OF ASSETS AND OTHER PROVISIONS, NET. The loss on
dispositions of assets and other provisions, net, for 1994 consists primarily
of losses totaling $8,045,000 incurred on dispositions of the Company's
interests in two retail centers, a hotel and an office building and a
provision for loss of $2,212,000 (recorded in the fourth quarter) on an
investment in an industrial building which is subject to a contract for sale.
These losses were partially offset by a gain of $2,761,000 related to the
disposition of an interest in a retail center the Company continues to manage.
The loss on dispositions of assets and other provisions, net, for 1993
consists primarily of a provision for loss on investment in a retail center
recorded in the fourth quarter. This loss was recognized based on management's
determination that the Company would not continue to support the property
(which is financed by nonrecourse loans) under the existing arrangements with
lenders,
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public authorities and others involved and that it was unlikely that the
Company would recover all of its investment in the property based on forecasts
of future cash flows.
The loss on dispositions of assets and other provisions, net, for 1992
consists primarily of costs incurred in connection with a private placement
with the Company and seven institutional investors of 9.5 million shares of
common stock of the Company previously owned by Trizec Investments Corporation
($2,231,000) and provisions for losses on a marketable equity security and
certain other investments based on management's determination that the
declines in their fair values were other than temporary ($4,156,000).
EXTRAORDINARY LOSSES, NET OF RELATED INCOME TAX BENEFITS. The extraordinary
losses in 1994, 1993 and 1992 resulted from early extinguishments or required
partial early redemptions of debt and aggregated $6,824,000, $12,322,000 and
$530,000, respectively, net of deferred income tax benefits of $2,377,000,
$4,271,000 and $182,000, respectively.
NET EARNINGS (LOSS). The Company had net earnings of $2,159,000 in 1994 and
net losses of $9,342,000 in 1993 and $16,197,000 in 1992. The Company's
operating income (after depreciation and amortization) was $21,259,000 in 1994
and $8,841,000 in 1993 and its operating loss was $15,529,000 in 1992. The
improvements in operating income in 1994 and 1993 were due primarily to the
factors described above. Net earnings (loss) for each year was affected by
unusual and/or nonrecurring items. The most significant of these are the items
discussed above in gain (loss) on dispositions of assets and other provisions,
net, and extraordinary losses, net of related income tax benefits.
EARNINGS BEFORE DEPRECIATION AND DEFERRED TAXES. The Company uses a
supplemental performance measure along with net earnings (loss) to report its
operating results. This measure, referred to as Earnings Before Depreciation
and Deferred Taxes ("EBDT"), is not a measure of operating results or cash
flows from operating activities as defined by generally accepted accounting
principles. Additionally, EBDT is not necessarily indicative of cash available
to fund cash needs, including the payment of dividends, and should not be
considered as an alternative to cash flows as a measure of liquidity. However,
the Company believes that EBDT provides relevant information about its
operations and is necessary, along with net earnings (loss), for an
understanding of its operating results.
Depreciation and amortization are excluded from EBDT because, based on the
Company's current value basis reporting, its operating properties are worth
substantially more than their undepreciated historical cost. Deferred income
taxes are excluded from EBDT because payments of income taxes have not been
and are not anticipated in the near term to be, significant to the Company.
Current federal and state income taxes are included as reductions of EBDT.
Gain (loss) on dispositions of assets and other provisions, net, and
extraordinary losses, net of related income tax benefits, represent unusual
and/or nonrecurring items and are therefore excluded from EBDT.
EBDT was $94,710,000 in 1994, $78,281,000 in 1993 and $52,282,000 in 1992.
The significant changes in various revenue and expense elements comprising
EBDT by segment are described above. The increases in EBDT in 1994 and 1993
were due primarily to improved results from the operating properties business
segment, particularly retail properties.
EBDT from retail properties was $103,978,000 in 1994, $87,248,000 in 1993
and $70,966,000 in 1992 and increased at rates of 19.2% and 22.9% in 1994 and
1993, respectively. The increases in EBDT for 1994 and 1993 reflect the
effects of re-leasing of space at higher effective rents, the operating
results of recently expanded properties and debt reductions and refinancing at
certain
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properties. The increase for 1993 also reflects slightly higher average
occupancy levels and tenant sales. Average occupancy and tenant sales for the
Company's portfolio of retail properties decreased slightly in 1994 when
compared to 1993; however, occupancy and sales actually improved at many of
the Company's larger, major market retail centers, most of which are wholly-
owned or at least 50% owned, and sales of high-performing merchants (i.e.,
those paying percentage rents) increased by 3.4%. These factors had a
disproportionate effect on EBDT and more than offset the effects of the
overall decrease in occupancy and tenant sales.
Office/mixed-use properties had EBDT of $4,273,000 in 1994 and $2,283,000 in
1993 and incurred a loss before depreciation and deferred taxes of $2,127,000
in 1992. The growth in EBDT in 1994 was attributable primarily to improved
average occupancy levels at certain office and hotel properties, the
operations of two industrial buildings in Columbia opened in 1993 and lower
interest expense due to debt reductions, refinancing and the exercise, in the
second quarter of 1994, of an option in a loan agreement to reduce the
effective interest rate on that loan. The growth in EBDT in 1993 was
attributable primarily to improved occupancy at several Columbia office
properties and urban mixed-use projects and lower interest expense due to debt
reductions, lower interest rates on floating rate debt and the expiration of
certain interest rate exchange agreements.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Management believes that the current values of the Company's assets and
liabilities are the most realistic indicators of the Company's financial
strength and future profitability. Current values of the Company's interests
in operating properties, including interests in unconsolidated real estate
ventures and properties held for development and sale, represent the present
values of forecasted net operating cash flows from these properties--the
Company's most significant assets. Since 1976, revaluation equity, the
aggregate increment of current value over cost basis net book value of the
Company's assets and liabilities, has increased at a compound annual rate of
15%. The majority of the Company's revaluation equity relates to prime
regional shopping centers. Larger, major market retail centers continue to be
a favored real estate investment and required investor yields in 1994 remained
relatively unchanged from 1993. Revaluation equity increased $107 million or
7.6% to $1.52 billion at December 31, 1994. The increase was due primarily to
higher levels of rents used in the forecasts of cash flows from retail
properties and is consistent with the Company's leasing activities and
operating results for 1994. Refinancing and other changes in financial
arrangements at certain projects also increased forecasted cash flows from
operating properties. In addition, the current value of publicly-traded debt
not specifically related to interests in properties decreased.
Cost basis shareholders' equity decreased to $95,026,000 at December 31,
1994 from $113,151,000 at December 31, 1993. The decrease was due primarily to
the payment of regular quarterly dividends on the common and Preferred stocks,
partially offset by the issuance of additional shares of Preferred stock.
The Company had cash and cash equivalents and investments in marketable
securities totaling $79,547,000 and $107,959,000 at December 31, 1994 and
1993, respectively, including $2,001,000 and $4,422,000, respectively, held
for restricted uses.
Net cash provided by operating activities was $113,775,000, $101,149,000 and
$66,630,000 in 1994, 1993 and 1992, respectively. The changes in cash provided
by operating activities were due primarily to the factors described in the
discussion and analysis of operating results. In addition, the level of net
cash provided by operating activities is affected by the timing of receipt of
revenues (including land sales proceeds) and the payment of operating and
interest expenses and land development costs.
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In 1994 and 1993, over 80% of the Company's debt was represented by
mortgages and bonds collateralized by operating properties. Scheduled
principal payments on property debt were $46,750,000, $20,735,000 and
$17,907,000 in 1994, 1993 and 1992, respectively. The increase in 1994 was due
primarily to the effects of refinancing certain office/mixed-use properties.
The annual maturities of debt for the next five years include balloon payments
of $83,748,000 in 1995, $33,585,000 in 1996, $87,507,000 in 1997, $38,682,000
in 1998 and $106,074,000 in 1999. The balloon payments for 1995 include
$56,337,000 related to a retail center mortgage which is due in December. The
Company expects to refinance the mortgage on a long term basis at or prior to
its scheduled maturity. The Company is confident that it will be able to make
the other balloon payments or arrange to refinance or extend their maturities
at or prior to the scheduled repayment dates. In January 1995, the Company
extinguished approximately $96,800,000 of fixed rate property debt prior to
its scheduled maturity and incurred an extraordinary loss of approximately
$7,100,000, net of related deferred income tax benefits. Proceeds from a
variable rate loan of $96,800,000 obtained in January 1995 and due in February
1996 and available cash were used to retire the debt and fund the prepayment
penalty. The Company believes it will be able to refinance this loan on a long
term basis at or prior to its scheduled maturity. The Company is continually
evaluating sources of capital, and management believes there are reasonable
and satisfactory sources available for all requirements without necessitating
property sales.
Cash expenditures for properties in development and improvements to existing
properties funded by debt were $78,628,000, $87,243,000 and $83,377,000 in
1994, 1993 and 1992, respectively. A substantial portion of the costs of
properties in development is financed with construction or similar loans.
Typically, long term fixed rate debt financing is arranged concurrently with
the construction financing prior to the commencement of construction.
Management anticipates that acceptable methods of financing development
projects with fixed rate, nonrecourse debt will continue to be available.
Improvements to existing properties funded by debt consist primarily of costs
of renovation and remerchandising programs and other capital improvement
costs. The Company's share of these costs has been financed primarily from
proceeds of refinancing of the related properties or other properties, credit
line borrowings and a portion of the proceeds of the 8.5% unsecured notes
issued in January 1993. The interest costs on these financings are included in
the operating results of the operating properties segment.
Cash expenditures for acquisitions of interests in properties were
$94,113,000 in 1994, $34,967,000 in 1993 and $38,806,000 in 1992. A
substantial portion of these costs has been financed using nonrecourse debt.
The acquisitions in 1994 consist primarily of the purchase of land underlying
a retail center and the related equity interest of the former lessor. The
acquisitions in 1993 and 1992 consist primarily of purchases of partners'
interests in retail properties.
The Company has available sources of capital in addition to those discussed
above. The Company's equity interests in its operating properties and
properties held for development and sale (principally Columbia land) and land
in development represent a source of funds either through sales or
refinancing. The aggregate equity value of these interests as of December 31,
1994 was approximately $2,339,000,000. The Company also has lines of credit
available totaling $159,720,000 which can be used to fund property acquisition
costs, finance other corporate needs, repay existing indebtedness or provide
corporate liquidity, subject to approval by the lenders. In addition, in
February 1995, the Company registered $150,000,000 of unsecured notes for
issuance to the public from time to time through February 1997. The Company
intends to use the proceeds from these notes to repay existing recourse
indebtedness.
The agreements relating to certain of the lines of credit, the 8.5%
unsecured notes, the unsecured notes registered in February 1995 and certain
other loans impose limitations on the Company. The most restrictive of these
limit the Company's ability to incur certain types of additional debt if the
Company does not maintain specified debt service coverage ratios. The
agreements also impose
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restrictions on sale, lease and certain other transactions, subject to various
exclusions and limitations. These restrictions have not limited the Company's
normal business activities.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
OPERATING RESULTS
OPERATING PROPERTIES. Revenues from retail centers increased $94,000 and
$3,948,000 while total operating and interest expenses decreased $2,121,000
and $7,143,000 for the three and nine months ended September 30, 1995 as
compared to the same periods in 1994. The increases in revenues are
attributable to the operations of expansions opened in August 1994 and March
1995, higher effective rents on re-leased space, and, for the nine month
period, increased tenant lease cancellation payments. These increases have
been partially offset by the effects of slightly lower occupancy levels, lower
recoveries of operating expenses, as discussed below, the dispositions of
properties in the first quarter of 1994 and second quarter of 1995, and for
the three month period, decreased tenant lease cancellation payments. The
decreases in expenses are attributable to the aforementioned property
dispositions, lower recoverable expenses as a result of operating expense
reduction efforts and milder winter conditions experienced in the Northeast,
lower bad debt expenses due to recoveries of amounts previously reserved and
lower interest expense due to debt restructurings and refinancings completed
in 1994 or early 1995. These decreases were partially offset by an increase in
expenses associated with the operations of the expansions referred to above.
Revenues from office, mixed-use and other properties decreased $602,000 and
$146,000 and total operating and interest expenses decreased $1,801,000 and
$1,955,000 for the three and nine months ended September 30, 1995 as compared
to the same periods in 1994. The decreases in revenues are attributable
primarily to dispositions of properties in the third quarter of 1994 and the
second quarter of 1995, lower recoveries of operating expenses and, for the
three month period, decreased tenant lease cancellation payments. These
decreases have been partially offset by higher occupancy at certain hotel and
office properties in Columbia and, for the nine month period, increased tenant
lease cancellation payments. The decreases in total operating and interest
expenses are attributable primarily to the aforementioned property
dispositions, lower bad debt expenses due to recoveries of amounts previously
reserved, lower operating expenses at certain projects and lower depreciation
expense as the Company discontinued depreciating an industrial building it
intends to sell. These decreases are partially offset by expenses at two
industrial buildings in Columbia which opened in the second quarter of 1994
and higher interest expense on a mixed-use project. Interest on this project
loan was lower in the first quarter of 1994 because the Company exercised an
option in the loan agreement to make a specified payment and reduce the
effective interest rate on the loan retroactive to the beginning of its term.
The payment was less than the interest previously accrued, and the difference
was recorded as a reduction to interest expense in the quarter.
LAND SALES. Revenues from land sales decreased $2,754,000 and $7,227,000 and
total costs and expenses decreased $1,009,000 and $4,191,000 for the three and
nine months ended September 30, 1995, as compared to the same periods in 1994.
The decreases in revenues relate to lower sales of land for commercial/other
uses in Columbia. The decreases in costs and expenses are attributable
primarily to decreased costs of sales due to lower sales revenues.
DEVELOPMENT. These costs consist primarily of additions to the pre-
construction reserve and new business costs. The pre-construction reserve is
maintained to provide for costs of projects which may not go forward to
completion. New business costs relate primarily to the initial evaluation of
acquisition and development opportunities. These costs decreased $1,606,000
and $978,000 for the three and nine months ended September 30, 1995 as
compared to the same periods in 1994. The decreases are due primarily to
reduced provisions required for projects in the pre-construction stage due to
progress made in the development process, particularly in the third quarter of
1995.
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CORPORATE. Corporate interest costs were $3,275,000 and $3,754,000 for the
three months ended September 30, 1995 and 1994, respectively, and $10,479,000
and $10,322,000 for the nine months ended September 30, 1995 and 1994,
respectively. Of such amounts, $981,000 and $734,000 were capitalized during
the three months ended September 30, 1995 and 1994, respectively, and
$2,642,000 and $1,750,000 were capitalized during the nine months ended
September 30, 1995 and 1994, respectively, on funds invested in development
projects. The decrease in corporate interest costs for the three month period
is due to a lower level of debt used for corporate purposes.
GAIN (LOSS) ON DISPOSITIONS OF ASSETS AND OTHER PROVISIONS, NET. The net
loss in 1995 relates primarily to provisions for losses on several retail
center properties the Company has decided to sell and is actively marketing
($16,058,000). These provisions for losses were recognized based on the
estimated fair values of the individual properties less costs to sell. These
losses were partially offset by a gain related to the disposition of an
interest in a retail center property ($1,940,000).
The net loss in 1994 relates primarily to provisions for losses on
investments in two operating properties ($7,728,000) and damages to a retail
property as a result of an earthquake ($446,000). The provisions for losses
were recognized based on management's determination that the Company would not
continue to support the projects under the existing arrangements with lenders
and/or partners and that it was unlikely that the Company would recover all of
its investments in these projects based on forecasts of future cash flows.
These losses were partially offset by a gain related to the disposition of an
interest in a property the Company continues to manage ($2,768,000).
EARNINGS BEFORE DEPRECIATION AND DEFERRED TAXES. EBDT was $76,978,000 for
the nine months ended September 30, 1995, an increase of 15% over $67,115,000
in the comparable period of 1994. The significant changes in various revenue
and expense elements comprising EBDT are described above. The increase in 1995
is due primarily to improved operating results from retail properties.
EBDT from retail centers was $80,576,000, an increase of 15% over
$70,245,000 in the comparable period in 1994. The increase in EBDT from retail
centers reflects increased rents on re-leased space, recent productive
expansions of a number of centers, implementation of effective cost reduction
programs at the Company's properties, lease termination payments from some
departing retailers and refinancings and restructures of debt, management and
ownership agreements.
FINANCIAL CONDITION AND LIQUIDITY
Shareholders' equity decreased $40,543,000 from $95,026,000 at December 31,
1994 to $54,483,000 at September 30, 1995. The decrease was due principally to
the payment of regular quarterly dividends on the Company's common and
Preferred stocks, and to a lesser extent, the Company's net loss for the nine
months ended September 30, 1995.
The Company had cash and cash equivalents and investments in marketable
securities totaling $31,740,000 and $79,547,000 at September 30, 1995 and
December 31, 1994, respectively, including $640,000 and $2,001,000,
respectively, restricted for use in the development of certain properties.
In February 1995, the Company registered $150,000,000 of unsecured notes for
issuance to the public from time to time through February 1997. The notes can
be issued, subject to market conditions, for varying terms of nine months or
longer at fixed or floating rates based upon market indices at the time of
issuance. Proceeds of these notes have been or will be used primarily to repay
higher rate or recourse indebtedness of the Company. As of September 30, 1995,
the Company had issued $100,300,000 of notes, the proceeds of which were used
to repay higher rate and/or recourse indebtedness.
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The Company has lines of credit of $158,920,000 of which $119,920,000 was
available at September 30, 1995. These lines of credit may be used to provide
corporate liquidity, fund property acquisition costs and finance other
corporate needs, subject to lenders' approvals. They may also be utilized to
pay some portion of existing debt, including maturities in 1995 and 1996. As
of September 30, 1995, debt due in one year was $121,302,000. Approximately
$71,790,000 of this debt relates to a retail center mortgage due in February
1996. The Company expects to refinance this mortgage on a long-term basis at
or prior to its scheduled maturity. The Company continues to actively evaluate
new sources of capital and is confident that it will be able to make these
payments, arrange to refinance these maturities prior to their scheduled
repayment dates, or take advantage of new sources of capital without
necessitating property sales.
Net cash provided by operating activities was $69,525,000 and $79,008,000
for the nine months ended September 30, 1995 and 1994, respectively. The
factors discussed previously under the operating results of the four major
business segments, particularly lower land sale revenues, and, in 1995,
funding of certain pension obligations affected the level of net cash provided
by operating activities.
Net cash used in investing activities was $64,087,000 and $143,272,000 for
the nine months ended September 30, 1995 and 1994, respectively. The decrease
in net cash used of $79,165,000 occurred because of the higher level of
property acquisition expenditures incurred in 1994 ($66,118,000) and because
net sales and redemptions of marketable securities (primarily short-term U.S.
Treasury securities) increased $15,185,000 in 1995. The property acquisitions
in 1995 consist of the purchases of partnership interests in three retail
centers. The property acquisitions in 1994 consisted primarily of the purchase
of land underlying a retail center together with the related equity interest
of the former lessor.
Net cash used in financing activities was $28,633,000 for the nine months
ended September 30, 1995 while net cash provided by financing activities was
$41,086,000 for the nine months ended September 30, 1994. Net cash used in
financing activities in 1995 is attributable primarily to scheduled principal
payments on property debt and the payment of dividends, partially offset by
the issuance of other debt and property debt to partially fund the property
acquisitions described above. Net cash provided by financing activities in
1994 was attributable primarily to the issuance of property debt to fund the
property acquisition described above partially offset by scheduled principal
payments on property debt and the payment of dividends.
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DESCRIPTION OF THE PREFERRED SECURITIES
The Trust Agreement among Rouse, as Depositor (the "Depositor"), The First
National Bank of Chicago, as the Property Trustee, Michael J. Majchrzak, as
the Delaware Trustee, and the three Administrative Trustees named in the Trust
Agreement (together with the Property Trustee and the Delaware Trustee, the
"Trustees"), authorizes the issuance of the Preferred Securities by the
Issuer. The Preferred Securities and the Common Securities (together, the
"Issuer Securities") will be issued by the Administrative Trustees on behalf
of the Issuer pursuant to the terms of the Trust Agreement. The Preferred
Securities represent undivided beneficial interests in the assets of the
Issuer and entitle the holders thereof to a preference in certain
circumstances with respect to distributions and amounts payable on redemption
or liquidation over the Common Securities, as well as other benefits as
described in the Trust Agreement. The following summaries contain the material
information concerning the Trust Agreement but do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
the provisions of the Trust Agreement, including the definitions therein of
certain terms, and the Trust Indenture Act. Wherever particular sections or
defined terms of the Trust Agreement are referred to, such sections or defined
terms are incorporated herein by reference. Section references used herein are
references to provisions of the Trust Agreement unless otherwise stated. The
Trust Agreement is filed as an exhibit to the Registration Statement of which
this Prospectus forms a part.
GENERAL
All of the Common Securities are owned by Rouse. The Common Securities rank
pari passu, and payments will be made thereon pro rata, with the Preferred
Securities except as described under "--Subordination of Common Securities".
(Section 4.03). Legal title to the Junior Subordinated Debentures will be held
in the name of the Property Trustee for the benefit of the holders of the
Issuer Securities. (Section 2.09). The Guarantee is an irrevocable guarantee
on a subordinated basis with respect to the Preferred Securities, but it does
not guarantee payment of distributions or amounts payable on redemption or
liquidation of the Preferred Securities when the Issuer does not have funds
sufficient to make such payments. The ability of the Issuer to make
distributions and pay other amounts on the Preferred Securities is solely
dependent upon Rouse making payments on the Junior Subordinated Debentures as
and when required. Such payments, if made in accordance with the terms of the
Indenture, will provide sufficient funds to enable the Issuer to make
distributions and pay other amounts on the Preferred Securities. Rouse has,
through the Guarantee, the Trust Agreement, the Junior Subordinated
Debentures, the Indenture and the Expense Agreement, taken together, fully,
irrevocably and unconditionally guaranteed all of the Issuer's obligations
under the Preferred Securities. No single document standing alone or operating
in conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Issuer's obligations under the Preferred Securities. See "Relationship Among
the Preferred Securities, the Junior Subordinated Debentures and the
Guarantee--General".
Subject to applicable law (including, without limitation, United States
federal securities law), Rouse or its subsidiaries may at any time and from
time to time purchase outstanding Preferred Securities by tender, in the open
market or by private agreement.
DISTRIBUTIONS
The distributions payable on each Preferred Security will be pro rata with
the Common Securities and will be entitled to a preference fixed at a rate per
annum of 9 1/4% of the stated Liquidation Amount of $25 per Preferred
Security. Distributions that are in arrears for more than one quarter will
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bear interest on the amount thereof at the rate per annum of 9 1/4%,
compounded quarterly. The term "distributions" as used herein includes any
such interest payable, unless otherwise stated, and shall also include any
Additional Amounts with respect to the Preferred Securities. "Additional
Amounts" means the amount of Additional Interest Attributable to Deferral (as
defined under "Description of the Junior Subordinated Debentures--Additional
Interest") paid by Rouse on the Junior Subordinated Debentures. See
"Description of the Junior Subordinated Debentures--Additional Interest". The
amount of distributions payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. (Section 4.01(a) and 4.01(b)).
Distributions on the Preferred Securities will be cumulative, will accrue
from November 27, 1995, the date of initial issuance thereof, and will be
payable quarterly in arrears, on March 31, June 30, September 30 and December
31 of each year, commencing December 31, 1995, except as otherwise described
below. In the event that any date on which distributions are otherwise payable
on the Preferred Securities is not a Business Day (as defined below), payment
of the distribution payable on such date will be made on the next succeeding
day that is a Business Day (and without any interest or other payment in
respect of any such delay) except that, if such Business Day is in the next
succeeding calendar year, payment of such distribution shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date (each date on which distributions are otherwise
payable in accordance with the foregoing, a "Distribution Date"). A "Business
Day" shall mean any day other than (x) a Saturday or a Sunday, (y) a day on
which banks in Maryland or the City of New York are authorized or obligated by
law or executive order to remain closed or (z) a day on which the corporate
trust office of the Property Trustee or the principal corporate trust office
of the Debenture Trustee (as defined under "Description of the Junior
Subordinated Debentures") is closed for business. (Section 4.01(a)).
Rouse has the right under the Indenture to extend the interest payment
period from time to time on the Junior Subordinated Debentures to a period of
up to 20 consecutive quarters, with the consequence that quarterly
distributions on the Preferred Securities would be deferred (but would
continue to accrue with interest thereon, including interest payable on unpaid
interest at the rate per annum set forth above, compounded quarterly) by the
Issuer during any such extended interest payment period. In the event that
Rouse exercises this right, during such period Rouse may not declare or pay
any dividend or distribution (other than a dividend or distribution in common
stock of Rouse or other security junior in right of payment to the Junior
Subordinated Debentures) on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock, or make any
guarantee payments with respect to the foregoing (other than payments under
the Guarantee), or repurchase or cause any subsidiary to repurchase any
security of Rouse ranking pari passu with or subordinate to the Junior
Subordinated Debentures (except on a ratable basis with securities ranking
pari passu with the Junior Subordinated Debentures). Prior to the termination
of any such extended interest payment period, Rouse may further extend the
interest payment period, provided that such extended interest payment period
together with all such previous and further extensions thereof may not exceed
20 consecutive quarters or extend beyond the maturity of the Junior
Subordinated Debentures. Upon the termination of any extended interest payment
period and the payment of all amounts then due, Rouse may select a new
extended interest payment period, subject to the foregoing requirements. See
"Description of the Junior Subordinated Debentures--Interest" and "--Option to
Extend Interest Payment Period".
It is anticipated that the income of the Issuer available for distribution
to the holders of the Preferred Securities will be limited to payments under
the Junior Subordinated Debentures which the Issuer will purchase with the
proceeds from the issuance and sale of the Common Securities and the Preferred
Securities. See "Description of the Junior Subordinated Debentures". If Rouse
does not make interest payments on the Junior Subordinated Debentures, the
Property Trustee will not have funds available to pay distributions on the
Preferred Securities. The payment of distributions (if and to
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the extent the Issuer has funds sufficient to make such payments) is
guaranteed on a subordinated basis by Rouse to the extent set forth herein
under "Description of the Guarantee--Status of the Guarantee".
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the register for the Preferred Securities of the
Issuer on the relevant record dates, which, as long as the Preferred
Securities remain in book-entry-only form, will be one Business Day prior to
the relevant Distribution Date. Subject to any applicable laws and regulations
and the provisions of the Trust Agreement, each such payment will be made as
described under "--Book-Entry-Only Issuance--The Depository Trust Company"
below. In the event the Preferred Securities do not remain in book-entry-only
form, the relevant record date shall be the date 15 days prior to the relevant
Distribution Date, whether or not a Business Day. (Section 4.01 (d)).
REDEMPTION
Upon the repayment of the Junior Subordinated Debentures, whether at
maturity or upon earlier redemption as provided in the Indenture, the proceeds
from such repayment shall be applied by the Property Trustee to redeem a Like
Amount (as defined below) of Issuer Securities, upon not less than 30 nor more
than 60 days' notice, at $25 per Preferred Security plus accumulated and
unpaid distributions to the Redemption Date, whether or not earned or declared
(the "Redemption Price"). Such payment in redemption shall be made to the
extent that the Trust has funds available for such payment. Rouse may not
redeem the Junior Subordinated Debentures in part unless all accrued and
unpaid interest (including any Additional Interest) has been paid in full on
all outstanding Junior Subordinated Debentures for all quarterly interest
periods terminating on or prior to the date of redemption and no Extension
Period is in effect. See "Description of the Junior Subordinated Debentures--
Optional Redemption".
Rouse has the right to redeem the Junior Subordinated Debentures (a) on or
after November 27, 2000, in whole or in part, with the proceeds of one or more
Equity Issuances or (b) at any time, in whole but not in part, on the
occurrence of a Tax Event unless Rouse determines to distribute the Junior
Subordinated Debentures to the holders of the Preferred Securities, subject to
the conditions described under "Description of the Junior Subordinated
Debentures--Optional Redemption". If (i) a Tax Event shall occur and be
continuing and (ii) Rouse elects to redeem the Junior Subordinated Debentures,
notice of redemption shall be given by the Property Trustee, mailed to holders
of Issuers Securities not less than 30 nor more than 60 days prior to the
Redemption Date.
"Capital Stock" of the Company means any and all shares, interests,
participations or other equivalents (however designated) of the Company's
capital stock (including, without limitation, common stock and preferred
stock) or other equity interests whether now outstanding or issued after the
date of the Indenture.
"Equity Issuance" means (i) an issuance by Rouse of its Capital Stock or
(ii) a PIPS Issuance.
"Like Amount" means (i) with respect to a redemption of Issuer Securities,
Issuer Securities having an aggregate Liquidation Amount equal to the
principal amount of Junior Subordinated Debentures to be contemporaneously
redeemed in accordance with the Indenture and (ii) with respect to a
distribution of Junior Subordinated Debentures to holders of Issuer Securities
in connection with a Tax Event or a liquidation of the Issuer upon the
bankruptcy, dissolution or liquidation of Rouse, Junior Subordinated
Debentures having a principal amount equal to the aggregate Liquidation Amount
of the Issuer Securities of the holder to whom such Junior Subordinated
Debentures are distributed.
"PIPS Issuance" means an issuance by any affiliate of Rouse of periodic
income preferred securities which are substantially comparable in economic
effect to the Preferred Securities, the
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proceeds of which are invested in debt securities of Rouse which are
substantially comparable in economic effect to the Junior Subordinated
Debentures.
"Tax Event" means the receipt by the Issuer or the Company, as the case may
be, of an opinion of counsel experienced in such matters to the effect that,
as a result of (i) any amendment to, clarification of, or change (including
any announced prospective change) in, the laws or treaties (or any regulations
thereunder) of the United States or any political subdivision or taxing
authority thereof or therein affecting taxation, (ii) any judicial decision,
official administrative pronouncement, ruling, regulatory procedure, notice or
announcement (including any notice or announcement of intent to adopt such
procedures or regulations) ("Administrative Action") or (iii) any amendment
to, clarification of, or change in the official position or the interpretation
of such Administrative Action or judicial decision or any interpretation or
pronouncement that provides for a position with respect to such Administrative
Action or judicial decision that differs from the theretofore generally
accepted position, in each case, by any legislative body, court, governmental
authority or regulatory body, irrespective of the manner in which such
amendment, clarification or change is made known, which amendment,
clarification, or change is effective or such pronouncement or decision is
announced on or after the first date of issuance of the Preferred Securities,
there is more than an insubstantial risk that (a) the Issuer is, or will be,
subject to United States federal income tax with respect to interest received
on the Junior Subordinated Debentures, (b) interest payable by the Company on
the Junior Subordinated Debentures is not, or will not be, fully deductible
for United States federal income tax purposes or (c) the Issuer is, or will
be, subject to more than a de minimis amount of other taxes, duties or other
governmental charges.
REDEMPTION PROCEDURES
Preferred Securities redeemed on each date fixed for redemption (the
"Redemption Date") shall be redeemed at the Redemption Price with the proceeds
from the contemporaneous redemption of Junior Subordinated Debentures.
Redemptions of the Preferred Securities will be made and the Redemption Price
will be payable on each Redemption Date only to the extent that the Issuer has
funds sufficient for the payment of such Redemption Price. (Section 4.02(d)).
See "--Subordination of Common Securities".
If the Property Trustee gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
time, on the Redemption Date, the Property Trustee will, so long as the
Preferred Securities are in book-entry-only form and to the extent that the
Trust has funds immediately available for payment of the applicable Redemption
Price, irrevocably deposit with DTC funds sufficient to pay the Redemption
Price and, at the direction of the Depositor, will give DTC irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Preferred Securities. See "--Book-Entry-Only Issuance--The Depository Trust
Company". If the Preferred Securities are no longer in book-entry-only form,
the Property Trustee, to the extent that the Trust has funds immediately
available for the payment of the Redemption Price, will irrevocably deposit
with the paying agent for the Preferred Securities (the "Preferred Securities
Paying Agent") funds sufficient to pay the applicable Redemption Price and
will give the Preferred Securities Paying Agent irrevocable instructions and
authority to pay the Redemption Price to the holders thereof upon surrender of
their certificates evidencing Preferred Securities. Notwithstanding the
foregoing, distributions payable on or prior to the Redemption Date for any
Preferred Securities called for redemption shall be payable to the holders of
such Preferred Securities on the relevant record dates for the related
Distribution Dates. If notice of redemption shall have been given and funds
deposited as required, then upon the date of such deposit, all rights of
holders of such Preferred Securities so called for redemption will cease,
except the right of the holders of such Preferred Securities to receive the
Redemption Price, but without interest on such Redemption Price, and such
Preferred Securities will cease to be outstanding. In the event that any date
fixed for redemption of Preferred Securities is
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not a Business Day, then payment of the Redemption Price payable on such date
will be made on the next succeeding day which is a Business Day (and without
any interest or other payment in respect of any such delay), except that, if
such Business Day falls in the next calendar year, such payment will be made
on the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of Preferred Securities called for redemption is
improperly withheld or refused and not paid either by the Issuer or by Rouse
pursuant to the Guarantee described herein under "Description of the
Guarantee", distributions on such Preferred Securities will continue to accrue
from the original Redemption Date to the date of payment, in which case the
actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price. (Section 4.02(e)).
If less than all the outstanding Issuer Securities are to be redeemed on a
Redemption Date, then the aggregate amount to be paid shall be allocated 3% to
the Common Securities and 97% to the Preferred Securities. The particular
Preferred Securities to be redeemed will be selected not more than 60 days
prior to the Redemption Date by the Property Trustee from the outstanding
Preferred Securities not previously called for redemption, by such method as
the Property Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions (equal to $25 or integral multiples
thereof) of the aggregate Liquidation Amount of Preferred Securities. The
Property Trustee shall promptly notify the Preferred Securities Securities
Registrar (as defined under "--Registrar and Transfer Agent"), in writing, of
the Preferred Securities selected for redemption and, in the case of any
Preferred Securities selected for partial redemption, the Liquidation Amount
thereof to be redeemed. For purposes of the Trust Agreement, unless the
context otherwise requires, all provisions relating to the redemption of
Preferred Securities will relate, in the case of any Preferred Securities
redeemed or to be redeemed only in part, to the portion of the aggregate
Liquidation Amount of Preferred Securities that has been or is to be redeemed.
(Section 4.02(f)).
SUBORDINATION OF COMMON SECURITIES
Payment of distributions (including Additional Amounts, if applicable) on,
and the Redemption Price of, the Issuer Securities, as applicable, shall be
made pro rata based on the aggregate liquidation amount of the Issuer
Securities; provided, however, that if on any Distribution Date or Redemption
Date an Event of Default (as defined herein, see "--Events of Default;
Notice") under the Indenture shall have occurred and be continuing, no payment
of any distribution (including Additional Amounts, if applicable) on, or
Redemption Price of, any Common Security, and no other payment on account of
the redemption, liquidation or other acquisition of Common Securities, shall
be made unless payment in full in cash of all accumulated and unpaid
distributions (including Additional Amounts, if applicable) on all outstanding
Preferred Securities for all distribution periods terminating on or prior
thereto, or in the case of payment of the Redemption Price the full amount of
such Redemption Price on all outstanding Preferred Securities called for
redemption, shall have been made or provided for, and all funds legally
available to the Property Trustee shall first be applied to the payment in
full in cash of all distributions (including Additional Amounts, if
applicable) on, or Redemption Price of, Preferred Securities then due and
payable. (Section 4.03(a)).
In the case of any Event of Default under the Trust Agreement, the holders
of Common Securities will be deemed to have waived any right to act with
respect to any such Event of Default under the Trust Agreement until the
effect of all such Events of Default with respect to the Preferred Securities
have been cured, waived or otherwise eliminated. Until any such Events of
Default under the Trust Agreement with respect to the Preferred Securities
have been so cured, waived or otherwise eliminated, the Property Trustee shall
act solely on behalf of the holders of the Preferred Securities and not the
holder of the Common Securities, and only the holders of the Preferred
Securities will have the right to direct the Property Trustee to act on their
behalf. (Section 4.03(b)).
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LIQUIDATION DISTRIBUTION UPON DISSOLUTION
Pursuant to the Trust Agreement, the Issuer shall dissolve and be liquidated
by the Trustees on the first to occur of: (i) December 31, 2050, the
expiration of the term of the Trust; (ii) the bankruptcy, insolvency,
dissolution or liquidation of Rouse; (iii) the occurrence of a Tax Event and a
related redemption of the Preferred Securities for cash or the distribution of
Junior Subordinated Debentures to holders of Issuer Securities as described
further below; (iv) the redemption of all of the Preferred Securities; and (v)
upon the entry of a decree of judicial dissolution of the Trust. (Sections
9.01 and 9.02).
If an early termination occurs as described in clause (ii) or (v) above or
if upon the occurrence of a Tax Event, Rouse chooses to distribute the Junior
Subordinated Debentures to the holders of the Issuer Securities, the Issuer
shall be liquidated by the Trustees as expeditiously as the Trustees determine
to be appropriate by causing the Property Trustee to distribute to each holder
of Preferred Securities and Common Securities, after satisfaction of
liabilities to creditors of the Trust, a Like Amount of Junior Subordinated
Debentures (and Additional Amounts, if applicable), unless such distribution
is determined by the Property Trustee not to be practical, in which event such
holders will be entitled to receive, out of the assets of the Issuer available
for distribution to holders after satisfaction of liabilities to creditors of
the Trust, an amount equal to, in the case of holders of Preferred Securities,
the aggregate of the stated Liquidation Amount of $25 per Preferred Security
plus accrued and unpaid distributions thereon to the date of payment, whether
or not earned or declared (such amount being the "Liquidation Distribution").
If such Liquidation Distribution can be paid only in part because the Issuer
has insufficient assets available to pay in full the aggregate Liquidation
Distribution, then the amounts payable directly by the Issuer on the Preferred
Securities shall be paid on a pro rata basis. The Trustees shall be required
to follow the direction of Rouse to dissolve the Trust and distribute the
Junior Subordinated Debentures to holders of Preferred Securities and Common
Securities only if the Trust shall have received an opinion of counsel
experienced in such matters to the effect that the holders of Preferred
Securities will not recognize any gain or loss for United States federal
income tax purposes as a result of such distribution. The holder of the Common
Securities will be entitled to receive distributions upon any such dissolution
pro rata with the holders of the Preferred Securities; except that, if an
Event of Default (as defined herein, see "--Events of Default; Notice") has
occurred and is continuing, the holder of the Common Securities will be
entitled to receive such distributions only after the holders of the Preferred
Securities have been paid in full. If the Junior Subordinated Debentures are
distributed to the holders of the Preferred Securities, Rouse will use its
reasonable efforts to have the Junior Subordinated Debentures listed on the
New York Stock Exchange or such other exchange upon which Preferred Securities
are then listed (Sections 4.02 and 9.04).
EVENTS OF DEFAULT; NOTICE
"Events of Default" as defined in Section 501 of the Indenture (see
"Description of the Junior Subordinated Debentures--Events of Default")
constitute the only "Events of Default" under the Trust Agreement with respect
to the Preferred Securities issued thereunder.
The Indenture provides that any one or more of the following described
events that has occurred and is continuing constitutes an "Event of Default"
with respect to the Junior Subordinated Debentures:
(a) failure for 30 days to pay any interest on the Junior Subordinated
Debentures, including any Additional Interest in respect thereof, when due
(subject to the deferral of any due date in the case of an Extension
Period); or
(b) failure to pay any principal on the Junior Subordinated Debentures
when due, whether at maturity, upon redemption by declaration or otherwise;
or
(c) failure to observe or perform in any material respect any other
covenant contained in the Indenture for 90 days after written notice to
Rouse from the Debenture Trustee or the holders of at least 25% in
principal amount of the outstanding Junior Subordinated Debentures; or
(d) certain events in bankruptcy, insolvency or reorganization of Rouse.
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Within five Business Days after the occurrence of any Event of Default
actually known to the Property Trustee, the Property Trustee shall transmit
notice of such Event of Default to the holders of Preferred Securities, the
Administrative Trustees and the Depositor, unless such Event of Default shall
have been cured or waived. (Section 8.02).
Unless an Event of Default shall have occurred and be continuing, any
Trustee may be removed at any time by act of the holder of the Common
Securities. If an Event of Default has occurred and is continuing, any Trustee
may be removed at such time by written act of the holders of a majority in
aggregate Liquidation Amount of the outstanding Preferred Securities,
delivered to such Trustee (in its individual capacity and on behalf of the
Issuer). No registration or removal of a Trustee and no appointment of a
successor trustee shall be effective until the acceptance of appointment by
the successor Trustee in accordance with the provisions of the Trust Agreement
(Section 8.10).
If an Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities upon dissolution
of the Issuer as described above. See "--Liquidation Distribution Upon
Dissolution".
MERGER OR CONSOLIDATION OF A TRUSTEE
Any Person (as defined in the Trust Agreement) into which the Property
Trustee or, if not a natural person, the Delaware Trustee or any
Administrative Trustee may be merged or with which it may be consolidated, or
any Person resulting from any merger, conversion or consolidation to which any
such Trustee shall be a party, or any Person succeeding to all or
substantially all the corporate trust business of any such Trustee, shall be
the successor to such Trustee under the Trust Agreement, provided such Person
is otherwise qualified and eligible. (Section 8.12).
VOTING RIGHTS
Except as provided below and as described under "Description of the
Guarantee--Amendments and Assignment" and as otherwise required by law, the
holders of the Preferred Securities will have no voting rights. (Section
6.01(a)).
Subject to the provisions described below under "--Modification of the Trust
Agreement", if any proposed amendment to the Trust Agreement provides for, or
the Trustees otherwise propose to effect, (i) any action that would adversely
affect the powers, preferences or special rights of the holders of the
Preferred Securities, whether by way of amendment to the Trust Agreement or
otherwise, or (ii) the dissolution, winding-up or termination of the Issuer,
other than pursuant to the Trust Agreement, then the holders of outstanding
Preferred Securities will be entitled to vote on such amendment or proposal,
and such amendment or proposal shall not be effective except with the approval
of the holders of at least a majority in aggregate Liquidation Amount of such
outstanding Preferred Securities. (Section 6.01(c)).
So long as any Junior Subordinated Debentures are held in the name of the
Property Trustee for the benefit of the holders of the Issuer Securities, the
Property Trustee shall not (i) direct the time, method and place of conducting
any proceeding for any remedy available to the Debenture Trustee (as defined
under "Description of the Junior Subordinated Debentures"), or executing any
trust or power conferred on the Debenture Trustee with respect to the Junior
Subordinated Debentures, (ii) waive any past default which is waivable under
Section 513 of the Indenture, (iii) exercise any right to rescind or annul a
declaration that the principal of all the Junior Subordinated Debentures shall
be due and payable or (iv) consent to any amendment, modification or
termination of the Indenture or the Junior Subordinated Debentures, where such
consent shall be required, without, in each case, obtaining the prior approval
of the holders of at least a majority in aggregate Liquidation Amount of the
outstanding Preferred Securities; provided, however, that where a consent
under the Indenture
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would require the consent of each holder of Junior Subordinated Debentures
affected thereby, no such consent shall be given by the Property Trustee
without the prior consent of each holder of Preferred Securities. The Property
Trustee shall not revoke any action previously authorized or approved by a
vote of the holders of the outstanding Preferred Securities. The Property
Trustee shall notify all holders of the Preferred Securities of any notice of
default received from the Debenture Trustee. In addition to obtaining the
foregoing approvals of the holders of the Preferred Securities, prior to
taking any of the foregoing actions, the Trustees shall obtain an opinion of
counsel experienced in such matters to the effect that the Issuer will not be
classified as an association taxable as a corporation for United States
federal income tax purposes on account of such action. (Section 6.01(b)).
Any required approval of holders of Preferred Securities may be given at a
separate meeting of holders of Preferred Securities convened for such purpose
or pursuant to written consent. The Administrative Trustees will cause a
notice of any meeting at which holders of Preferred Securities are entitled to
vote, or of any matter upon which action by written consent of such holders is
to be taken, to be given to each holder of record of Preferred Securities in
the manner set forth in the Trust Agreement. (Sections 6.02 and 6.06).
No vote or consent of the holders of Preferred Securities will be required
for the Issuer to redeem and cancel Preferred Securities in accordance with
the Trust Agreement.
For purposes of any vote of the holders of the Preferred Securities, any
Preferred Securities that are held by Rouse, any Trustee or any affiliate of
Rouse or any Trustee, shall, for purposes of such vote or consent, be treated
as if they were not outstanding.
CO-PROPERTY TRUSTEES AND SEPARATE PROPERTY TRUSTEE
Unless an Event of Default under the Trust Agreement shall have occurred and
be continuing, at any time or times, for the purpose of meeting the legal
requirements of the Trust Indenture Act or of any jurisdiction in which any
part of the Trust Property (as defined in the Trust Agreement) may at the time
be located, the holder of the Common Securities and the Administrative
Trustees shall have power to appoint, and upon the written request of the
Administrative Trustees, Rouse, as Depositor, shall for such purpose join with
the Administrative Trustees in the execution, delivery and performance of all
instruments and agreements necessary or proper to appoint, one or more persons
approved by the Property Trustee either to act as co-property trustee, jointly
with the Property Trustee, of all or any part of such Trust Property, or to
act as separate trustee of any such property, in either case with such powers
as may be provided in the instrument of appointment, and to vest in such
person or persons in such capacity, any property, title, right or power deemed
necessary or desirable, subject to the provisions of the Trust Agreement. If
Rouse, as Depositor, does not join in such appointment within 15 days after
the receipt by it of a request so to do, or in case an Event of Default under
the Indenture has occurred and is continuing, the Property Trustee alone shall
have the power to make such appointment. (Section 8.09).
PAYMENT AND PAYING AGENT
Payments in respect of the Preferred Securities shall be made to DTC, which
shall credit the relevant accounts at DTC on the applicable Distribution Dates
or, if the Preferred Securities are not held by DTC, such payments shall be
made at the office or agency of the Preferred Securities Paying Agent
maintained for such purpose, or at the option of the Property Trustee, by
check mailed to the address of the holder entitled thereto as such address
shall appear on the securities register. The Preferred Securities Paying Agent
shall initially be The First National Bank of Chicago. The Preferred
Securities Paying Agent shall be permitted to resign as Preferred Securities
Paying Agent upon 30 days' written notice to the Administrative Trustees, the
Property Trustee and Rouse. In the event that The First National Bank of
Chicago chooses no longer to be the Preferred Securities Paying
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Agent, the Administrative Trustees shall appoint a successor (which shall be a
bank or trust company) acceptable to the Property Trustee and Rouse to act as
Preferred Securities Paying Agent (Sections 4.04 and 5.09).
BOOK-ENTRY-ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
DTC will act as securities depository for the Preferred Securities. Upon
original issuance, the Preferred Securities will be issued only as fully-
registered securities registered in the name of Cede & Co. (DTC's nominee).
One or more fully-registered global Preferred Security certificates will be
issued, representing in the aggregate the total number of Preferred
Securities, and will be deposited with DTC.
DTC has informed the Issuer and Rouse that it is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the New York
Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds securities that its
participants ("Participants") deposit with DTC. DTC also facilitates the
settlement of securities transactions among Participants through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers (including the Underwriters), banks,
trust companies, clearing corporations and certain other organizations
("Direct Participants"). DTC is owned by a number of its Direct Participants
and by the New York Stock Exchange, the American Stock Exchange, Inc. and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to DTC and its Participants are on file with the
Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser
of each Preferred Security ("Beneficial Owner") is in turn to be recorded on
the Direct Participants and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from DTC of their purchases, but
Beneficial Owners are expected to receive written confirmations providing
details of the transactions, as well as periodic statements of their holdings,
from the Direct Participants or Indirect Participants through which the
Beneficial Owners purchased Preferred Securities. Transfers of ownership
interests in the Preferred Securities are to be accomplished by entries made
on the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners will not receive certificates representing their ownership interests in
Preferred Securities, except as described below.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Preferred Securities are credited, which may or may not
be the Beneficial Owners. The Participants are responsible for keeping account
of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed
by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to DTC. If less than all of the Preferred
Securities are being redeemed, DTC's practice is to determine by lot the
amount of the interest of each Direct Participant in such series to be
redeemed.
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Although voting with respect to the Preferred Securities is limited to the
holders of record of the Preferred Securities, in those cases where a vote is
required, neither DTC nor Cede & Co., will itself consent or vote with respect
to Preferred Securities. Under its usual procedures, DTC would mail an Omnibus
Proxy to the Issuer as soon as possible after the record date. The Omnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Preferred Securities are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities will be made by the Issuer
to DTC. DTC's practice is to credit Direct Participants' accounts on the
relevant payment date in accordance with their respective holdings shown on
DTC's records unless DTC has reason to believe that it will not receive
payments on such payment date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices and will be
the responsibility of such Participant and not of DTC, the Issuer, Rouse or
any Trustee, subject to any statutory or regulatory requirements as may be in
effect from time to time. Payment of distributions to DTC is the
responsibility of the Issuer, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments
to the Beneficial Owners is the responsibility of Direct and Indirect
Participants.
The Preferred Securities will be delivered in certificated form if (i) DTC
ceases to be registered as a clearing agency under the Exchange Act or is no
longer willing or able to provide securities depository services with respect
to the Preferred Securities, (ii) Rouse so determines or (iii) there is an
Event of Default under the Junior Subordinated Debentures.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and the Issuer believe to be
reliable. None of the Issuer, Rouse or any Trustee has any responsibility for
the performance by DTC or its Participants of their respective obligations as
described herein or under the rules and procedures governing their respective
operations.
REGISTRAR AND TRANSFER AGENT
The First National Bank of Chicago will act as registrar and transfer agent
for the Preferred Securities (the "Preferred Securities Registrar"). (Section
5.04).
As described under "--Book-Entry-Only Issuance--The Depository Trust
Company", so long as the Preferred Securities are in book-entry form,
registration of transfers and exchanges of Preferred Securities will be made
through Direct Participants and Indirect Participants in DTC. If physical
certificates representing the Preferred Securities are issued, registration of
transfers and exchanges of Preferred Securities will be effected without
charge by or on behalf of the Issuer, but, in the case of a transfer, upon
payment (with the giving of such indemnity as the Issuer or Rouse may require)
in respect of any tax or other governmental charges which may be imposed in
relation to it. (Section 5.04).
The Issuer will not be required to register or cause to be registered any
transfer of Preferred Securities during a period beginning 15 days prior to
the mailing of notice of redemption of Preferred Securities and ending on the
day of such mailing. (Section 5.04).
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, other than during the occurrence and continuance of a
default by Rouse in performance of the Trust Agreement, undertakes to perform
only such duties as are specifically set forth in the Trust Agreement and,
after an Event of Default under the Trust Agreement, must exercise the same
degree of care and skill as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs. Subject to this
provision, the Property Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Agreement at the request of any
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holder of Issuer Securities unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred thereby.
Rouse and certain of its subsidiaries maintain deposit accounts and conduct
other banking transactions with the Property Trustee in the ordinary course of
their businesses.
MODIFICATION OF THE TRUST AGREEMENT
From time to time, Rouse and the Trustees may, without the consent of any
holders of the Issuer Securities, amend the Trust Agreement for specified
purposes, including, among other things, (i) to cure ambiguities, correct or
supplement any provision of the Trust Agreement which may be inconsistent with
any other provision thereof or to make any other provisions with respect to
matters or questions arising under the Trust Agreement, which shall not be
inconsistent with the other provisions of the Trust Agreement, or (ii) to
ensure that the Trust will not be classified for United States federal income
tax purposes as an association taxable as a corporation and will not be
required to register as an "investment company" under the Investment Company
Act of 1940, as amended (the "1940 Act"); provided, however, that such
amendment or action shall not adversely affect the rights of any holder of the
Issuer Securities. The Trust Agreement contains provisions permitting Rouse
and the Trustees, with the consent of the holders of not less than a majority
in aggregate liquidation amount of the outstanding Issuer Securities, to
modify the Trust Agreement in a manner affecting the rights of the holders of
the Issuer Securities; provided that no such modification may, without the
consent of the holder of each outstanding Issuer Security, (i) change the
amount, timing, place of payment or currency of any distribution on the Issuer
Securities or otherwise adversely affect the amount of any distribution
required to be made in respect of the Issuer Securities as of a specified
date, (ii) restrict the right of any holder of the Issuer Securities to
institute suit for the enforcement of any payment under the Trust Agreement,
(iii) modify the purposes of the Trust, (iv) authorize or issue any interest
in the Trust other than as currently contemplated by the Trust Agreement, (v)
change the Redemption Price or modify the redemption procedures with respect
to Issuer Securities or (vi) affect the limited liability of any holder of
Preferred Securities. (Section 10.02).
GOVERNING LAW
The Trust Agreement will be governed by, and construed in accordance with,
the laws of the State of Delaware. (Section 10.05).
MISCELLANEOUS
The Preferred Securities have been approved for listing on the New York
Stock Exchange, subject to notice of issuance, under the symbol "RSEPrZ".
The Administrative Trustees are authorized and directed to conduct the
affairs of the Issuer and to operate the Issuer so that the Issuer will not be
deemed to be an "investment company" required to be registered under the 1940
Act or taxed as a corporation for United States federal income tax purposes
and so that the Junior Subordinated Debentures will be treated as indebtedness
of Rouse for United States federal income tax purposes. In this connection
Rouse and the Administrative Trustees are authorized to take any action, not
inconsistent with applicable law, the certificate of trust of the Issuer or
the Trust Agreement that Rouse or any of the Administrative Trustees
determines in their discretion to be necessary or desirable or convenient for
such purposes, as long as such action does not adversely affect the interests
of the holders of the Preferred Securities. (Section 2.07(d)).
The Property Trustee will act as sole trustee under the Trust Agreement for
the purposes of compliance with the Trust Indenture Act.
The Preferred Securities will, upon issuance, be validly issued, fully paid
and non-assessable. Holders of the Issuer Securities have no preemptive
rights.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of information concerning the Guarantee that
will be executed and delivered by Rouse for the benefit of the holders from
time to time of Preferred Securities. The Guarantee will be qualified as an
indenture under the Trust Indenture Act. The First National Bank of Chicago
will act as indenture trustee (the "Guarantee Trustee") under the Guarantee
for the purposes of compliance with the Trust Indenture Act. The terms of the
Guarantee will be those set forth in such Guarantee and those made part of
such Guarantee by the Trust Indenture Act. This summary contains all material
information concerning the Guarantee but does not purport to be complete and
is subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the Guarantee, which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and the Trust
Indenture Act. The Guarantee Trustee will hold the Guarantee for the benefit
of the holders of the Preferred Securities.
GENERAL
Rouse will irrevocably agree to pay in full on a subordinated basis, to the
extent set forth herein the Guarantee Payments (as defined below) to the
holders of the Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Issuer may have or assert
other than the defense of payment. The following payments with respect to the
Preferred Securities, to the extent not paid by or on behalf of the Issuer
(the "Guarantee Payments"), will be subject to the Guarantee: (i) any accrued
and unpaid distributions required to be paid on the Preferred Securities, if
and only to the extent the Issuer has funds sufficient to make such payment,
(ii) the Redemption Price with respect to any Preferred Securities called for
redemption by the Issuer, if and only to the extent the Issuer has funds
sufficient to make such payment and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Issuer (other than in connection
with a redemption of all of the Preferred Securities), the lesser of (a) the
aggregate Liquidation Amount, to the extent the Issuer has funds sufficient to
make such payment, and (b) the amount of assets of the Issuer remaining
available for distribution to holders of Preferred Securities in liquidation
of the Issuer. Rouse's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required amounts by Rouse to the holders of Preferred
Securities or by causing the Issuer to pay such amounts to such holders.
The Guarantee will be an irrevocable guarantee on a subordinated basis of
the Issuer's obligations under the Preferred Securities, but will apply only
to the extent that the Issuer has funds sufficient to make such payments, and
is not a guarantee of collection. If Rouse does not make interest payments on
the Junior Subordinated Debentures held by the Issuer, it is expected that the
Issuer will not pay distributions on the Preferred Securities. Such interest
payments, if made in accordance with the terms of the Indenture, will provide
sufficient funds to enable the Issuer to make distributions and pay other
amounts on the Preferred Securities. Rouse's obligations under the Guarantee
are subordinated and junior in right of payment to all other liabilities of
Rouse (including the Junior Subordinated Debentures) except any liabilities
that may be made pari passu with or subordinate to the Guarantee expressly by
their terms. See "--Status of the Guarantee".
Rouse has, through the Guarantee, the Trust Agreement, the Junior
Subordinated Debentures, the Indenture and the Expense Agreement, taken
together, fully, irrevocably and unconditionally guaranteed all of the
Issuer's obligations under the Preferred Securities. No single document
standing alone or operating in conjunction with fewer than all of the other
documents constitutes such guarantee. It is only the combined operation of
these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer's obligations under the Preferred
Securities. See "Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee--General".
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no consent of holders of
Preferred Securities will be required), the terms of
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the Guarantee may be changed only with the prior approval of the holders of
not less than a majority in aggregate Liquidation Amount of the outstanding
Preferred Securities. All guarantees and agreements contained in the Guarantee
shall bind the successors, assigns, receivers, trustees and representatives of
Rouse and shall inure to the benefit of the holders of the Preferred
Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Guarantee will occur upon the failure of Rouse
to perform any of its payment obligations thereunder. The holders of a
majority in aggregate Liquidation Amount of the Preferred Securities have the
right to direct the time, method and place of conducting any proceeding for
any remedy available to the Guarantee Trustee in respect of the Guarantee or
to direct the exercise of any trust or other power conferred upon the
Guarantee Trustee under the Guarantee.
Any holder of Preferred Securities may institute a legal proceeding directly
against Rouse to enforce its rights under such Guarantee without first
instituting a legal proceeding against the Issuer, the Guarantee Trustee or
any other person or entity.
Rouse will be required to provide annually to the Guarantee Trustee a
statement as to the performance by Rouse of certain of its obligations under
the Guarantee and as to any default in such performance. Rouse will also be
required to file annually with the Guarantee Trustee an officer's certificate
as to Rouse's compliance with all conditions under the Guarantee.
INFORMATION CONCERNING THE GUARANTEE TRUSTEE
The Guarantee Trustee, other than during the occurrence and continuance of a
default by Rouse in performance of the Guarantee, undertakes to perform only
such duties as are specifically set forth in the Guarantee and, after default
with respect to the Guarantee, must exercise the same degree of care and skill
as a prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs. Subject to this provision, the Guarantee
Trustee is under no obligation to exercise any of the powers vested in it by
the Guarantee at the request of any holder of Preferred Securities unless it
is offered reasonable indemnity against the costs, expenses and liabilities
that might be incurred thereby.
Rouse and certain of its subsidiaries maintain deposit accounts and conduct
other banking transactions with the Guarantee Trustee in the ordinary course
of their businesses.
TERMINATION OF THE GUARANTEE
The Guarantee will terminate and be of no further force and effect upon full
payment of the Redemption Price of all Preferred Securities, the distribution
of Junior Subordinated Debentures to holders of Preferred Securities in
exchange for all of the Preferred Securities or upon payment in full of the
amounts payable upon liquidation of the Issuer. Notwithstanding the foregoing,
the Guarantee will continue to be effective or will be reinstated, as the case
may be, if at any time any holder of Preferred Securities must restore payment
of any sums paid under the Preferred Securities or the Guarantee.
STATUS OF THE GUARANTEE
The Guarantee will constitute an unsecured obligation of Rouse and will rank
(i) subordinate and junior in right of payment to all liabilities of Rouse
(including the Junior Subordinated Debentures but excluding liabilities that
may be made pari passu with or subordinate to the Guarantee expressly by their
terms), and (ii) senior to Rouse's Series A Convertible Preferred Stock,
liquidation value $50.00 per share, and Rouse's common stock. The Trust
Agreement provides that each holder of Preferred
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Securities by acceptance thereof agrees to the subordination provisions and
other terms of the Guarantee. Because Rouse is a holding company whose assets
consist substantially of the stock of its subsidiaries, Rouse's obligations
under the Guarantee are effectively subordinated to the claims of the direct
creditors of its subsidiaries. See "Risk Factors--Subordination of Guarantee
and Junior Subordinated Debentures; Limited Preference Rights of Preferred
Securities".
The Guarantee will constitute a guarantee of payment and not of collection
(i.e., the guaranteed party may institute a legal proceeding directly against
the Guarantor to enforce its rights under the Guarantee without first
instituting a legal proceeding against any other person or entity).
GOVERNING LAW
The Guarantee will be governed by and construed in accordance with the laws
of the State of New York.
THE EXPENSE AGREEMENT
Pursuant to the Expense Agreement entered into by Rouse under the Trust
Agreement (the "Expense Agreement"), Rouse will irrevocably and
unconditionally guarantee to each person or entity to whom the Issuer becomes
indebted or liable, the full payment of any indebtedness, expenses or
liabilities of the Issuer, other than obligations of the Issuer to pay to the
holders of any Common Securities being held by Rouse or Preferred Securities
being issued pursuant to this Prospectus the amounts due such holders pursuant
to the terms of such Issuer Securities.
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DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Junior
Subordinated Debentures which the Issuer will purchase with the proceeds of
the issuance and sale of the Common Securities and the Preferred Securities.
The following description contains all material information concerning the
Junior Subordinated Debentures but does not purport to be complete and is
qualified in its entirety by reference to the description in the Indenture
(the "Indenture"), dated as of November 27, 1995, between Rouse and The First
National Bank of Chicago, as trustee with respect to the Junior Subordinated
Debentures (the "Debenture Trustee"), which is filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, and the Trust
Indenture Act. Whenever particular sections or defined terms in the Indenture
are referred to herein, such sections or defined terms are incorporated by
reference herein. Section references used herein are references to provisions
of the Indenture unless otherwise noted.
GENERAL
The Junior Subordinated Debentures will be limited in aggregate principal
amount to $136.6 million ($157.1 million if the over-allotment option is
exercised), such amount being the sum of the aggregate stated liquidation
amounts of the Preferred Securities and the Common Securities. The Junior
Subordinated Debentures will be unsecured, subordinated obligations of Rouse
which will rank junior to all of Rouse's Senior Indebtedness (as defined in
"--Subordination"). (Section 1101).
The entire outstanding principal amount of the Junior Subordinated
Debentures will become due and payable, together with any accrued and unpaid
interest thereon, including any Additional Interest (as defined in "--
Additional Interest"), on December 31, 2025.
Payments by Rouse on the Junior Subordinated Debentures, if made in
accordance with the terms of the Indenture, will provide funds sufficient to
enable the Issuer to make distributions and pay other amounts on the Preferred
Securities. See "Relationship Among the Preferred Securities, the Junior
Subordinated Debentures and the Guarantee -- General".
OPTIONAL REDEMPTION
On or after November 27, 2000 Rouse will have the right, at any time and
from time to time, to redeem the Junior Subordinated Debentures, in whole or
in part, with the proceeds of one or more Equity Issuances, at a cash
redemption price equal to 100% of the principal amount of the Junior
Subordinated Debentures being redeemed, together with any accrued and unpaid
interest thereon, including any Additional Interest, to the redemption date.
If a Tax Event shall occur and be continuing, Rouse shall have the right to
(i) redeem the Junior Subordinated Debentures, in whole but not in part, at a
redemption price equal to 100% of the principal amount of Junior Subordinated
Debentures then outstanding plus any accrued and unpaid interest, including
any Additional Interest, to the redemption date, (ii) direct the Trustees to
distribute a Like Amount of Junior Subordinated Debentures to each holder of a
Preferred Security or (iii) cause the Preferred Securities to remain
outstanding and pay Additional Interest Attributable to Taxes on the Junior
Subordinated Debentures, provided, in the case of clause (ii), that the Trust
shall have received an opinion of counsel to the effect that the holders of
the Preferred Securities will not recognize any gain or loss for United States
federal income tax purposes as a result of such distribution. (Section 1201).
For so long as the Issuer is the holder of all the outstanding Junior
Subordinated Debentures, the proceeds of any such redemption will be used by
the Issuer to redeem Preferred Securities and the Common Securities in
accordance with their terms. Rouse may not redeem the Junior Subordinated
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Debentures in part unless all accrued and unpaid interest (including any
Additional Interest) has been paid in full on all outstanding Junior
Subordinated Debentures for all quarterly interest periods terminating on or
prior to the date of redemption and no Extension Period is in effect. (Section
1201).
Any optional redemption of the Junior Subordinated Debentures shall be made
upon not less than 30 nor more than 60 days' notice to the holders thereof, as
provided in the Indenture. (Section 1205).
INTEREST
The Junior Subordinated Debentures shall bear interest at the rate of 9 1/4%
per annum from the date of original issuance. Such interest is payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of
each year (each, an "Interest Payment Date"), commencing December 31, 1995, to
the person in whose name each Junior Subordinated Debenture is registered,
subject to certain exceptions, at the close of business on the Business Day
next preceding such Interest Payment Date. It is anticipated that the Junior
Subordinated Debentures will be in the name of the Trust and will be held by
the Property Trustee for the benefit of the holders of the Issuer Securities.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. (Section 310). In the event that
any date on which interest is payable on the Junior Subordinated Debentures is
not a Business Day, then payment of the interest payable on such date will be
made on the next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except that, if such
Business Day is in the next succeeding calendar year, such payment shall be
made on the immediately preceding Business Day, in each case with the same
force and effect as if made on the date the payment was originally payable.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
Rouse shall have the right at any time during the term of the Junior
Subordinated Debentures to extend the interest payment period from time to
time to a period of up to 20 consecutive quarters (each, an "Extension
Period"), during which periods interest will compound quarterly and Rouse
shall have the right to make partial payments of interest on any Interest
Payment Date. At the end of any such Extension Period, Rouse must pay all
interest then accrued and unpaid together with Additional Interest (as defined
under "--Additional Interest"). However, during any such Extension Period,
Rouse may not declare or pay any dividend or distribution (other than a
dividend or distribution in common stock of Rouse or other security junior in
right of payment to the Junior Subordinated Debentures) on, or redeem,
purchase, acquire or make a liquidation payment with respect to, any of its
capital stock, or make any guarantee payments with respect to the foregoing
(other than payments under the Guarantee) or repurchase, or cause any
subsidiary to repurchase any security of Rouse ranking pari passu with or
subordinate to the Junior Subordinated Debentures (except on a ratable basis
with any securities ranking pari passu with the Junior Subordinated
Debentures). Prior to the termination of any such Extension Period, Rouse may
further extend the interest payment period, provided that such Extension
Period together with all such previous and further extensions thereof may not
exceed 20 consecutive quarters or extend beyond the maturity date of the
Junior Subordinated Debentures. Upon the termination of any such Extension
Period and the payment of all amounts then due, Rouse may select a new
Extension Period, subject to the foregoing requirements. Except for Additional
Interest Attributable to Taxes (as defined under "--Additional Interest"), no
interest shall be due and payable during an Extension Period, except at the
end thereof. So long as the Property Trustee shall be the sole holder of
record of the Junior Subordinated Debentures, Rouse must give the Property
Trustee, the Administrative Trustees and the Debenture Trustee notice of its
selection of such Extension Period at least ten Business Days prior to the
earlier of (i) the date the distributions on the Preferred Securities are
payable or (ii) the date the Administrative Trustees are required to give
notice to the New York Stock Exchange or other applicable self-regulatory
organization or to holders of the Preferred Securities of the record date for
the payment of such distribution or the date such
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distributions are payable, but in any event not less than two Business Days
prior to such record date. The Debenture Trustee will be required to give
notice of Rouse's selection of such Extension Period to the holders of the
Preferred Securities. If the Property Trustee shall not be the sole holder of
record of the Junior Subordinated Debentures, Rouse shall give the holders of
the Junior Subordinated Debentures notice of its selection of such Extension
Period ten Business Days prior to the earlier of (i) the Interest Payment Date
or (ii) the date Rouse is required to give notice to the New York Stock
Exchange or other applicable self-regulatory organization, or to holders of
the Junior Subordinated Debentures, of the record or payment date of such
related interest payment, but in any event not less than two Business Days
prior to such record date. (Section 301).
ADDITIONAL INTEREST
If at any time the Issuer shall be required to pay any interest on
distributions in arrears in respect of the Preferred Securities pursuant to
the terms thereof, Rouse will pay as interest to the Issuer as the holder of
the Junior Subordinated Debentures an amount of additional interest
("Additional Interest Attributable to Deferral") equal to such interest on
distributions in arrears. Accordingly, in such circumstances Rouse will, to
the fullest extent permitted by applicable law, pay interest upon interest in
order to provide for quarterly compounding on the Junior Subordinated
Debentures. In addition, if the Issuer would be required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States or any other taxing authority,
then, in any such case, Rouse will also pay such amounts as shall be required
so that the net amounts received and retained by the Issuer after paying such
taxes, duties, assessments or governmental charges will be not less than the
amounts the Issuer would have received had no such taxes, duties, assessments
or governmental charges been imposed ("Additional Interest Attributable to
Taxes" and together with Additional Interest Attributable to Deferral,
"Additional Interest").
SET-OFF
Notwithstanding anything to the contrary in the Indenture, Rouse shall have
the right to set-off any payment it is otherwise required to make thereunder
to the extent Rouse has theretofore made, or is concurrently on the date of
such payment making, a payment under the Guarantee. (Section 311).
SUBORDINATION
The Junior Subordinated Debentures are subordinated in right of payment to
the prior payment in full in cash or cash equivalents of all Senior
Indebtedness (as defined herein). (Sections 101 and 1101). In the event of:
(a) any insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, reorganization or other similar case or proceeding in connection
therewith, relative to Rouse or to its creditors, as such, or to its assets,
(b) any liquidation, dissolution or other winding up of Rouse, whether
voluntary or involuntary and whether or not involving insolvency or bankruptcy
or (c) any assignment for the benefit of creditors or any other marshaling of
assets and liabilities of Rouse (except a distribution in connection with a
consolidation of Rouse with, or the merger of Rouse into, another entity or
the liquidation or dissolution of Rouse following conveyance, transfer or
lease of its properties and assets substantially as an entirety to another
entity upon the terms and conditions described below under "--Consolidation,
Merger and Sale"), the holders of all Senior Indebtedness will be entitled to
receive payment in full in cash or cash equivalents of all amounts due or to
become due thereon, before the holders of Junior Subordinated Debentures are
entitled to receive any payment on account of principal of or interest on the
Junior Subordinated Debentures; and any payment or distribution of assets of
Rouse of any kind or character, whether in cash, property or securities, by
set-off or otherwise, to which the holders of the Junior Subordinated
Debentures or the Debenture Trustee would be entitled but for the provisions
of the Indenture relating to subordination (excluding certain permitted
subordinated securities) shall be paid by the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee, agent or other person making such
payment or distribution directly to the
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holders of Senior Indebtedness ratably according to the aggregate amounts
remaining unpaid on account of the Senior Indebtedness to the extent necessary
to make payment in full in cash or cash equivalents of all Senior Indebtedness
remaining unpaid. In the event that, notwithstanding the foregoing, the
Debenture Trustee or any holder of the Junior Subordinated Debentures shall
have received payment or distribution of assets of Rouse of any kind or
character (excluding certain permitted subordinated securities) before all
Senior Indebtedness is paid in full or payment thereof provided for, then such
payment or distribution shall be paid over or delivered to the trustee in
bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other
person making payment or distribution of assets of Rouse for application to
the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in full in cash or cash equivalents.
(Section 1102).
As of September 30, 1995, the Senior Indebtedness of Rouse was approximately
$541 million. As a holding company, substantially all of Rouse's assets
consist of the stock of its subsidiaries. Except to the extent that Rouse may
itself be a creditor with recognized claims against Rouse's subsidiaries, the
claims of the holders of the Junior Subordinated Debentures to assets of
subsidiaries of Rouse effectively are subordinated to the claims of direct
creditors of the subsidiaries of Rouse. At September 30, 1995, Rouse's
subsidiaries had $2,077 million of indebtedness outstanding for money borrowed
and capitalized lease obligations.
The term "Senior Indebtedness" shall mean the principal of, premium, if any,
interest on and any other payment due pursuant to any of the following,
whether outstanding at the date of execution of the Indenture or thereafter
incurred, created or assumed:
(a) all indebtedness of Rouse (other than any obligations to trade
creditors) evidenced by notes, debentures, bonds or other securities sold
by Rouse for money borrowed and capitalized lease obligations of Rouse that
would be capitalized on a balance sheet of Rouse prepared in accordance
with generally accepted accounting principles;
(b) all indebtedness of others of the kinds described in the preceding
clause (a) with an express written obligation of Rouse to repay the
principal or other amount of the debt during the full term of the
indebtedness; and
(c) all renewals, extensions or refundings of indebtedness of the kinds
described in either of the preceding clauses (a) or (b),
unless, in the case of any particular indebtedness, lease obligation,
guarantee, renewal, extension or refunding, the instrument creating or
evidencing the same or the assumption or guarantee of the same expressly
provides that such indebtedness, lease obligation, renewal, extension or
refunding is expressly made pari passu with or subordinate to the Junior
Subordinated Debentures. (Section 101).
The Indenture does not limit the aggregate amount of Senior Indebtedness or
subsidiary indebtedness that may be incurred.
CERTAIN COVENANTS OF ROUSE
Pursuant to the Indenture, Rouse will covenant that it will not declare or
pay any dividend or distribution (other than a dividend or distribution in
common stock of Rouse or other security junior in right of payment to the
Junior Subordinated Debentures) on, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock, or make any
guarantee payments with respect to the foregoing (other than payments under
the Guarantee), or repurchase, or cause any of its subsidiaries to repurchase,
any security of Rouse ranking pari passu with or subordinate to the Junior
Subordinated Debentures (except on a ratable basis with any securities ranking
pari passu with the Junior Subordinated Debentures) if at such time (i) there
shall have occurred any event of which Rouse has actual knowledge that (a)
with the giving of notice or the lapse of time, or both, would constitute an
Event of Default under the Indenture and (b) in respect of which Rouse shall
not have
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taken reasonable steps to cure, (ii) Rouse shall be in default with respect to
its payment of any obligations under the Guarantee or (iii) Rouse shall have
given notice of its selection of an Extension Period as provided in the
Indenture (which notice shall not have been rescinded) and such Extension
Period, or any extension thereof, shall have commenced and be continuing.
Rouse will also covenant (i) to maintain 100% ownership of the Common
Securities of the Issuer, (ii) not to voluntarily dissolve, wind-up or
terminate the Issuer, except in certain circumstances permitted by the Trust
Agreement and (iii) to use its reasonable efforts, consistent with the terms
and provisions of the Trust Agreement, to cause the Issuer to remain a
business trust and otherwise not to be classified as an association taxable as
a corporation for United States federal income tax purposes. "Subsidiary" is
defined to mean "any Person a majority of the equity ownership or the voting
stock of which is at the time owned, directly or indirectly, by the Company or
by one or more other Subsidiaries or by the Company and one or more other
Subsidiaries." (Section 1005).
EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events that has occurred and is continuing constitutes an "Event of Default"
with respect to the Junior Subordinated Debentures:
(a) failure for 30 days to pay any interest on the Junior Subordinated
Debentures, including any Additional Interest in respect thereof, when due
(subject to the deferral of any due date in the case of an Extension
Period); or
(b) failure to pay any principal on the Junior Subordinated Debentures
when due, whether at maturity, upon redemption by declaration or otherwise;
or
(c) failure to observe or perform in any material respect any other
covenant contained in the Indenture for 90 days after written notice to
Rouse from the Debenture Trustee or the holders of at least 25% in
principal amount of the outstanding Junior Subordinated Debentures; or
(d) certain events in bankruptcy, insolvency or reorganization of Rouse.
(Section 501).
The holders of a majority in outstanding principal amount of the Junior
Subordinated Debentures have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Debenture Trustee.
(Section 512). The Debenture Trustee, the holders of at least 25% in aggregate
outstanding principal amount of the Junior Subordinated Debentures or the
holders of at least 25% in aggregate Liquidation Amount of outstanding
Preferred Securities may declare the principal and interest, including
Additional Interest, due and payable immediately upon an Event of Default. The
holders of a majority in aggregate outstanding principal amount of the Junior
Subordinated Debentures may annul such declaration and waive the default if
the default has been cured or waived and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration and
any Additional Interest has been deposited with the Debenture Trustee.
(Section 502).
A holder of Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder directly of the principal of or interest
on Junior Subordinated Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Preferred Securities of such holder on or
after the respective due dates specified in the Junior Subordinated
Debentures. The holders of the Preferred Securities would not be able to
exercise directly any other remedies available to the holder of the Junior
Subordinated Debentures unless the Property Trustee or the Debenture Trustee,
acting for the benefit of the Property Trustee, fails to do so. In such event,
the holders of at least 25% in aggregate Liquidation Amount of the outstanding
Preferred Securities would have such right to institute proceedings.
The holders of a majority in outstanding principal amount of the Junior
Subordinated Debentures affected thereby may, on behalf of the holders of all
the Junior Subordinated Debentures, waive any past default, except a default
in the payment of principal or interest, including Additional Interest
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(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration and
any Additional Interest has been deposited with the Debenture Trustee) or a
default in respect of a covenant or provision which under the Indenture cannot
be modified or amended without the consent of the holder of each outstanding
Junior Subordinated Debenture. (Section 513). Rouse is required to file
annually with the Debenture Trustee a certificate as to whether or not Rouse
is in compliance with all the conditions and covenants applicable to it under
the Indenture. (Section 1004).
In case any Event of Default shall occur and be continuing, the Property
Trustee will have the right to declare the principal of and the interest on
the Junior Subordinated Debentures (including any Additional Interest) and any
other amounts payable under the Indenture to be forthwith due and payable and
to enforce its other rights as a creditor with respect to the Junior
Subordinated Debentures. (Section 502).
An involuntary dissolution of the Issuer prior to redemption or maturity of
the Junior Subordinated Debentures would not constitute an Event of Default
with respect to the Junior Subordinated Debentures. If the Issuer is
dissolved, any of the following, among other things, could occur: (i) a
distribution of the Junior Subordinated Debentures to the holders of the
Preferred Securities after satisfaction of liabilities to creditors of the
Trust, (ii) a cash distribution to the holders of the Preferred Securities out
of the sale of assets of the Issuer, after satisfaction of liabilities to
creditors of the Trust or (iii) a permitted redemption at par of the Junior
Subordinated Debentures, and a consequent redemption of a Like Amount of the
Preferred Securities, at the option of Rouse under the circumstances described
under "--Optional Redemption".
FORM, EXCHANGE, AND TRANSFER
The Junior Subordinated Debentures will be issuable only in registered form,
without coupons and only in denominations of $25 and integral multiples
thereof. (Section 302).
The Junior Subordinated Debentures, if distributed to holders of Preferred
Securities pursuant to the dissolution of the Issuer, will initially be issued
as a registered security in global form (a "Global Security"). In the event
that Junior Subordinated Debentures are issued in certificated form, such
Junior Subordinated Debentures will be in denominations of $25 and integral
multiples thereof and may be transferred or exchanged at the offices described
below.
Subject to the terms of the Indenture, Junior Subordinated Debentures may be
presented for registration of transfer or exchange (duly endorsed or
accompanied by satisfactory instruments of transfer) at the office of the
security registrar of the Junior Subordinated Debentures (the "Debenture
Registrar") or at the office of any transfer agent designated by Rouse for
such purpose. No service charge will be made for any registration of transfer
or exchange of Junior Subordinated Debentures, but, in the case of a transfer,
Rouse may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Such transfer or exchange
will be effected when the Debenture Registrar or such transfer agent, as the
case may be, is satisfied with the documents of transfer, title and identity
of the person making the request. Rouse has appointed the Debenture Trustee as
the initial Debenture Registrar. (Section 305). Rouse may at any time
designate additional transfer agents or rescind the designation of any
transfer agent or approve a change in the office through which any transfer
agent acts. (Section 1002).
If the Junior Subordinated Debentures are to be redeemed in part, Rouse will
not be required to issue, register the transfer of or exchange any Junior
Subordinated Debentures during a period beginning at the opening of business
15 days before the day of mailing of a notice of redemption of any such Junior
Subordinated Debentures that may be selected for redemption and ending at the
close of business on the day of such mailing, except the unredeemed portion of
any such Junior Subordinated Debentures being redeemed in part. (Section 305).
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PAYMENT AND PAYING AGENTS
Payment of interest on a Junior Subordinated Debenture on any Interest
Payment Date will be made to the person in whose name such Junior Subordinated
Debenture (or one or more predecessor securities) is registered at the close
of business on the Regular Record Date (as defined in the Indenture) for such
interest. (Section 307). Payments on Junior Subordinated Debentures issued as
a Global Security will be made to DTC, as the depository for the Junior
Subordinated Debentures.
Principal of and any interest (including Additional Interest) on the Junior
Subordinated Debentures will be payable at the office of such paying agent or
paying agents (the "Debenture Paying Agent") as Rouse may designate for such
purpose from time to time, except that at the option of Rouse payment of any
interest may be made by check mailed to the address of the person entitled
thereto as such address appears in the Security Register or by wire transfer
(Section 301). The corporate trust office of the Debenture Trustee in The City
of New York is designated as Rouse's sole Debenture Paying Agent for payments
with respect to the Junior Subordinated Debentures. Rouse may at any time
designate additional Debenture Paying Agents or rescind the designation of any
Debenture Paying Agent or approve a change in the office through which any
Paying Agent acts. (Section 1002).
INFORMATION CONCERNING THE DEBENTURE TRUSTEE
The Debenture Trustee, other than during the occurrence and continuance of a
default by Rouse in performance of the Indenture, undertakes to perform only
such duties as are specifically set forth in the Indenture and, after an Event
of Default under the Indenture, must exercise the same degree of care and
skill as a prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs. Subject to this provision, the Debenture
Trustee is under no obligation to exercise any of the powers vested in it by
the Indenture at the request of any holder of Preferred Securities or Junior
Subordinated Debentures unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby. (Section 603).
Rouse and certain of its subsidiaries maintain deposit accounts and conduct
other banking transactions with the Debenture Trustee in the ordinary course
of their businesses.
MODIFICATION OF THE INDENTURE
From time to time, Rouse and the Debenture Trustee may, without the consent
of the holders of the Junior Subordinated Debentures, amend, waive or
supplement the Indenture for specified purposes of evidencing the succession
of another person to Rouse and the assumption by such successor of Rouse's
obligations under the Indenture and on the Junior Subordinated Debentures,
adding to the covenants of Rouse for the benefit of the holders of the Junior
Subordinated Debentures or surrendering any right or power conferred upon
Rouse by the Indenture or the Junior Subordinated Debentures, evidencing and
providing the acceptance of the appointment of a successor Debenture Trustee,
curing ambiguities, defects or inconsistencies, qualifying, or maintaining the
qualification of, the Indenture under the Trust Indenture Act, or making any
other change that does not adversely affect the rights of any holder of Junior
Subordinated Debentures (Section 901). The Indenture contains provisions
permitting Rouse and the Debenture Trustee, with the consent of the holders of
not less than a majority in principal amount of the outstanding Junior
Subordinated Debentures, to modify the indenture in a manner affecting the
rights of the holders of the Junior Subordinated Debentures; provided that no
such modification may, without the consent of the holder of each outstanding
Junior Subordinated Debenture, (i) change the fixed maturity of the Junior
Subordinated Debentures, or reduce the principal amount thereof, or reduce the
rate or extend the time of payment of interest thereon, (ii) change the place
or currency of payment of principal or interest on the Junior Subordinated
Debentures, (iii) change the subordination provisions in a manner adverse to
the holders of the Junior Subordinated Debentures or the Preferred Securities,
(iv) change the date on which the Junior Subordinated Debentures may be
redeemed at the option of Rouse to an earlier date, (v) reduce the percentage
of principal amount of Junior Subordinated Debentures, the holders of which
are required to consent to any such modification of the Indenture or (vi)
modify certain provisions of the Indenture
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relating to the waiver of past defaults or compliance by Rouse with the
covenants therein. The Indenture also requires the consent of the holders of
the Preferred Securities in respect of certain amendments to or termination of
the Indenture and with respect to compliance by Rouse with certain covenants
in the Indenture. (Sections 901 and 902).
CONSOLIDATION, MERGER AND SALE
Rouse may not consolidate with or merge into or convey, transfer or lease
its properties and assets substantially as an entirety to any person (a
"Successor Person"), and may not permit any person to merge into, or convey,
transfer or lease its properties and assets substantially as an entirety to
Rouse, unless: (i) the Successor Person (if any) is a corporation, partnership
or trust organized and validly existing under the laws of any domestic
jurisdiction, and assumes Rouse's obligations on the Junior Subordinated
Debentures, the Indenture, the Trust Agreement, the Guarantee and the Expense
Agreement; (ii) immediately after giving effect to the transaction and
treating any indebtedness which becomes an obligation of Rouse or any
subsidiary as a result of the transaction as having been incurred by it or any
Subsidiary at the time of the transaction, no Event of Default, and no event
which, after notice or lapse of time, would become an Event of Default, shall
have occurred and be continuing; (iii) such transaction does not give rise to
any breach or violation of the Trust Agreement or the Guarantee; and (iv)
certain other conditions are met. (Section 801).
SATISFACTION AND DISCHARGE
Under the terms of the Indenture, Rouse will be discharged from any and all
obligations in respect of the Junior Subordinated Debentures (except in each
case for certain obligations to register the transfer or exchange of Junior
Subordinated Debentures, pay Additional Interest Attributable to Taxes,
compensate, indemnify and reimburse the Debenture Trustee, replace stolen,
lost or mutilated Junior Subordinated Debentures and hold moneys for payment
in trust) if all authenticated and delivered Junior Subordinated Debentures
(other than certain stolen, lost, or mutilated Junior Subordinated Debentures
and Junior Subordinated Debentures for which payment money was segregated and
then discharged) have been delivered to the Debenture Trustee for cancellation
or if Rouse deposits with the Debenture Trustee, in trust, moneys in an amount
sufficient to pay all the principal of, and interest on, the Junior
Subordinated Debentures on the dates such payments are due in accordance with
the terms of the Junior Subordinated Debentures. (Section 401).
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by,
and construed in accordance with, the laws of the State of New York. (Section
112).
MISCELLANEOUS
All covenants and agreements of Rouse contained in the Indenture will bind
its successors and assigns. (Section 109).
RELATIONSHIP AMONG THE PREFERRED SECURITIES,
THE JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
GENERAL
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
distributions and other payments due on the Preferred Securities, primarily
because (i) the aggregate principal amount of Junior Subordinated Debentures
will be equal to the sum of the aggregate stated liquidation amount of the
Preferred Securities and the Common Securities; (ii) the interest rate and
interest and other payment dates on the Junior Subordinated Debentures will
match the distribution rate and distribution and other payment dates for the
Preferred Securities; (iii) the Expense Agreement entered into by Rouse
pursuant to the Trust Agreement provides that Rouse shall pay for all, and the
Issuer shall not be obligated to pay, directly or indirectly, for any costs,
expenses and liabilities of the Issuer, including any income taxes, duties and
other governmental charges, and all costs and expenses with respect
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thereto, to which the Issuer may become subject, except for United States
withholding taxes and the lssuer's obligations to holders of the Preferred
Securities under the Trust Agreement and the Preferred
Securities; and (iv) the Trust Agreement further provides that the Trustees
shall not cause or permit the Issuer to, among other things, engage in any
activity that is not consistent with the limited purposes of the Issuer.
Taken together, Rouse's obligations under the Junior Subordinated
Debentures, the Indenture, the Trust Agreement, the Expense Agreement, and the
Guarantee provide a full, irrevocable and unconditional guarantee of payments
of distributions and other amounts due on the Preferred Securities. No single
document standing alone or operating in conjunction with fewer than all of the
other documents constitutes such guarantee. It is only the combined operation
of these documents that has the effect of providing a full, irrevocable and
unconditional guarantee of the Issuer's obligations under the Preferred
Securities. If and to the extent that Rouse does not make payments on the
Junior Subordinated Debentures, the Issuer will not pay distributions or other
amounts due on the Preferred Securities.
A holder of a Preferred Security may institute a legal proceeding directly
against Rouse to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Issuer or any other person or
entity.
The Preferred Securities evidence the rights of the holders thereof to the
assets of the Issuer, a trust that exists for the sole purpose of issuing the
Issuer Securities and investing the proceeds thereof in debt securities of
Rouse, while the Junior Subordinated Debentures represent indebtedness of
Rouse. A principal difference between the rights of a holder of a Preferred
Security and a holder of a Junior Subordinated Debenture is that a holder of a
Junior Subordinated Debenture will accrue, and (subject to the permissible
extension of any interest payment period) is entitled to receive, interest on
the principal amount of Junior Subordinated Debentures held, while a holder of
Preferred Securities is only entitled to receive distributions if and to the
extent the Issuer has funds sufficient for the payment of such distributions.
Should an Event of Default under the Indenture occur and be continuing, the
holders of at least 25% in aggregate Liquidation Amount of the outstanding
Preferred Securities may accelerate the maturity of the Junior Subordinated
Debentures. A holder of Preferred Securities may directly institute a
proceeding for enforcement of payment to such holder directly of the principal
of or interest on Junior Subordinated Debentures having a principal amount
equal to the aggregate Liquidation Amount of the Preferred Securities of such
holder on or after the respective due dates specified in the Junior
Subordinated Debentures. The holders of the Preferred Securities would not be
able to exercise directly any other remedies available to the holder of the
Junior Subordinated Debentures unless the Property Trustee or the Debenture
Trustee, acting for the benefit of the Property Trustee, fails to do so. In
such event, the holders of at least 25% in aggregate Liquidation Amount of the
outstanding Preferred Securities would have such right to institute
proceedings. At any time, the holders of a majority of the aggregate
Liquidation Amount of the outstanding Preferred Securities may direct the
Property Trustee to enforce rights of the holders of the Junior Subordinated
Debentures under the Indenture. In addition, holders of Preferred Securities
may institute a legal proceeding directly against Rouse to enforce their
rights under the Guarantee. Holders of Preferred Securities that receive
direct payment under the Indenture as a result of exercising the rights set
forth above may receive amounts greater than the pro rata amount such holder
may be entitled to receive pursuant to the provisions of the Trust Agreement.
If an early termination event (as described in "Description of the Preferred
Securities--Liquidation Distribution Upon Dissolution") with respect to the
Trust occurs, thereby giving rise to the dissolution and liquidation of the
Trust, any of the following, among other things, could occur: (i) a
distribution of the Junior Subordinated Debentures to the holders of the
Preferred Securities after satisfaction of
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liabilities to creditors of the Trust, (ii) a cash distribution to the holders
of the Preferred Securities out of the sale of assets of the Issuer, after
satisfaction of liabilities to creditors of the Trust or (iii) a permitted
redemption at par of the Junior Subordinated Debentures, and a consequent
redemption of a Like Amount of the Preferred Securities, at the option of
Rouse under the circumstances described under "Description of the Junior
Subordinated Debentures--Optional Redemption". If the Junior Subordinated
Debentures are distributed, the holders will be able to exercise directly
rights of the holders of Junior Subordinated Debentures under the Indenture.
Upon any voluntary or involuntary dissolution, winding-up or termination of
the Issuer, the holders of Preferred Securities will be entitled to receive,
out of assets available for distribution to holders, the Liquidation
Distribution in cash or Junior Subordinated Debentures. See "Description of
the Preferred Securities--Liquidation Distribution Upon Dissolution". Upon any
voluntary or involuntary liquidation or bankruptcy of Rouse, the holders of
Junior Subordinated Debentures would be subordinated creditors of Rouse,
subordinated in right payment to all Senior Indebtedness, but entitled to
receive payment in full of principal, premium, if any, and interest, before
any stockholders of Rouse receive payments or distributions. Since Rouse is
the Guarantor under the Guarantee and has agreed as Depositor to pay for all
costs, expenses and liabilities of the Issuer (other than United States
withholding taxes and other than the Issuer's obligations to Preferred
Security holders under the Trust Agreement and the Preferred Securities), the
positions of a holder of Preferred Securities and a holder of Junior
Subordinated Debentures relative to other creditors and to stockholders of
Rouse in the event of liquidation or bankruptcy of Rouse would be
substantially the same.
A default or event of default under any Senior Indebtedness would not
constitute a default or Event of Default under the Junior Subordinated
Debentures. Subject to Rouse's right to extend an interest payment period from
time to time for up to 20 consecutive quarters, failure to make required
payments on the Junior Subordinated Debentures would constitute an Event of
Default under the Indenture.
ACCOUNTING TREATMENT
For financial reporting purposes, the Trust will be treated as a subsidiary
of Rouse and, accordingly, the accounts of the Trust will be included in the
consolidated financial statements of Rouse. The Preferred Securities will be
presented as a separate line item in the consolidated balance sheet of Rouse
entitled "Company-obligated mandatorily redeemable Preferred Securities of
subsidiary Trust holding solely Company Subordinated Debt Securities", and
appropriate disclosures about the Preferred Securities, the Guarantee and the
Junior Subordinated Debentures will be included in the notes to the
consolidated financial statements. See "Capitalization". For financial
reporting purposes, Rouse will record distributions payable on the Preferred
Securities as operating expenses.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
This discussion is a summary of the principal United States federal income
tax considerations that may be relevant to prospective purchasers of Preferred
Securities and represents the opinion of Fried, Frank, Harris, Shriver &
Jacobson (a partnership including professional corporations), special counsel
to Rouse and the Issuer, insofar as it relates to matters of law and legal
conclusions with respect thereto. This discussion is based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
existing and proposed Treasury Regulations thereunder and current
administrative rulings and court decisions, all of which are subject to
change, possibly retroactively. Subsequent changes may cause tax consequences
to vary substantially from the consequences described below.
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This discussion is limited to the United States federal income tax
consequences to persons who purchase Preferred Securities at original issue
for their initial offering price who are "United States Persons" (as defined
below), and who hold the Preferred Securities as "capital assets" within the
meaning of Section 1221 of the Code. This summary does not address all aspects
of United States federal income taxation that may be applicable to a
particular holder of Preferred Securities (a "Holder") in light of such
Holder's particular circumstances, or to certain types of Holders that may be
subject to special treatment under the United States federal income tax laws
(e.g., S corporations, banks, insurance companies, tax-exempt organizations,
dealers in securities or currencies, taxpayers subject to the alternative
minimum tax, Holders that will hold Preferred Securities as part of a position
in a "straddle" or as part of a "hedging" or "conversion" transaction for
United States federal income tax purposes, or Holders who have a "functional
currency" other than the United States dollar), and does not discuss any
aspects of state, local or foreign tax laws or any estate or gift tax
considerations. Accordingly, each prospective Holder of Preferred Securities
should consult such Holder's own tax advisor in analyzing the United States
federal, state, local and foreign tax consequences of the purchase, ownership
and disposition of Preferred Securities. As used herein, the term "United
States Person" means a citizen or resident of the United States, a corporation
or partnership created or organized under the laws of the United States or any
political subdivision thereof or therein, or any estate or trust the income of
which is subject to United States federal income taxation regardless of its
source.
INCOME FROM PREFERRED SECURITIES
The Issuer will not be classified as an association taxable as a corporation
for United States federal income tax purposes. Each Holder will be treated as
owning an undivided beneficial interest in the Junior Subordinated Debentures.
Accordingly, each Holder will be required to include in such Holder's gross
income such Holder's share of the interest income accrued with respect to the
Junior Subordinated Debentures whether or not actually distributed to the
Holder.
SALES OF PREFERRED SECURITIES
A Holder will generally recognize gain or loss on the sale or other taxable
disposition of a Preferred Security, including a redemption for cash, equal to
the difference (if any) between the amount realized from such sale or other
taxable disposition and the Holder's adjusted tax basis in the Preferred
Security. A Holder's adjusted tax basis in a Preferred Security generally will
equal the issue price of such Preferred Security increased by the amount of
original issue discount previously includible in the gross income of such
Holder, and decreased by the amount of any payments received on such Preferred
Security. Any gain or loss recognized by a Holder on the sale of a Preferred
Security held for more than one year generally will be taxable as long-term
capital gain or loss, and otherwise will be short-term capital gain or loss.
Under current law, net long-term capital gains of individuals may be taxed at
lower rates than items of ordinary income. The deductibility of capital losses
is subject to limitations.
POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT
Under the Indenture, and as described under "Description of the Junior
Subordinated Debentures--Option to Extend Interest Payment Period", Rouse has
the option to extend, from time to time, the interest payment period on the
Junior Subordinated Debentures to a period not exceeding 20 consecutive
quarters, but not beyond the maturity date of the Junior Subordinated
Debentures. Rouse's option to extend the interest payment period will cause
the Junior Subordinated Debentures to be treated as issued with "original
issue discount" for United States federal income tax purposes. Accordingly, a
Holder will recognize interest income (i.e., original issue discount) under a
constant yield basis over the term of the Junior Subordinated Debentures
(including any Extension Period), regardless of the receipt of cash with
respect to the period to which such income is attributable. Thus,
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during an Extension Period a Holder will be required to include interest in
gross income in advance of the receipt of cash. In addition, any Holder who
disposes of a Preferred Security prior to the record date for the payment of
distributions following such Extension Period will include interest in gross
income, but will not receive any cash distributions relating to interest that
accrued during, and was includible in gross income with respect to, such
Extention Period.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES IN LIQUIDATION OF ROUSE CAPITAL
Under certain circumstances, as described under "Description of Preferred
Securities--Liquidation Distribution Upon Dissolution", Junior Subordinated
Debentures may be distributed to the Holders in liquidation of the Issuer.
Under current United States federal income tax law, such a distribution would
not be a taxable event to a Holder and each Holder would have the same tax
basis and holding period in the Junior Subordinated Debentures prior to and
following such liquidation.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Backup withholding at a rate of 31% and certain information reporting
requirements may apply to payments on, and proceeds from the disposition of, a
Preferred Security. Backup withholding will generally apply to a Holder unless
such Holder (a) is a corporation or comes within certain exempt categories
and, when required, demonstrates this fact, or (b) provides an accurate
taxpayer identification number.
Any amounts withheld under the backup withholding rules from a payment to a
Holder will be allowed as a credit or as a refund against such Holder's United
States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
These backup withholding tax and information reporting rules are subject to
proposed Treasury Regulations and currently are under review by the United
States Treasury. Accordingly, the application of these rules to Holders is
subject to change.
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, Rouse and
the Issuer have agreed that the Issuer will issue and sell to each of the
Underwriters named below (collectively, the "Underwriters"), and each of the
Underwriters, for whom Goldman, Sachs & Co., Alex. Brown & Sons Incorporated,
Lehman Brothers Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Smith Barney Inc. are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Issuer the respective number of
Preferred Securities set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER PREFERRED SECURITIES
----------- --------------------
<S> <C>
Goldman, Sachs & Co.................................... 701,600
Alex. Brown & Sons Incorporated........................ 701,600
Lehman Brothers Inc.................................... 701,600
Merrill Lynch, Pierce, Fenner & Smith Incorporated..... 701,600
Smith Barney Inc....................................... 701,600
Advest, Inc. .......................................... 40,000
Robert W. Baird & Co. Incorporated..................... 40,000
Commerzbank Capital Markets Corporation................ 40,000
Cowen & Company........................................ 40,000
Craigie Incorporated................................... 40,000
Dain Bosworth Incorporated............................. 40,000
Davenport & Co. of Virginia, Inc. ..................... 40,000
Dillon, Read & Co. Inc. ............................... 79,000
A.G. Edwards & Sons, Inc. ............................. 79,000
Everen Securities, Inc. ............................... 79,000
Fahnestock & Co. Inc. ................................. 40,000
Ferris, Baker Watts, Incorporated...................... 40,000
Interstate/Johnson Lane Corporation.................... 40,000
Janney Montgomery Scott Inc. .......................... 40,000
Kennedy, Cabot & Co. .................................. 40,000
Legg Mason Wood Walker, Incorporated................... 79,000
McDonald & Company Securities, Inc. ................... 40,000
McGinn, Smith & Co., Inc. ............................. 40,000
Morgan Keegan & Company, Inc. ......................... 40,000
J.P. Morgan Securities Inc. ........................... 79,000
Oppenheimer & Co., Inc. ............................... 79,000
PaineWebber Incorporated............................... 79,000
Piper Jaffray Inc. .................................... 40,000
Principal Financial Securities, Inc. .................. 40,000
Prudential Securities Incorporated..................... 79,000
Ragen MacKenzie Incorporated........................... 40,000
Rauscher Pierce Refsnes, Inc. ......................... 40,000
Raymond James & Associates, Inc. ...................... 40,000
The Robinson-Humphrey Company, Inc. ................... 40,000
Roney & Co. ........................................... 40,000
Scott & Stringfellow, Inc. ............................ 40,000
Sutro & Co. Incorporated............................... 40,000
Trilon International Inc. ............................. 40,000
Tucker Anthony Incorporated............................ 40,000
U.S. Clearing Corp. ................................... 40,000
Wedbush Morgan Securities.............................. 40,000
Wheat, First Securities, Inc. ......................... 40,000
---------
Total................................................ 5,300,000
=========
</TABLE>
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Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all the Preferred Securities
offered hereby, if any are taken.
The Underwriters propose to offer the Preferred Securities in part directly
to the public at the initial public offering price set forth on the cover page
of this Prospectus, and in part to certain securities dealers at such price
less a concession of $.50 per Preferred Security. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $.35 per Preferred
Security to certain brokers and dealers. After the Preferred Securities are
released for sale to the public, the offering price and other selling terms
may from time to time be varied by the Representatives.
The Issuer and Rouse have granted the Underwriters an option exercisable for
30 days after the date of this Prospectus to purchase up to 795,000 additional
Preferred Securities to cover over-allotments, if any, at the initial public
offering price (with additional Underwriters' Compensation), as set forth on
the cover page of this Prospectus. If the Underwriters exercise their over-
allotment option, the Underwriters have severally agreed, subject to certain
conditions, to purchase approximately the same percentage thereof that the
number of Preferred Securities to be purchased by each of them, as shown in
the foregoing table, bears to the 5,300,000 Preferred Securities initially
offered hereby.
In view of the fact that the proceeds of the sale of the Preferred
Securities (together with the proceeds of the sale by the Issuer to Rouse of
the Common Securities) will be used to purchase the Junior Subordinated
Debentures, the Underwriting Agreement provides that Rouse will pay as
compensation to the Underwriters ("Underwriters' Compensation") a commission
of $.7875 per Preferred Security.
Rouse and the Issuer have agreed, during the period beginning from the date
of this Prospectus and continuing to and including the earlier of (i) the
date, after the closing date, on which the distribution of the Preferred
Securities and the Guarantee ceases, as determined by the Underwriters, or
(ii) 90 days after the closing date, not to offer, sell, contract to sell, or
otherwise dispose of any Preferred Securities, any other interests of the
Issuer, or any preferred stock or any other securities of the Issuer or Rouse
which, in each case, are substantially similar to the Preferred Securities
(including any guarantee of such securities) or any securities convertible
into or exchangeable for Preferred Securities, preferred stock or such
substantially similar securities of either the Issuer or Rouse, without the
prior written consent of the Representatives.
Prior to this offering, there has been no public market for the Preferred
Securities. The Preferred Securities have been approved for listing on the New
York Stock Exchange (the "Exchange"), subject to notice of issuance, under the
symbol "RSEPrZ". In order to meet one of the requirements for listing the
Preferred Securities on the Exchange, the Underwriters will undertake to sell
lots of 100 or more Preferred Securities to a minimum of 400 beneficial
holders. Trading of the Preferred Securities on the Exchange is expected to
commence within a seven-day period after the initial delivery of the Preferred
Securities. The Representatives have advised Rouse that they intend to make a
market in the Preferred Securities prior to commencement of trading on the
Exchange, but they are not obligated to do so and may discontinue any such
market making at any time without notice.
The Issuer and Rouse have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended.
Certain of the Underwriters engage in transactions with, and from time to
time have performed services for, Rouse in the ordinary course of business.
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EXPERTS
The audited consolidated financial statements and schedules of Rouse and its
consolidated subsidiaries incorporated herein by reference are incorporated by
reference in reliance upon (1) the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated herein by reference,
and the authority of that firm as experts in accounting and auditing, and (2)
with respect to the current value basis financial statements, the report of
Landauer Associates, Inc., real estate counselors and consultants,
incorporated herein by reference, and upon the authority of that firm as
experts in real estate consultation.
VALIDITY OF SECURITIES
Certain matters of Delaware law relating to the validity of the Preferred
Securities, the validity of the Trust Agreement and the formation of the
Issuer are being passed upon by Richards, Layton & Finger, Wilmington,
Delaware, special Delaware counsel to Rouse and the Issuer. The validity of
the Guarantee and the Junior Subordinated Debentures will be passed upon on
behalf of the Issuer and Rouse by Fried, Frank, Harris, Shriver & Jacobson (a
partnership including professional corporations), New York, New York. The
validity of the Preferred Securities, the Guarantee and the Junior
Subordinated Debentures will be passed upon on behalf of the Underwriters by
Sullivan & Cromwell, New York, New York, counsel to the Underwriters. Fried,
Frank, Harris, Shriver & Jacobson and Sullivan & Cromwell will rely upon the
opinion of Richards, Layton & Finger as to certain matters of Delaware law and
upon the opinion of Bruce I. Rothschild, Esq., Vice President, General Counsel
and Secretary of Rouse and upon the opinion of Piper & Marbury L.L.P.,
Baltimore, Maryland, as to matters of Maryland law. As of November 1, 1995,
Mr. Rothschild held options to purchase 14,000 shares of the Company's Common
Stock, of which options to purchase 5,250 shares were presently exercisable,
and also held 3,035 shares of the Company's Common Stock in his account under
the Company's 401(k) Savings Plan.
AVAILABLE INFORMATION
Rouse is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by Rouse may be inspected and copied at
the public reference facilities maintained by the Commission in Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained upon written request
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, such material may
also be inspected and copied at the offices of The New York Stock Exchange,
Inc., 20 Broad Street, New York, New York 10005, on which certain of Rouse's
securities are listed.
Rouse and the Issuer have filed with the Commission a registration statement
on Form S-3 (together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended. This
Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information,
reference is hereby made to the Registration Statement.
No separate financial statements of the Issuer are included herein. Rouse
considers that such financial statements would not be material to holders of
the Preferred Securities because (i) all of the
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<PAGE>
Common Securities of the Issuer are owned by Rouse, a reporting company under
the Exchange Act; (ii) the Issuer has no independent operations, but exists
for the sole purpose of issuing securities representing undivided beneficial
interests in the assets of the Issuer and investing the proceeds thereof in
the Junior Subordinated Debentures; and (iii) Rouse has, through the
Guarantee, the Trust Agreement, the Junior Subordinated Debentures, the
Indenture and the Expense Agreement, taken together, fully, irrevocably and
unconditionally guaranteed all of the Issuer's obligations under the Preferred
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only
the combined operation of these documents that has the effect of providing a
full, irrevocable and unconditional guarantee of the Issuer's obligations
under the Preferred Securities.
Holders of the Preferred Securities will receive annual reports of Rouse
containing audited financial statements upon request.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Rouse pursuant to the
Exchange Act, are incorporated herein by reference:
1. Rouse's Annual Report on Form 10-K for the year ended December 31,
1994.
2. Rouse's Quarterly Report on Form 10-Q for the quarter ended March 31,
1995.
3. Rouse's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995 (the "June 10-Q").
4. Rouse's Amendment to the June 10-Q, filed September 21,1995.
5. Rouse's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995.
6. Rouse's Current Report on Form 8-K, filed November 20, 1995.
All other documents filed by Rouse pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the respective dates
of the filing of such documents.
Any statement contained herein or in a document all or a portion of which is
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained herein or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
Rouse will provide without charge to each person, including a beneficial
owner, to whom a copy of this Prospectus has been delivered, upon the written
or oral request of any such person, a copy of any and all of the documents
incorporated herein by reference into this Prospectus, other than exhibits to
such documents (unless such exhibits are specifically incorporated by
reference in such documents). Requests for such copies should be directed to
David L. Tripp, Vice President and Director of Investor Relations, The Rouse
Company, 10275 Little Patuxent Parkway, Columbia, Maryland 21044-3456,
Telephone: (410) 992-6000.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICI-
TATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECU-
RITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE ISSUER OR ROUSE SINCE THE DATE HEREOF OR THAT THE INFORMA-
TION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. HOWEV-
ER, IN THE EVENT OF ANY MATERIAL CHANGE, THIS PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED TO REFLECT SUCH CHANGE AS REQUIRED BY APPLICABLE FEDERAL AND
STATE LAW.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 5
Risk Factors............................................................. 14
Rouse Capital............................................................ 18
The Rouse Company........................................................ 19
Use of Proceeds.......................................................... 27
Capitalization........................................................... 27
Selected Financial Data of Rouse......................................... 28
Recent Developments...................................................... 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 31
Description of the Preferred Securities.................................. 40
Description of the Guarantee............................................. 51
Description of the Junior Subordinated Debentures........................ 54
Relationship Among the Preferred Securities, the Junior Subordinated
Debentures and the Guarantee............................................ 61
Certain United States Federal Income Tax Considerations.................. 63
Underwriting............................................................. 66
Experts.................................................................. 68
Validity of Securities................................................... 68
Available Information.................................................... 68
Incorporation of Certain Documents by Reference.......................... 69
</TABLE>
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5,300,000
PREFERRED SECURITIES
ROUSE CAPITAL
9 1/4% CUMULATIVE
QUARTERLY INCOME PREFERRED SECURITIES
GUARANTEED TO THE EXTENT ISSUER HAS
FUNDS AS SET FORTH HEREIN BY
THE ROUSE COMPANY
-----------
PROSPECTUS
-----------
GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS
INCORPORATED
LEHMAN BROTHERS
MERRILL LYNCH & CO.
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
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